<PAGE>
SPINNAKER FILE NOS. 33-69712/811-8052
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
----
Post-Effective Amendment No. 10 /X/
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 16 /X/
----
(Check appropriate box or boxes.)
SAFECO SEPARATE ACCOUNT C
(Exact Name of Registrant)
SAFECO LIFE INSURANCE COMPANY
(Name of Depositor)
5069 154TH PLACE N.E., REDMOND, WASHINGTON 98052
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (425) 376-8000
NAME AND ADDRESS OF AGENT FOR SERVICE
WILLIAM E. CRAWFORD, ESQ.
5069 154th Place N.E.
Redmond, Washington 98052
(425) 376-5328
Approximate date of Proposed Public Offering ............As Soon as Practicable
after Effective Date
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on April 28, 2000 pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
---
on (date) pursuant to paragraph (a)(1) of Rule 485
---
If appropriate, check the following:
--- this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed a Rule 24f-2 Notice for the
fiscal year ending December 31, 1999 on or about March 8, 2000.
<PAGE>
SAFECO SEPARATE ACCOUNT C
REGISTRATION STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. LOCATION
PART A
<S> <C> <C>
Item 1. Cover Page.............................................................. Cover Page
Item 2. Definitions............................................................. Index of Special Terms
Item 3. Synopsis or Highlights.................................................. Fee Table; Summary
Item 4. Condensed Financial Information......................................... Appendix - Accumulation
Unit Value History
Item 5. General Description of Registrant, Depositor, and Portfolio Companies... Other Information
Item 6. Deductions and Expenses................................................. Expenses; Fee Table
Item 7. General Description of Variable Annuity Contracts....................... The Annuity Contract
Item 8. Annuity Period.......................................................... Annuity Payments (Income
Phase)
Item 9. Distribution Requirements............................................... Annuity Payments (Income
Phase) and Death Benefit
Item 10. Purchases and Contract Value............................................ Purchase
Item 11. Redemptions............................................................. Access to Your Money
Item 12. Taxes................................................................... Taxes
Item 13. Legal Proceedings....................................................... Other Information
Item 14. Table of Contents of the Statement of Additional Information........... Other Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. LOCATION
PART B
<S> <C> <C>
Item 15. Cover Page............................................................ Cover Page
Item 16. Table of Contents..................................................... Cover Page
Item 17. General Information and History....................................... The Separate Account;
Experts
Item 18. Services.............................................................. Not Applicable
Item 19. Purchase of Securities Being Offered.................................. Not Applicable
Item 20. Underwriters.......................................................... Distribution
Item 21. Calculation of Performance Data....................................... 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.
<PAGE>
PART A
PROSPECTUS
<PAGE>
SPINNAKER-REGISTERED TRADEMARK-
Variable Annuity
ISSUED BY
SAFECO SEPARATE
ACCOUNT C
AND
SAFECO LIFE
INSURANCE COMPANY
This prospectus describes the Spinnaker Variable Annuity Contract and contains
important information. Please read it before investing and keep it on file for
future reference. This prospectus is not valid unless given with current
prospectuses for the PORTFOLIOS available under the contract. This prospectus
does not constitute an offering in any jurisdiction in which the contract may
not lawfully be sold.
To learn more about the Spinnaker Variable Annuity Contract, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 2000. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
part of the prospectus. The SEC maintains a website at http://www.sec.gov. You
may request a free copy of the SAI, or a paper copy of this prospectus if you
have received it in an electronic format, by calling us at 1-877-472-3326 or
writing us at: PO Box 34690, Seattle, WA 98124-1690.
Dated: May 1, 2000
SAFECO RESOURCE SERIES TRUST
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Opportunities Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Money Market Portfolio
- RST Small Company Value Portfolio
AIM VARIABLE INSURANCE FUNDS, INC.
MANAGED BY AIM MANAGEMENT GROUP
- AIM V.I. Aggressive Growth Fund
- AIM V.I. Growth Fund
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
- VP Balanced
- VP International
DREYFUS INVESTMENT PORTFOLIOS ("DREYFUS IP")
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus IP MidCap Stock Portfolio
- Dreyfus IP Technology Growth Portfolio
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
MANAGED BY THE DREYFUS CORPORATION
- The Dreyfus Socially Responsible Growth Fund, Inc.
DREYFUS VARIABLE INVESTMENT FUND ("DREYFUS VIF")
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus VIF Appreciation Portfolio
- Dreyfus VIF Quality Bond Portfolio
FEDERATED INSURANCE SERIES
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Federated High Income Bond Fund II
- Federated Utility Fund II
MANAGED BY FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
- Federated International Equity Fund II
VARIABLE INSURANCE PRODUCTS FUND ("VIP")
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP II Contrafund-Registered Trademark- Portfolio
VARIABLE INSURANCE PRODUCTS FUND III ("VIP III")
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
SPINNAKER PROSPECTUS
<PAGE>
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
NEITHER THE SEC OR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MANAGED BY FRANKLIN ADVISERS, INC.
- Franklin Small Cap Fund - Class 2
- Franklin U.S. Government Fund - Class 2
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
- Templeton Developing Markets Securities Fund - Class 2
INVESCO VARIABLE INVESTMENT FUNDS, INC.
MANAGED BY INVESCO FUNDS GROUP, INC.
- VIF-Real Estate Opportunity Fund
J.P. MORGAN SERIES TRUST II
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT INC.
- J.P. Morgan U.S. Disciplined Equity Portfolio
LEXINGTON EMERGING MARKETS FUND, INC.
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Emerging Markets Fund, Inc.
LEXINGTON NATURAL RESOURCES TRUST
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Natural Resources Trust
SCUDDER VARIABLE LIFE INVESTMENT FUND ("VLIF")
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
- Scudder VLIF Balanced Portfolio
- Scudder VLIF International Portfolio
SPINNAKER PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------
TABLE OF CONTENTS PAGE
- -------------------------------------------------------
<S> <C> <C>
SUMMARY...................................... 1
FEE TABLE.................................... 4
EXAMPLES..................................... 6
1. THE ANNUITY CONTRACT.................... 8
8
Owner...................................
8
Annuitant...............................
8
Assignment..............................
2. ANNUITY PAYMENTS (INCOME PHASE)......... 8
9
Changing Portfolios During the Income
Phase.................................
3. PURCHASE................................ 10
10
Purchase Payments.......................
10
Allocation of Purchase Payments.........
10
Accumulation Units......................
10
Right to Examine........................
4. INVESTMENT OPTIONS...................... 11
11
Variable Investment Options.............
11
Fixed Account...........................
11
Transfers...............................
12
Scheduled Transfers.....................
12
Dollar Cost Averaging.................
12
Appreciation or Interest Sweep........
12
Portfolio Rebalancing.................
5. EXPENSES................................ 12
12
Insurance Charges.......................
13
Annual Administration Maintenance
Charge................................
13
Contingent Deferred Sales Charge........
13
Withdrawal Charge.......................
13
Transfer Charge.........................
13
Premium Taxes...........................
13
Income or Other Taxes...................
13
Portfolio Expenses......................
6. TAXES................................... 13
14
Annuity Contracts in General............
14
Qualified Contracts.....................
14
Non-qualified Contracts.................
14
Diversification.........................
14
Tax Withholding.........................
7. ACCESS TO YOUR MONEY.................... 14
14
Free Withdrawal Amount..................
15
Healthcare Confinement..................
15
Repetitive Withdrawals..................
15
Withdrawal Restrictions on TSA or
403(b)................................
15
Withdrawal Restrictions on Texas
Optional
Retirement Program ("Texas ORP")......
15
Minimum Value...........................
8. PERFORMANCE............................. 15
9. DEATH BENEFIT........................... 16
16
Death of Owner During the Accumulation
Phase.................................
16
Death of Annuitant During the Income
Phase.................................
17
Beneficiary.............................
10. OTHER INFORMATION....................... 17
17
SAFECO Life.............................
17
Separate Account........................
17
General Account.........................
17
Distribution (Principal Underwriter)....
17
Legal Proceedings.......................
17
Right to Suspend Annuity Payments,
Transfers, or Withdrawals.............
18
Voting Rights...........................
18
Reduction of Charges or Additional
Amounts Credited......................
18
Internet Information....................
18
Financial Statements....................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.................................. 18
APPENDIX
Accumulation Unit Value History.............. A-1
INDEX OF SPECIAL TERMS
We have used simple, clear language as much as possible
in this prospectus. However, by the very nature of the
contract certain technical words or terms are
unavoidable. We have identified the following as some
of these words or terms. They are identified in the
text in italic and the page that is indicated here is
where we believe you will find the best explanation for
the word or term.
PAGE
Accumulation Phase........................... 8
Accumulation Unit............................ 10
Annuitant.................................... 8
Annuity Date................................. 8
Annuity Payments............................. 8
Annuity Unit................................. 10
Beneficiary.................................. 17
Fixed Account................................ 11
Income Phase................................. 8
Joint Owner.................................. 8
Non-qualified................................ 14
Owner........................................ 8
Portfolios................................... 11
Purchase Payment............................. 10
Qualified.................................... 14
Tax Deferral................................. 8
</TABLE>
SPINNAKER PROSPECTUS
<PAGE>
(This page has been left blank intentionally.)
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SUMMARY
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TOPICS IN THIS SUMMARY CORRESPOND TO SECTIONS IN THE PROSPECTUS WHICH DISCUSS
THEM IN MORE DETAIL.
- ---------------------------------------------------
THE ANNUITY CONTRACT
- ----------------------------------------------
The annuity contract is an agreement between you, the OWNER, and SAFECO Life
Insurance Company ("SAFECO Life", "we", and "us"). It is designed to help you
invest on a tax-deferred basis and meet long-term financial goals, such as
retirement funding. The contract provides for a guaranteed income or a death
benefit. You should not buy the contract if you are looking for a short-term
investment or if you cannot accept the risk of getting back less money than you
put in.
You may divide your money among the available variable investment PORTFOLIOS and
a FIXED ACCOUNT. The value of the PORTFOLIOS can fluctuate up or down, based on
the performance of the underlying investments. Your investment in the PORTFOLIOS
is not guaranteed and you may lose money. The FIXED ACCOUNT offers an interest
rate guaranteed by SAFECO Life. Your choices for the various investment options
are found in Section 4.
Like most annuities, this contract has an ACCUMULATION PHASE and an INCOME
PHASE. During the ACCUMULATION PHASE, you invest money in your contract.
Earnings accumulate on a tax-deferred basis and are treated as income when you
make a withdrawal. Your earnings are based on the investment performance of the
PORTFOLIOS you selected and/or the interest rate earned on the FIXED ACCOUNT.
During the INCOME PHASE, the payee (you or someone you choose) will receive
payments from your annuity.
The amount of money you are able to accumulate in your contract during the
ACCUMULATION PHASE will determine the amount of payments during the INCOME
PHASE.
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ANNUITY PAYMENTS (INCOME PHASE)
- ----------------------------------------------
You can select from one of four payment options. This selection cannot be
changed once you switch to the INCOME PHASE. However, switching to the INCOME
PHASE does not affect the available investment options. You can choose to have
payments come from the FIXED ACCOUNT, the PORTFOLIOS, or both. If you choose to
have any part of your payments come from the PORTFOLIOS, the dollar amount of
your payments may go up or down.
- ---------------------------------------------------
PURCHASE
- ----------------------------------------------
You can buy this contract with $2,000 or more under most circumstances. You can
add $250 or more as often as you like during the ACCUMULATION PHASE. Lower
limits apply to a contract purchased in connection with a retirement plan.
PURCHASE PAYMENTS can be as little as $100 if they are made automatically from
your checking or savings account.
- ---------------------------------------------------
INVESTMENT OPTIONS
- ----------------------------------------------
Not all PORTFOLIOS listed below may be available for all contracts. Each
PORTFOLIO is fully described in its accompanying prospectus.
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Opportunities Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Money Market Portfolio
- RST Small Company Value Portfolio
MANAGED BY AIM MANAGEMENT GROUP
- AIM V.I. Aggressive Growth Fund
- AIM V.I. Growth Fund
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
- VP Balanced
- VP International
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus IP MidCap Stock Portfolio
- Dreyfus IP Technology Growth Portfolio
- The Dreyfus Socially Responsible Growth Fund, Inc.
- Dreyfus VIF Appreciation Portfolio
- Dreyfus VIF Quality Bond Portfolio
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Federated High Income Bond Fund II
- Federated Utility Fund II
MANAGED BY FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
- Federated International Equity Fund II
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Growth Portfolio
- VIP II Contrafund Portfolio
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
MANAGED BY FRANKLIN ADVISERS, INC.
- Franklin Small Cap Fund - Class 2
- Franklin U.S. Government Fund - Class 2
MANAGED BY INVESCO FUNDS GROUP, INC.
- VIF-Real Estate Opportunity Fund
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT INC.
- J.P. Morgan U.S. Disciplined Equity Portfolio
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Emerging Markets Fund, Inc.
- Lexington Natural Resources Trust
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
- Scudder VLIF Balanced Portfolio
- Scudder VLIF International Portfolio
SPINNAKER PROSPECTUS
1
<PAGE>
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
- Templeton Developing Markets Securities Fund - Class 2
Depending upon market conditions, you can make or lose money in any of these
PORTFOLIOS. You may also allocate money to the FIXED ACCOUNT which credits
guaranteed interest.
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EXPENSES
- ----------------------------------------------
The contract has insurance features and investment features, and there are costs
related to each.
We deduct insurance charges which equal 1.40% annually of the average daily
value of your contract allocated to the PORTFOLIOS. The insurance charges
include: mortality and expense risk charge, 1.25%, and asset related
administration charge, .15%. These are not charged on money allocated to the
FIXED ACCOUNT.
