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SPINNAKER FILE NOS. 33-69712/811-8052
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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. 6 /X/
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 11 /X/
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(Check appropriate box or boxes.)
SAFECO SEPARATE ACCOUNT C
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(Exact Name of Registrant)
SAFECO Life Insurance Company
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(Name of Depositor)
15411 N.E. 51st Street, Redmond, Washington 98052
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (425) 867-8000
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NAME AND ADDRESS OF AGENT FOR SERVICE
WILLIAM E. CRAWFORD
15411 N.E. 51st Street
Redmond, Washington 98052
(425) 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, 1998 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, 1997 on or about March 27, 1998.
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SAFECO SEPARATE ACCOUNT C
REGISTRATION STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item No. Location
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PART A
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Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions. . . . . . . . . . . . . . . . . . . . Definitions
Item 3. Synopsis or Highlights . . . . . . . . . . . . . . Expense Table;
Highlights
Item 4. Condensed Financial Information. . . . . . . . . . Schedule of
Accumulation
Unit Values &
Accumulation
Units
Outstanding;
Performance
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . . . . . . . SAFECO; The
Separate Account;
SAFECO Resource
Series Trust;
Federated
Insurance
Series;
Lexington
Emerging
Markets Fund,
Inc.;
Lexington Natural
Resources Trust;
Scudder Variable
Life Investment
Fund; American
Century Variable
Portfolios, Inc.;
Fidelity Variable
Insurance
Products Fund II;
Fidelity Variable
Insurance
Products Fund
III; INVESCO
Variable
Investment Funds,
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
<PAGE>
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . . . . . . . Table of Contents
of the Statement
of Additional
Information
<CAPTION>
Item No. Location
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PART B
<C> <S> <C>
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.
4
<PAGE>
PART A
PROSPECTUS
5
<PAGE>
MAY 1, 1998________________________________________SAFECO LIFE INSURANCE COMPANY
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
SAFECO SEPARATE ACCOUNT C
AND
SAFECO LIFE INSURANCE COMPANY
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:
425-867-8793
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.
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"), American Century
Variable Portfolios, Inc. (see "American Century Variable Portfolios, Inc."),
Fidelity Variable Insurance Products Fund II (see "Fidelity Variable Insurance
Products Fund II"), Fidelity Variable Insurance Products Fund III (see "Fidelity
Variable Insurance Products Fund III") and INVESCO Variable Investment Funds,
Inc. (see "INVESCO Variable Investment Funds, 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. 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. 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"). Fidelity
Variable Insurance Products Fund II consists of five Portfolios, one of which is
offered hereunder: the Fidelity VIP II Contrafund ("Fidelity VIP II Contrafund
Portfolio"). Fidelity Variable Insurance Products Fund III consists of three
Portfolios, one of which is offered hereunder: the Fidelity VIP III Growth
Opportunities ("Fidelity VIP III Growth Opportunities Portfolio"). INVESCO
Variable Investment Funds, Inc. consists of ten Portfolios, one of which is
offered hereunder: the INVESCO VIF-Realty Portfolio. See "Highlights" and "Tax
Status -- Diversification" for a discussion of owner control of the underlying
investments in a variable annuity contract.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the Statement of Additional Information which is available at no
charge. The Table of Contents of the Statement of Additional Information can be
found on page 47 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,
1998.
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.
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.................................... 17
Financial Statements....................................................................................... 18
Performance Information.................................................................................... 18
All Sub-Accounts (Other than SAFECO Resource Money Market Sub-Account)................................. 18
SAFECO Resource Money Market Sub-Account............................................................... 18
Rankings............................................................................................... 19
SAFECO..................................................................................................... 19
The Separate Account....................................................................................... 19
SAFECO Resource Equity Sub-Account..................................................................... 20
SAFECO Resource Growth Sub-Account..................................................................... 20
SAFECO Resource Northwest Sub-Account.................................................................. 20
SAFECO Resource Bond Sub-Account....................................................................... 21
SAFECO Resource Money Market Sub-Account............................................................... 21
SAFECO Resource Small Company Stock Sub-Account........................................................ 21
Federated High Income Bond Sub-Account................................................................. 21
Federated International Equity Sub-Account............................................................. 22
Federated Utility Sub-Account.......................................................................... 22
Lexington Emerging Markets Sub-Account................................................................. 22
Lexington Natural Resources Sub-Account................................................................ 23
Scudder Balanced Sub-Account........................................................................... 23
Scudder International Sub-Account...................................................................... 23
American Century VP Balanced Sub-Account............................................................... 24
American Century VP International Sub-Account.......................................................... 24
Fidelity VIP II Contrafund Sub-Account................................................................. 25
Fidelity VIP III Growth Opportunities Sub-Account...................................................... 25
INVESCO VIF-Realty Sub-Account......................................................................... 25
SAFECO Resource Series Trust............................................................................... 25
Federated Insurance Series................................................................................. 25
Lexington Emerging Markets Fund, Inc. ..................................................................... 25
Lexington Natural Resources Trust.......................................................................... 26
Scudder Variable Life Investment Fund...................................................................... 26
American Century Variable Portfolios, Inc. ................................................................ 26
Fidelity Variable Insurance Products Fund II (VIP II)...................................................... 26
Fidelity Variable Insurance Products Fund III (VIP III).................................................... 26
INVESCO Variable Investment Funds, Inc..................................................................... 26
Voting Rights.............................................................................................. 27
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
Substitution of Securities................................................................................. 27
Purchasing a Contract...................................................................................... 27
Purchase Payments...................................................................................... 27
Allocation of Purchase Payments........................................................................ 27
Accumulation Unit...................................................................................... 28
Principal Underwriter.................................................................................. 28
Charges and Deductions..................................................................................... 29
Deduction for Premium and Other Taxes.................................................................. 29
Deduction for Mortality and Expense Risk Charge........................................................ 29
Deduction for Contingent Deferred Sales Charge......................................................... 30
Reduction or Elimination of the Contingent Deferred Sales Charge....................................... 30
Deduction for Withdrawal Charge........................................................................ 31
Deduction for Asset Related Administration Charge...................................................... 31
Deduction for Annual Administration Maintenance Charge................................................. 31
Deduction for Transfer Charge.......................................................................... 32
Other Expenses......................................................................................... 32
Rights Under the Contract.................................................................................. 32
Owner, Annuitant and Beneficiary....................................................................... 32
Misstatement of Age.................................................................................... 32
Evidence of Survival................................................................................... 32
Contract Date.......................................................................................... 33
Contract Settlement.................................................................................... 33
Substitute Payee....................................................................................... 33
Assignment............................................................................................. 34
Modification of the Contracts.......................................................................... 34
Termination of Contract................................................................................ 34
Annuity and Death Benefit Provisions....................................................................... 34
Selection and Change of Settlement Options............................................................. 34
Payment of Benefits.................................................................................... 34
Frequency and Amount of Annuity Payments............................................................... 34
Death of Owner Prior to Annuity Date................................................................... 34
Death of Annuitant..................................................................................... 36
Death of Owner After Annuity Date...................................................................... 36
Settlement Options..................................................................................... 36
Mortality and Expense Guarantee........................................................................ 37
Withdrawals and Transfers.................................................................................. 37
Withdrawals............................................................................................ 37
Transfers.............................................................................................. 37
Suspension of Payments or Transfers.................................................................... 38
Other Services............................................................................................. 39
The Programs........................................................................................... 39
Dollar Cost Averaging Program.......................................................................... 39
Automatic Transfer Program............................................................................. 40
Appreciation or Interest Sweep Program................................................................. 40
Sub-Account Rebalancing Program (also Portfolio Rebalancing Program)................................... 40
Systematic Investment Program.......................................................................... 41
Periodic Withdrawal Program............................................................................ 41
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Tax Status................................................................................................. 41
General................................................................................................ 42
Diversification........................................................................................ 42
Multiple Contracts..................................................................................... 43
Tax Treatment of Assignments........................................................................... 43
Income Tax Withholding................................................................................. 43
Tax Treatment of Withdrawals -- Non-Qualified Contracts................................................ 43
Qualified Plans........................................................................................ 44
Tax Treatment of Withdrawals -- Qualified Contracts.................................................... 45
Tax Sheltered Annuities -- Withdrawal Limitations...................................................... 46
Contract Owned by Other than Natural Persons........................................................... 46
Legal Proceedings.......................................................................................... 46
Table of Contents of the Statement of Additional Information............................................... 47
</TABLE>
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<PAGE>
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 Account within the Contract and not previously withdrawn, plus
interest on each such Purchase Payments, 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; American Century Variable Portfolios, Inc.; Fidelity Variable Insurance
Products Fund II (VIP II); Fidelity Variable Insurance Products Fund III (VIP
III) and INVESCO Variable Investment Funds, 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, 408A 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 in Non-Qualified
Contracts and 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.
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<PAGE>
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, 408A or 457 of the Internal
Revenue Code.
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.
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. The Fidelity VIP
II Contrafund Portfolio is currently the only Portfolio of the Fidelity Variable
Insurance Products Fund II available to the Separate Account. The Fidelity VIP
III Growth Opportunities Portfolio is currently the only Portfolio of the
Fidelity Variable Insurance Products Fund III available to the Separate Account.
The INVESCO VIF-Realty Portfolio is currently the only Portfolio of the INVESCO
Variable Investment Funds, Inc. available to the Separate Account. 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
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<PAGE>
"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.,"
"Fidelity Variable Insurance Products Fund II," "Fidelity Variable Insurance
Products Fund III," "INVESCO Variable Investment Funds, 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 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 0.15% 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.")
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<PAGE>
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values with respect to Non-Qualified
Contracts. SAFECO reserves the right to deduct these taxes from Contract Values
with respect to Qualified Contracts. (See "Charges and Deductions -- Deduction
for Premium and Other Taxes.")
There are deductions from and expenses paid out of the assets of the Trust and
the Funds. See the accompanying Trust and Funds Prospectuses.
There is a ten percent (10%) federal income tax penalty applied to the income
portion of any premature distribution from Non-Qualified Contracts. However, the
penalty is not imposed on amounts received: (a) after the taxpayer reaches age
59 1/2; (b) after the death of the Owner; (c) if the taxpayer is totally
disabled (for this purpose disability is as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended (the "Code")); (d) in a series of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the taxpayer or for the joint lives (or joint
life expectancies) of the taxpayer and his or her Beneficiary; (e) under an
immediate annuity; or (f) which are allocable to purchase payments made prior to
August 14, 1982. For federal income tax purposes, withdrawals are deemed to be
on a last-in, first-out basis. Separate tax withdrawal penalties and
restrictions apply to Qualified Contracts. (See "Tax Status -- Tax Treatment of
Withdrawals -- Qualified Contracts.") For a further discussion of the taxation
of the Contracts see "Tax Status."
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.
-8-
<PAGE>
EXPENSE TABLE
SAFECO SEPARATE ACCOUNT C
The non-SAFECO Fund information in this Expense Table set forth below with
respect to the Portfolios was provided to the Separate Account by the Portfolios
and such information was not independently verified by the Separate Account.
CONTRACT OWNER TRANSACTION EXPENSES:
DEFERRED SALES LOAD: Contingent Deferred Sales Charge (as a percentage of
amount withdrawn)*: This charge applies to Withdrawals in
any Contract Year which exceed 10% of the Owner's Contract
Value:
<TABLE>
<S> <C>
Contract Year 1 8% of amount withdrawn
Contract Year 2 7% of amount withdrawn
Contract Year 3 6% of amount withdrawn
Contract Year 4 5% of amount withdrawn
Contract Year 5 4% of amount withdrawn
Contract Year 6 3% of amount withdrawn
Contract Year 7 2% of amount withdrawn
Contract Year 8 1% of amount withdrawn
After Contract Year 8 0% of amount withdrawn
</TABLE>
* While the Contingent Deferred Sales Charge assesses a percentage of the amount
withdrawn according to the stated schedule, total Contingent Deferred Sales
Charges collected by SAFECO will not exceed 8.5% of the Purchase Payments made
under the Contract.
<TABLE>
<S> <C>
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".)
</TABLE>
ANNUAL ADMINISTRATION CHARGE
$30 per Contract per Contract Year.* Waived if Contract Value is $50,000 or
more.
SEPARATE ACCOUNT ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees 1.25%
Asset Related Administration Charge .15%
---------
Total Separate Account Annual Expenses 1.40%
</TABLE>
-9-
<PAGE>
SAFECO RESOURCE SERIES TRUST ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
SAFECO Resource Equity Portfolio .73%
SAFECO Resource Growth Portfolio .74%
SAFECO Resource Northwest Portfolio .73%
SAFECO Resource Bond Portfolio .74%
SAFECO Resource Money Market Portfolio .64%
SAFECO Resource Small Company Stock Portfolio .85%
Other Expenses
SAFECO Resource Equity Portfolio .02%
SAFECO Resource Growth Portfolio .03%
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 .75%
SAFECO Resource Growth Portfolio .77%
SAFECO Resource Northwest Portfolio .73%
SAFECO Resource Bond Portfolio .74%
SAFECO Resource Money Market Portfolio .64%
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 .51%
Federated International Equity Portfolio .02%
Federated Utility Portfolio .48%
Other Expenses***
Federated High Income Bond Portfolio .29%
Federated International Equity Portfolio 1.21%
Federated Utility Portfolio .37%
Total Fund Annual Expenses*** (After Reimbursement, if applicable)
Federated High Income Bond Portfolio .80%
Federated International Equity Portfolio 1.23%
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**** .99%
Total Fund Annual Expenses**** (After Reimbursement, if applicable) 1.84%
</TABLE>
-10-
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees 1.00%
Other Expenses***** .25%
Total Fund Annual Expenses***** (After Reimbursement, if applicable) 1.25%
</TABLE>
SCUDDER VARIABLE LIFE INVESTMENT FUND ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
Scudder Balanced Portfolio .48%
Scudder International Portfolio .83%
Other Expenses******
Scudder Balanced Portfolio .09%
Scudder International Portfolio .17%
</TABLE>
<TABLE>
<S> <C>
Total Fund Annual Expenses****** (After Reimbursement, if applicable)
Scudder Balanced Portfolio .57%
Scudder International Portfolio 1.00%
</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>
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
Fidelity VIP II Contrafund Portfolio .60%
Other Expenses#
Fidelity VIP II Contrafund Portfolio .11%
Total Fund Annual Expenses# (After Reimbursement, if applicable)
Fidelity VIP II Contrafund Portfolio .71%
</TABLE>
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
Fidelity VIP III Growth Opportunities Portfolio .60%
Other Expenses#
Fidelity VIP III Growth Opportunities Portfolio .14%
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C>
Total Fund Annual Expenses# (After Reimbursement, if applicable)
Fidelity VIP III Growth Opportunities Portfolio .74%
</TABLE>
INVESCO VARIABLE INVESTMENT FUNDS, INC. ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
INVESCO VIF-Realty Portfolio .90%
Other Expenses+
INVESCO VIF-Realty Portfolio .20%
Total Fund Annual Expenses+ (After Reimbursement, if applicable)
INVESCO VIF-Realty Portfolio 1.10%
</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. Because the assets of the
Northwest Portfolio exceeded $20 million in February 1998, SAFECO does
not expect to reimburse the Other Expenses of the Portfolio going
forward.
During the year ended December 31, 1997, 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 0.94%
SAFECO Resource Bond Portfolio 0.90%
SAFECO Resource Money Market Portfolio 0.81%
</TABLE>
The amounts shown for the Small Company Portfolio are estimated expenses
based on the maximum management fee and estimated Other Expenses for
fiscal year 1998. During the year ended December 31, 1997, SAFECO Asset
Management Company (SAM) paid all Other Expenses of the Small Company
Portfolio in excess of .10% of the Portfolio's average annual net assets.
Expenses before such reimbursement as a percentage of average net assets
were 1.24%. SAM will continue to 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.
*** 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,
1997, the adviser voluntarily waived or reimbursed expenses, as follows:
Federated High Income Bond Fund II $854,860, absent reimbursement
$949,935; Federated Utility Fund II $660,284, absent reimbursement
$869,168; Federated International Equity Fund II $343,570, absent
reimbursement $616,886.
-12-
<PAGE>
**** 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, 1997, the adviser voluntarily waived or reimbursed expenses,
as follows: Lexington Emerging Markets Fund $21,212, absent reimbursement
$536,502.
***** 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, 1997.
# A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table
would have been .68% for the Contrafund Portfolio and .73% for the Growth
Opportunities Portfolio.
+ Various expenses of the Realty Portfolio will be voluntarily absorbed by
INVESCO Funds Group, Inc. for the year ended December 31, 1998. If such
expenses are not voluntarily absorbed, the estimated Other Expenses and
Total Fund Annual Expenses are 0.68% and 1.58%, respectively.
<TABLE>
<CAPTION>
Examples for SAFECO Resource Equity Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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 $ 161 $ 257
Assuming annuitization at end of period................... $ 23 $ 70 $ 120 $ 257
Assuming no withdrawal.................................... $ 23 $ 70 $ 120 $ 257
<CAPTION>
Examples for SAFECO Resource Growth Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period...................... $ 97 $ 129 $ 162 $ 259
Assuming annuitization at end of period................... $ 23 $ 70 $ 121 $ 259
Assuming no withdrawal.................................... $ 23 $ 70 $ 121 $ 259
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C>
Assuming withdrawal at end of period...................... $ 96 $ 125 $ 156 $ 246
Assuming annuitization at end of period................... $ 22 $ 67 $ 114 $ 246
Assuming no withdrawal.................................... $ 22 $ 67 $ 114 $ 246
<CAPTION>
Examples for SAFECO Resource Northwest Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
<CAPTION>
Examples for SAFECO Resource Bond Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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 $ 161 $ 256
Assuming annuitization at end of period................... $ 23 $ 70 $ 119 $ 256
Assuming no withdrawal.................................... $ 23 $ 70 $ 119 $ 256
<CAPTION>
Examples for SAFECO Resource Small Company Stock
Sub-Account Year 1 Year 3 Year 5 Year 10
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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 $ 277
Assuming annuitization at end of period................... $ 25 $ 76 $ 130 $ 277
Assuming no withdrawal.................................... $ 25 $ 76 $ 130 $ 277
<CAPTION>
Examples for Federated High Income Bond Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
<CAPTION>
Examples for Federated International Equity Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period...................... $ 101 $ 142 $ 184 $ 305
Assuming annuitization at end of period................... $ 27 $ 84 $ 144 $ 305
Assuming no withdrawal.................................... $ 27 $ 84 $ 144 $ 305
<CAPTION>
Examples for Federated Utility Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period...................... $ 98 $ 131 $ 166 $ 267
Assuming annuitization at end of period................... $ 24 $ 73 $ 125 $ 267
Assuming no withdrawal.................................... $ 24 $ 73 $ 125 $ 267
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C>
Assuming withdrawal at end of period...................... $ 107 $ 159 $ 212 $ 362
Assuming annuitization at end of period................... $ 34 $ 102 $ 173 $ 362
Assuming no withdrawal.................................... $ 34 $ 102 $ 173 $ 362
<CAPTION>
Examples for Lexington Natural Resources Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
<CAPTION>
Examples for Scudder Balanced Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period...................... $ 95 $ 123 $ 152 $ 238
Assuming annuitization at end of period................... $ 21 $ 64 $ 111 $ 238
Assuming no withdrawal.................................... $ 21 $ 64 $ 111 $ 238
<CAPTION>
Examples for Scudder International Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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 $ 282
Assuming annuitization at end of period................... $ 25 $ 77 $ 132 $ 282
Assuming no withdrawal.................................... $ 25 $ 77 $ 132 $ 282
<CAPTION>
Examples for American Century VP Balanced Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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 $ 282
Assuming annuitization at end of period................... $ 25 $ 77 $ 132 $ 282
Assuming no withdrawal.................................... $ 25 $ 77 $ 132 $ 282
<CAPTION>
Examples for American Century VP International Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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 $ 330
Assuming annuitization at end of period................... $ 30 $ 92 $ 157 $ 330
Assuming no withdrawal.................................... $ 30 $ 92 $ 157 $ 330
<CAPTION>
Examples for Fidelity VIP II Contrafund Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Examples for Fidelity VIP III Growth Opportunities
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:
<S> <C> <C> <C> <C>
Assuming withdrawal at end of period...................... $ 97 $ 128 $ 161 $ 256
Assuming annuitization at end of period................... $ 23 $ 70 $ 119 $ 256
Assuming no withdrawal.................................... $ 23 $ 70 $ 119 $ 256
<CAPTION>
Examples for INVESCO VIF-Realty Sub-Account Year 1 Year 3 Year 5 Year 10
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period...................... $ 98 $ 134 $ 170 $ 275
Assuming annuitization at end of period................... $ 25 $ 76 $ 129 $ 275
Assuming no withdrawal.................................... $ 25 $ 76 $ 129 $ 275
</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".
THE INFORMATION ABOVE IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Like other insurance, mutual fund, financial and business organizations and
individuals around the world, SAFECO Life and the Separate Account could be
adversely affected if the computer systems used by SAFECO Life, its principal
underwriter, underlying mutual fund managers and investment advisors or other
companies that provide services to the Separate Account do not properly process
and calculate date related information from and after January 1, 2000. This is
commonly called the "Year 2000 problem." SAFECO Life is taking steps it believes
are reasonably designed to address the Year 2000 problem with respect to the
computer systems that each of them uses and to obtain satisfactory assurances
that comparable steps are being taken by each of SAFECO Life's other, major
service providers. It is not anticipated that the Separate Account will incur
any charges or that there will be any difficulties in accurate and timely
reporting resulting from the change in year from 1999 to 2000.
-16-
<PAGE>
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 Fidelity VIP II Contrafund Sub-Account,
the Fidelity VIP III Growth Opportunities Sub-Account and the INVESCO VIF-Realty
Sub-Account as these are new Sub-Accounts.
<TABLE>
<CAPTION>
1997 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SAFECO RESOURCE EQUITY SUB-ACCOUNT
February 11 value (initial public offering) $ 24.528
December 31 value $ 48.808 $ 39.633 $ 32.209 $ 25.373
December 31 units 1,868,135 1,055,113 438,184 144,290
SAFECO RESOURCE GROWTH SUB-ACCOUNT
February 11 value (initial public offering) $ 13.910
December 31 value $ 38.410 $ 26.928 $ 20.668 $ 14.864
December 31 units 2,188,705 1,244,669 479,054 154,127
SAFECO RESOURCE NORTHWEST SUB-ACCOUNT
February 11 value (initial public offering) $ 10.073
December 31 value $ 15.388 $ 11.905 $ 10.737 $ 10.134
December 31 units 445,999 146,690 58,302 22,082
SAFECO RESOURCE BOND SUB-ACCOUNT
February 11 value (initial public offering) $ 16.217
December 31 value $ 19.130 $ 17.915 $ 18.045 $ 15.521
December 31 units 164,114 112,876 35,531 14,107
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
February 11 value (initial public offering) $ 13.526
December 31 value $ 15.413 $ 14.874 $ 14.370 $ 13.811
December 31 units 469,011 251,704 98,132 124,541
SAFECO RESOURCE SMALL COMPANY STOCK SUB-ACCOUNT
May 1 value (initial public offering) $ 10.000
December 31 value $ 12.731
December 31 units 246,308
SCUDDER INTERNATIONAL SUB-ACCOUNT
February 11 value (initial public offering) $ 10.948
December 31 value $ 14.008 $ 13.022 $ 11.504 $ 10.498
December 31 units 595,188 545,285 278,030 137,600
SCUDDER BALANCED SUB-ACCOUNT
February 11 value (initial public offering) $ 10.435
December 31 value $ 16.872 $ 13.771 $ 12.481 $ 9.988
December 31 units 784,022 660,227 134,772 49,575
LEXINGTON NATURAL RESOURCES SUB-ACCOUNT
January 25 value (initial public offering) $ 11.330
December 31 value $ 14.952 $ 14.148
December 31 units 304,593 73,555
LEXINGTON EMERGING MARKETS SUB-ACCOUNT
January 25 value (initial public offering) $ 10.350
December 31 value $ 8.670 $ 9.946
December 31 units 192,647 86,353
FEDERATED UTILITY SUB-ACCOUNT
January 25 value (initial public offering) $ 11.110
December 31 value $ 15.135 $ 12.117
December 31 units 263,094 83,361
FEDERATED HIGH INCOME BOND SUB-ACCOUNT
January 25 value (initial public offering) $ 9.870
December 31 value $ 12.236 $ 10.899
December 31 units 300,924 40,629
FEDERATED INTERNATIONAL EQUITY SUB-ACCOUNT
January 25 value (initial public offering) $ 10.220
December 31 value $ 12.003 $ 11.056
December 31 units 127,307 34,059
AMERICAN CENTURY VP BALANCED SUB-ACCOUNT
January 25 value (initial public offering) $ 7.020
December 31 value $ 9.008 $ 7.887
December 31 units 350,262 23,490
AMERICAN CENTURY VP INTERNATIONAL SUB-ACCOUNT
January 25 value (initial public offering) $ 5.330
December 31 value $ 7.039 $ 6.016
December 31 units 467,855 24,432
</TABLE>
-17-
<PAGE>
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.
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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
"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
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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.
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. The Fidelity VIP II Contrafund Portfolio is
currently the only Portfolio of the Fidelity Variable Insurance Products Fund II
available to the Separate Account. The Fidelity VIP III Growth Opportunities
Portfolio is currently the only Portfolio of the Fidelity Variable Insurance
Products Fund III available to the Separate Account. The INVESCO VIF-Realty
Portfolio is currently the only Portfolio of the INVESCO Variable Investment
Funds, Inc. available to the Separate Account. 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.
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The SAFECO Resource Northwest Portfolio will ordinarily invest its assets in
shares of common stock selected primarily for potential long-term appreciation.
The SAFECO Resource Northwest Portfolio may also occasionally invest in
securities convertible into common stock.
SAFECO RESOURCE BOND SUB-ACCOUNT
The investment objective of the SAFECO Resource Bond Sub-Account is to seek as
high a level of current income as is consistent with the relative stability of
capital.
The SAFECO Resource Bond Sub-Account invests in the SAFECO Resource Bond
Portfolio. To pursue its investment objective, the SAFECO Resource Bond
Portfolio invests primarily in medium-term debt securities. Although the SAFECO
Resource Bond Portfolio does not intend to purchase below investment grade bonds
during the coming year, it may hold up to 20% of total assets in bonds which are
downgraded after purchase to below investment grade quality by Standard & Poor's
Corporation or Moody's Investors Service, Inc. Below investment grade bonds are
commonly referred to as high-yield or "junk" bonds and have special risks
associated with them. See the Trust's Prospectus and Statement of Additional
Information for more information.
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
The investment objective of the SAFECO Resource Money Market Sub-Account is to
seek as high a level of current income as is consistent with the preservation of
capital and liquidity through investments in high-quality money market
investments maturing in thirteen months or less.
The SAFECO Resource Money Market Sub-Account invests in the SAFECO Resource
Money Market Portfolio which seeks to maintain a net asset value per share of
$1.00. SHARES OF THE SAFECO RESOURCE MONEY MARKET PORTFOLIO ARE NEITHER INSURED,
NOR GUARANTEED, BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE 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.
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FEDERATED INTERNATIONAL EQUITY SUB-ACCOUNT
The investment objective of the Federated International Equity Sub-Account is to
seek to obtain a total return on its assets.
The Federated International Equity Sub-Account invests in the Federated
International Equity Portfolio. To pursue its investment objective, the
Federated International Equity Portfolio invests in a diversified portfolio of
equity securities issued by non-U.S. issuers. The Federated International Equity
Portfolio will invest at least 65% of its total assets, and under normal market
conditions substantially all of its assets, in equity securities of issuers
located in at least three different countries outside of the United States. The
equity securities will be selected primarily for superior growth potential and
to reduce portfolio volatility. The Federated International Equity Portfolio may
purchase sponsored or unsponsored American Depository Receipts, Global
Depository Receipts, and European Depository Receipts; corporate and government
fixed income securities of issuers outside of the United States; convertible
securities; and options and financial futures contracts. While the Federated
International Equity Portfolio primarily invests in dividend-paying equity
securities of established companies that appear to have growth potential, it may
as a temporary defensive position, shift its emphasis to such other securities
if such investments appear to offer potential higher return.
FEDERATED UTILITY SUB-ACCOUNT
The investment objective of the Federated Utility Sub-Account is to seek high
current income and moderate capital appreciation.
The Federated Utility Sub-Account invests in the Federated Utility Portfolio. To
pursue its investment objective, the Federated Utility Portfolio invests
primarily in a professionally managed and diversified portfolio of equity and
debt securities of utility companies that produce, transmit, or distribute gas
and electric energy as well as those companies that provide communications
facilities, such as telephone and telegraph companies. Under normal market
conditions, the Federated Utility Portfolio invests at least 65% of its total
assets in securities of utility companies.
LEXINGTON EMERGING MARKETS SUB-ACCOUNT
The investment objective of the Lexington Emerging Markets Sub-Account is to
seek long-term growth of capital primarily through investment in equity
securities and equivalents of companies domiciled in, or doing business in,
emerging countries and emerging markets.
The Lexington Emerging Markets Sub-Account invests in the Lexington Emerging
Markets Portfolio. To pursue its investment objective, the Lexington Emerging
Markets Portfolio invests primarily in emerging country and emerging market
equity securities of all types of common stocks and equivalents (the following
constitute equivalents: convertible debt securities and warrants), although the
Portfolio also may invest in preferred stocks, bonds, and money market
instruments of foreign and domestic companies, the U.S. government, and its
agencies. The Lexington Emerging Markets Portfolio, under normal conditions,
will invest 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.
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LEXINGTON NATURAL RESOURCES SUB-ACCOUNT
The investment objective of the Lexington Natural Resources Sub-Account is to
seek long-term growth of capital through investing primarily in common stocks of
companies that own or develop natural resources and other basic commodities, or
supply goods and services to such companies.