Each contract year, we deduct a $30 annual administration maintenance charge
from your contract. This charge is waived if the value of your contract is
$50,000 or more.
If you take more than 10% of your contract value out in a contract year, you may
be assessed a contingent deferred sales charge. The amount of this charge
depends upon the age of your contract, not on the age of each PURCHASE PAYMENT.
The charge is based upon the amount withdrawn and starts at 8% in the first
contract year and decreases one percent each contract year until the ninth and
later contract years when there is no charge.
If more than one withdrawal is made during a contract year, a separate
withdrawal charge equal to the lesser of $25 or 2% of the amount withdrawn may
apply.
You can transfer between investment options up to 12 times per contract year
free of charge. A transfer charge equal to the lesser of $10 or 2% of the amount
being transferred may apply to each additional transfer.
In a limited number of states there is a premium tax of up to 3.5%, depending
upon the state. In this case, a premium tax charge for the payment of these
taxes may be deducted.
There are also annual PORTFOLIO expenses which vary depending upon the
PORTFOLIOS you select. In 1999, these expenses ranged from 0.55% to 1.97%.
The Fee Table and Examples following this Summary show the various expenses you
will incur directly and indirectly by investing in the contract. There are
situations where all or some of the OWNER transaction expenses do not apply. See
Section 5 - Expenses for a complete discussion.
- ---------------------------------------------------
TAXES
- ----------------------------------------------
Generally, earnings and amounts equal to PURCHASE PAYMENTS made with pre-tax
dollars are not taxed until you take them out. During the ACCUMULATION PHASE,
taxable amounts generally come out first and are taxed as ordinary income.
Exceptions may apply to contracts issued in connection with certain retirement
plans. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% penalty on the taxable amount. During the INCOME PHASE, ANNUITY
PAYMENTS are considered partly a return of your original investment and partly
earnings, and are taxed in the year received.
- ---------------------------------------------------
ACCESS TO YOUR MONEY
- ----------------------------------------------
You may take money out at any time during the ACCUMULATION PHASE unless you are
restricted by requirements of a retirement plan. Each contract year, you can
take up to 10% of the contract value without paying a contingent deferred sales
charge. Amounts in excess of 10% may be subject to a contingent deferred sales
charge. This charge varies based on the age of your contract, not on the age of
particular PURCHASE PAYMENTS. You may have to pay income taxes and tax penalties
on any money you take out.
- ---------------------------------------------------
PERFORMANCE
- ----------------------------------------------
The value of your contract will vary up or down depending upon the investment
performance of the PORTFOLIOS you choose. Past performance is not a guarantee of
future results.
- ---------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------
If you die before moving to the INCOME PHASE, your BENEFICIARY will receive a
death benefit.
- ---------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------
RIGHT TO EXAMINE. If you cancel the contract within 10 days after receiving it
(or whatever period is required in your state), we will send your money back
without assessing a contingent deferred sales charge. You will receive whatever
your contract is worth on the day we receive your request. This may be more or
less than your original PURCHASE PAYMENT. If required by law, we will return
your original PURCHASE PAYMENT.
TRANSACTIONS. You can initiate transfers or withdrawals as needed or schedule
them in advance under the following strategies:
- Dollar Cost Averaging: You may elect to automatically transfer a set amount
from any PORTFOLIO or the FIXED ACCOUNT to any of the other
SPINNAKER PROSPECTUS
2
<PAGE>
PORTFOLIOS monthly or quarterly. This feature attempts to achieve a lower
average cost per unit over time.
- Appreciation or Interest Sweep: If your contract value exceeds $10,000, you
may elect to have interest from the FIXED ACCOUNT or earnings from the RST
Money Market Portfolio automatically swept monthly, quarterly, or annually
into any PORTFOLIO of your choice.
- Portfolio Rebalancing: If your contract value exceeds $10,000, you may elect
to have each PORTFOLIO rebalanced quarterly, semiannually, or annually to
maintain your specified allocation percentages.
- Repetitive Withdrawals: You may elect to receive monthly, quarterly, or
annual checks during the ACCUMULATION PHASE. Any money you receive may
result in contract charges, income taxes, and tax penalties.
- ---------------------------------------------------
INQUIRIES
- ----------------------------------------------
If you need more information, please contact us at:
SAFECO LIFE INSURANCE COMPANY
5069 154TH PLACE N.E.
REDMOND, WA 98052
1-877-472-3326
HTTP://WWW.SAFECO.COM
SPINNAKER PROSPECTUS
3
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SAFECO SEPARATE ACCOUNT C FEE TABLE
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OWNER TRANSACTION EXPENSES (See Note 2)
Contingent Deferred Sales Charge (as a percentage of the amount withdrawn)
No charge for first 10% of contract value withdrawn in a contract year.
Thereafter, the charge is:
<TABLE>
<S> <C> <C>
year 1 ............ 8% year 4 ............ 5% year 7 ............ 2%
year 2 ............ 7% year 5 ............ 4% year 8 ............ 1%
year 3 ............ 6% year 6 ............ 3% year 9+ ........... 0%
</TABLE>
Withdrawal Charge
No charge for first withdrawal in a contract year; thereafter, the charge is
$25 per withdrawal or, if less, 2% of the amount of the withdrawal.
Transfer Charge
No charge for first 12 transfers in a contract year; thereafter, the charge
is $10 per transfer or, if less, 2% of the amount transferred.
ANNUAL ADMINISTRATION MAINTENANCE CHARGE
$30 per contract per contract year.
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<TABLE>
<S> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES Mortality and Expense Risk Charge............ 1.25%
(as a percentage of average account value) Asset Related Administration Charge.......... .15%
-----
Total Separate Account Annual Expenses....... 1.40%
=====
</TABLE>
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<TABLE>
<CAPTION>
PORTFOLIO EXPENSES Management Distribution and Other Total Annual
(as a percentage of average net assets) Fees Service (12b-1) Fees Expenses Expenses
(after reimbursement and waiver for certain Portfolios)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
MANAGED BY SAFECO ASSET MANAGEMENT
COMPANY (a)
RST Equity Portfolio....... 0.74% None 0.02% 0.76%
RST Growth Opportunities Portfolio... 0.74% None 0.04% 0.78%
RST Northwest Portfolio.... 0.74% None 0.10% 0.84%
RST Bond Portfolio......... 0.74% None 0.17% 0.91%
RST Money Market Portfolio... 0.65% None 0.13% 0.78%
RST Small Company Value Portfolio... 0.85% None 0.10% 0.95%
MANAGED BY AIM MANAGEMENT GROUP (a)
AIM V.I. Aggressive Growth Fund... 0.80% None 0.36% 1.16%
AIM V.I. Growth Fund....... 0.64% None 0.08% 0.72%
MANAGED BY AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC. (a)
VP Balanced................ 0.90% None 0.00% 0.90%
VP International........... 1.34% None 0.00% 1.34%
MANAGED BY THE DREYFUS CORPORATION (a)
Dreyfus IP MidCap Stock Portfolio... 0.75% None 0.22% 0.97%
Dreyfus IP Technology Growth
Portfolio................ 0.75% None 0.32% 1.07%
The Dreyfus Socially Responsible
Growth Fund, Inc......... 0.75% None 0.04% 0.79%
Dreyfus VIF Appreciation Portfolio... 0.75% None 0.03% 0.78%
Dreyfus VIF Quality Bond Portfolio... 0.65% None 0.09% 0.74%
MANAGED BY FEDERATED INVESTMENT
MANAGEMENT COMPANY (a)
Federated High Income Bond Fund II... 0.60% None 0.19% 0.79%
Federated Utility Fund II... 0.75% None 0.19% 0.94%
MANAGED BY FEDERATED GLOBAL INVESTMENT
MANAGEMENT CORP. (a)
Federated International Equity Fund
II....................... 0.54% None 0.71% 1.25%
MANAGED BY FIDELITY MANAGEMENT &
RESEARCH COMPANY (a)
(Initial Class shares only)
VIP Growth Portfolio (b)... 0.58% None 0.07% 0.65%
VIP II Contrafund Portfolio (b)... 0.58% None 0.07% 0.65%
VIP III Growth Opportunities
Portfolio (b)............ 0.58% None 0.10% 0.68%
VIP III Growth & Income Portfolio
(b)...................... 0.48% None 0.11% 0.59%
MANAGED BY FRANKLIN ADVISERS, INC. (a)
Franklin Small Cap Fund - Class 2.... 0.55% 0.25% 0.27% 1.07%
Franklin U.S. Government Fund -
Class 2................. 0.49% 0.25% 0.02% 0.76%
</TABLE>
SPINNAKER PROSPECTUS
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
MANAGED BY INVESCO FUNDS GROUP, INC.
(a)
VIF-Real Estate Opportunity Fund... 0.90% None 1.07% 1.97%
MANAGED BY J.P. MORGAN INVESTMENT
MANAGEMENT INC. (a)
J.P. Morgan U.S. Disciplined Equity
Portfolio................ 0.35% None 0.50% 0.85%
MANAGED BY LEXINGTON MANAGEMENT
CORPORATION (a)
Lexington Emerging Markets Fund,
Inc...................... 0.85% None 0.85% 1.70%
Lexington Natural Resources Trust... 1.00% None 0.33% 1.33%
MANAGED BY SCUDDER KEMPER INVESTMENTS,
INC. (a)
Scudder VLIF Balanced Portfolio... 0.475% None 0.08% 0.55%
Scudder VLIF International
Portfolio................ 0.853% None 0.18% 1.03%
MANAGED BY TEMPLETON ASSET MANAGEMENT,
LTD. (a)
Templeton Developing Markets
Securities Fund - Class 2... 1.25% 0.25% 0.31% 1.81%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In some cases the fund advisers or other parties agree to waive or reimburse
all or a portion of the PORTFOLIO expenses. For those PORTFOLIOS where such
an agreement exists, the expenses absent waiver or reimbursement would have
been 1.22% for the RST Small Company Value Portfolio, 4.62% for the AIM V.I.
Aggressive Growth Fund, 1.46% for the Dreyfus IP MidCap Stock Portfolio,
1.34% for the Dreyfus IP Technology Growth Portfolio, 1.71% for the
Federated International Equity Fund II, 9.77% for the VIF-Real Estate
Opportunity Fund, and 0.87% for the J.P. Morgan U.S. Disciplined Equity
Portfolio. See the PORTFOLIO prospectuses for more detailed information. In
addition, we have Fund Participation Agreements with each of the non-SAFECO
fund managers that describe the administrative practices and
responsibilities of the parties. To the extent it performs services for the
fund, SAFECO Life may receive an asset based administrative fee from the
fund's adviser or distributor.
(b) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, through arrangements with certain
funds', or FMR on behalf of certain funds', custodian, credits realized as a
result of uninvested cash balances were used to reduce a portion of each
applicable fund's expenses. Without these reductions, the total operating
expenses presented in the table would have been 0.66% for the VIP Growth
Portfolio, 0.67% for the VIP II Contrafund Portfolio, 0.69% for the VIP III
Growth Opportunities Portfolio, and 0.60% for the VIP III Growth & Income
Portfolio.
The above PORTFOLIO expenses were provided by the PORTFOLIOS. We have not
independently verified the accuracy of the information.
SPINNAKER PROSPECTUS
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
RST Equity Portfolio (a) $ 97 (a) $128 (a) $161 (a) $257
(b) $ 23 (b) $ 70 (b) $120 (b) $257
RST Growth Opportunities Portfolio (a) $ 97 (a) $129 (a) $162 (a) $259
(b) $ 23 (b) $ 70 (b) $121 (b) $259
RST Northwest Portfolio (a) $ 97 (a) $131 (a) $165 (a) $265
(b) $ 23 (b) $ 72 (b) $124 (b) $265
RST Bond Portfolio (a) $ 98 (a) $133 (a) $168 (a) $272
(b) $ 24 (b) $ 74 (b) $127 (b) $272
RST Money Market Portfolio (a) $ 97 (a) $129 (a) $162 (a) $259
(b) $ 23 (b) $ 70 (b) $121 (b) $259
RST Small Company Value Portfolio (a) $ 98 (a) $134 (a) $170 (a) $276
(b) $ 25 (b) $ 76 (b) $129 (b) $276
MANAGED BY AIM MANAGEMENT GROUP
AIM V.I. Aggressive Growth Fund (a) $100 (a) $140 (a) $180 (a) $297
(b) $ 27 (b) $ 82 (b) $140 (b) $297
AIM V.I. Growth Fund (a) $ 96 (a) $127 (a) $159 (a) $253
(b) $ 22 (b) $ 69 (b) $118 (b) $253
MANAGED BY AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
VP Balanced (a) $ 98 (a) $132 (a) $168 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
VP International (a) $102 (a) $145 (a) $189 (a) $314
(b) $ 28 (b) $ 87 (b) $149 (b) $314
MANAGED BY THE DREYFUS CORPORATION
Dreyfus IP MidCap Stock Portfolio (a) $ 99 (a) $134 (a) $171 (a) $278
(b) $ 25 (b) $ 76 (b) $130 (b) $278
Dreyfus IP Technology Growth
Portfolio (a) $100 (a) $137 (a) $176 (a) $288
(b) $ 26 (b) $ 79 (b) $135 (b) $288
The Dreyfus Socially Responsible
Growth Fund, Inc. (a) $ 97 (a) $129 (a) $162 (a) $260
(b) $ 23 (b) $ 71 (b) $121 (b) $260
Dreyfus VIF Appreciation Portfolio (a) $ 97 (a) $129 (a) $162 (a) $259
(b) $ 23 (b) $ 70 (b) $121 (b) $259
Dreyfus VIF Quality Bond Portfolio (a) $ 96 (a) $128 (a) $160 (a) $255
(b) $ 22 (b) $ 69 (b) $119 (b) $255
MANAGED BY FEDERATED INVESTMENT MANAGEMENT
COMPANY
Federated High Income Bond Fund II (a) $ 97 (a) $129 (a) $162 (a) $260
(b) $ 23 (b) $ 71 (b) $121 (b) $260
Federated Utility Fund II (a) $ 98 (a) $134 (a) $170 (a) $275
(b) $ 24 (b) $ 75 (b) $129 (b) $275
MANAGED BY FEDERATED GLOBAL INVESTMENT
MANAGEMENT CORP.