The Lexington Natural Resources Sub-Account invests in the Lexington Natural
Resources Portfolio. To pursue its investment objective, the Lexington Natural
Resources Portfolio seeks to identify securities of companies that, in its
management's opinion, are undervalued relative to the value of natural resource
holdings of such companies in light of current and anticipated economic or
financial conditions. The Lexington Natural Resources Portfolio will consider a
company to have substantial natural resource assets when, in its management's
opinion, the company's holdings of the assets are of such magnitude, when
compared to the capitalization, revenues or operating profits of the company,
that changes in the economic value of the assets will affect the market price of
the equity securities of such company, which, generally, is when at least 50% of
the non-current assets, capitalization, gross revenues or operating profits of
the company in the most recent or current fiscal year are involved in or result
from, directly or indirectly through subsidiaries, exploring, mining, refining,
processing, fabricating, dealing in or owning natural resource assets. Up to 25%
of the Lexington Natural Resources Portfolio's total assets may be invested in
securities principally traded in markets outside the U.S.
SCUDDER BALANCED SUB-ACCOUNT
The investment objective of the Scudder Balanced Sub-Account is to seek a
balance of growth and income from a diversified portfolio of equity and fixed
income securities. The Scudder Balanced Sub-Account also seeks long-term
preservation of capital through a quality-oriented investment approach that is
designed to reduce risk.
The Scudder Balanced Sub-Account invests in the Scudder Balanced Portfolio. In
seeking its objectives of a balance of growth and income, as well as long-term
preservation of capital, the Scudder Balanced Portfolio invests in a diversified
portfolio of equity and fixed income securities. The Scudder Balanced Portfolio
invests, under normal circumstances, at least 50%, but no more than 75%, of its
net assets in common stocks and other equity investments. The Scudder Balanced
Portfolio's equity investments consist of common stocks, preferred stocks,
warrants and securities convertible into common stocks, of companies that, in
the investment adviser's judgment, are of above-average financial quality and
offer the prospect for above-average growth in earnings, cash flow, or assets
relative to the overall market as defined by the Standard and Poor's Corporation
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
The investment objective of the Scudder International Sub-Account is to seek
long-term growth of capital primarily through diversified holdings of marketable
foreign equity investments.
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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.
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.
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FIDELITY VIP II CONTRAFUND SUB-ACCOUNT
The investment objective of the Fidelity VIP II Contrafund Sub-Account is
long-term capital appreciation.
The Fidelity VIP II Contrafund Sub-Account invests in the Fidelity VIP II
Contrafund Portfolio. The Portfolio's assets will be invested mainly in
securities of companies whose value FMR believes is not fully recognized by the
public. This strategy can lead to investments in stock of small companies which
may not be well-known.
FIDELITY VIP III GROWTH OPPORTUNITIES SUB-ACCOUNT
The investment objective of the Fidelity VIP III Growth Opportunities
Sub-Account is to provide capital growth through investing in common stocks and
securities convertible into common stocks.
The Fidelity VIP III Growth Opportunities Sub-Account invests in the Fidelity
VIP III Growth Opportunities Portfolio. The Portfolio's assets will be invested
mainly in common stocks and securities convertible to common stocks.
INVESCO VIF-REALTY SUB-ACCOUNT
The investment objective of the INVESCO VIF-Realty Sub-Account is long-term
capital growth. Above-average current income is an additional consideration in
selecting securities for the Fund's investment portfolio.
The INVESCO VIF-Realty Sub-Account invests in the INVESCO VIF-Realty Portfolio.
The Portfolio normally invests at least 65% of its total assets in equity
securities of companies principally engaged in the real estate industry. The
remaining assets are invested in other income-producing securities such as
mortgage-backed securities and corporate bonds.
Additional information concerning the investment objectives and policies of the
Sub-Accounts can be found in the current Prospectuses for the Funds accompanying
this Prospectus.
THE PROSPECTUSES OF THE FUNDS SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR PORTFOLIO.
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.
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LEXINGTON NATURAL RESOURCES TRUST
The Lexington Natural Resources Trust is one of the funding vehicles for the
Contracts offered. The investment adviser to the Lexington Natural Resources
Trust is Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza Two,
Saddle Brook, New Jersey. The Lexington Natural Resources Trust is an open-end,
non-diversified management investment company.
SCUDDER VARIABLE LIFE INVESTMENT FUND
The Scudder Fund is one of the funding vehicles for the Contracts offered. The
investment adviser to the Scudder Fund is Scudder Kemper Investments, 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.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Fidelity Variable Insurance Products Fund II is one of the funding vehicles for
the Contracts offered. Fidelity Management and Research Company (FMR) is the
management arm of Fidelity Investments and has its principal business address at
82 Devonshire Street, Boston, Massachusetts. The Variable Insurance Products
Fund II is an open-end management company organized as a Massachusetts business
trust March 21, 1998.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Fidelity Variable Insurance Products Fund III is one of the funding vehicles for
the Contracts offered. Fidelity Management and Research Company (FMR) is the
management arm of Fidelity Investments and has its principal business address at
82 Devonshire Street, Boston, Massachusetts. The Variable Insurance Products
Fund III is an open-end management company organized as a Massachusetts business
trust July 14, 1994.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. is one of the funding vehicles for the
Contracts offered. The investment adviser to the INVESCO Variable Investment
Funds, Inc. is INVESCO Funds Group, Inc., 7800 E. Union Avenue, Denver, CO. The
INVESCO Variable Investment Funds, 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 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.
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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.
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 and South Carolina). 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
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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.
(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,
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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 3.5%. 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 Fidelity VIP II Contrafund Sub-Account, the Fidelity VIP III
Growth Opportunities Sub-Account, the INVESCO VIF-Realty 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.
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.
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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 6% of the Purchase Payments. In addition, commissions, overrides
and bonuses may be paid to SSI's registered representatives and/or other
distributors of the Contracts. A bonus dependent upon persistency of funds on
deposit in the Contracts is one type of bonus that may be paid. Noncash
compensation may include accrual of conference travel credits and prizes. To the
extent that the Contingent Deferred Sales Charge is insufficient to cover the
actual cost of distribution, SAFECO may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Premium, to make up any difference.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals in a
manner that results in savings of sales expenses. The entitlement to reduction
of the Contingent Deferred Sales Charge will be determined by SAFECO after
examination of all the relevant factors such as:
1. The total amount of Purchase Payments to be received. Per Contract sales
expenses are likely to be less on larger Purchase Payments than on
smaller ones.
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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 0.15% 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 Fidelity VIP II Contrafund
Sub-Account, the Fidelity VIP III Growth Opportunities Sub-Account, the INVESCO
VIF-Realty 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.
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
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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.
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.
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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 or 408A 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 or 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 or 408A 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 make such payment to any
person or institution that SAFECO determines has assumed the
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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
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pay to the designated Beneficiary a minimum guaranteed death benefit that is the
greater of: (i) the Contract Value on the later of the date of receipt of due
proof of death or the election of a Settlement Option; or (ii) the last
determined minimum guaranteed death benefit.
The initial minimum guaranteed death benefit is equal to the initial Net
Purchase Payment. 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. Additional Net Purchase Payments increase the
minimum guaranteed death benefit by the amount of the Net Purchase Payment. 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 non-guaranteed 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 non-guaranteed 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.
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With respect to non-qualified Contracts, if the Owner dies on or after the
Annuity Date and before the entire value of the Contract has been distributed,
any remaining value must be distributed at least as rapidly as the method of
distribution in effect at the time of the Owner's death. If the Owner dies
before the Annuity Date, generally the entire value under the Contract must be
distributed within five years after the date of the Owner's death or must be
distributed over the designated Beneficiary's life or over a period not
extending beyond the Beneficiary's life expectancy, in equal or substantially
equal payments, with payments beginning within one year of the Owner's death.
DEATH OF ANNUITANT
In the event of the Annuitant's death prior to the Annuity Date, the Owner must
designate a new Annuitant. If no designation is made within thirty (30) days of
notification to SAFECO of the death of the Annuitant, the Owner will become the
Annuitant. The election of a Settlement Option must be made by the Beneficiary
during the sixty (60) day period commencing with the date of SAFECO's receipt of
notice of the Owner's death. If no election is made within the sixty (60) day
period, then a single lump sum payment will be made to the Beneficiary. In the
event that the Beneficiary is a surviving spouse, the Contract can be continued.
Upon the death of a joint 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.
(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.
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Similar fixed annuity Settlement Options are available with respect to the
monies held in the Fixed Account.
MORTALITY AND EXPENSE GUARANTEE
SAFECO guarantees that the dollar amount of each Variable Annuity payment made
after the first payment will not be affected by variations in mortality
experience or expenses.
WITHDRAWALS AND TRANSFERS
WITHDRAWALS
SAFECO, upon written request to it by the Owner, will allow the Withdrawal of
all or a portion of the Contract Value. Withdrawals will result in the
cancellation of Accumulation Units from each applicable Sub-Account of the
Separate Account or a reduction in the Fixed Account Value in the ratio that the
Sub-Account Value and/or the Fixed Account Value bears to the total Contract
Value. The Owner must specify in writing in advance which units are to be
canceled or values are to be reduced if other than the above-mentioned method of
cancellation is desired. SAFECO will pay the amount of any Withdrawal from the
Separate Account within seven (7) days of receipt of a request, unless the
"Suspension of Payments or Transfers" provision is in effect (see "Suspension of
Payments or Transfers" below). SAFECO retains the right to defer the payment of
Withdrawals from the Fixed Account for a period of six (6) months after
receiving a Withdrawal request. (See also "The Programs.")
The minimum Withdrawal allowed is the lesser of $250 or the Contract Value. If
any Withdrawal reduces the remaining balance in a Sub-Account or the Fixed
Account to less than $500 ($1,000 in Maine and South Carolina), 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.
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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 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;
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(iii) An emergency exists as a result of which disposal of securities held in
the Separate Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate Account's
net assets, as determined by the rules and regulations of the
Securities and Exchange Commission; or
(iv) During any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Owners provided that applicable
rules and regulations of the Securities and Exchange Commission will
govern as to whether the conditions described in (ii) and (iii) exist.
OTHER SERVICES
THE PROGRAMS
SAFECO offers several investment related programs which are available only prior
to the Annuity Date: Dollar Cost Averaging; Automatic Transfers; Appreciation or
Interest Sweeps; Sub-Account Rebalancing; Systematic Investment; and Periodic
Withdrawal Programs. Certain of the Programs are alternatives with respect to
any one Sub-Account; other Programs may be combined. Thus, the Dollar Cost
Averaging Program, the Automatic Transfer Program and the Appreciation or
Interest Sweep Program are alternatives with respect to the selected
Sub-Account, and in all cases with respect to the Fixed Account. However, the
Sub-Account Rebalancing Program may be combined with each of the other Programs,
but it is not available with respect to the Fixed Account. Under each Program,
the related transfers between and among Sub-Accounts and the Fixed Account are
not counted as one of the twelve free transfers. However, if an Owner executes
an unrelated voluntary transfer from the Sub-Account participating in a Program,
other than the Sub-Account Rebalancing Program, the Program will be terminated
for the remainder of the Contract Year. In addition, if a Program is terminated
before six Program transfers have occurred, the six Program transfers are
counted as part of the twelve free transfers. If the balance in a Sub-Account
would be less than $500 as a result of a transfer pursuant to one of these
Programs, other than the Appreciation or Interest Sweep and Sub-Account
Rebalancing Programs, then the entire balance in that Sub-Account will also be
transferred. Each of the Programs has its own requirements, as discussed below.
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
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date that all Program transfers will be made ("Transfer Date"). This Program
must be elected for at least a six (6) month period.
If the Contract Value in the participating Sub-Account or the Fixed Account does
not equal or exceed the amount designated to be transferred on each Transfer
Date, Dollar Cost Averaging will cease automatically and the remaining amount
will be transferred.
Dollar Cost Averaging will terminate when (i) the designated monthly or
quarterly amounts of transfers have been completed, (ii) the Owner requests
termination in writing and such writing is received at the Home Office at least
ten (10) business days prior to the next Transfer Date in order to cancel the
transfer scheduled to take effect on such date, (iii) the Owner effects any
other transfer from the participating Sub-Account or the Fixed Account while the
Dollar Cost Averaging Program is in effect, or (iv) the Contract is surrendered.
In addition, if any transfer or withdrawal has been made from the Fixed Account
during the Contract Year, the Dollar Cost Averaging Program may not be
established through the Fixed Account for that Contract Year.
An Owner may initiate, reinstate or change the Dollar Cost Averaging terms by
properly completing a new enrollment form and returning it to the Home Office at
least ten (10) business days prior to the next Transfer Date such transfer is to
be made.
When utilizing Dollar Cost Averaging an Owner may be invested in either a
Sub-Account or the Fixed Account and may be invested in any other Sub-Accounts
or the Fixed Account at any given time.
AUTOMATIC TRANSFER PROGRAM
The Automatic Transfer Program is identical to the Dollar Cost Averaging Program
in all respects other than with regard to the limitations on transfers from the
Fixed Account. The limitations on transfers from the Fixed Account are
recalculated annually. Transfers from the Fixed Account are limited to 1.5%
monthly and 4.5% quarterly.
APPRECIATION OR INTEREST SWEEP PROGRAM
An Owner may enroll in the Appreciation or Interest Sweep Program through either
or both the SAFECO Resource Money Market Sub-Account or the Fixed Account.
Enrollment is limited to Owners whose total Contract Value is greater than
$10,000. Under the Program, if appreciation of Contract Value in the SAFECO
Resource Money Market Sub-Account or credited interest earned on Contract Value
in the Fixed Account ("Earnings") is greater than 10%, the Earnings up to 10% of
the Contract Value in the Fixed Account or the SAFECO Resource Money Market
Sub-Account, respectively, will be transferred to any of the Sub-Accounts, other
than the SAFECO Resource Money Market Sub-Account. Earnings in the SAFECO
Resource Money Market Sub-Account may not be transferred to the Fixed Account.
In no event may the total Contract Value transferred from the Fixed Account in
each Contract Year exceed a total of 10% of the Contract Value for each such
Contract Year in the Fixed Account computed at the time of the transfer.
Moreover, the Program may not be instituted for the Fixed Account in any
Contract Year during which transfers or withdrawals have been made from the
Fixed Account. Transfers under this Program will be processed monthly, quarterly
or annually on the Transfer Date.
SUB-ACCOUNT REBALANCING PROGRAM
In accordance with the Owner's election of the relative purchase payments
percentage allocations, SAFECO will automatically rebalance the Contract Value
of each variable Sub-Account either quarterly, semi-annually, 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
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percentages may be altered by written authorization. The requested change must
be received at the Home Office ten (10) days prior to the Transfer Date. If the
Owner terminates the Program, a new Program may not be instituted until the next
Contract Year. Since each sub-account invests in a corresponding underlying
portfolio this Program may sometimes be referred to as "Portfolio Rebalancing
Program."
SYSTEMATIC INVESTMENT PROGRAM
Purchase Payments may be made by monthly draft against the bank account of any
Owner that has completed and returned to SAFECO a Systematic Investment Program
application and authorization form. The application and authorization form may
be obtained from SAFECO or from the sales representative. Each Systematic
Investment Program Purchase Payment is subject to a minimum of one hundred
dollars ($100).
PERIODIC WITHDRAWAL PROGRAM
SAFECO will make monthly, quarterly or annual distributions of a predetermined
dollar amount to an Owner that has enrolled in the Periodic Withdrawal Program.