Federated International Equity Fund
II (a) $101 (a) $142 (a) $185 (a) $306
(b) $ 28 (b) $ 85 (b) $144 (b) $306
MANAGED BY FIDELITY MANAGEMENT & RESEARCH
COMPANY
VIP Growth Portfolio (a) $ 96 (a) $125 (a) $156 (a) $246
(b) $ 22 (b) $ 67 (b) $114 (b) $246
VIP II Contrafund Portfolio (a) $ 96 (a) $125 (a) $156 (a) $246
(b) $ 22 (b) $ 67 (b) $114 (b) $246
VIP III Growth Opportunities
Portfolio (a) $ 96 (a) $126 (a) $157 (a) $249
(b) $ 22 (b) $ 67 (b) $116 (b) $249
VIP III Growth & Income Portfolio (a) $ 95 (a) $124 (a) $153 (a) $239
(b) $ 21 (b) $ 65 (b) $111 (b) $239
MANAGED BY FRANKLIN ADVISERS, INC.
Franklin Small Cap Fund - Class 2 (a) $100 (a) $137 (a) $176 (a) $288
(b) $ 26 (b) $ 79 (b) $135 (b) $288
Franklin U.S. Government Fund -
Class 2 (a) $ 97 (a) $128 (a) $161 (a) $257
(b) $ 23 (b) $ 70 (b) $120 (b) $257
MANAGED BY INVESCO FUNDS GROUP, INC.
VIF-Real Estate Opportunity Fund (a) $108 (a) $162 (a) $218 (a) $373
(b) $ 35 (b) $106 (b) $179 (b) $373
</TABLE>
SPINNAKER PROSPECTUS
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT
INC.
J.P. Morgan U.S. Disciplined Equity
Portfolio (a) $ 97 (a) $131 (a) $165 (a) $266
(b) $ 24 (b) $ 73 (b) $124 (b) $266
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
Lexington Emerging Markets Fund, Inc. (a) $105 (a) $155 (a) $206 (a) $348
(b) $ 32 (b) $ 98 (b) $166 (b) $348
Lexington Natural Resources Trust (a) $102 (a) $145 (a) $188 (a) $313
(b) $ 28 (b) $ 87 (b) $148 (b) $313
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
Scudder VLIF Balanced Portfolio (a) $ 95 (a) $123 (a) $151 (a) $236
(b) $ 21 (b) $ 64 (b) $109 (b) $236
Scudder VLIF International Portfolio (a) $ 99 (a) $136 (a) $174 (a) $284
(b) $ 25 (b) $ 78 (b) $133 (b) $284
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
Templeton Developing Markets
Securities Fund - Class 2 (a) $106 (a) $158 (a) $211 (a) $358
(b) $ 33 (b) $101 (b) $171 (b) $358
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show the various expenses you will incur
directly and indirectly by investing in the contract. The Fee Table reflects
expenses of the Separate Account as well as the PORTFOLIOS.
2. There are situations where all or some of the OWNER transaction expenses do
not apply. See Section 5 - Expenses for a complete discussion.
3. The examples do not reflect premium taxes that may apply depending on the
state where you live.
4. The examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
5. For purposes of calculating the Examples, the annual administration
maintenance charge of $30 has been converted into a percentage based on a
ratio of the total annual administration maintenance charges collected
during the year to the total average net assets of all the contracts.
THE APPENDIX CONTAINS ACCUMULATION UNIT VALUE HISTORY.
SPINNAKER PROSPECTUS
7
<PAGE>
- ---------------------------------------------------
1. THE ANNUITY CONTRACT
- ----------------------------------------------
This prospectus describes a variable annuity contract offered by SAFECO Life.
The annuity contract is an agreement between SAFECO Life and you, the OWNER,
where we promise to pay the payee (you or someone you choose) an income in the
form of ANNUITY PAYMENTS, beginning on a date you select, or a death benefit to
your BENEFICIARY(IES). When you are investing money, your contract is in the
ACCUMULATION PHASE. Once your contract value is applied to purchase ANNUITY
PAYMENTS, your contract switches to the INCOME PHASE.
Contracts owned by or for individuals generally benefit from TAX DEFERRAL under
the Internal Revenue Code of 1986, as amended ("Code"). You can change your
investment allocation or transfer between investment options without paying tax
on contract earnings until you take money out.
The contract is called a variable annuity because you can choose among the
available variable investment PORTFOLIOS in which you can make or lose money
depending upon market conditions. The investment performance of the PORTFOLIO(S)
you select affects the value of your contract and the amount of any variable
ANNUITY PAYMENTS.
The contract also has a FIXED ACCOUNT. Your money earns interest at a rate we
set. The annual effective interest rate credited to a PURCHASE PAYMENT will
never be less than 3% and is guaranteed for at least 12 months. The total
interest credited to you in the FIXED ACCOUNT affects the value of your
contract. Unlike variable ANNUITY PAYMENTS, fixed ANNUITY PAYMENTS are not
affected by the investment performance of the PORTFOLIOS.
OWNER
The OWNER is as shown on the contract application, unless changed. You, as the
OWNER, may exercise all ownership rights under the contract.
The contract can be owned by JOINT OWNERS. Each JOINT OWNER has equal ownership
rights and must exercise those rights jointly.
ANNUITANT
The ANNUITANT is the person on whose life ANNUITY PAYMENTS are based. You are
the ANNUITANT unless you designate someone else before switching to the INCOME
PHASE.
OWNERS who are not treated as individuals under Section 72 of the Code (e.g.,
corporations or certain trusts) may not change the ANNUITANT.
ASSIGNMENT
You can assign the contract. This may result in current taxation and, if you are
under age 59 1/2, a 10% tax penalty. Assignments are effective when we receive
and acknowledge them. We are not liable for payments made prior to receipt of an
effective assignment. We are not responsible for the validity of any
assignments, tax consequences, or actions we may take based on an assignment
later determined to be invalid.
If your contract is an Individual Retirement Annuity ("IRA") or otherwise
tax-qualified, your ability to assign the contract may be limited.
- ---------------------------------------------------
2. ANNUITY PAYMENTS (INCOME PHASE)
- ----------------------------------------------
You can switch to the INCOME PHASE at any time unless you are restricted by the
requirements of a retirement plan. During the INCOME PHASE, the payee (you or
someone you choose) will receive ANNUITY PAYMENTS beginning on the ANNUITY DATE.
You may select or change an annuity option at any time prior to switching to the
INCOME PHASE. Some retirement plans and/or contract versions require that the
ANNUITANT be the OWNER and payee once ANNUITY PAYMENTS begin.
Switching to the INCOME PHASE is irrevocable. Once your contract value has been
applied to purchase ANNUITY PAYMENTS, you cannot switch back to the ACCUMULATION
PHASE. During the INCOME PHASE, you cannot add PURCHASE PAYMENTS, change or add
an ANNUITANT, change the annuity option, or change between fixed and variable
ANNUITY PAYMENTS. If you transfer the right to receive ANNUITY PAYMENTS to
someone else, there may be gift and income tax consequences.
ANNUITY PAYMENTS are required to begin on the earlier of:
- the first available payment date after you elect to begin ANNUITY PAYMENTS;
- the latest ANNUITY DATE specified in your contract; or
- a different ANNUITY DATE if required by law.
You can choose whether ANNUITY PAYMENTS will be made on a fixed basis, variable
basis, or both. If the amount applied to an annuity option is less than $5,000,
we may pay you in a lump sum where permitted by state law. You can choose one of
the options listed below or any other option you want and that we agree to
provide. Life annuity options (the first three options) convert ACCUMULATION
UNITS to ANNUITY UNITS on the date you switch to the INCOME PHASE. Once ANNUITY
PAYMENTS under a life annuity option are started, they cannot be exchanged for a
lump sum. See the SAI for additional information.
The amount of each ANNUITY PAYMENT depends on many factors including the
guarantees under the annuity option you choose, the frequency of ANNUITY
PAYMENTS, the performance if you choose variable ANNUITY PAYMENTS, the
ANNUITANT'S age at the time you switch to the INCOME PHASE and under some
contracts, the ANNUITANT'S sex. If you
SPINNAKER PROSPECTUS
8
<PAGE>
choose a life annuity option, the number of ANNUITY PAYMENTS the payee receives
depends on how long the ANNUITANT lives, not the ANNUITANT'S life expectancy.
LIFE ANNUITY. The payee receives monthly ANNUITY PAYMENTS as long as the
ANNUITANT is living. ANNUITY PAYMENTS stop when the ANNUITANT dies. If the
ANNUITANT has a shortened life expectancy, there is a risk that fewer
ANNUITY PAYMENTS will be made.
LIFE ANNUITY WITH GUARANTEED PERIOD. The payee receives monthly ANNUITY
PAYMENTS for the longer of the ANNUITANT'S life or a guaranteed period of
five or more years, as selected by you and agreed to by us. If the ANNUITANT
dies before all guaranteed payments have been made, the rest will be made to
the BENEFICIARY. ANNUITY PAYMENTS stop the later of the date the ANNUITANT
dies or the date the last guaranteed payment is made. The amount of the
ANNUITY PAYMENTS may be affected by the length of the guaranteed period you
select. A shorter guaranteed period may result in higher ANNUITY PAYMENTS
during the ANNUITANT'S life and fewer or no remaining guaranteed payments to
the BENEFICIARY.
JOINT AND SURVIVOR LIFE ANNUITY. The payee receives monthly ANNUITY
PAYMENTS as long as the ANNUITANT is living. After the ANNUITANT dies, the
payee receives a specified percentage of each ANNUITY PAYMENT as long as the
second ANNUITANT is living. You name the second ANNUITANT and payment
percentage at the time you elect this option. Choosing a lower percentage
amount paid after the death of the ANNUITANT and while the second ANNUITANT
is living results in higher payments while both ANNUITANTS are alive.
ANNUITY PAYMENTS stop on the later of the date the ANNUITANT dies or the
date the second ANNUITANT dies.
PAYMENTS BASED ON A NUMBER OF YEARS. The payee receives substantially equal
ANNUITY PAYMENTS based on a number of years as selected by you and agreed to
by us. You may select monthly, quarterly, or annual ANNUITY PAYMENTS. Each
ANNUITY PAYMENT reduces the number of ACCUMULATION UNITS and/or value of the
FIXED ACCOUNT in the contract. ANNUITY PAYMENTS continue until the entire
value in the PORTFOLIOS and/or FIXED ACCOUNT has been paid out. You can stop
these ANNUITY PAYMENTS and receive a lump sum equal to the remaining
contract value less any contingent deferred sales charge. There may be tax
consequences and penalties for stopping these ANNUITY PAYMENTS. However,
this feature may be important to you if you do not have other sources of
funds for emergencies or other financial needs that may arise. This option
does not promise to make payments for the ANNUITANT'S life. If the ANNUITANT
dies before all ANNUITY PAYMENTS have been made, there will be a death
benefit payable to the BENEFICIARY. See Section 9 - Death Benefit for more
information.
If you do not choose an annuity option at least 30 days before the latest
ANNUITY DATE specified in your contract, we will make ANNUITY PAYMENTS under the
Payments Based on a Number of Years annuity option unless your contract states
otherwise. The number of years will be equal to the ANNUITANT'S life expectancy.
We reserve the right to change the payment frequency if payment amounts would be
less than $250. You may elect to have payments delivered by mail or
electronically transferred to a bank account.
We may require proof of age or sex before beginning ANNUITY PAYMENTS that are
based on life or life expectancy. If the age or sex of any ANNUITANT has been
misstated, ANNUITY PAYMENTS will be based on the corrected information.
Underpayments will be made up in a lump sum with the next scheduled payment.
Overpayments will be deducted from future payments until the total is repaid. We
may require evidence satisfactory to us that an ANNUITANT is living before we
make any payment.
Any portion of ANNUITY PAYMENTS based on investment in the PORTFOLIOS will vary
in amount depending on investment performance. If you don't tell us otherwise,
ANNUITY PAYMENTS will be based on the investment allocations in place on the
date you switch to the INCOME PHASE.
If you choose to have any portion of ANNUITY PAYMENTS based on investment in the
PORTFOLIOS, the dollar amount of each payment will depend on:
- the value of your contract in the PORTFOLIOS as of the first close of the
New York Stock Exchange ("NYSE") on or after the 15th day of the month
preceding the ANNUITY DATE;
- an assumed investment return; and
- the investment performance of the PORTFOLIOS you selected.
If actual performance of the PORTFOLIOS exceeds the assumed investment return,
the value of ANNUITY UNITS increases and subsequent ANNUITY PAYMENTS will be
larger. Similarly, if the actual performance is less than the assumed investment
return, the value of your ANNUITY UNITS decreases and subsequent ANNUITY
PAYMENTS will be smaller. Under the Payments Based on a Number of Years annuity
option, actual performance of the PORTFOLIOS and any withdrawals may affect the
amount or duration of ANNUITY PAYMENTS.
CHANGING PORTFOLIOS DURING
THE INCOME PHASE
After you switch to the INCOME PHASE, you may request to change PORTFOLIO
elections once a month. Transfers are not allowed to or from the FIXED ACCOUNT.
Changes will affect
SPINNAKER PROSPECTUS
9
<PAGE>
the number of units used to calculate ANNUITY PAYMENTS. See the SAI for more
information.
- ---------------------------------------------------
3. PURCHASE
- ----------------------------------------------
PURCHASE PAYMENTS
A PURCHASE PAYMENT is the money you give us to buy the contract, plus any
additional money you invest in the contract after you own it. You can purchase a
NON-QUALIFIED contract with a minimum initial investment of $2,000. Additional
PURCHASE PAYMENTS of $250 or more may be added at anytime during the
ACCUMULATION PHASE. For a QUALIFIED contract, all PURCHASE PAYMENTS must be $30
or more, unless your retirement plan has a different requirement. PURCHASE
PAYMENTS for NON-QUALIFIED contracts and some QUALIFIED contracts may be made
automatically from your checking or savings account for as little as $100. This
is referred to as Systematic Investing. Initial PURCHASE PAYMENTS in Maine and
South Carolina may never be less than $1,000, even if made in connection with a
QUALIFIED contract or Systematic Investing.
Any PURCHASE PAYMENT in excess of $1 million requires our prior approval.
Your initial PURCHASE PAYMENT is normally credited to you within two days of our
receipt. If your initial PURCHASE PAYMENT is not accompanied by all the
information we need to issue your contract, we will contact you to get it. If we
cannot get all the required information within five days, we will either return
your PURCHASE PAYMENT or get your permission to keep it until we have received
the necessary information. Your contract date is the date your initial PURCHASE
PAYMENT and all required information are received at SAFECO Life.
We reserve the right to refuse any application or PURCHASE PAYMENT.
ALLOCATION OF PURCHASE PAYMENTS
You tell us how to apply your initial PURCHASE PAYMENT by specifying your
desired allocation on the contract application. Unless you tell us otherwise,
subsequent PURCHASE PAYMENTS will be allocated in the same proportion as your
most recent PURCHASE PAYMENT (unless that was a PURCHASE PAYMENT you directed us
to allocate on a one-time-only basis). You may change the way subsequent
PURCHASE PAYMENTS are allocated by providing us with written instructions or by
telephoning us, if we have your written authorization to accept telephone
instructions. See "Transfers" as discussed in Section 4.
Once a PURCHASE PAYMENT is received, the portion to be allocated to the FIXED
ACCOUNT is credited as of the day it is received. The portion to be allocated to
the PORTFOLIOS is effective and valued as of the next close of the NYSE. This is
usually 4:00 p.m. eastern time. If for any reason the NYSE is closed when we
receive your PURCHASE PAYMENT it will be valued as of the close of the NYSE on
its next regular business day.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the PORTFOLIO(S) you choose. In order to keep
track of this we use a unit of measure called an ACCUMULATION UNIT, which works
like a share of a mutual fund. During the INCOME PHASE, we call them ANNUITY
UNITS.
We calculate the value of an ACCUMULATION UNIT for each PORTFOLIO after the NYSE
closes each day by:
1. determining the total value of the particular PORTFOLIO;
2. subtracting from that amount insurance and other charges; and
3. dividing this amount by the number of outstanding ACCUMULATION UNITS of
the particular PORTFOLIO.
The value of an ACCUMULATION UNIT may go up or down from day to day.
When you make PURCHASE PAYMENTS or transfers into a PORTFOLIO, we credit your
contract with ACCUMULATION UNITS. Conversely, when you request a withdrawal or a
transfer of money from a PORTFOLIO, ACCUMULATION UNITS are liquidated. In either
case, the increase or decrease in the number of your ACCUMULATION UNITS is
determined by taking the amount of the PURCHASE PAYMENT, transfer, or withdrawal
and dividing it by the value of an ACCUMULATION UNIT on the date the transaction
occurs.
EXAMPLE: On Monday we receive a $1,000 PURCHASE PAYMENT from you before the
NYSE closes. You have told us you want this to go to the RST Growth
Opportunities Portfolio. When the NYSE closes on that Monday, we determine
that the value of an ACCUMULATION UNIT for the RST Growth Opportunities
Portfolio is $34.12. We then divide $1,000 by $34.12 and credit your
contract on Monday night with 29.31 ACCUMULATION UNITS for the RST Growth
Opportunities Portfolio.
RIGHT TO EXAMINE
You may cancel the contract without charge by returning it to us or to your
SAFECO Life registered representative within the period stated on the front of
your contract. This period will be at least 10 days (longer in some states). You
will receive your contract value, a return of PURCHASE PAYMENTS, or the greater
of the two depending on state requirements or if your contract is an IRA.
Contract value may be more or less than PURCHASE PAYMENTS. When we are required
to guarantee a return of PURCHASE PAYMENTS, we reserve the right to initially
apply amounts designated for the PORTFOLIOS to the RST Money Market Portfolio
until the contract is 15 days old. These
SPINNAKER PROSPECTUS
10
<PAGE>
amounts will then be allocated in the manner you selected unless you have
canceled the contract.
- ---------------------------------------------------
4. INVESTMENT OPTIONS
- ----------------------------------------------
VARIABLE INVESTMENT OPTIONS
The PORTFOLIOS are not offered directly to the public but are available to life
insurance companies as investment options for variable annuity and variable life
insurance contracts. The performance for the PORTFOLIOS may differ substantially
from publicly traded mutual funds with similar names and objectives.
Each PORTFOLIO has its own investment objective. You should read the
prospectuses for the PORTFOLIOS carefully before investing. Copies of these
prospectuses accompany this prospectus and may include information on other
PORTFOLIOS not available under this contract. Not all PORTFOLIOS listed below
may be available for all contracts.
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Opportunities Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Money Market Portfolio
- RST Small Company Value Portfolio
MANAGED BY AIM MANAGEMENT GROUP
- AIM V.I. Aggressive Growth Fund
- AIM V.I. Growth Fund
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
- VP Balanced
- VP International
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus IP MidCap Stock Portfolio
- Dreyfus IP Technology Growth Portfolio
- The Dreyfus Socially Responsible Growth Fund, Inc.
- Dreyfus VIF Appreciation Portfolio
- Dreyfus VIF Quality Bond Portfolio
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Federated High Income Bond Fund II
- Federated Utility Fund II
MANAGED BY FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
- Federated International Equity Fund II *
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Growth Portfolio
- VIP II Contrafund Portfolio *
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
MANAGED BY FRANKLIN ADVISERS, INC.
- Franklin Small Cap Fund - Class 2
- Franklin U.S. Government Fund - Class 2
MANAGED BY INVESCO FUNDS GROUP, INC.
- VIF-Real Estate Opportunity Fund
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT INC.
- J.P. Morgan U.S. Disciplined Equity Portfolio
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Emerging Markets Fund, Inc *
- Lexington Natural Resources Trust *
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
- Scudder VLIF Balanced Portfolio
- Scudder VLIF International Portfolio
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
- Templeton Developing Markets Securities Fund - Class 2
* THESE PORTFOLIOS ARE AVAILABLE ONLY IF YOU HAVE BEEN CONTINUOUSLY INVESTED IN
THEM SINCE APRIL 30, 2000.
We reserve the right to add, combine, restrict, or remove any PORTFOLIO as an
investment option under your contract. If any shares of the PORTFOLIOS are no
longer available, or if in our view no longer meet the purpose of the contract,
it may be necessary to substitute shares of another PORTFOLIO. We will seek
prior approval of the SEC and give you notice before doing this.
FIXED ACCOUNT
The contract also offers a FIXED ACCOUNT with interest rates that are guaranteed
by SAFECO Life.
Each PURCHASE PAYMENT will be credited with the interest rate established for
the date that we receive the PURCHASE PAYMENT. This rate will apply to the
PURCHASE PAYMENT for at least 12 months from the date we receive it.
Thereafter we can adjust the interest rate. Adjusted rates will apply to
PURCHASE PAYMENTS and their credited interest for at least 12 months, when the
rate can be adjusted again.
Different interest rates may apply to each of your PURCHASE PAYMENTS depending
on the interest rate established for the date we receive the PURCHASE PAYMENT
and any subsequent rate adjustments. Annual effective interest rates will never
be less than 3%.
TRANSFERS
During the ACCUMULATION PHASE you can transfer money among the PORTFOLIOS and
the FIXED ACCOUNT 12 times per contract year free of charge. We measure a
contract year from the anniversary of your contract date. Each
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additional transfer in a contract year may have a charge of $10 or 2% of the
amount transferred whichever is less.
The minimum amount you can transfer out of any investment option at one time is
$500, or the entire value of the investment option if less. In addition to this
$500 minimum, transfers out of the FIXED ACCOUNT are limited to a maximum of 10%
of the FIXED ACCOUNT value per contract year. You must transfer the entire
amount out of the investment option if, after a transfer, the remaining balance
would be less than $500. The minimum you can transfer into any investment option
is $50.
We will accept transfers by written request or by telephone. Each transfer must
identify:
- your contract;
- the amount of the transfer; and
- which investment options are affected.
Transfers by telephone will be accepted if we have properly signed authorization
on record. You may authorize someone else to make transfers by telephone on your
behalf. We will use reasonable procedures to confirm that instructions given to
us by telephone are genuine. If we do not use such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions. We tape record
all telephone instructions.
We reserve the right to modify, suspend, or terminate transfer privileges at any
time.
SCHEDULED TRANSFERS
You can choose among several investment strategies which are available for any
investment option that has not had a previous transfer or withdrawal taken
during that contract year. For each investment option, scheduled transfers can
be initiated once during each contract year. Once started, these scheduled
transfers will stop if an unscheduled transfer or withdrawal is made from the
"source" investment option. Scheduled transfers will otherwise continue until
you instruct us to stop or all money has been transferred out of the "source"
investment option. These scheduled transfers will not count against your 12 free
transfers as long as you continue them for at least six months.
DOLLAR COST AVERAGING. This strategy is designed to achieve a lower average
cost per unit over time. It does not assure a profit nor protect against a
loss. Investing should continue at a consistent level in both market ups and
downs. You can systematically transfer set amounts of at least $50 each
month or quarter from any PORTFOLIO or the FIXED ACCOUNT to any of the other
PORTFOLIOS.
Dollar Cost Averaging transfers from the FIXED ACCOUNT are limited to 4% per
quarter (1.33% monthly) of your value in the FIXED ACCOUNT as of the date of
the initial transfer. By choosing to have the transfer limit recalculated
annually, the limit is raised to 4.5% per quarter (1.5% monthly). There are
no percentage limits on transfers out of the PORTFOLIOS.
APPRECIATION OR INTEREST SWEEP. If your contract value is at least $10,000,
you can instruct us to automatically transfer earnings up to 10% from the
RST Money Market Portfolio or earned interest up to 10% from the FIXED
ACCOUNT to the other PORTFOLIOS monthly, quarterly, or annually.
PORTFOLIO REBALANCING. After your money has been invested, the performance
of the PORTFOLIOS may cause the percentage in each PORTFOLIO to change from
your original allocations. If your contract value is at least $10,000, you
can instruct us to adjust your investment in the PORTFOLIOS to maintain a
predetermined mix quarterly, semiannually, or annually. Portfolio
Rebalancing can be used with Dollar Cost Averaging and Appreciation or
Interest Sweep; however, it is not available for the FIXED ACCOUNT.
- ---------------------------------------------------
5. EXPENSES
- ----------------------------------------------
There are charges and other expenses associated with the contract that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGES
Each day we make deductions for our insurance charges. We do this as part of our
calculation of the value of ACCUMULATION and ANNUITY UNITS. The insurance charge
has two parts: 1) the mortality and expense risk charge and 2) the asset related
administration charge.
MORTALITY AND EXPENSE RISK CHARGE. This charge is equal, on an annual
basis, to 1.25% of the average daily net asset value of each PORTFOLIO. This
charge is for all the insurance benefits (e.g., guaranteed annuity rates and
death benefits) and for the risk (expense risk) that the current charges
will not be sufficient in the future to cover the cost of administering the
contract. If the charges under the contract are not sufficient, then we will
bear the loss. If the charges are more than sufficient, we will retain the
excess. The rate of the mortality and expense risk charge will not be
increased.
ASSET RELATED ADMINISTRATION CHARGE. This charge is equal, on an annual
basis, to .15% of the average daily net asset value of each PORTFOLIO. Since
this charge is an asset-based charge, the amount of the charge associated
with your particular contract may have no relationship to the administrative
costs actually incurred. This charge, together with the annual
administration maintenance charge (see below), is for all the expenses
associated with contract administration. Some of these expenses are:
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preparation of the contract, confirmations and statements; maintenance of
contract records; personnel costs; legal and accounting fees; filing fees;
and computer and system costs. If this charge and the annual administration
maintenance charge are not enough to cover the costs of the contract in the
future, we will bear the loss. We do not intend to profit from this charge.
The rate of the asset related administration charge will not be increased.
ANNUAL ADMINISTRATION MAINTENANCE CHARGE
During the ACCUMULATION PHASE we will deduct a $30 annual administration
maintenance charge from your contract on the last day of each contract year and
if you make a complete withdrawal. This charge is for administrative expenses
(see above) and may be changed but may never exceed $35 per contract year. We
will not deduct this charge if the value of your contract is at least $50,000
when the deduction is to be made.
During the INCOME PHASE we will not deduct this charge unless you have chosen
Payments Based on a Number of Years as your annuity option and your contract
value is less than $50,000.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be assessed on withdrawals in excess of
your free withdrawal amount that is described under Section 7 - Access to Your
Money. This charge is for expenses incurred in connection with the promotion,
sale, and distribution of the contracts. If the contingent deferred sales charge
is insufficient, excess amounts resulting from the mortality and expense risk
charge may be used to recover these expenses.