Under the Program, all distributions will be made directly to the Owner and will
be treated for federal tax purposes as any other withdrawal or distribution of
Contract Value. (See "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.
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GENERAL
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment, a withdrawal or as annuity payments under the
Settlement Option elected. For a lump sum payment received as a total surrender
(total redemption), the recipient is taxed at ordinary income tax rates on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the Purchase Payments,
while for Qualified Contracts there may be no cost basis.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity is determined by multiplying the payment by the ratio that the
cost basis of the Contract (adjusted for any period certain or refund feature)
bears to the expected return under the Contract. The exclusion amount for
payments based on a variable annuity is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludable amounts equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code resulting in the annuity payments being fully includable
in taxable income. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
SAFECO is taxed as a life insurance company under the Code. For federal income
tax purposes, the Separate Account is not a separate entity from SAFECO and its
operations form a part of SAFECO.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in imposition of federal income tax
to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
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.
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The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of separate account. It is unknown whether
these differences, such as the Owner's ability to transfer among investment
choices or the number and type of investment choices available, would cause the
Owner to be considered as the owner of the assets of the Separate Account
resulting in the imposition of federal income tax to the Owner with respect to
earnings allocable to the Contract prior to receipt of payments under the
Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, SAFECO reserves the right to modify the
Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or any portion(s) thereof which are includable in the gross
income of the Owner are subject to Federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Owner, in most cases, may
elect not to have taxes withheld or to have withholding done at a different
rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
Federal income tax. The 20% withholding requirement does not apply to: a)
distributions for the life or life expectancy of the participant or joint and
last survivor expectancy of the participant and a designated beneficiary; or b)
distributions for a specified period of 10 years or more; or c) distributions
which are required minimum distributions. Participants should consult their own
tax counsel or other tax advisor regarding withholding.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as
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coming first from the earnings and then, only after the income portion is
exhausted, as coming from the principal. Withdrawn earnings are includable in
gross income. It further provides that a ten percent (10%) penalty will apply to
the income portion of any premature distribution. However, the penalty is not
imposed on amounts received: (a) after the taxpayer reaches age 59 1/2; (b)
after the death of the Owner; (c) if the taxpayer is totally disabled (for this
purpose disability is as defined in Section 72(m)(7) of the Code); (d) in a
series of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the taxpayer or for the joint
lives (or joint life expectancies) of the taxpayer and his or her Beneficiary;
(e) under an immediate annuity; or (f) which are allocable to purchase payments
made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals -- Qualified Contracts" below.)
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Contract
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the Contract
comply with applicable law. Following are general descriptions of the types of
Qualified Plans with which the Contracts may be used. Such descriptions are not
exhaustive and are for general informational purposes only. The tax rules
regarding Qualified Plans are very complex and will have differing applications
depending on individual facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a Contract issued under a Qualified
Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Contracts", below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by SAFECO in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. Tax Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includable in the gross income of the
employees until the employees receive distributions from the Contracts. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals --
Qualified Contracts" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
-44-
<PAGE>
b. Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as a traditional "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.) Traditional IRAs include the SEP IRA and SIMPLE
IRA. An employer can establish a SEP IRA or SIMPLE IRA for its employees.
Under an employer's SEP IRA or SIMPLE IRA, contributions for each eligible
employee can be made under a Contract issued as an IRA. 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.
c. Roth Individual Retirement Annuities
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Section 408A includes limits on how much you may
contribute to a Roth Individual Retirement Annuity and when distributions
may commence. Qualified distributions from Roth Individual Retirement
Annuities are excluded from taxable gross income. "Qualified distributions"
are distributions which (a) are made more than five years after the taxable
year of the first contribution to the Roth Individual Retirement Annuity,
and (b) meet any of the following conditions; (1) the annuity owner has
reached age 59 1/2; (2) the distribution is paid to a beneficiary after the
owner's death; (3) the annuity owner is disabled; or (4) the distribution
will be used for a first time home purchase. (Qualified distributions for
first time home purchases may not exceed $10,000.) Non-qualified
distributions are includible in taxable gross income only to the extent that
they exceed the contributions made to the Roth Individual Retirement
Annuity. The taxable portion of a non-qualified distribution may be subject
to the 10% penalty tax.
Subject to certain limitations, you may convert a regular Individual
Retirement Account or Annuity to a Roth Individual Retirement Annuity. You
will be required to include the taxable portion of the conversion in your
taxable gross income, but you will not be required to pay the 10% penalty
tax.
d. 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. Special rules apply to deferred
compensation plans. Owners should consult their own tax counsel or other tax
adviser regarding any distributions.
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
(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
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
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<PAGE>
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; (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order; (g)
distributions made to pay health insurance premiums for an unemployed Owner or
Annuitant; (h) distributions made to an Owner or Annuitant to pay qualified
higher education expenses; and (i) distributions made to an Owner or Annuitant
for first home purchases. 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. Distributions from a TSA or Deferred Compensation Plan may, however, be
deferred until actual retirement, if later. 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.
Roth IRAs are not subject to the required minimum distribution rule.
Distributions from a Roth IRA may be deferred until the death of the Owner or
Annuitant.
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.
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.
-46-
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUITY PROVISIONS........................................................ 3
General................................................................. 3
Annuity Unit............................................................ 3
Assumed Investment Factor............................................... 3
Variable Annuity Payment Calculation.................................... 3
ADDITIONAL PERFORMANCE INFORMATION........................................ 3
Performance Comparisons................................................. 3
Performance Information................................................. 4
Yields................................................................ 4
Total Returns......................................................... 4
EXPERTS................................................................... 5
FINANCIAL STATEMENTS...................................................... 5
</TABLE>
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<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
6
<PAGE>
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.
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, American Century
Variable Portfolios, Inc., Fidelity Variable Insurance Products Fund II (VIP
II), Fidelity Variable Insurance Products Fund III (VIP III) and INVESCO
Variable Investment Funds, Inc.
INDEPENDENT AUDITORS
Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle, Washington 98104, are
the independent auditors 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 1995, 1996 and 1997, PNMR, through SSI, received
$1,178,617, $3,226,968 and $4,615,262 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, 1998.
-1-
<PAGE>
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>
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 tracked 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>
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
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<PAGE>
the average annual returns represent averaged figures as opposed to the
year-to-year performance of a Sub-Account. Average annual returns are calculated
pursuant to the following formula: P(1 + T)(n) = ERV, where P is a hypothetical
initial payment of $1,000, T is the average annual total return, n is the number
of years, and ERV is the withdrawal value at the end of the period.
Cumulative total returns are unaveraged and reflect the simple change in value
of a hypothetical investment in the Sub-Account over a stated period of time.
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 upon 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>
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, 1997............... 8
Statement of Operations and Changes in Net Assets for the year or period
ended December 31, 1997 and 1996........................................ 10
Notes to Financial Statements (including accumulation unit data).......... 15
</TABLE>
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<PAGE>
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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<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Separate Account C
As of December 31, 1997
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
(In Thousands, Except SAFECO
Per-Share SAFECO SAFECO SAFECO SAFECO SAFECO SMALL
and 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
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
</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>
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------------------------------------------------
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
-------- -------- --------- --------- -------- ------- ------- ------- --------- ------
-------- -------- --------- --------- -------- ------- ------- ------- --------- ------
</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>
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
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
* For the period from May 1, 1997 (inception date) to December 31, 1997.
See Notes to Financial Statements
-10-
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------------------
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
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
* For the period from May 1, 1997 (inception date) to December 31, 1997.
See Notes to Financial Statements
-11-
<PAGE>
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
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
# For the period from January 25, 1996 (inception date) to December 31, 1996
See Notes to Financial Statements
-12-
<PAGE>
<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
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
# For the period from January 25, 1996 (inception date) to December 31, 1996
See Notes to Financial Statements
-13-
<PAGE>
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
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
# For the period from January 25, 1996 (inception date) to December 31, 1996
See Notes to Financial Statements
-14-
<PAGE>
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>
-15-
<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.
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.
-16-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
-17-
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
A-19
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors................................................................ A-21
Consolidated Financial Statements
Consolidated Balance Sheet................................................................ A-22
Statement of Consolidated Income.......................................................... A-23
Statement of Changes in Shareholder's Equity.............................................. A-24
Statement of Consolidated Cash Flows...................................................... A-25
Notes to Consolidated Financial Statements................................................ A-27
</TABLE>
A-20
<PAGE>
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, 1997 and 1996, and the
related statements of consolidated income, changes in shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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 as required by the Financial Accounting Standards Board.
/s/ Ernst & Young LLP
Seattle, Washington
February 13, 1998
A-21
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1997-$8,901,583; 1996-$7,597,733)...................... $ 9,401,886 $ 7,853,553
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1997-$3,159,888; 1996-$2,670,004)........................ 2,708,558 2,488,324
Marketable Equity Securities, at Market Value
(Cost: 1997-$10,651; 1996-$9,629)....................................... 15,552 18,902
First Mortgage Loans on Real Estate:
Nonaffiliates (At cost, less allowance for losses:
1997-$11,609; 1996-$10,943)........................................... 475,975 447,596
Affiliates.............................................................. 175,183 140,743
Real Estate............................................................... 3,399 4,134
Policy Loans.............................................................. 60,249 58,153
Short-Term Investments (At cost which approximates market)................ 56,374 69,878
Investment in Limited Partnerships........................................ 250 250
----------- -----------
Total Investments....................................................... 12,897,426 11,081,533
Cash........................................................................ 244,512 19,136
Accrued Investment Income................................................... 181,757 159,790
Accounts and Notes Receivable (At cost, less allowance
for doubtful accounts: 1997-$78; 1996-$85)................................ 48,204 23,582
Reinsurance Recoverables (Note 6)........................................... 28,515 25,204
Deferred Policy Acquisition Costs (Net of valuation
allowance: 1997-$35,349; 1996-$19,040).................................... 239,843 240,464
Present Value of Future Profits............................................. 13,239 --
Other Assets................................................................ 63,544 5,497
Current Income Taxes Recoverable (Note 10).................................. -- 792
Assets Held in Separate Accounts............................................ 905,417 491,212
----------- -----------
Total Assets........................................................ $14,622,457 $12,047,210
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and Contract Liabilities (Note 6):
Future Policy Benefits.................................................. $ 151,675 $ 149,624
Policy and Contract Claims.............................................. 37,688 29,155
Premiums Paid in Advance................................................ 9,145 8,846
Funds Held Under Deposit Contracts...................................... 11,539,473 9,792,730
Other Policyholders' Funds.............................................. 166,759 134,422
----------- -----------
Total Policy and Contract Liabilities................................. 11,904,740 10,114,777
Other Liabilities......................................................... 125,247 76,089
Federal Income Taxes (Note 10):
Current................................................................. 19,192 --
Deferred (Includes tax on unrealized appreciation of investment
securities: 1997-$164,449; 1996-$86,120)............................... 179,296 103,648
Liabilities Related to Separate Accounts.................................. 905,417 491,212
----------- -----------
Total Liabilities..................................................... 13,133,892 10,785,726
----------- -----------
Shareholder'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 8)................................................ 1,093,048 1,011,439
Unrealized Appreciation of Investment Securities, Net of Tax (Note 3)..... 305,517 160,045
----------- -----------
Total Shareholder's Equity............................................ 1,488,565 1,261,484
----------- -----------
Total Liabilities and Shareholder's Equity.......................... $14,622,457 $12,047,210
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
A-22
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums...................................................... $ 240,595 $ 240,100 $ 237,025
Investment Income:
Interest on Fixed Maturities................................ 830,837 767,309 716,510
Interest on Mortgage Loans.................................. 56,232 52,127 51,912
Interest on Short-Term Investments.......................... 3,419 2,935 4,017
Dividends from Marketable Equity Securities................. 1,044 843 1,387
Dividends from Redeemable Preferred Stock................... 16,026 12,654 3,065
Other Investment Income..................................... 3,843 3,879 4,155
---------- ---------- ----------
Total................................................... 911,401 839,747 781,046
Less Investment Expenses.................................... 3,485 3,709 3,546
---------- ---------- ----------
Net Investment Income......................................... 907,916 836,038 777,500
---------- ---------- ----------
Other Revenue................................................. 21,751 12,933 11,608
Realized Investment Gain (Note 3)............................. 6,807 10,439 5,676
---------- ---------- ----------
Total................................................... 1,177,069 1,099,510 1,031,809
---------- ---------- ----------
Benefits and Expenses:
Policy Benefits............................................... 844,926 782,213 723,466
Commissions................................................... 93,681 74,724 79,163
Personnel Costs............................................... 48,503 43,609 42,314
Taxes Other Than Payroll and Income Taxes..................... 11,817 15,512 7,913
Other Operating Expenses...................................... 46,639 45,224 42,978
Amortization of Deferred Policy Acquisition Costs............. 36,946 35,652 32,376
Deferral of Policy Acquisition Costs.......................... (53,068) (42,426) (35,347)
---------- ---------- ----------
Total................................................... 1,029,444 954,508 892,863
---------- ---------- ----------
Income before Federal Income Taxes.............................. 147,625 145,002 138,946
---------- ---------- ----------
Provision (Benefit) for Federal Income Taxes (Note 10):
Current....................................................... 54,705 57,417 61,830
Deferred...................................................... (4,689) (6,471) (13,800)
---------- ---------- ----------
Total................................................... 50,016 50,946 48,030
---------- ---------- ----------
Net Income...................................................... $ 97,609 $ 94,056 $ 90,916
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
A-23
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<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.......................... 1,011,439 921,383 834,467
Net Income................................................ 97,609 94,056 90,916
Dividends to Parent....................................... (16,000) (4,000) (4,000)
---------- ---------- ----------
Balance at the End of Year................................ 1,093,048 1,011,439 921,383
---------- ---------- ----------
Unrealized Appreciation of Investment Securities, Net of Tax
(Note 3):
Balance at the Beginning of Year.......................... 160,045 320,452 (126,229)
Change in Unrealized Appreciation......................... 156,073 (175,861) 474,511
Change in Deferred Policy Acquisition Costs Valuation
Allowance............................................... (10,601) 15,454 (27,830)
---------- ---------- ----------
Balance at the End of Year................................ 305,517 160,045 320,452
---------- ---------- ----------
Shareholder's Equity.................................... $1,488,565 $1,261,484 $1,331,835
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
A-24
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received................................. $ 216,089 $ 216,801 $ 216,269
Dividends and Interest Received............................. 819,433 754,878 703,053
Other Operating Receipts.................................... 19,299 12,948 10,607
Insurance Claims and Policy Benefits Paid................... (353,227) (302,955) (272,206)
Underwriting, Acquisition and Insurance Operating Costs
Paid...................................................... (202,077) (172,251) (169,904)
Income Taxes Paid........................................... (36,140) (71,255) (61,247)
----------- ----------- -----------
Net Cash Provided by Operating Activities............... 463,377 438,166 426,572
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale....................... (1,891,778) (1,544,998) (1,424,510)
Fixed Maturities Held-to-Maturity......................... (199,589) (473,206) (291,965)
Purchase of Subsidiary, Net of Cash Acquired.............. 116,122 -- --
Marketable Equity Securities.............................. (5,773) (272) (260)
Other Investments......................................... (15) (15) (14)
Policy and Nonaffiliated Mortgage Loans................... (96,019) (85,485) (55,302)
Affiliated Mortgage Loans................................. (40,000) (34,650) (12,643)
Maturities of Fixed Maturities Available-for-Sale........... 435,788 466,509 375,291
Maturities of Fixed Maturities Held-to-Maturity............. 8,907 21,694 17,878
Sales of:
Fixed Maturities Available-for-Sale....................... 869,091 721,229 327,160
Fixed Maturities Held-to-Maturity......................... -- 13,316 --
Marketable Equity Securities.............................. 11,185 10,394 2,172
Other Investments......................................... 2,000 1,100 180
Real Estate............................................... 639 1,086 876
Policy and Nonaffiliated Mortgage Loans................... 61,159 48,341 50,734
Affiliated Mortgage Loans................................. 5,560 31,730 8,977
Net (Increase) Decrease in Short-Term Investments........... 11,519 (1,250) (5,811)
Other....................................................... (50,141) (747) (122)
----------- ----------- -----------
Net Cash Used in Investing Activities................... (761,345) (825,224) (1,007,359)
----------- ----------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts...................... 1,392,517 1,148,590 1,304,665
Return of Funds Held Under Deposit Contracts................ (861,221) (765,480) (720,845)
Dividends to Parent......................................... (13,000) (4,000) (4,000)
Net Proceeds from (Repayment of) Short-Term Borrowings...... 5,048 (7,802) 9,143
----------- ----------- -----------
Net Cash Provided by Financing Activities............... 523,344 371,308 588,963
----------- ----------- -----------
Net Increase (Decrease) in Cash............................... 225,376 (15,750) 8,176
Cash at Beginning of Year..................................... 19,136 34,886 26,710
----------- ----------- -----------
Cash at End of Year........................................... $ 244,512 $ 19,136 $ 34,886
----------- ----------- -----------
----------- ----------- -----------
</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
A-25
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS --
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Income........................................................... $ 97,609 $ 94,056 $ 90,916
--------- --------- ---------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment Gain......................................... (6,807) (10,439) (5,676)
Amortization of Fixed Maturity Investments....................... (24,929) (26,811) (26,050)
Deferred Federal Income Tax Benefit.............................. (4,689) (6,471) (13,800)
Interest Expense on Deposit Contracts............................ 473,851 460,594 432,327
Other............................................................ (7,877) 574 3,140
Changes in:
Future Policy Benefits......................................... 1,855 (4,466) (1,232)
Policy and Contract Claims..................................... 2,830 2,748 (2,643)
Premiums Paid in Advance....................................... 299 637 (574)
Deferred Policy Acquisition Costs.............................. (15,688) (6,198) (6,116)
Accrued Investment Income...................................... (11,451) (8,893) (8,990)
Accrued Interest on Accrual Bonds.............................. (48,354) (44,015) (36,908)
Other Receivables.............................................. (5,467) (8,639) (2,353)
Current Federal Income Taxes................................... 18,565 (13,839) 583
Other Assets and Liabilities................................... (2,350) 4,668 449
Other Policyholders' Funds..................................... (4,020) 4,660 3,499
--------- --------- ---------
Total Adjustments............................................ 365,768 344,110 335,656
--------- --------- ---------
Net Cash Provided by Operating Activities............................ $ 463,377 $ 438,166 $ 426,572
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
A-26
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
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 directly owns three subsidiaries, SAFECO
National Life Insurance Company, First SAFECO National Life Insurance Company
of New York, and WM Life Insurance Company, and indirectly owns Empire Life
Insurance Company. The Company acquired WM Life Insurance Company and Empire
Life Insurance Company in 1997 (see Note 2). 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 1997 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. 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 shareholder'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 shareholder'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.
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.
A-27
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 (continued)
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 1997, 1996 or 1995.
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.
PRESENT VALUE OF FUTURE PROFITS. The present value of future profits
represents the actuarially determined present value of anticipated profits to
be realized from annuity and life insurance business purchased. The present
value was determined using a discount rate of 12.5%. For annuity contracts,
amortization of the present value of future profits is in relation to the
present value of the expected gross profits on the contracts, discounted
using the interest rate credited to the underlying policies. The present
value of future profits is reviewed periodically to determine that the
unamortized portion does not exceed expected recoverable amounts. No
impairment adjustments were recorded in 1997.
OTHER ASSETS. Call options on the S&P 500 index are purchased by the Company
to hedge the growth in interest credited on equity indexed annuities sold.
Premiums paid to purchase these call options are capitalized and included in
other assets. Call option premiums are amortized as an expense over the term
of the option on a straight-line basis. Gains and losses on these instruments
are recorded in income when realized. The balance in other assets for call
option premiums at December 31, 1997 is $21,232.
The Financial Accounting Standards Board (FASB) has issued an exposure draft
addressing accounting and disclosure requirements for derivative financial
instruments. The Company's accounting treatment for options may change in the
future based on the issuance of definitive guidance from the FASB.
On December 31, 1997, the Company acquired Washington Mutual, Inc.' s life
insurance subsidiaries, WM Life Insurance Company and Empire Life Insurance
Company, and Washington Mutual, Inc. agreed to distribute the Company's
annuity products through the Washington Mutual, Inc. multi-state banking
network. The portion of this transaction relating to the distribution
agreement is valued at $35 million and will be amortized on a straight-line
basis over 15 years. The unamortized balance of $35 million is included in
other assets.
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.
A-28
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 (continued)
SEPARATE ACCOUNTS. The Company administers segregated asset accounts for
variable annuity and variable universal life clients. The assets of these
Separate Accounts, which consist of common stocks, are the property of the
Company. The liabilities of these Separate Accounts represent reserves
established to meet withdrawal and future benefit payment provisions of
contracts with these clients. The assets of the Separate Accounts, equal to
the reserves and other contract liabilities of the Separate Accounts, are not
chargeable with liabilities arising out of any other business the Company may
conduct. Investment risks associated with market value changes are borne by
the clients. Deposits, withdrawals, net investment income and realized and
unrealized capital gains and losses on the assets of the Separate Account are
not reflected in the Statement of Consolidated Income. Management fees and
other charges assessed against the contracts are included in other revenue.
FEDERAL INCOME TAXES. The Company and its subsidiaries, except for WM Life
Insurance Company and Empire Life Insurance Company, 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. 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
3.
In June of 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income." Statement 130 is effective for fiscal years beginning after December
15, 1997 and the Company will adopt it in the first quarter of 1998. Adoption
will have no effect on net income but will require the reporting of
"comprehensive income," which will include net income and certain items
currently reported in shareholder's equity.
The FASB issued Statement 131, "Disclosures about Segments of an Enterprise
and Related Information," in June of 1997. Statement 131 changes the way
information about business segments is reported in annual financial
statements and requires the reporting of selected segment information in
interim reports. This statement is effective for financial statements for
periods beginning after December 15, 1997, and the Company plans on providing
the required segment information in its 1998 consolidated financial
statements. This statement has no effect on net income.
2. ACQUISITION
On December 31, 1997, the Company acquired Washington Mutual, Inc.'s life
insurance subsidiaries, WM Life Insurance Company and Empire Life Insurance
Company for $105.8 million. The fair value of assets acquired, excluding
cash, was $766,921, and the fair value of liabilities assumed was $882,226.
The acquisition is being treated as a purchase for accounting purposes, and
allocation of purchase price resulted in no goodwill. The transaction was
financed through internal sources.
The unaudited pro forma condensed results of operations presented below
assume the acquisition of WM Life Insurance Company and Empire Life Insurance
Company occurred at the beginning of 1996, and give effects to actual
operating results prior to the acquisition. These pro forma results are not
necessarily indicative of what actually would have occurred if the
acquisition had been completed as of the beginning of 1996 nor are they
necessarily indicative of future consolidated results.
A-29
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
PRO FORMA INFORMATION -- UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues................................ $ 1,244,530 $ 1,162,614
Net income.............................. 103,474 97,654
</TABLE>
3. INVESTMENT SUMMARY
A summary of fixed maturities and marketable equity securities classified as
available-for-sale at December 31, 1997 follows:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities.............. $ 604,305 $ 61,328 $ (47) $ 61,281 $ 665,586
States, municipalities and political
subdivisions.......................... 134,160 13,439 (720) 12,719 146,879
Foreign governments..................... 102,053 6,674 (7) 6,667 108,720
Public utilities........................ 1,467,168 100,208 (1,175) 99,033 1,566,201
All other corporate bonds............... 3,803,982 186,502 (1,174) 185,328 3,989,310
Mortgage-backed securities.............. 2,789,915 139,056 (3,781) 135,275 2,925,190
----------- ----------- ------------ ------------ -----------
Total fixed maturities classified as
available-for-sale.................... 8,901,583 507,207 (6,904) 500,303 9,401,886
Marketable equity securities............ 10,651 4,906 (5) 4,901 15,552
----------- ----------- ------------ ------------ -----------
Total investment securities classified
as available-for-sale................. $ 8,912,234 $ 512,113 $ (6,909) 505,204 $ 9,417,438
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Deferred policy acquisition costs
valuation allowance........................................................... (35,349)
Applicable federal income tax................................................... (164,338)
------------
Unrealized appreciation of investment
securities, net of tax, included in
shareholder's equity.......................................................... $ 305,517
------------
------------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December 31,
1997 follows:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities.............. $ 257,881 $ 74,238 $ -- $ 74,238 $ 332,119
States, municipalities and political
subdivisions.......................... 120,345 14,917 -- 14,917 135,262
Foreign governments..................... 148,903 40,306 -- 40,306 189,209
Public utilities........................ 417,519 78,330 -- 78,330 495,849
All other corporate bonds............... 1,462,968 208,201 (142) 208,059 1,671,027
Mortgage-backed securities.............. 300,942 35,574 (94) 35,480 336,422
----------- ----------- ------ ------------ -----------
Total fixed maturities classified as
held-to-maturity...................... $ 2,708,558 $ 451,566 $ (236) $ 451,330 $ 3,159,888
----------- ----------- ------ ------------ -----------
----------- ----------- ------ ------------ -----------
</TABLE>
A-30
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 (continued)
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
----------- ----------- ------------ ------------ -----------
<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
shareholder'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
----------- ----------- ----------- ----------- -----------
<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>
A-31
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 (continued)
The amortized cost and estimated market value of fixed maturities at December
31, 1997, 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>
Due in one year or less............................... $ 243,954 $ 245,140 $ -- $ --
Due after one year through five years................. 1,886,758 1,959,986 3 4
Due after five years through ten years................ 1,268,615 1,320,613 49,128 56,715
Due after ten years................................... 2,712,341 2,950,957 2,358,485 2,766,747
Mortgage-backed securities............................ 2,789,915 2,925,190 300,942 336,422
----------- ----------- ----------- -----------
Total............................................. $ 8,901,583 $ 9,401,886 $ 2,708,558 $ 3,159,888
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
At December 31, 1997 and 1996, the Company held below investment grade fixed
maturities of $316 million and $242 million at amortized cost, respectively.
The respective market values of these investments were approximately $329
million and $239 million. These holdings amounted to 2.6% and 2.3% of the
Company's investments in fixed maturities at market value at December 31,
1997 and 1996, respectively.
Certain fixed maturity securities with an amortized cost of $7,543 and $4,648
at December 31, 1997 and 1996, respectively, were on deposit with various
regulatory authorities to meet requirements of insurance and financial codes.
At December 31, 1997 and 1996, mortgage loans constituted approximately 4.5%
and 4.9% of total assets, respectively, and are secured by first mortgage
liens on income-producing commercial real estate, primarily in the retail,
industrial and office building sectors. The majority of the properties are
located in the western United States, with 39% of the total in California.
Individual loans generally do not exceed $5 million.
The carrying value of investments in fixed maturities and mortgage loans that
did not produce income during the year ended December 31, 1997 is less than
one percent of the total of such investments.
The proceeds from sales of investment securities and related gains and losses
for 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
----------------- ---------------- -----------------
<S> <C> <C> <C>
Proceeds from sales................................. $ 869,091 $ -- $ 11,185
----------------- -------- --------
----------------- -------- --------
Gross realized gains on sales....................... $ 5,805 $ -- $ 6,832
Gross realized losses on sales...................... (9,410) -- (397)
----------------- -------- --------
Realized gains (losses) on sales................ (3,605) -- 6,435
Other (Including net gain on calls and
redemptions)...................................... 5,074 -- --
Writedowns (Including writedowns on securities
subsequently sold)................................ (197) -- --
----------------- -------- --------
Total realized gain................................. $ 1,272 $ -- $ 6,435
----------------- -------- --------
----------------- -------- --------
</TABLE>
A-32
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 (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
----------------- ---------------- -----------------
<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, and the losses realized on these sales
were $1,328.
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
----------------- ---------------- -----------------
<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>
A-33
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 (continued)
The following summarizes the realized gain before federal income taxes and
the net change in unrealized appreciation:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities..................................................... $ 1,272 $ 7,695 $ 6,235
Marketable equity securities......................................... 6,435 4,847 971
First mortgage loans on real estate.................................. (900) (2,050) (1,600)
Real estate.......................................................... -- (114) 70
Investment in limited partnerships................................... -- 61 --
---------- ---------- ----------
Realized gain before federal income taxes.......................... $ 6,807 $ 10,439 $ 5,676
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale.................... $ 244,483 $ (268,956) $ 726,046
Marketable equity securities......................................... (4,372) (1,599) 3,971
Deferred policy acquisition costs valuation allowance................ (16,309) 23,775 (42,815)
Applicable federal income tax........................................ (78,330) 86,373 (240,521)
---------- ---------- ----------
Net change in unrealized appreciation................................ $ 145,472 $ (160,407) $ 446,681
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes the Company's allowance for credit losses on
non-affiliated mortgage loans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Allowance at beginning of year......................................................... $ 10,943 $ 9,633
Provision for credit losses............................................................ 900 2,050
Loans charged off as uncollectible..................................................... (234) (740)
--------- ---------
Allowance at end of year............................................................... $ 11,609 $ 10,943
--------- ---------
--------- ---------
</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 $3.3 and $3.2 million at December 31, 1997 and 1996, respectively.
A specific loan loss reserve has been established for each impaired loan, the
total of which is $550 and $835 and is included in the overall allowance of
$11.6 and $10.9 million at December 31, 1997 and 1996, respectively.
4. 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 were $2,401 at December 31, 1997. At
December 31, 1997, unfunded mortgage loan commitments approximated $5,785.
The Company had no other material commitments or contingencies at December
31, 1997.
A-34
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. 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.
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>
1997 1996
---------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale.............. $ 9,401,886 $ 9,401,886 $ 7,853,553 $ 7,853,553
Fixed maturities held-to-maturity................ 2,708,558 3,159,888 2,488,324 2,670,004
Marketable equity securities..................... 15,552 15,552 18,902 18,902
Mortgage loans................................... 651,158 677,000 588,339 596,000
Financial liabilities:
Funds held under deposit contracts............... 11,539,473 12,021,000 9,792,730 9,935,000
</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 $3.3 billion and $2.9 billion, at market
values, at December 31, 1997 and 1996, 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 1.5% and 1% of total CMOs at December 31, 1997 and 1996,
respectively).