Unlike many annuity contracts, this contract bases the contingent deferred sales
charge on the age of your contract, not on the length of time each PURCHASE
PAYMENT is in your contract. Subsequent PURCHASE PAYMENTS do not begin a new
contingent deferred sales charge period. The contingent deferred sales charge
("CDSC" in the table below) is stated as a percentage of the amount you
withdraw. It starts at 8% in the first contract year and declines one percent
each contract year as follows:
<TABLE>
<CAPTION>
Contract Year 1 2 3 4 5 6 7 8 9+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CDSC 8% 7% 6% 5% 4% 3% 2% 1% 0%
</TABLE>
When the withdrawal is for only part of the value of your contract, the
contingent deferred sales charge is deducted from the remaining value in your
contract.
We will not assess the contingent deferred sales charge for:
- ANNUITY PAYMENTS;
- Repetitive Withdrawals taken over life expectancy;
- eligible healthcare confinement withdrawals; and
- death benefits.
We may reduce or eliminate the amount of the contingent deferred sales charge
when the contract is sold under circumstances which reduce our sales expense.
See Section 10 - Other Information.
WITHDRAWAL CHARGE
We may deduct a separate withdrawal charge equal to $25 or 2% of the amount
withdrawn whichever is less, for each withdrawal after the first withdrawal in a
contract year. This charge is deducted from the remaining value in your
contract.
We will not deduct this charge for ANNUITY PAYMENTS or Repetitive Withdrawals.
TRANSFER CHARGE
You can make 12 free transfers every contract year. If you make more than 12
transfers in a contract year, we may deduct a transfer charge equal to $10 or 2%
of the amount that is transferred whichever is less.
If the transfer is part of Dollar Cost Averaging, Appreciation or Interest
Sweep, or Portfolio Rebalancing it will not be counted as part of your 12 free
transfers, provided those transfers continue for at least six months.
PREMIUM TAXES
States and other governmental entities (e.g., municipalities) may charge premium
taxes. These taxes generally range from 0% to 3.5%, depending on the state, and
are subject to change. Some states charge for these taxes at the time each
PURCHASE PAYMENT is made. In this case, PURCHASE PAYMENTS as discussed in this
prospectus may reflect a deduction for the premium tax. Other states charge for
these taxes when ANNUITY PAYMENTS begin. We may make a deduction from your
contract for the payment of these taxes.
INCOME OR OTHER TAXES
Currently we do not pay income or other taxes on earnings attributable to your
contract. However, if we ever incur such taxes, we reserve the right to deduct
them from your contract.
PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
PORTFOLIOS. These expenses are summarized in the Fee Table of this prospectus.
For more detailed information, you should refer to the PORTFOLIO prospectuses
that accompany this prospectus.
- ---------------------------------------------------
6. TAXES
- ----------------------------------------------
This section and additional information in the SAI discuss how federal income
tax applies to annuities in general. This information is not complete and is not
intended as tax advice. Tax laws and their interpretations are complex and
subject to change. No attempt is made to discuss state or other tax laws. SAFECO
Life does not guarantee the tax treatment of any contract or any transaction
SPINNAKER PROSPECTUS
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involving a contract. You should consult a competent tax adviser about your
individual circumstances.
ANNUITY CONTRACTS IN GENERAL
Under the Code, you generally do not pay tax on contract earnings until
received. Different tax rules apply to PURCHASE PAYMENTS and distributions
depending on how you take money out and whether your contract is QUALIFIED or
NON-QUALIFIED.
Earnings for corporate owned contracts and other contracts not owned for the
benefit of natural persons are generally taxed as ordinary income in the current
year. Exceptions may apply.
QUALIFIED CONTRACTS
Contracts purchased as an Individual Retirement Annuity ("IRA"), Roth IRA, Tax
Sheltered Annuity ("TSA"), Deferred Compensation Plan ("457"), or specially
sponsored retirement plan, are referred to as QUALIFIED contracts. To the extent
PURCHASE PAYMENTS have a zero cost basis (were made with pre-tax dollars),
distributions will be taxed as ordinary income.
QUALIFIED contracts are subject to special rules and limits on PURCHASE PAYMENTS
and distributions that vary according to the type of retirement plan. Ineligible
or excess contributions to certain retirement plans can result in substantial
penalties and possible loss of the contract's or retirement plan's QUALIFIED
status. Tax penalties of 10% or more, may apply to certain distributions; for
example if you are under age 59 1/2 and not disabled as defined by the Code.
There may be substantial penalties if you fail to take required minimum
distributions, usually beginning by age 70 1/2.
In some cases, you must satisfy retirement plan or Code requirements before you
take money out. For example, the Code restricts certain withdrawals from TSAs.
NON-QUALIFIED CONTRACTS
Contracts purchased with after-tax money and not part of an IRA, Roth IRA, TSA,
457, or specially sponsored retirement plan, are referred to as NON-QUALIFIED
contracts and receive different tax treatment than QUALIFIED contracts. Your
cost basis equals the total amount of the after-tax PURCHASE PAYMENTS remaining
in the contract.
The Code generally treats distributions as coming first from earnings and then
from PURCHASE PAYMENTS. Contracts issued by the same insurer to the same OWNER
in the same year are treated as one contract for tax purposes. Distributions
from NON-QUALIFIED contracts are taxed as ordinary income to the extent they are
attributable to earnings. Since you have already been taxed on the cost basis,
distributions attributable to PURCHASE PAYMENTS are generally not taxed.
There may be a 10% tax penalty on earnings withdrawn before you reach age
59 1/2. Certain exceptions apply, such as death or disability as defined by the
Code.
DIVERSIFICATION
Variable annuity contracts receive TAX DEFERRAL as long as investment in the
PORTFOLIOS meet diversification standards set by Treasury Regulations. This
favorable tax treatment allows you to select and make transfers among PORTFOLIOS
without paying income tax until you take money out.
We believe the PORTFOLIOS offered under this contract are being managed to
comply with existing standards. To date, neither Treasury Regulations nor the
Code give specific guidance as to the circumstances under which your contract
might lose its tax favored status as an annuity because of the number and type
of PORTFOLIOS you can select from, and the extent to which you can make
transfers. If issued, such guidance could be applied either prospectively or
retroactively. Due to the uncertainty in this area, we reserve the right to
modify the contract in an attempt to maintain favorable tax treatment.
TAX WITHHOLDING
Generally, federal income tax is withheld from the taxable portion of
withdrawals at a rate of 10%. Withholding on periodic payments as defined by the
Code is at the same rate as wages. Typically, you may elect not to have income
taxes withheld or to have withholding done at a different rate. Certain
distributions from 403(b) plans, which are not directly rolled over to another
eligible retirement plan or IRA, are subject to a mandatory 20% withholding.
- ---------------------------------------------------
7. ACCESS TO YOUR MONEY
- ----------------------------------------------
Under your contract, money may be accessed:
- by withdrawing all or some of your money during the ACCUMULATION PHASE;
- by receiving payments during the INCOME PHASE (see Section 2 - Annuity
Payments); or
- when a death benefit is paid to your BENEFICIARY (see Section 9 - Death
Benefit).
During the ACCUMULATION PHASE, you can take money out by writing to us.
Withdrawals must be at least $250. Unless you tell us differently, partial
withdrawals will be made pro rata from each investment option. Once we receive
your request, withdrawals from the PORTFOLIOS will be effective as of the next
close of the NYSE.
A withdrawal may have a contingent deferred sales charge, a withdrawal charge,
and, if you withdraw the entire contract, an annual administration maintenance
charge. There are situations where all or some of these charges don't apply. See
Section 5 - Expenses for a discussion of the charges.
FREE WITHDRAWAL AMOUNT
Your contract has a free withdrawal amount. There is no contingent deferred
sales charge on the first 10% of your contract value withdrawn in a contract
year. In addition,
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there is no withdrawal charge on the first withdrawal you make in a contract
year.
HEALTHCARE CONFINEMENT
If approved in your state, there is no contingent deferred sales charge on
withdrawals you make while you are confined in an eligible healthcare facility
(or within 60 days after confinement ends) if:
- the confinement began after your contract date; and
- we receive confirmation that your confinement has continued for 60 or more
consecutive days.
REPETITIVE WITHDRAWALS
You may request Repetitive Withdrawals at a predetermined frequency and amount.
Repetitive Withdrawals may be used to avoid tax penalties for premature
withdrawals or to satisfy distribution requirements of certain retirement plans.
To do this they must be a part of substantially equal withdrawals made at least
annually and based on:
- your life expectancy; or
- the joint life expectancy of you and a BENEFICIARY.
You may begin Repetitive Withdrawals based on life expectancy by providing us
with the correct information we need to calculate the monthly, quarterly, or
annual withdrawal amount. If you take additional withdrawals or otherwise modify
or stop these Repetitive Withdrawals, charges may apply and there may be tax
consequences and penalties.
If you make Repetitive Withdrawals that are not based on life expectancy, the
same restrictions, income taxes, and tax penalties that apply to random
withdrawals also apply to Repetitive Withdrawals.
WITHDRAWAL RESTRICTIONS ON TSA OR 403(B)
Withdrawals attributable to salary reduction contributions to TSAs for years
after 1988 and any earnings accrued after 1988, cannot be taken out unless:
- you attain age 59 1/2;
- you leave your job;
- you die or become disabled as defined by the Code;
- you experience a qualifying hardship (applies to contributions only); or
- you divorce and a distribution to your former spouse is permitted under a
Qualified Domestic Relations Order.
Tax penalties may apply to withdrawals. Restrictions on withdrawals from TSAs do
not affect rollovers or transfers between certain retirement plans.
WITHDRAWAL RESTRICTIONS ON
TEXAS OPTIONAL RETIREMENT PROGRAM
("TEXAS ORP")
Withdrawals from contracts issued in connection with Texas ORP cannot be taken
unless you:
- terminate employment in all eligible Texas institutions of higher education;
- retire;
- attain age 70 1/2; or
- die.
You must obtain a certificate of termination from your employer before you
request a withdrawal from the Texas ORP.
MINIMUM VALUE
If, after a withdrawal, the value in any PORTFOLIO or the FIXED ACCOUNT is less
than $500, the remaining amount will also be withdrawn. If, after a withdrawal,
the remaining contract value is less than $500 ($1,000 in Maine and South
Carolina), the entire contract value will be withdrawn and your contract will
terminate.
Withdrawals, including any charges, reduce the number of ACCUMULATION UNITS in
the PORTFOLIOS and/or the value of the FIXED ACCOUNT as well as the death
benefit. Income taxes, tax penalties and certain restrictions may also apply.
See Section 6 - Taxes.
- ---------------------------------------------------
8. PERFORMANCE
- ----------------------------------------------
From time to time, we may advertise "yield", "effective yield", "total return",
and "average annual total return" for some or all of the PORTFOLIOS. Some of the
PORTFOLIOS have been in existence prior to being offered in the contract. We
calculate performance data of any period prior to the PORTFOLIO being offered in
the contract as if the PORTFOLIO had been offered during those periods, using
current charges and expenses.
Performance data and rankings are based on historical results and do not promise
or project future performance.
Standardized performance makes it easier for you to compare performance of
variable contracts issued by different companies. It uses set time periods and
PURCHASE PAYMENT amounts and reflects the annual administration maintenance
charge and the contingent deferred sales charge.
Non-standardized performance helps you compare performance of PORTFOLIOS within
a contract. From time to time, non-standardized performance may accompany
standardized figures. Non-standardized performance uses different time periods
and PURCHASE PAYMENT amounts and may not reflect all of the charges included in
standardized figures. For this reason, non-standardized PORTFOLIO performance
may appear higher. Non-standardized figures may also include performance of a
PORTFOLIO prior to the
SPINNAKER PROSPECTUS
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PORTFOLIO'S availability in any variable annuity contract we offer.
Each PORTFOLIO may, from time to time, advertise performance relative to certain
performance rankings and indices compiled on an industry-wide basis, for
example:
- "Lipper Variable Insurance Products Performance Analysis Service" monitors
performance for variable annuity PORTFOLIOS and is published by Lipper
Analytical Services, Inc.
- "VARDS Report" is a monthly, variable annuity industry analysis published by
Financial Planning Resources, Inc.
- "Variable Annuity Performance Report" is a monthly analysis of variable
annuity performance published by Morningstar, Inc.
Rankings provided by these and other sources may not include all applicable
charges. More information on the method used to calculate performance for the
PORTFOLIOS and information about independent services that monitor and rank the
performance of variable annuities is in the SAI.
- ---------------------------------------------------
9. DEATH BENEFIT
- ----------------------------------------------
DEATH OF OWNER DURING THE ACCUMULATION PHASE
During the ACCUMULATION PHASE, a death benefit is payable to the BENEFICIARY
upon the death of the first OWNER to die or, if the OWNER is a non-natural
person (e.g., a corporation or trust), on the death of the first ANNUITANT to
die.
To pay the death benefit we need proof of death, such as a certified copy of a
death certificate, plus written direction from your BENEFICIARY regarding how he
or she wants to receive the money.
The death benefit is the higher of:
1) your current contract value; or
2) if you are a sole OWNER or the oldest JOINT OWNER, the Minimum Guaranteed
Death Benefit.
When determining the higher of (1) or (2) above, the calculations are based on
the earlier of:
- the date we receive proof of death and the BENEFICIARY'S election of how to
receive payment; or
- six months from the date of death.
The initial Minimum Guaranteed Death Benefit is equal to your first PURCHASE
PAYMENT. It is reset on each 8-year contract anniversary until the oldest OWNER
attains age 72. The reset benefit is equal to the immediately preceding Minimum
Guaranteed Death Benefit or is "stepped up" to your contract value on that date,
if higher.
The Minimum Guaranteed Death Benefit is immediately increased by additional
PURCHASE PAYMENTS and adjusted for withdrawals and ANNUITY PAYMENTS made under
the Payments Based on a Number of Years annuity option.
If we add money to your contract in order to satisfy the Minimum Guaranteed
Death Benefit, it will be allocated to the investment options in the same manner
as PURCHASE PAYMENTS once we receive proof of death and the BENEFICIARY'S
election of how to receive payment.
The death benefit is subject to investment performance and applicable contract
charges until the date payment is made. This value may go up or down. Thus,
BENEFICIARIES should notify us of a death as promptly as possible to limit their
risk of a decline in benefit value.
A BENEFICIARY under a NON-QUALIFIED contract may elect to receive the death
benefit as:
1) a lump sum payment or series of withdrawals that are completed within five
years from the date of death; or
2) ANNUITY PAYMENTS made over the BENEFICIARY's life or life expectancy. To
receive ANNUITY PAYMENTS, the BENEFICIARY must make this election within 60
days from our receipt of proof of death. ANNUITY PAYMENTS must begin within
one year from the date of death. Once ANNUITY PAYMENTS begin they cannot be
changed.
A BENEFICIARY under a QUALIFIED contract may have different death benefit
elections depending upon the retirement plan.
In some cases, a spouse who is entitled to receive a death benefit may have the
option to continue the contract instead. If this spouse is also the oldest JOINT
OWNER, the Minimum Guaranteed Death Benefit will apply on the death of this
spouse. Otherwise, the benefit on the death of your spouse will be the contract
value.
DEATH OF ANNUITANT DURING THE INCOME PHASE
During the INCOME PHASE, there is no longer a death benefit under the contract
unless you choose the Payments Based on a Number of Years annuity option. Under
this option, if the ANNUITANT dies before the entire contact value has been paid
out, a death benefit in the same amount as a death benefit determined during the
ACCUMULATION PHASE, is payable to the BENEFICIARY. Other annuity options may
have remaining guaranteed ANNUITY PAYMENTS after the death of the ANNUITANT. In
this situation, remaining guaranteed ANNUITY PAYMENTS will be made to the
BENEFICIARY. The death benefit or remaining guaranteed ANNUITY PAYMENTS will be
distributed to the BENEFICIARY at least as rapidly as under the method of
distribution used as of the date of the ANNUITANT'S death. See Section 2 -
Annuity Payments for more information.
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BENEFICIARY
The BENEFICIARY under the contract is determined as follows:
- surviving OWNER or JOINT OWNER; or if none, then
- surviving primary BENEFICIARIES; or if none, then
- surviving contingent BENEFICIARIES; or if none, then
- estate of the last OWNER to die.
You designate BENEFICIARIES on your contract application. You may change the
BENEFICIARY at any time by sending us a signed and dated request. An irrevocable
BENEFICIARY must consent in writing to any change. A new BENEFICIARY designation
revokes any prior designation and is not effective until we record the change.
We are not responsible for the validity of any BENEFICIARY designation nor for
any actions we may take prior to receiving and recording a BENEFICIARY change.
- ---------------------------------------------------
10. OTHER INFORMATION
- ----------------------------------------------
SAFECO LIFE
SAFECO Life was incorporated as a stock life insurance company under Washington
law on January 23, 1957. We provide individual and group life, accident and
health insurance, and annuity products and are licensed to do business in the
District of Columbia and all states except New York. We are a wholly owned
subsidiary of SAFECO Corporation which is a holding company whose subsidiaries
are primarily engaged in insurance and financial service businesses.
SEPARATE ACCOUNT
We adopted a Board Resolution to establish SAFECO Separate Account C ("Separate
Account") under Washington law on February 3, 1995. The Separate Account holds
the assets that underlie contract values invested in the PORTFOLIOS. The
Separate Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
Under Washington law, the assets in the Separate Account are the property of
SAFECO Life. However, assets in the Separate Account that are attributable to
contracts are not chargeable with liabilities arising out of any other business
we may conduct. Income, gains and losses (realized and unrealized), resulting
from assets in the Separate Account are credited to or charged against the
Separate Account without regard to other income, gains or losses of SAFECO Life.
Promises we make in the contract are general corporate obligations of SAFECO
Life and are not dependent on assets in the Separate Account.
We reserve the right to combine the Separate Account with one or more of our
other separate accounts or to deregister the Separate Account under the 1940 Act
if such registration is no longer required.
GENERAL ACCOUNT
If you put your money into the FIXED ACCOUNT, it goes into SAFECO Life's general
account. The general account is made up of all of SAFECO Life's assets other
than those attributable to separate accounts. All of the assets of the general
account are chargeable with the claims of any of our contract OWNERS as well as
our creditors. The general account invests its assets in accordance with state
insurance law.
We are not required to register the FIXED ACCOUNT or any interests therein, with
the SEC. For this reason, SEC staff has not reviewed disclosure relating to the
FIXED ACCOUNT. However, such disclosure may be subject to general provisions in
federal securities laws that relate to accuracy and completeness of statements
made in the prospectus.
DISTRIBUTION (PRINCIPAL UNDERWRITER)
The contracts are underwritten by SAFECO Securities, Inc. ("SSI"). They are sold
by individuals who, in addition to being licensed to sell variable annuity
contracts for SAFECO Life, are also registered representatives of broker-dealers
who have a current sales agreement with SSI. SSI is an affiliate of SAFECO Life
and is located at 10865 Willows Road NE, Redmond, Washington 98052. It is
registered as a broker-dealer with the SEC under the Securities Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. No amounts
are retained by SSI for acting as principal underwriter for SAFECO Life
contracts.
The commissions paid to registered representatives on the sale of contracts are
not more than 6% of PURCHASE PAYMENTS. In addition, commissions, allowances, and
bonuses may be paid to registered representatives and/or other distributors of
the contracts. A bonus dependent upon persistency is one type of bonus that may
be paid.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or SSI is a party.
SAFECO Life is engaged in various kinds of litigation which, in the opinion of
SAFECO Life, are not of material importance in relation to the total capital and
surplus of SAFECO Life.
RIGHT TO SUSPEND ANNUITY PAYMENTS,
TRANSFERS, OR WITHDRAWALS
We may be required to suspend or postpone payment of ANNUITY PAYMENTS,
transfers, or withdrawals from the PORTFOLIOS for any period of time when:
- the NYSE is closed (other than customary weekend or holiday closings);
- trading on the NYSE is restricted;
- an emergency exists such that disposal of or determination of the value of
the PORTFOLIO shares is not reasonably practicable; or
- the SEC, by order, so permits for your protection.
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Additionally, we reserve the right to defer payment of transfers or withdrawals
from the FIXED ACCOUNT for the period permitted by law, but not for more than
six months.
VOTING RIGHTS
SAFECO Life is the legal owner of the PORTFOLIOS' shares. However, when a
PORTFOLIO solicits proxies in connection with a shareholder vote, we are
required to ask you for instructions as to how to vote those shares. All shares
are voted in the same proportion as the instructions we received. Should we
determine that we are no longer required to comply with the above, we will vote
the shares in our own right. You have no voting rights with respect to values in
the FIXED ACCOUNT.
REDUCTION OF CHARGES OR ADDITIONAL AMOUNTS CREDITED
Under some circumstances we may expect to experience lower costs or higher
revenues associated with issuing and administering certain contracts. For
example, sales expenses are expected to be less when contracts are sold to a
large group of individuals. Under such circumstances we may pass a portion of
these anticipated savings on to you by reducing OWNER transaction charges
(including the contingent deferred sales charge) or crediting additional FIXED
ACCOUNT interest.
We may also take such action in connection with contracts sold to our officers,
directors, and employees and their family members, employees of our affiliates
and their family members, and registered representatives and employees of
broker-dealers that have a current selling agreement with us. In each
circumstance such actions will be reasonably related to the savings or revenues
anticipated and will be applied in a non-discriminatory manner. These actions
may be withdrawn or modified by us at any time.
INTERNET INFORMATION
You can find more information about the Spinnaker Variable Annuity Contract as
well as other products and financial services offered by SAFECO companies on the
Internet at http://www.SAFECO.com. This website is frequently updated with new
information and can help you locate a representative near you.
The SEC also maintains a website at http://www.sec.gov, which contains a copy of
the Separate Account's most recent registration statement and general consumer
information.
FINANCIAL STATEMENTS
The financial statements of SAFECO Life and SAFECO Separate Account C are
included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Separate Account
Experts
Distribution
Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
SPINNAKER PROSPECTUS
18
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APPENDIX
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ACCUMULATION UNIT VALUE HISTORY
The following schedule includes ACCUMULATION UNIT values for the periods
indicated. This data has been extracted from the Separate Account's Financial
Statements. This information should be read in conjunction with the Separate
Account's Financial Statements and related notes which are included in the
Statement of Additional Information.
Such information is not included for AIM V.I. Aggressive Growth Fund, AIM V.I.
Growth Fund, Dreyfus IP MidCap Stock Portfolio, Dreyfus IP Technology Growth
Portfolio, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus VIF
Appreciation Portfolio, Dreyfus VIF Quality Bond Portfolio, VIP Growth
Portfolio, VIP III Growth & Income Portfolio, Franklin Small Cap Fund -
Class 2, Franklin U.S. Government Fund - Class 2, J.P. Morgan U.S. Disciplined
Equity Portfolio, and Templeton Developing Markets Securities Fund - Class 2, as
they are new.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RST EQUITY SUB-ACCOUNT
February 11 value (initial public offering) $24.528
December 31 value $64.812 $60.124 $48.808 $39.633 $32.209 $25.373
December 31 units 3,069,975 2,488,385 1,868,135 1,055,113 438,184 144,290
RST GROWTH OPPORTUNITIES SUB-ACCOUNT
February 11 value (initial public offering) $13.910
December 31 value $40.161 $38.556 $38.410 $26.928 $20.668 $14.864
December 31 units 2,830,645 3,132,646 2,188,705 1,244,669 479,054 154,127
RST NORTHWEST SUB-ACCOUNT
February 11 value (initial public offering) $10.073
December 31 value $23.810 $15.611 $15.388 $11.905 $10.737 $10.134
December 31 units 846,780 653,977 445,999 146,690 58,302 22,082
RST BOND SUB-ACCOUNT
February 11 value (initial public offering) $16.217
December 31 value $19.452 $20.536 $19.130 $17.915 $18.045 $15.521
December 31 units 336,578 331,330 164,114 112,876 35,531 14,107
RST MONEY MARKET SUB-ACCOUNT
February 11 value (initial public offering) $13.526
December 31 value $16.457 $15.951 $15.413 $14.874 $14.370 $13.811
December 31 units 605,455 764,549 469,011 251,704 98,132 124,541
RST SMALL COMPANY VALUE SUB-ACCOUNT
May 1 value (initial public offering) $10.000
December 31 value $11.426 $10.040 $12.731
December 31 units 455,130 458,821 246,308
SCUDDER VLIF INTERNATIONAL SUB-ACCOUNT
February 11 value (initial public
offering) $10.948
December 31 value $24.947 $16.367 $14.008 $13.022 $11.504 $10.498
December 31 units 786,748 584,163 595,188 545,285 278,030 137,600
SCUDDER VLIF BALANCED SUB-ACCOUNT
February 11 value (initial public offering) $10.435
December 31 value $23.315 $20.501 $16.872 $13.771 $12.481 $9.988
December 31 units 1,495,102 942,422 784,022 660,227 134,772 49,575
</TABLE>
SPINNAKER PROSPECTUS
A-1
<PAGE>
ACCUMULATION UNIT VALUE HISTORY (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
LEXINGTON NATURAL RESOURCES TRUST SUB-ACCOUNT
January 25 value (initial public offering) $11.330
December 31 value $13.327 $11.844 $14.952 $14.148
December 31 units 228,420 276,756 304,593 73,555
LEXINGTON EMERGING MARKETS FUND, INC. SUB-ACCOUNT
January 25 value (initial public offering) $10.350
December 31 value $13.790 $6.131 $8.670 $9.946
December 31 units 287,537 224,539 192,647 86,353
FEDERATED UTILITY FUND II SUB-ACCOUNT
January 25 value (initial public offering) $11.110
December 31 value $17.058 $17.010 $15.135 $12.117
December 31 units 452,504 415,785 263,094 83,361
FEDERATED HIGH INCOME BOND FUND II SUB-ACCOUNT
January 25 value (initial public offering) $9.870
December 31 value $12.500 $12.391 $12.236 $10.899
December 31 units 521,564 518,078 300,924 40,629
FEDERATED INTERNATIONAL EQUITY FUND II SUB-ACCOUNT
January 25 value (initial public offering) $10.220
December 31 value $27.113 $14.866 $12.003 $11.056
December 31 units 271,054 223,162 127,307 34,059
VP BALANCED SUB-ACCOUNT
January 25 value (initial public offering) $7.020
December 31 value $11.165 $10.287 $9.008 $7.887
December 31 units 1,131,063 962,809 350,262 23,490
VP INTERNATIONAL SUB-ACCOUNT
January 25 value (initial public offering) $5.330
December 31 value $13.341 $8.244 $7.039 $6.016
December 31 units 1,164,188 995,167 467,855 24,432
VIP II CONTRAFUND SUB-ACCOUNT
May 1 value (initial public offering) $10.000
December 31 value $13.870 $11.317
December 31 units 1,651,095 153,694
VIP III GROWTH OPPORTUNITES SUB-ACCOUNT
May 1 value (initial public offering) $10.000
December 31 value $11.554 $11.235
December 31 units 813,454 145,263
VIF-REAL ESTATE OPPORTUNITY SUB-ACCOUNT
May 1 value (initial public offering) $10.000
December 31 value $8.491 $8.577
December 31 units 24,715 22,885
</TABLE>
SPINNAKER PROSPECTUS
A-2
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
SPINNAKER-REGISTERED TRADEMARK- VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
SAFECO SEPARATE ACCOUNT C
AND
SAFECO LIFE INSURANCE COMPANY
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 Contract.
The prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the prospectus, call 1-877-472-3326
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, 2000.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SEPARATE ACCOUNT............................................ 2
Mortality and Expense Guarantee........................... 2
EXPERTS..................................................... 2
DISTRIBUTION................................................ 3
Reduction or Elimination of Contingent Deferred Sales
Charge.................................................. 3
PERFORMANCE INFORMATION..................................... 3
Total Return.............................................. 3
Yield..................................................... 4
Performance Comparison.................................... 5
Tax Comparison............................................ 5
FEDERAL TAX STATUS.......................................... 6
Note...................................................... 6
General................................................... 6
Diversification........................................... 6
Multiple Contracts........................................ 7
Contracts Owned by Other than Natural Persons............. 7
Income Tax Withholding.................................... 8
Tax Treatment of Withdrawals - Non-Qualified Contracts.... 8
Retirement Plans.......................................... 8
Tax Treatment of Withdrawals - Qualified Contracts........ 10
Tax Sheltered Annuities - Withdrawal Limitations.......... 11
ANNUITY PROVISIONS.......................................... 11
Annuity Unit Value........................................ 11
Variable Annuity Payments................................. 11
FINANCIAL STATEMENTS........................................ 12
</TABLE>
1
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SEPARATE ACCOUNT
SAFECO Life Insurance Company ("the Company", "we", and "us"), is a wholly owned
subsidiary of SAFECO Corporation which is a holding company whose subsidiaries
are engaged primarily in insurance and financial services businesses. We
established SAFECO Separate Account C ("the Separate Account") on February 3,
1995, to hold assets that underlie contract values invested in the portfolios.
The Separate Account meets the definition of "separate account" under Washington
State law and under the federal securities laws. It is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940, as amended. This registration does not involve
supervision of the management of the Separate Account or the Company by the SEC.
The assets of the Separate Account are the property of the Company. The Separate
Account invests in the underlying portfolios that are offered under the
contract. Each portfolio is a part of a series of portfolios designed for use in
variable annuity and variable life insurance products, not all of which may be
available under the contracts described herein. We maintain records of all
Separate Account purchases and redemptions of the shares of the portfolios. We
do not guarantee the investment performance of the Separate Account, its assets,
or the portfolios. Contract values allocated to the Separate Account and the
amount of variable annuity payments will vary with the value of the shares of
the underlying portfolios, and are also reduced by expenses and transaction
charges assessed under the contracts.
Accumulation units and variable annuity payments will reflect the investment
performance of the Separate Account with respect to amounts allocated to it.
Since the Separate Account is always fully invested in the shares of the
portfolios, its investment performance reflects the investment performance of
those entities. 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 Life Insurance Company and the Separate Account committee.
The values of such shares held by the Separate Account fluctuate and are subject
to the risks of changing economic conditions. The contract owner bears the
entire investment risk. There can be no assurance that the aggregate value in
the contract and amount of variable annuity payments will equal or exceed the
purchase payments made under a contract for the reasons described above, or
because of the premature death of the annuitant after the date that the contract
value is applied to purchase annuity payments.
MORTALITY AND EXPENSE GUARANTEE
We guarantee that the dollar amount of each variable annuity payment made after
the first payment will not be adversely affected by variations in actual
mortality experience or actual expenses incurred in excess of the expense
deductions provided for in the contract (although the Company does not guarantee
the amounts of the variable annuity payments).
To the extent that the contingent deferred sales charge is insufficient to cover
all the distribution costs and related expenses, some portion of the proceeds
from the mortality and expense risk charge may be utilized to meet such excess
distribution expenses. We have represented in documents filed with the SEC that
the mortality and expense risk charge is consistent with the mortality and
expense risks we assume and is within the range of industry practice, based on
our review of our requirements and industry practice. Moreover, we have
represented that use of any proceeds from such charge to defray distribution
expenses has a reasonable likelihood of benefiting the Separate Account and
owners.
EXPERTS
The financial statements of SAFECO Separate Account C and SAFECO Life Insurance
Company and Subsidiaries, appearing in this Statement of Additional Information,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon, appearing elsewhere herein, and
2
<PAGE>
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
DISTRIBUTION
SAFECO Securities, Inc. (SSI), an affiliate of the Company, acts as the
principal underwriter for the contracts. The contracts issued by the Separate
Account are offered on a continuous basis.
REDUCTION OR ELIMINATION OF 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 or to
a group of individuals in a manner that results in savings of sales expenses.
Any reduction of the contingent deferred sales charge will be determined by us
after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be considered.
Generally, the sales expenses for a larger group are less than for a smaller
group because of the ability to implement large numbers of contracts with
fewer sales contacts.
2. The total amount of purchase payments to be received will be considered. Per
contract sales expenses are likely to be less on larger purchase payments
than on smaller ones.
3. Any prior or existing relationship with us. Per contract sales expenses are
likely to be less when there is a prior or existing relationship because of
the likelihood of implementing the contracts with fewer sales contacts.
4. There may be other circumstances, of which we are not presently aware, which
could result in reduced sales expenses.
If, after consideration of the foregoing factors, we determine that there will
be a reduction in sales expenses, the Company 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 the Company 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.
PERFORMANCE INFORMATION
TOTAL RETURN
"Total return" is the total percentage change in the unit value of an investment
over a stated period of time. It reflects all aspects of a portfolio's return,
including the automatic reinvestment by the portfolio of all distributions and
the deduction of all applicable charges to the portfolio 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.
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 reflect 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. 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
3
<PAGE>
annual returns which take into consideration the length of time each investment
has been invested, 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 portfolios to appear higher than
performance calculated using standard parameters.
"Average annual total return" is the annual percentage change in the unit value
of an investment over a stated period of time. It is calculated by determining
the growth or decline in value of a hypothetical investment in the portfolio
over certain periods, including 1, 5, and 10 years (up to the portfolio's
availability through the Separate 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 portfolio's experience is not constant over time, but
changes from year to year, and that the average annual returns represent
averaged figures as opposed to the year-to-year performance of a portfolio.
Average annual returns are calculated pursuant to the following formula:
P(1 + T) to the power of n = ERV
where:
<TABLE>
<S> <C> <C>
P = a hypothetical initial payment of $1,000;
T = the average annual total return;
n = the number of years; and
ERV = the withdrawal value at the end of the time period used.
</TABLE>
"Cumulative total returns" are not averaged and reflect the simple change in
value of a hypothetical investment in the portfolio over a stated period of
time.
Total return, average total return, and cumulative total return assume
reinvestment of dividend and capital gains distributions.
From time to time, additional quotations of total return based on the historical
performance of the portfolios may also be presented.
YIELD
Some portfolios may advertise yields. Yields quoted in advertising reflect the
change in value of a hypothetical investment in the portfolio over a stated
period of time, not taking into account capital gains or losses. Yield figures
will reflect deduction of the annual administration maintenance charge which is
assessed on an annual basis to contract owners whose contract value is less than
$50,000, but will not reflect any applicable contingent deferred sales charge.
Yields are annualized and stated as a percentage.
Current yield and effective yield are calculated for the RST Money Market
Portfolio. 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 assuming that the income generated during the seven day
period continues to be generated each week for a 52 week period. It is
multiplied 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) to the power of 365/7] - 1
4
<PAGE>
For the RST Money Market Portfolio, total return and average annual total return
are non-standardized performance figures which may accompany the standardized
yield and effective yield.
Yield for portfolios other than RST Money Market Portfolio 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) to the power of 6 - 1]
where:
<TABLE>
<S> <C> <C>
a = net investment income earned during the period by the
corresponding 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.
</TABLE>
The income is then annualized on a 360 day basis 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. Again, 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 reflect any applicable contingent deferred sales charge.
PERFORMANCE COMPARISON
The Company may also show historical accumulation unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual accumulation unit values. Performance information for a portfolio 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
portfolio derived from rankings of variable annuity separate accounts or other
investment products tracked 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.
TAX COMPARISON
Reports and advertising also may show the effect of tax deferred compounding on
investment returns, or returns in general, illustrated by graphs, charts, or
otherwise, which may include a comparison, at various points in time, of the
return from an investment in a contract (giving effect to all fees and charges),
or returns in general, on a tax-deferred basis (assuming one or more tax rates)
with the return on a taxable basis, and which will disclose the tax
characteristics of the investments shown, including the impact of withdrawals
and surrenders.
5
<PAGE>
FEDERAL TAX STATUS
NOTE
The following description is based upon the Company's understanding of current
federal income tax law applicable to annuities in general. Tax laws are complex
and subject to change. We cannot predict the probability that any changes in the
interpretation of or the laws themselves, will occur. Purchasers are cautioned
to seek competent tax advice regarding the possibility of such changes. We do
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 SAI or the
prospectus may be applicable in certain situations. Moreover, no attempt has
been made to consider any applicable state or other tax laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended, ("the Code")
governs taxation of annuities in general. An owner is generally 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
option elected. For a lump sum payment received as a total surrender (total
redemption), the recipient is generally taxed on the portion of the payment that
exceeds the cost basis in the contract. For non-qualified contracts, this cost
basis is generally the purchase payments, while for qualified contracts there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates.
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 generally fully
taxable. The taxable portion is taxed at ordinary income tax rates. For certain
types of retirement 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, payees and beneficiaries under the
contracts should seek competent financial advice about the tax consequences of
any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
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.
6
<PAGE>
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the portfolios
underlying variable contracts such as those described in the prospectus. 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."
The Company intends that all portfolios underlying the contracts will be managed
in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which owner control of the
investments of the Separate Account will cause the contract 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 contract
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as your ability to transfer among portfolios or
the number and type of portfolios available, would cause you to be considered
the owner of the assets of the separate account resulting in the imposition of
federal income tax 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 contract owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Company 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
multiple contracts. These aggregation rules may also apply in connection with
certain 457 plans. You should consult a tax adviser prior to purchasing more
than one annuity in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the earnings on purchase payments for the
contracts will be taxed currently to the owner if the owner is not a natural
person, e.g. a corporation or certain other entities, unless the contract is
held by certain trusts or other entities as an agent for a natural person or to
hold retirement plan assets. Purchasers who are not natural persons should
consult their own tax counsel or other tax adviser before purchasing a contract.
7
<PAGE>
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. Special withholding rules apply to United States citizens residing outside
the United States and to non-resident aliens.
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 generally does not apply to:
a) a series of substantially equal payments made at least annually 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; or d) the portion of distributions not includable in
gross income (i.e. returns of after-tax contributions). You should consult your
own tax counsel or other tax adviser regarding income tax withholding.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
The above information does not apply to qualified contracts. However, separate
tax withdrawal penalties and restrictions may apply to such qualified contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
RETIREMENT PLANS
The contracts offered herein are designed to be suitable for use under various
types of retirement plans. Taxation of participants in each retirement 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
retirement 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 some types of
retirement plans with which the contracts are most often used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding retirement 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 in
connection with a retirement plan.
8
<PAGE>
Contracts issued in connection with retirement plans include special provisions
that may restrict or modify the contract provisions and administrative services
described in the prospectus.. Generally, contracts issued pursuant to retirement
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 these 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 the Company in connection with
retirement plans will utilize annuity purchase rate tables which do not
differentiate on the basis of sex. Such annuity purchase rate 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"
("TSA") by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the contracts for the benefit of their
employees. Such contributions are not includable in the gross income of the
employees until the employees receive distributions from the contracts. The
amount of contributions to the tax sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals -
Qualified Contracts" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408 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 retirement 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
9
<PAGE>
purchase. (Qualified distributions for first time home purchases may not
exceed $10,000.) Non-qualified distributions are includable 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 certain 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
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 retirement plan must commence no later than
April 1st 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 minimum 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.
10
<PAGE>
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 or becomes disabled (within the meaning of
Section 72(m)(7) of the Code); (4) in the case of hardship, or (5) is divorced
and the distribution is permitted under a Qualified Domestic Relations Order.
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 retirement
plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
ANNUITY PROVISIONS
ANNUITY UNIT VALUE
The value of an annuity unit for each portfolio on any date varies to reflect
the investment experience of the portfolio, the assumed investment rate of 4% on
which the applicable Variable Annuity Purchase Rate Table is based, and the
deduction for charges assessed and imposed by the Company, including a mortality
and expense risk charge, asset related administration charge, and, if
applicable, a charge for premium taxes.
For any valuation period the value of an annuity unit is determined by
multiplying the value of an annuity unit for each portfolio, as of the
immediately preceding valuation period by the Net Investment Factor for the
valuation period for which the value is being calculated, and dividing the
result by the Assumed Investment Factor to adjust for the assumed investment
return of 4% used in calculating the applicable Variable Annuity Purchase Rate
Table.
The Net Investment Factor is a number that represents the change in the net
asset value of a portfolio on successive periods when the NYSE is open. The Net
Investment Factor for any portfolio for any valuation period is determined by
taking the net asset value per share of the portfolio, (adjusted for earnings,
realized or unrealized capital gains or losses, and deductions for tax, if any),
as of the current valuation period, and dividing it by the adjusted net asset
value per share of the portfolio for the preceding period, and then subtracting
the percentage factor for the mortality and expense risk charge and the asset
related administrative charge. The Net Investment Factor may be greater than or
equal to one, therefore the annuity unit value may increase or decrease.
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 PAYMENTS
The amount of the first annuity payment under a contract is generally determined
on the basis of the annuity option selected, the annuity purchase rate, the age
and sex of the annuitant, and the annuity purchase date. The amount of the first
payment is the sum of the payments from each portfolio 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
contained in the contract (which is guaranteed for the duration of the
contract).
The number of annuity units credited for each portfolio is the amount of the
first annuity payment attributable to that portfolio divided by the value of the
applicable annuity unit for that portfolio as of the 15th day of the month
preceding the annuity date. The number of annuity units used to calculate the
variable annuity payment each month remains constant unless the owner changes
portfolio elections. The value of an annuity unit may increase or decrease from
one month to the next.