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 call options, interest rate swaps on bond investments,
currency-linked bonds and fixed-rate loan commitments. Individually, and in
the aggregate, the notional amounts and fair values of these derivatives are
not material and thus no additional disclosures are warranted.
A-35
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Unpaid losses and adjustment expense................................................... $ 906 $ 136
Paid claims............................................................................ 770 957
Life policy liabilities................................................................ 26,756 23,784
Other reinsurance recoverables......................................................... 83 327
--------- ---------
Total reinsurance recoverables................................................. $ 28,515 $ 25,204
--------- ---------
--------- ---------
</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
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums................................................................ $ (13,305) $ (13,679) $ (10,385)
--------- --------- ---------
--------- --------- ---------
Policy benefits......................................................... $ (7,853) $ (4,039) $ (6,344)
--------- --------- ---------
--------- --------- ---------
Reinsurance Assumed:
Premiums................................................................ $ 180 $ 175 $ (5,456)
--------- --------- ---------
--------- --------- ---------
Policy benefits......................................................... $ 2,902 $ 2,500 $ (2,503)
--------- --------- ---------
--------- --------- ---------
</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.
7. 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.
A-36
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 (continued)
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. The net
income reported in the Statement of Consolidated Income does not include the
net income of either WM Life Insurance Company or Empire Life Insurance
Company, as their acquisition was effective December 31, 1997.
Statutory net income and shareholder's equity, by company, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company.......................................... $ 95,012 $ 95,676 $ 101,456
SAFECO National Life Insurance Company................................. 1,322 1,249 1,187
First SAFECO National Life Insurance Company
of New York.......................................................... 314 318 404
---------- ---------- ----------
Total............................................................ $ 96,648 $ 97,243 $ 103,047
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Statutory Stockholder's Equity:
SAFECO Life Insurance Company and Subsidiaries......................... $ 672,230 $ 587,658 $ 504,683
---------- ---------- ----------
---------- ---------- ----------
</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, 1997.
8. 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. Under insurance regulations of the state of Washington,
the 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 $94,672 at December 31,
1997.
9. 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 $7,531, $7,901 and
$7,599 for the years ended December 31, 1997, 1996 and 1995, respectively.
A-37
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 (continued)
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, pursuant to FASB Statement 106. Net periodic
other postretirement benefit costs for the Company were $392, $474 and $282
in 1997, 1996 and 1995, respectively.
The following table summarizes the Company's allocated share of the funded
status of the plan:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Total accumulated postretirement benefit obligation (APBO)..................... $ 4,709 $ 3,765
Less: plan assets at fair value................................................ 172 133
--------- ---------
APBO in excess of plan assets.................................................. 4,537 3,632
Unrecognized gain.............................................................. 631 1,283
--------- ---------
Accrued postretirement benefit cost recorded on the balance sheet.............. $ 5,168 $ 4,915
--------- ---------
--------- ---------
</TABLE>
Discount rate assumptions of 7.375%, 7.75% and 7.5% were used at December
31, 1997, 1996 and 1995, respectively. The accumulated postretirement
benefit obligation at December 31, 1997 was determined using a healthcare
cost trend rate of 10% for 1998, declining by 1% per year, starting in 1999,
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, 1997 by $626 and the annual net periodic other postretirement
benefit cost for the year then ended by $68.
10. 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
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense...................................... $ 51,669 $ 50,751 $ 48,631
Dividends received deduction......................................... (49) (24) (44)
Tax exempt interest.................................................. (4) (6) (7)
Other................................................................ (1,600) 225 (550)
--------- --------- ---------
Income tax expense........................................... $ 50,016 $ 50,946 $ 48,030
--------- --------- ---------
--------- --------- ---------
Percent of income tax expense to income before tax................... 33.9% 35.1% 34.6%
--------- --------- ---------
--------- --------- ---------
</TABLE>
A-38
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 (continued)
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
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Discounted loss and adjustment expense reserves........................... $ 77 $ 1,359
Uncollected premium adjustment............................................ 2,607 2,270
Adjustment to life policy liabilities..................................... 51,176 34,773
Capitalization of policy acquisition costs................................ 40,354 33,393
Postretirement benefits................................................... 1,809 1,720
Realized capital losses................................................... 3,534 5,887
Guarantee fund assessments................................................ 4,163 3,518
Other..................................................................... 2,031 1,630
--------- ---------
Total deferred tax assets........................................... 105,751 84,550
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs......................................... 96,317 90,826
Present value of future profits........................................... 3,084 --
Bond discount accrual..................................................... 19,631 9,525
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1997-$12,372; 1996-$6,664)....... 164,449 86,120
Other..................................................................... 1,566 1,727
--------- ---------
Total deferred tax liabilities...................................... 285,047 188,198
--------- ---------
Net deferred tax liability.......................................... $ 179,296 $ 103,648
--------- ---------
--------- ---------
</TABLE>
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 for
the year ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax benefit............................................... $ (4,689) $ (6,471) $ (13,800)
Net deferred tax liability acquired in acquisitions................ 2,008 -- --
Deferred tax changes reported in shareholder's equity:
Increase (decrease) in liability related to unrealized
appreciation or depreciation of investment securities.......... 84,037 (94,694) 255,506
Increase (decrease) in liability related to deferred policy
acquisition costs valuation allowance.......................... (5,708) 8,321 (14,985)
--------- --------- ---------
Increase (decrease) in net deferred tax liability.................. $ 75,648 $ (92,844) $ 226,721
--------- --------- ---------
--------- --------- ---------
</TABLE>
A-39
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. 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, 1997
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $29,169 of financial services
revenue received from affiliates)............................. $ 56,649 $ 205,697 $ 262,346
Identifiable Investment Income.................................. 564,917 263,240 828,157
Investment Income Allocated..................................... 54,188 25,571 79,759
Identifiable Realized Gain (Loss) from Investments.............. (789) 1,400 611
Realized Gain from Investments Allocated........................ 4,213 1,983 6,196
----------- ----------- -------------
Total Revenue............................................. $ 679,178 $ 497,891 $ 1,177,069
----------- ----------- -------------
----------- ----------- -------------
Amortization of Deferred Policy Acquisition Costs................. $ 16,249 $ 20,697 $ 36,946
----------- ----------- -------------
----------- ----------- -------------
Income Before Income Taxes........................................ $ 80,110 $ 67,515 $ 147,625
----------- ----------- -------------
----------- ----------- -------------
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs............................... $ 166,447 $ 73,396 $ 239,843
Policy Loans.................................................... 32,091 28,158 60,249
Invested Assets................................................. 8,378,819 3,412,049 11,790,868
Other........................................................... 627,490 834,628 1,462,118
Invested Assets Allocated......................................... 710,485 335,825 1,046,310
Other Assets Allocated............................................ 15,543 7,526 23,069
----------- ----------- -------------
Total Assets.............................................. $ 9,930,875 $ 4,691,582 $ 14,622,457
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
<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
----------- ----------- -------------
----------- ----------- -------------
Amortization of Deferred Policy Acquisition Costs................. $ 13,756 $ 21,896 $ 35,652
----------- ----------- -------------
----------- ----------- -------------
Income Before Income Taxes........................................ $ 81,849 $ 63,153 $ 145,002
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
A-40
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 (continued)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
Identifiable Assets:
<S> <C> <C> <C>
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
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
<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
----------- ----------- -------------
----------- ----------- -------------
Amortization of Deferred Policy Acquisition Costs................. $ 12,222 $ 20,154 $ 32,376
----------- ----------- -------------
----------- ----------- -------------
Income Before Income Taxes........................................ $ 84,956 $ 53,990 $ 138,946
----------- ----------- -------------
----------- ----------- -------------
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
<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
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
A-41
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. IMPACT OF YEAR 2000 (UNAUDITED)
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This is commonly called the "Year 2000
problem." The Company has completed its assessment and has been modifying and
replacing portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Year 2000
compliance cost for the Company is estimated at approximately $1,050, and as
of December 31, 1997, the Company has incurred and expensed approximately
$570. Based on the current progress and continuing modifications, the Company
believes that it will be Year 2000 compliant and that the Year 2000 problem
will not pose significant operational problems for its computer systems.
A-42
<PAGE>
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, 1997.
Statement of Operations and Changes in Net Assets for the year or
period ended December 31, 1997 and 1996.
Notes to Financial Statements (including accumulation unit data).
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES:
Consolidated Balance Sheet as of December 31, 1997 and 1996.
Statement of Consolidated Income for the years ended December 31,
1997, 1996 and 1995.
Statement of Changes in Shareholder's Equity for the years ended
December 31, 1997, 1996 and 1995.
Statement of Consolidated Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
b. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Document
- -------------- -----------------------
<C> <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 (Scudder) **
(ii) Reimbursement Agreement (Scudder) **
(iii) Participating Contract and Policy Agreement (Scudder) **
(iv) Services Agreement (Scudder)
8.b. Participation Agreement by and among SAFECO Life Insurance ***
Company, Federated Insurance Series, on behalf of the Federated High
Income
7
<PAGE>
Bond Fund II, Federated International Equity Fund II,
Federated Utility Fund II, Federated Securities Corp.
and Federated Advisers.
8.c. Participation Agreement by and among SAFECO Life Insurance ***
Company, Lexington Emerging Markets Fund, Inc., Lexington
Natural Resources Trust, and Lexington Management Corporation.
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.
8.e. Form of Participation Agreement (Fidelity) *****
8.f. Participation Agreement by and among INVESCO Variable Investment
Funds, Inc., INVESCO Funds Group, Inc. and SAFECO Life Insurance
Company.
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).
***** Incorporated by reference to Post-Effective Amendment of SAFECO
Separate Account SL filed with the SEC on April 30, 1997 (File No.
33-10248).
</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.
Name Position with SAFECO
---- --------------------
-8-
<PAGE>
* Roger H. Eigsti Director, Chairman of the Board
Randall H. Talbot Director and President
Richard E. Zunker Director and Vice Chairman
* Boh A. Dickey Director
Roger F. Harbin Executive Vice President, Actuary
John P. Fenlason Senior Vice President
* Rod A. Pierson Director, Senior Vice President
and Secretary
* Donald S. Chapman Director
* James W. Ruddy Director
** Dale E. Lauer Director
* W. Randall Stoddard Director
James T. Flynn Vice President, Controller
and Assistant Secretary
Michael J. Kinzer Vice President and Chief Actuary
* Ronald L. Spaulding Director, 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.
** The principal business address of Dale Lauer is 500 N. Meridian Street,
Indianapolis, IN 46204.
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, 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, SAFECO Insurance Company of Illinois, an Illinois corporation and
SAFECO Insurance Company of Pennsylvania, a Pennsylvania 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.
-9-
<PAGE>
SAFECO Life Insurance Company owns 100% of SAFECO National Life Insurance
Company, a Washington corporation, ^ First SAFECO National Life Insurance
Company of New York, a New York corporation, and WM Life Insurance Company, an
Arizona corporation. WM Life Insurance Company owns 100% of Empire Life
Insurance Company, a Washington 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,
Goldware & Taylor Insurance Service, a California 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: SAFECARE Company, Inc. and Winmar
Company, Inc. SAFECARE Company, Inc. owns 100% of the following, each a
Washington corporation: RIA Development, Inc., S.C. Arkansas, Inc., S.C.
Bellevue/Lynn, S.C. Bellevue, Inc., S.C. Everett, Inc., S.C. Everett/Lynn, S.C.
Lynden, Inc., S.C. Lynden/Lynn, S.C. Marysville, Inc., S.C. Northgate, Inc.,
S.C. Northgate/LR1, L.L.C., S.C. Vancouver, Inc., S.C. Vancouver/Lynn (Joint
Venture), SAFECARE S.C. Bakersfield, Inc. and SAFECARE S.C. Bakersfield/Lynn
Limited Partnership. SAFECARE Company, Inc. owns 50% of Lifeguard Ventures,
Inc., a California corporation, and S.C. River Oaks, Inc., a Washington
corporation. Winmar Company, Inc. owns 100% of the following: 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, 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.
SAFECO Corporation, a Washington corporation, owns 100% of American States
Financial Corporation, an Indiana corporation. American States Financial
Corporation owns 100% of American States Insurance Company, an Indiana
corporation. American States Insurance Company owns 100% of the following
Indiana corporations: American Economy Insurance Company, American States
Preferred Insurance Company, American States Life Insurance company, and City
Insurance Agency, Inc. American States Insurance Company owns 100% of Insurance
Company of Illinois, an Illinois corporation, and American States Lloyds
Insurance Company, a Texas corporation. American Economy Insurance Company owns
100% of American States Insurance Company of Texas, a Texas corporation.
No person is directly or indirectly controlled by Registrant.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1998, there were 12,903 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.
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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.
b. The following information is provided for each principal officer and
director of the principal underwriter:
Name and Principal Positions and Offices
Business Address* with Underwriter
------------------ ---------------------
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
*The business address for all individuals listed is SAFECO Plaza, Seattle,
Washington 98185.
c. During the fiscal year ended December 31, 1997, PNMR Securities, Inc.,
through SAFECO Securities, Inc., received $4,615,262 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.
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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.
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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 1st day of May, 1998.
SAFECO Separate Account C
-------------------------
Registrant
By: SAFECO Life Insurance Company
-----------------------------
By: /s/ RANDALL H. TALBOT
---------------------
Randall H. Talbot, President
SAFECO Life Insurance Company
-----------------------------
Depositor
By: /s/ RANDALL H. TALBOT
----------------------------
Randall H. Talbot, 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.
Name Title Date
- ---- ----- ----
DONALD S. CHAPMAN* Director
- -------------------------
Donald S. Chapman
/s/ BOH A. DICKEY Director
- -------------------------
Boh A. Dickey
R. H. EIGSTI* Director and Chairman
- -------------------------
R. H. Eigsti
JAMES T. FLYNN* Vice President, Controller and
- ------------------------- Assistant Secretary (Principal
James T. Flynn Accounting Officer)
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RONALD SPAULDING* Director, Vice
- ------------------------- President and Treasurer
Ronald Spaulding
ROD A. PIERSON* Director, Senior Vice
- ------------------------- President and Secretary
Rod Pierson
JAMES W. RUDDY* Director
- -------------------------
James W. Ruddy
W. RANDALL STODDARD* Director
- -------------------------
W. Randall Stoddard
DALE E. LAUER* Director
- -------------------------
Dale E. Lauer
/s/ RANDALL H. TALBOT Director and President (Principal Executive
- ------------------------- Officer)
Randall H. Talbot
RICHARD E. ZUNKER* Director and Vice Chairman
- -------------------------
Richard E. Zunker
*By: /s/ BOH A. DICKEY
-----------------
Boh A. Dickey
Attorney-in-Fact
*By: /s/ RANDALL H. TALBOT
---------------------
Randall H. Talbot
Attorney-in-Fact
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ------------- -----------
<C> <S>
99.8.a. (iv) Services Agreement (Scudder)
99.8.f. Participation Agreement among INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group, Inc. and
SAFECO Life Insurance Company
99.9 Opinion and Consent of Counsel
99.10 Consent of Independent Auditors
99.14 Power of Attorney
99.15 Representation of Counsel
</TABLE>
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EXHIBIT 8.a.(iv)
SERVICES AGREEMENT
The terms and conditions of this Services Agreement between Scudder Kemper
Investments, Inc. (the "Advisor") and SAFECO Life Insurance Company (the
"Company") are effective as of _______________, 1998.
WHEREAS, the Company and Scudder Investor Services, Inc. ("Investor
Services") have entered into a Participating Contract and Policy Agreement dated
_______________, 199__, as may be amended form time to time (the
"Participation Agreement"), pursuant to which the Company, on behalf of certain
of its separate accounts (the "Separate Accounts"), purchases shares ("Shares")
of certain portfolios of Scudder Variable Life Investment Fund (the "Fund", the
portfolios of which are referred to herein as "Portfolios") to serve as an
investment vehicle under certain variable annuity and/or variable life insurance
contracts ("Variable Contracts") offered by the Company, which Portfolios may be
one of several investment options available under the Variable Contracts; and
WHEREAS, the Advisor recognizes that in the course of soliciting
applications for its Variable Contracts and in servicing owners of the Variable
Contracts, the Company and its agents that are registered representatives of
broker-dealers provide information about the Fund and its Portfolios from time
to time, answer questions concerning the Funds and its Portfolios, including
questions respecting Variable Contract owners' interests in one or more
Portfolios, and provide services respecting investments in the Portfolios; and
WHEREAS, the Advisor desires that the efforts of the Company and its agents
in providing written and oral information and services regarding the Fund to
current and prospective Variable Contract shall continue; and
WHEREAS, the following represents the collective intention and
understanding of the service fee agreement between the Advisor and the Company.
NOW THEREFORE, in consideration of their mutual promises, the COMPANY and
the ADVISOR agree as follows:
1. SERVICES. The company and/or its affiliates agree to provide services
("Services") to current and prospective owners of Variable Contracts including,
but not limited to: teleservicing support in connection with the Portfolios;
delivery of reports, notices, proxies and proxy statements and other
informational materials; facilitation of the tabulation of Variable Contract
owners' votes in the event of a Fund shareholder vote; maintenance of Variable
Contract records reflecting Shares purchased and redeemed and Share balances;
provision of support services including providing information about the Fund and
its Portfolios and answering questions concerning the Fund and its Portfolios,
including questions respecting Variable Contract owners' interests in one or
more Portfolios; provision and administration of Variable Contract features for
the benefit of Variable Contract owners in connection with the Portfolios
including fund transfers, dollar cost averaging, asset allocation, portfolio
rebalancing, earnings sweep, and pre-authorized deposits and withdrawals; and
provision of other services as may be agreed upon from time to time.
2. COMPENSATION. In consideration of the Services, the Advisor agrees to pay
to the Company a service fee at an annual rate equal to fifteen (15) basis
points (0.15%) (five (5) basis points for the Money Market Portfolio) of the
average daily value of the Shares held in Separate Accounts. Such payments will
be made monthly in arrears, PROVIDED HOWEVER, that such payments shall only be
payable of each calendar month during which time the total dollar value of
Shares held by the Separate Accounts purchased pursuant to the Participation
Agreement exceeds $15 million. For purposes of computing the payment to the
Company under this paragraph 2, the average daily value of Shares held in
Separate Accounts over a monthly period shall be computed by totaling such
Separate Accounts' aggregate investment (Share net
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asset value multiplied by total number of Shares held by such Separate Accounts)
on each business day during the calendar month, and dividing by the total number
of business days during such month. The payment to the Company under this
paragraph 2 shall be calculated by the Company at the end of each calendar month
and the Company shall send a detailed statement of each such fee computation to
the Advisor. Payment shall be due and will be paid to the Company within 30
days thereafter.
3. TERM. This Service Agreement shall remain in full force and effect for an
initial term of one year, and shall automatically renew for successive one year
periods. This Services Agreement may be terminated by either party hereto upon
60 days written notice to the other. The Services Agreement shall terminate
automatically upon the redemption of all Shares held in Separate Accounts, upon
termination of the Participating Agreement, or upon its assignment by either
party hereto. Notwithstanding the termination of this Services Agreement, the
Advisor will continue to pay the service fees in accordance with paragraph 2 so
long as net assets of the Company or a Separate Account remain in a Portfolio,
provided such continued payment is permitted in accordance with applicable law
and regulation.
4. AMENDMENT. This Service Agreement may be amended only upon mutual
agreement of the parties hereto in writing.
5. EFFECT ON OTHER TERMS, OBLIGATIONS AND COVENANTS. Nothing herein shall
amend, modify or supersede any contractual terms, obligations or covenants among
or between any of the Company, the Advisor or the Fund previously or currently
in effect, including those contractual terms, obligations or covenants contained
in the Participation Agreement.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Service Agreement.
SCUDDER INVESTMENTS, INC. SAFECO LIFE INSURANCE
- ------------------------------- ------------------------------
By: By:
Title: Title:
Date: Date:
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EXHIBIT 8.f.
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
and
SAFECO Life Insurance Company
THIS AGREEMENT, made and entered into this 7th day of April, 1998 by and
among SAFECO Life Insurance COMPANY, (hereinafter the "Insurance Company"), a
Washington corporation, on its own behalf and on behalf of each segregated asset
account of the Insurance Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), INVESCO VARIABLE INVESTMENT FUNDS, INC., a Maryland corporation (the
"Company") and INVESCO FUNDS GROUP, INC. ("INVESCO"), a Delaware corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance contracts
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained an order from the Securities and Exchange
Commission (the "Commission"), dated December 29, 1993 (File No. 812-8590),
granting Participating Insurance Companies and their separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Company to be sold to and held by variable annuity and variable
life insurance separate accounts of life insurance companies that may or may not
be affiliated with one another (the "Mixed and Shared Funding Exemptive Order");
and
WHEREAS, the Company is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, INVESCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law and as a
broker dealer under the Securities Exchange Act of 1934, as amended, (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable [annuity / life insurance]
contracts identified by the form number(s) listed on Schedule B to this
Agreement, as amended from time to time hereafter by mutual written agreement of
all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
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<PAGE>
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and INVESCO is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE I. SALE OF COMPANY SHARES
1.1 INVESCO agrees to sell to the Insurance Company those shares of the
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designee of
the order for the shares of the Company. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Company for receipt of such
orders from the Accounts and receipt by such designee shall constitute receipt
by the Company; provided that the Company receives notice of such order by 8:30
a.m., Mountain Time, on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Company calculates its net asset value pursuant to the rules of the
Commission.
1.2 The Company agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Company calculates its Funds' net asset values
pursuant to rules of the Commission and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the board of
directors of the Company (hereinafter the "Board") may refuse to sell shares of
any Fund to any person, or suspend or terminate the offering of shares of any
Fund if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of that Fund.
1.3. The Company and INVESCO agree that shares of the Company will be sold
only to Participating Insurance Companies and their separate accounts. No
shares of any Fund will be sold to the general public.
1.4. The Company and INVESCO will not sell Company shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and Article VII of this
Agreement is in effect to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Company held by the Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designee of the request for redemption. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 8:30 a.m., Mountain Time, on
the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund offered by the then-current prospectus of the Company in accordance
with the provisions of that prospectus. The Insurance Company agrees that all
net amounts available under the Contracts shall be invested in the Company, in
such other Funds advised by INVESCO as may be mutually agreed to in writing by
the parties hereto, or in the Insurance Company's general account, provided that
such amounts may also be invested in an investment
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<PAGE>
company other than the Company if (a) the other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Funds of the Company; or
(b) the Insurance Company gives the Company and INVESCO 45 days written notice
of its intention to make the other investment company available as a funding
vehicle for the Contracts; or (c) the other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Insurance Company so informs the Company and INVESCO prior to their signing this
Agreement; or (d) the Company or INVESCO consents to the use of the other
investment company.
1.7. The Insurance Company shall pay for Company shares by 1:00 p.m.,
Mountain Time, on the next Business Day after an order to purchase Company
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire. For the purpose of Sections 2.10
and 2.11, upon receipt by the Company of the federal funds so wired, such funds
shall cease to be the responsibility of the Insurance Company and shall become
the responsibility of the Company. Payment of aggregate redemption proceeds
(aggregate redemptions of a Fund's shares by an Account) of less than $1 million
for a given Business Day will be made by wiring federal funds to the Insurance
Company on the next Business Day after receipt of the redemption request.
Payment of aggregate redemption proceeds of $1 million or more will be by wiring
federal funds within seven days after receipt of the redemption request.
Notwithstanding the foregoing, in the event that one or more Funds has
insufficient cash on hand to pay aggregate redemptions on the next Business Day,
and if such Fund has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one Business Day, but in no event
more than seven calendar days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the Commission under Section
22(e) of the 1940 Act), the Company shall be permitted to delay sending
redemption proceeds to the Insurance Company by the same number of days that the
Company is delaying sending redemption proceeds to the other shareholders of the
Fund.
Redemptions of up to the lesser of $250,000 or 1% of the net asset value of
the Fund whose shares are to be redeemed in any 90-day period will be made in
cash. Redemptions in excess of that amount in any 90-day period may, in the
sole discretion of the Company, be in-kind redemptions, with the securities to
be delivered in payment of redemptions selected by the Company and valued at the
value assigned to them in computing the Fund's net asset value per share.
1.8. Issuance and transfer of the Company's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Company shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 4:30 p.m.,
Mountain Time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Insurance Company represents and warrants that the Contracts are,
or will be, registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with applicable state insurance suitability requirements. The
Insurance Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it has
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legally and validly established the Account prior to any issuance or sale
thereof as a segregated asset account under Section 48 of the Washington
Insurance Code and has registered, or prior to any issuance or sale of the
Contracts will register, the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
2.3. The Company represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain that
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Insurance Company represents and warrants that the Contracts are
currently treated as annuity and life insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Company and INVESCO immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Company currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Company undertakes
to have a board of directors, a majority of whom are not interested persons of
the Company, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Company makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. INVESCO represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the Commission. INVESCO
further represents that it will sell and distribute the Company shares in
accordance with the laws of the state of Washington and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Company represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.9. INVESCO represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Company in
compliance in all material respects with the laws of the State of Colorado and
any applicable state and federal securities laws.
2.10. The Company and INVESCO represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities dealing with the money and/or securities of the Company
are, and shall continue to be at all times, covered by a blanket fidelity bond
or similar coverage for the benefit of the Company in an amount not less than
the minimum coverage required currently by Section 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time.
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That fidelity bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
2.11. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Company, in an amount not less than the minimum coverage
required currently for entities subject to the requirements of Rule 17g-1 of the
1940 Act or related provisions or may be promulgated from time to time. The
aforesaid Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. The Insurance Company further represents
and warrants that the employees of Insurance Company, or such other persons
designated by Insurance Company, listed on Schedule C have been authorized by
all necessary action of Insurance Company to give directions, instructions and
certifications to the Company and INVESCO on behalf of Insurance Company. The
Company and INVESCO are authorized to act and rely upon any directions,
instructions and certifications received from such persons unless and until they
have been notified in writing by the Insurance Company of a change in such
persons, and the Company and INVESCO shall incur no liability in doing so.
2.12. The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. INVESCO shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Company's current prospectus as
the Insurance Company may reasonably request for sales to new contract holders.
INVESCO shal provide the Insurance Company (at INVESCO"s) expense) with as many
copies of the Company's current prospectus as is necessary to mail to existing
contract holders. If requested by the Insurance Company in lieu thereof, the
Company shall provide such documentation (including a final copy of the new
prospectus as set in type at the Company's expense) and other assistance as is
reasonably necessary in order for the Insurance Company once each year (or more
frequently if the prospectus for the Company is amended) to have the prospectus
for the Contracts and the Company's prospectus printed together in one document
(at the Insurance Company's expense). The Insurance Company will be responsible
for mailing costs associated with distributing to existing and prospective
contract holders.
3.2. The Company's prospectus shall state that the Statement of Additional
Information for the Company (the "SAI") is available from INVESCO (or in the
Company's discretion, the Prospectus shall state that the SAI is available from
the Company), and INVESCO (or the Company), at its expense, shall print and
provide the SAI free of charge to the Insurance Company and to any owner of a
Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to stockholders and other communications
to stockholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares in accordance with instructions
received from Contract owners; and
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of such
portfolio for which instructions have been received:
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so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule D
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligations under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Company will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Company currently intends,
comply with Section 16(c) of the 1940 Act (although the Company is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of directors and with whatever rules
the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Insurance Company shall furnish, or shall cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company, a sub-adviser of one of the Funds, or
INVESCO is named, at least fifteen calendar days prior to its use. No such
material shall be used if the Company or its designee objects to such use within
ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by INVESCO, except with the permission of the Company
or INVESCO.
4.3. The Company, INVESCO, or its designee shall furnish, or shall cause
to be furnished, to the Insurance Company or its designee, each piece of sales
literature or other promotional material in which the Insurance Company and/or
its separate account(s), is named at least fifteen calendar days prior to its
use. No such material shall be used if the Insurance Company or its designee
object to such use within ten calendar days after receipt of that material.
4.4. The Company and INVESCO shall not give any information or make any
representations on behalf of the Insurance Company or concerning the Insurance
Company, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as that registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Insurance Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the permission of
the Insurance Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the Commission,
the NASD, or other regulatory authorities.
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4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no action letter, and any amendment to any of the above, that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (I.E., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested. Company agrees that
Insurance Company shall have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of the California Insurance Department. However, Company and
INVESCO shall own and control all of their respective records pertaining to
their performance of the services under this Agreement.
ARTICLE V. FEES AND EXPENSES
5.1. The Company and INVESCO shall pay no fee or other compensation to the
Insurance Company under this agreement, except that if the Company or any Fund
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then INVESCO may make payments to the Insurance Company if and in
amounts agreed to by INVESCO in writing, subject to review by the board of
directors of the Company. No such payments shall be made directly by the
Company.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that all
its shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by the Company
or INVESCO, in accordance with applicable state laws prior to their sale. The
Company shall bear the expenses for the cost of registration and qualification
of the Company's shares, preparation and filing of the Company's prospectus and
registration statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Company's
shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
ARTICLE VI. DIVERSIFICATION
6.1. The Company will, at the end of each calendar quarter, comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation.
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ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Company for the existence of any material
irreconcilable conflict between the interests of the variable contract owners of
all separate accounts investing in the Company. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The Board shall
promptly inform the Insurance Company if it determines that an irreconcilable
material conflict exists and the implications thereof. The Board shall have
sole authority to determine whether an irreconcilable material conflict exists
and such determination shall be binding upon the Insurance Company.
7.2 The Insurance Company will report promptly any potential or existing
conflicts of which it is aware to the Board. The Insurance Company will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Insurance Company to inform the Board
whenever Contract owner voting instructions are to be disregarded. Such
responsibilities shall be carried out by Insurance Company with a view only to
the interests of the Contract owners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Company, INVESCO, or any
sub-adviser to any of the Funds (the "Independent Directors"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1), withdrawing the assets allocable to some or
all of the separate accounts from the Company or any Fund and reinvesting those
assets in a different investment medium, including (but not limited to) another
Fund of the Company, or submitting the question whether such segregation should
be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (E.G., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected variable contract owners the option of
making such a change; and (2), establishing a new registered management
investment company or managed separate account and obtaining approval thereof by
the Commission.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Company's election, to withdraw the
affected Account's investment in the Company and terminate this Agreement with
respect to that Account; provided, however that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Directors. Any such
withdrawal and termination must take place within six (6) months after the
Company gives written notice that this provision is being implemented, and until
the end of that six month period INVESCO and the Company shall continue to
accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this
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Agreement with respect to that Account within six months after the Board informs
the Insurance Company in writing that it has determined that the state insurance
regulator's decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the Independent Directors. Until the end of the foregoing six month
period, INVESCO and the Company shall continue to accept and implement orders by
the Insurance Company for the purchase (and redemption) of shares of the
Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Insurance Company will withdraw the Account's investment in
the Company and terminate this Agreement within six (6) months after the Board
informs the Insurance Company in writing of the foregoing determination,
provided, however, that the withdrawal and termination shall be limited to the
extent required by the material irreconcilable conflict, as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE INSURANCE COMPANY
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director of the Board and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to the
Insurance Company by or on behalf of the Company for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
shares of the Company;
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature of the Company not supplied by the Insurance Company,
or persons under its control) or wrongful conduct of the
Insurance Company or persons under its control, with respect to
the sale or distribution of the Contracts or Company Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Company or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished in writing to the Company by or on
behalf of the Insurance Company: or
(iv) arise as a result of any failure by the Insurance Company
to provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Insurance Company,
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as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Insurance
Company shall be entitled to participate, at its own expense, in the defense of
the action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; PROVIDED,
HOWEVER, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice
from the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Company's shares or the Contracts or the
operation of the Company.
8.2. Indemnification by INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless the Insurance
Company and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of INVESCO) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Company's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Company (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required
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to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if the statement or
omission or alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to
INVESCO or the Company by or on behalf of the Insurance Company
for use in the registration statement or prospectus for the
Company or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts
or Company shares: or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the Contracts not supplied by INVESCO or persons
under its control) or wrongful conduct of the Company, INVESCO or
persons under their control, with respect to the sale or
distribution of the Contracts or shares of the Company; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished in
writing to the Insurance Company by or on behalf of the Company;
or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by INVESCO in this Agreement
or arise out of or result from any other material breach of this
Agreement by INVESCO; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b) INVESCO shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company or the Account, whichever is applicable.
8.2(c) INVESCO shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified INVESCO in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any
Indemnified Party to give notice as provided herein shall not relieve INVESCO of
its obligations hereunder except to the extent that INVESCO has been prejudiced
by such failure to give notice. In addition, any failure by the Indemnified
Party to notify INVESCO of any such claim shall not relieve INVESCO from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, INVESCO
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will be entitled to participate, at its own expense, in the defense thereof.
INVESCO also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; PROVIDED, HOWEVER, that if the
Indemnified Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to
INVESCO, INVESCO shall not have the right to assume said defense, but shall pay
the costs and expenses thereof (except that in no event shall INVESCO be liable
for the fees and expenses of more than one counsel for Indemnified Parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances).
After notice from INVESCO to the Indemnified Party of INVESCO's election to
assume the defense thereof, and in the absence of such a reasonable conclusion
that there may be different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and INVESCO will not be liable to that party under this
Agreement for any legal or other expenses subsequently incurred by that party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d) The Insurance Company agrees to notify INVESCO promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE COMPANY
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith, willful misconduct, or reckless
disregard of duty of the Board or any member thereof, are related to the
operations of the Company and:
(i) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, INVESCO or the Account, whichever is
applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any
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Indemnified Party to give notice as provided herein shall not relieve the
Company of its obligations hereunder except to the extent that the Company has
been prejudiced by such failure to give notice. In addition, any failure by the
Indemnified Party to notify the Company of any such claim shall not relieve the
Company from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
the Company will be entitled to participate, at its own expense, in the defense
thereof. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action; PROVIDED, HOWEVER, that
if the Indemnified Party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the Company, the Company shall not have the right to assume said
defense, but shall pay the costs and expenses thereof (except that in no event
shall the Company be liable for the fees and expenses of more than one counsel
for Indemnified Parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances). After notice from the Company to the
Indemnified Party of the Company's election to assume the defense thereof, and
in the absence of such a reasonable conclusion that there may be different or
additional defenses available to the Indemnified Party, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to that party under this Agreement for any legal
or other expenses subsequently incurred by that party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Insurance Company and INVESCO agree promptly to notify the
Company of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Company.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Colorado.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 acts, and the rules and regulations and rulings thereunder, including
any exemptions from those statutes, rules and regulations the Commission may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written
notice to the other parties; provided, however such notice shall
not be given earlier than one year following the date of this
Agreement; or
(b) at the option of the Insurance Company to the extent that
shares of Funds are not reasonably available to meet the
requirements of the Contracts as determined by the Insurance
Company, provided however, that such a termination shall apply
only to the Fund(s) not reasonably available. Prompt written
notice of the election to terminate for such cause shall be
furnished by the Insurance Company; or
(c) at the option of the Company in the event that formal
administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or
any other regulatory body regarding the Insurance Company's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the
Company's shares, provided, however, that the Company determines
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a
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<PAGE>
material adverse effect upon the ability of the Insurance Company
to perform its obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that
formal administrative proceedings are instituted against the
Company or INVESCO by the NASD, the Commission, or any state
securities or insurance department or any other regulatory body,
provided, however, that the Insurance Company determines in its
sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect
upon the ability of the Company or INVESCO to perform its
obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in that Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Fund shares in accordance with the
terms of the Contracts for which those Fund shares had been
selected to serve as the underlying investment media. The
Insurance Company will give at least 30 days' prior written
notice to the Company of the date of any proposed vote to replace
the Company's shares; or
(f) at the option of the Insurance Company, in the event any of
the Company's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or exemptions
therefrom, or such law precludes the use of those shares as the
underlying investment media of the Contracts issued or to be
issued by the Insurance Company; or
(g) at the option of the Insurance Company, if the Company
ceases to qualify as a regulated investment company under
Subchapter M of the Code or under any successor or similar
provision, or if the Insurance Company reasonably believes that
the Company may fail to so qualify; or
(h) at the option of the Insurance Company, if the Company fails
to meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Company or INVESCO, if (1) the
Company or INVESCO, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and that material adverse change or material adverse
publicity will have a material adverse impact upon the business
and operations of either the Company or INVESCO, (2) the Company
or INVESCO shall notify the Insurance Company in writing of that
determination and its intent to terminate this Agreement, and (3)
after considering the actions taken by the Insurance Company and
any other changes in circumstances since the giving of such a
notice, the determination of the Company or INVESCO shall
continue to apply on the sixtieth (60th) day following the giving
of that notice, which sixtieth day shall be the effective date of
termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably
exercised in good faith, that either the Company or INVESCO has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and
that material adverse change or material adverse publicity will
have a material adverse impact upon the business and operations
of the Insurance Company, (2) the Insurance Company shall notify
the Company and INVESCO in writing of the determination and its
intent to terminate the Agreement, and (3) after considering the
actions taken by the Company and/or INVESCO and any other changes
in circumstances since the giving of such a notice, the
determination shall continue to apply on the sixtieth (60th) day
following the giving of the notice, which sixtieth day shall be
the effective date of termination; or
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<PAGE>
(k) at the option of either the Company or INVESCO, if the
Insurance Company gives the Company and INVESCO the written
notice specified in Section 1.6(b) hereof and at the time that
notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however
any termination under this Section 10.1(k) shall be effective
forty five (45) days after the notice specified in Section 1.6(b)
was given.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3 NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
(a) in the event that any termination is based upon the
provisions of Article VII, or the provisions of Section 10.1(a),
10.1(i), 10.1(j), or 10.1(k) of this Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by those provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, the
prior written notice shall be given at least ninety (90) days
before the effective date of termination.
10.4. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Company and INVESCO shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Company, redeem investments in the
Company and/or invest in the Company upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section 10.4
shall not apply to any terminations under Article VII and the effect of Article
VII terminations shall be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Company shares attributable
to the Contracts (as opposed to Company shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"). Upon request, the Insurance
Company will promptly furnish to the Company and INVESCO the opinion of counsel
for the Insurance Company (which counsel shall be reasonably satisfactory to the
Company and INVESCO) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption.
ARTICLE XI. NOTICES.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of that other party set forth below or at
such other address as the other party may from time to time specify in writing.
If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
If to the Insurance Company:
15411 NE 51ST STREET
Redmond, WA 98052
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<PAGE>
Attention: WILLIAM E. CRAWFORD, ASSISTANT GENERAL COUNSEL
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. No party may assign this Agreement without the prior written consent
of the others.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
Insurance Company:
SAFECO LIFE INSURANCE COMPANY
By its authorized officer,
By:
Title:
Date:
Company:
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<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By:
Title:
Date:
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By:
Title:
Date:
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SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Insurance Company's Board which
Established the Account
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<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form______________
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<PAGE>
SCHEDULE C
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
NAME ADDRESS AND PHONE NUMBER
(1)
------------------------------------ ---------------------------------------
Print or Type Name
------------------------------------ Phone:
Signature --------------------------------
(2)
------------------------------------ ---------------------------------------
Print or Type Name
------------------------------------ Phone:
Signature --------------------------------
(3)
------------------------------------ ---------------------------------------
Print or Type Name
------------------------------------ Phone:
Signature --------------------------------
(4)
------------------------------------ ---------------------------------------
Print or Type Name
------------------------------------ Phone:
Signature --------------------------------
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Schedule D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Company by INVESCO, the Company and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by INVESCO
as early as possible before the date set by the Company for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time INVESCO will inform the Insurance Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the
activities described in Step #2. The Insurance Company will
use its best efforts to call in the number of Customers to
INVESCO, as soon as possible, but no later than one week
after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Company. The Insurance Company,
at its expense, shall produce and personalize the Voting Instruction cards.
The Legal Department of INVESCO ("INVESCO Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Company).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
4. During this time, INVESCO Legal will develop, produce, and the Company will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Insurance Company
for insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
customers by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company) addressed
to the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Company.)
e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by INVESCO Legal.
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<PAGE>
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to
INVESCO Legal.
6. Package mailed by the Insurance Company.
* The Company MUST allow at least a 15-day solicitation time to the
Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from
(but NOT including) the meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
8. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," I.E.,
examined as to why they did not complete the system. Any questions on
those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which are then converted to
shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of SHARES.) INVESCO Legal
must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company to
INVESCO Legal on the morning of the meeting not later than 10:00 a.m.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
INVESCO Legal will provided a standard form for each Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or
if otherwise necessary for legal, regulatory, or accounting purposes,
INVESCO Legal will be permitted reasonable access to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
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EXHIBIT 9
May 1, 1998
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. SAFECO Separate Account C is a separate investment account of SAFECO Life
Insurance Company created and validly existing pursuant to the Washington
insurance laws and regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Contracts have been followed, and, when such Contracts are issued in
accordance with the prospectus contained in the Registration Statement, all
state requirements relating to such Contracts will have been complied with.
4. Upon the acceptance of the purchase payments made by a prospective Contract
Owner pursuant to a Contract issued in accordance with the Prospectus
contained in the Registration Statement and upon compliance with applicable
law, such Owner will have a legally-issued, fully paid, non-assessable
contractual interest in such Contract.
You may use this letter, or a copy hereof, as an exhibit to the Registration
Statement.
Very truly yours,
/s/ William E. Crawford
William E. Crawford
Counsel
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<PAGE>
EXHIBIT 10
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Schedule of
Accumulation Unit Values and Accumulation Units Outstanding" in the Prospectus
and "Independent Auditors" and "Experts" in the Statement of Additional
Information and to the use of our report on the financial statements of SAFECO
Separate Account C, dated January 30, 1998, and our report on the consolidated
financial statements of SAFECO Life Insurance Company and Subsidiaries, dated
February 13, 1998, in Post-Effective Amendment No. 6 to the Registration
Statement (Form N-4, No. 33-69712) and related Prospectus of SAFECO Separate
Account C.
/s/ Ernst & Young LLP
Seattle, Washington
April 27, 1998
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EXHIBIT 14
POWER OF ATTORNEY
SAFECO Life Insurance Company, a Washington Corporation, (the "Company") and
each of its undersigned officers and directors, hereby nominate and appoint Boh
A. Dickey and Randall H. Talbot ( with full power to each of them to act alone)
their true and lawful attorney-in-fact and agent, for them and in their names
and places in any and all capacities, to execute and sign all amendments to the
Registration Statements of SAFECO Separate Account C on Form N-4, SAFECO
Separate Account SL on Form S-6, and SAFECO Resource Variable Account B on Form
N-4 (hereinafter "Separate Accounts") under the Securities Act of 1933 and the
Investment Company Act of 1940, and to file with the Securities and Exchange
Commission and any other regulatory authority having jurisdiction over the offer
and sale of the variable insurance products issued from the Separate Accounts,
such amendments and any supplements thereto, as well as any and all exhibits and
other documents necessary or desirable to such amendment or supplement process,
granting to such attorneys and each of them, full power and authority to do and
perform each and every act necessary and/or appropriate as fully and with all
intents and purposes as the Company itself and the undersigned officers and
directors themselves might or could do.
IN WITNESS WHEREOF, SAFECO LIFE INSURANCE COMPANY has caused this power of
attorney to be executed in its full name and by its President and attested by
its Secretary, and the undersigned officers and directors have each executed
such power of attorney, on the 1st day of April, 1998.
SAFECO LIFE INSURANCE COMPANY
By: /s/ Randall H. Talbot
----------------------------
Randall H. Talbot, President
ATTEST:
/s/ Rodney A. Pierson
- ----------------------------
Rodney A. Pierson, Secretary
(Signatures Continue on Next Page)
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<PAGE>
NAME TITLE
- ---- -----
/s/ RANDALL H. TALBOT Director and President
- ------------------------------ (Principal Executive Officer)
Randall H. Talbot
/s/ RICHARD E. ZUNKER Director and Vice Chairman
- ------------------------------
Richard E. Zunker
/s/ JAMES T. FLYNN Vice President,
- ------------------------------ Controller and Asst. Secretary
James T. Flynn (Principal Accounting Officer)
/s/ RODNEY A. PIERSON Director, Senior Vice President
- ------------------------------ and Secretary
Rodney A. Pierson
/s/ ROGER H. EIGSTI Director and Chairman
- ------------------------------
Roger H. Eigsti
/s/ BOH A. DICKEY Director
- ------------------------------
Boh A. Dickey
/s/ DONALD S. CHAPMAN Director
- ------------------------------
Donald S. Chapman
/s/ W. RANDALL STODDARD Director
- ------------------------------
W. Randall Stoddard
/s/ JAMES W. RUDDY Director
- ------------------------------
James W. Ruddy
/s/ DALE E. LAUER Director
- ------------------------------
Dale E. Lauer
/s/ RONALD L. SPAULDING Director, Vice President and Treasurer
- ------------------------------
Ronald L. Spaulding
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EXHIBIT 15
May 1, 1998
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. 6, 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. 6, 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. 6, 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. 6, is made
pursuant to Rule 485(b) of the 1933 Act to become automatically effective on May
1, 1998. The undersigned has prepared and reviewed Post-Effective Amendment No.
6, and it is his opinion that Post-Effective Amendment No. 6 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
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