11
<PAGE>
The dollar amount of each variable annuity payment after the first is the sum of
the payments from each portfolio, which are determined by multiplying the number
of annuity units credited for that portfolio by the annuity unit value of that
portfolio as of the 15th of the month preceding the annuity payment.
To illustrate the manner in which variable annuity payments are determined
consider this example. Item (4) in the example shows the applicable monthly
payment rate (which varies depending on the Variable Annuity Purchase Rate Table
used in the contract) for an annuitant with an adjusted age 63, where an owner
has elected a variable life annuity with a guarantee period of 10 years with the
assumed investment rate of 4%. (2nd option described in the prospectus).
<TABLE>
<S> <C> <C>
(1) Assumed number of accumulation units in a portfolio on
maturity date............................................... 25,000
(2) Assumed value of an accumulation unit in a portfolio at
maturity.................................................... $12.5000
(3) Cash value of contract at maturity, (1) x (2)............... $312,500
(4) Consideration required to purchase $1 of monthly annuity
from Variable Annuity Purchase Rate Table................... $183.53
(5) Amount of first payment from a portfolio, (3) divided by
(4)......................................................... $1,702.72
(6) Assumed value of annuity unit in a portfolio at maturity.... $13.0000
(7) Number of annuity units credited in a portfolio, (5) divided
by (6)...................................................... 130.9785
</TABLE>
The $312,500 value at maturity provides a first payment from the portfolio of
$1,702.72, and payments thereafter of the varying dollar value of 130.9785
annuity units. The amount of subsequent payments from the portfolio is
determined by multiplying 130.9785 units by the value of an annuity unit in the
portfolio on the applicable valuation date. For example, if that unit value is
$13.25, the monthly payment from the portfolio will be 130.9785 multiplied by
$13.25, or $1,735.47.
However, the value of the annuity unit depends on the investment experience of
the portfolio. Thus in the example above, if the Net Investment Factor for the
following month was less than the assumed investment rate of 4%, the annuity
unit would decline in value. If the annuity unit value declined to $12.75 the
succeeding monthly payment would then be 130.9785 x $12.75, or $1,669.98.
For the sake of simplicity the foregoing example assumes that all of the annuity
units are in one portfolio. If there are annuity units in two or more
portfolios, the annuity payment from each portfolio is calculated separately, in
the manner illustrated, and the total monthly payment is the sum of the payments
from the portfolios.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company and subsidiaries included
herein should be considered only bearing upon the ability of the Company to meet
its obligations under the contract.
12
<PAGE>
FINANCIAL STATEMENTS
SAFECO SEPARATE ACCOUNT C
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Statement of Assets and Liabilities as of December 31,
1999...................................................... 1
Statements of Operations and Changes in Net Assets for the
Year or Period Ended December 31, 1999 and 1998........... 5
Notes to Financial Statements............................... 11
Report of Ernst & Young LLP, Independent Auditors........... 14
</TABLE>
13
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------
(In Thousands, Except Per-Share and SAFECO SAFECO SAFECO SAFECO SAFECO
Per-Unit Amounts) EQUITY GROWTH NORTHWEST BOND MONEY MARKET
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 166,124 $ 112,475 $ 14,313 $ 6,812 $ 9,935
============ ============ ============ ============ ============
SHARES OWNED 6,081 5,058 835 598 9,935
NET ASSET VALUE PER SHARE $ 31.02 $ 22.50 $ 22.68 $ 10.33 $ 1.00
------------ ------------ ------------ ------------ ------------
Investments, at value 188,621 113,807 18,929 6,181 9,935
Dividends Receivable 10,583 - 1,254 374 39
------------ ------------ ------------ ------------ ------------
Total assets 199,204 113,807 20,183 6,555 9,974
LIABILITIES:
Mortality and expense risk charge payable 209 113 19 7 9
Asset-related administration charge payable 25 13 2 1 1
------------ ------------ ------------ ------------ ------------
Total Liabilities: 234 126 21 8 10
------------ ------------ ------------ ------------ ------------
NET ASSETS $ 198,970 $ 113,681 $ 20,162 $ 6,547 $ 9,964
============ ============ ============ ============ ============
ACCUMULATION UNITS OUTSTANDING 3,070 2,831 847 337 605
============ ============ ============ ============ ============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
oustanding) $ 64.812 $ 40.161 $ 23.810 $ 19.452 $ 16.457
============ ============ ============ ============ ============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
1
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------
SAFECO LEXINGTON LEXINGTON
(In Thousands, Except Per-Share and SMALL SCUDDER SCUDDER NATURAL EMERGING
Per-Unit Amounts) COMPANY INTERNATIONAL BALANCED RESOURCES MARKETS
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 5,410 $ 13,747 $ 29,359 $ 3,381 $ 2,687
============ ============= ============ ============ ============
SHARES OWNED 457 966 2,166 244 310
NET ASSET VALUE PER SHARE $ 11.39 $ 20.34 $ 16.11 $ 12.51 $ 12.81
------------ ------------- ------------ ------------ ------------
Investments, at value 5,206 19,648 34,898 3,047 3,969
Dividends Receivable - - - - -
------------ ------------- ------------ ------------ ------------
Total assets 5,206 19,648 34,898 3,047 3,969
LIABILITIES:
Mortality and expense risk charge payable 5 19 36 3 4
Asset-related administration charge payable 1 2 4 - -
------------ ------------- ------------ ------------ ------------
Total Liabilities: 6 21 40 3 4
------------ ------------- ------------ ------------ ------------
NET ASSETS $ 5,200 $ 19,627 $ 34,858 $ 3,044 $ 3,965
============ ============= ============ ============ ============
ACCUMULATION UNITS OUTSTANDING 455 787 1,495 228 288
============ ============= ============ ============ ============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
oustanding) $ 11.426 $ 24.947 $ 23.315 $ 13.327 $ 13.790
============ ============= ============ ============ ============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
-------------------------------------------------------
WANGER
(In Thousands, Except Per-Share and FEDERATED FEDERATED FEDERATED US
Per-Unit Amounts) UTILITY HIGH INCOME INTERNATIONAL SMALL CAP
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 7,387 $ 6,819 $ 4,145 $ 1,741
============ ============ ============= ============
SHARES OWNED 539 637 266 84
NET ASSET VALUE PER SHARE $ 14.35 $ 10.24 $ 27.64 $ 24.88
------------ ------------ ------------- ------------
Investments, at value 7,728 6,528 7,357 2,099
Dividends Receivable - - - -
------------ ------------ ------------- ------------
Total assets 7,728 6,528 7,357 2,099
LIABILITIES:
Mortality and expense risk charge payable 8 7 7 2
Asset-related administration charge payable 1 1 1 -
------------ ------------ ------------- ------------
Total Liabilities: 9 8 8 2
------------ ------------ ------------- ------------
NET ASSETS $ 7,719 $ 6,520 $ 7,349 $ 2,097
============ ============ ============= ============
ACCUMULATION UNITS OUTSTANDING 453 522 271 74
============ ============ ============= ============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
oustanding) $ 17.058 $ 12.500 $ 27.113 $ 28.278
============ ============ ============= ============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
AMERICAN AMERICAN FIDELITY
(In Thousands, Except Per-Share and CENTURY CENTURY FIDELITY GROWTH INVESCO
Per-Unit Amounts) BALANCED INTERNATIONAL CONTRAFUND OPPORTUNITIES REALTY
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 12,572 $ 9,605 $ 20,007 $ 9,094 $ 225
============ ============= ============ ============= ============
SHARES OWNED 1,623 1,244 786 406 27
NET ASSET VALUE PER SHARE $ 7.79 $ 12.50 $ 29.15 $ 23.15 $ 7.91
------------ ------------- ------------ ------------- ------------
Investments, at value 12,643 15,548 22,924 9,410 210
Dividends Receivable - - - - -
------------ ------------- ------------ ------------- ------------
Total assets 12,643 15,548 22,924 9,410 210
LIABILITIES:
Mortality and expense risk charge payable 13 15 21 10 -
Asset-related administration charge payable 2 2 3 1 -
------------ ------------- ------------ ------------- ------------
Total Liabilities: 15 17 24 11 -
------------ ------------- ------------ ------------- ------------
NET ASSETS $ 12,628 $ 15,531 $ 22,900 $ 9,399 $ 210
============ ============= ============ ============= ============
ACCUMULATION UNITS OUTSTANDING 1,131 1,164 1,651 813 25
============ ============= ============ ============= ============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
oustanding) $ 11.165 $ 13.341 $ 13.870 $ 11.554 $ 8.491
============ ============= ============ ============= ============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
SAFECO SAFECO
EQUITY GROWTH
- ----------------------------------------------------------------------------------------------------------
-------------------------- --------------------------
(In Thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 10,583 $ 7,040 $ - $ 12,597
Mortality and expense risk charge (2,306) (1,471) (1,343) (1,362)
Asset-related administration charge (277) (177) (161) (163)
------------ ------------ ------------ ------------
Net Income (loss) 8,000 5,392 (1,504) 11,072
Net realized gain (loss) on investments 5,690 1,031 (4,476) 297
Net change in unrealized appreciation
(depreciation) (772) 17,719 9,114 (14,430)
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 12,918 24,142 3,134 (3,061)
------------ ------------ ------------ ------------
UNIT TRANSACTIONS:
Purchases 79,851 62,369 30,597 70,377
Redemptions (43,412) (28,077) (40,834) (30,601)
------------ ------------ ------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 36,439 34,292 (10,237) 39,776
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 49,357 58,434 (7,103) 36,715
NET ASSETS AT BEGINNING OF YEAR 149,613 91,179 120,784 84,069
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 198,970 $ 149,613 $ 113,681 $ 120,784
============ ============ ============ ============
<CAPTION>
SUB-ACCOUNTS
--------------------------
SAFECO
NORTHWEST
- -------------------------------------------------- ------------
--------------------------
(In Thousands) 1999 1998
<S> <C> <C>
- --------------------------------------------------
OPERATIONS:
Dividend income $ 1,254 $ -
Mortality and expense risk charge (151) (114)
Asset-related administration charge (18) (14)
------------ ------------
Net Income (loss) 1,085 (128)
Net realized gain (loss) on investments 618 (46)
Net change in unrealized appreciation
(depreciation) 4,162 41
------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 5,865 (133)
------------ ------------
UNIT TRANSACTIONS:
Purchases 8,042 5,905
Redemptions (3,954) (2,426)
------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 4,088 3,479
------------ ------------
TOTAL CHANGE IN NET ASSETS 9,953 3,346
NET ASSETS AT BEGINNING OF YEAR 10,209 6,863
------------ ------------
NET ASSETS AT END OF YEAR $ 20,162 $ 10,209
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
SAFECO SAFECO
BOND MONEY MARKET
- ----------------------------------------------------------------------------------------------------------
-------------------------- --------------------------
(In Thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 374 $ 348 $ 450 $ 499
Mortality and expense risk charge (86) (58) (125) (129)
Asset-related administration charge (10) (7) (15) (16)
------------ ------------ ------------ ------------
Net Income (loss) 278 283 310 354
Net realized gain (loss) on investments (74) 55 - -
Net change in unrealized appreciation
(depreciation) (584) (20) - -
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS (380) 318 310 354
UNIT TRANSACTIONS:
Purchases 2,593 5,651 39,830 71,125
Redemptions (2,474) (2,300) (42,371) (66,513)
------------ ------------ ------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 119 3,351 (2,541) 4,612
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS (261) 3,669 (2,231) 4,966
NET ASSETS AT BEGINNING OF YEAR 6,808 3,139 12,195 7,229
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 6,547 $ 6,808 $ 9,964 $ 12,195
============ ============ ============ ============
<CAPTION>
SUB-ACCOUNTS
--------------------------
SAFECO
SMALL COMPANY
- -------------------------------------------------- ------------
--------------------------
(In Thousands) 1999 1998
<S> <C> <C>
- --------------------------------------------------
OPERATIONS:
Dividend income $ - $ -
Mortality and expense risk charge (54) (57)
Asset-related administration charge (7) (7)
------------ ------------
Net Income (loss) (61) (64)
Net realized gain (loss) on investments (423) (277)
Net change in unrealized appreciation
(depreciation) 1,104 (1,177)
------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 620 (1,518)
UNIT TRANSACTIONS:
Purchases 1,593 5,370
Redemptions (1,620) (2,381)
------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS (27) 2,989
------------ ------------
TOTAL CHANGE IN NET ASSETS 593 1,471
NET ASSETS AT BEGINNING OF YEAR 4,607 3,136
------------ ------------
NET ASSETS AT END OF YEAR $ 5,200 $ 4,607
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
SCUDDER SCUDDER
INTERNATIONAL BALANCED
- ----------------------------------------------------------------------------------------------------------
-------------------------- --------------------------
(In Thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 1,031 $ 1,140 $ 2,094 $ 1,035
Mortality and expense risk charge (152) (113) (341) (189)
Asset-related administration charge (18) (14) (41) (23)
------------ ------------ ------------ ------------
Net Income (loss) 861 1,013 1,712 823
Net realized gain (loss) on investments 298 83 463 235
Net change in unrealized appreciation
(depreciation) 4,949 272 1,630 2,022
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 6,108 1,368 3,805 3,080
UNIT TRANSACTIONS:
Purchases 5,889 1,462 17,146 5,894
Redemptions (1,931) (1,606) (5,414) (2,881)
------------ ------------ ------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 3,958 (144) 11,732 3,013
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 10,066 1,224 15,537 6,093
NET ASSETS AT BEGINNING OF YEAR 9,561 8,337 19,321 13,228
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 19,627 $ 9,561 $ 34,858 $ 19,321
============ ============ ============ ============
<CAPTION>
SUB-ACCOUNTS
--------------------------
LEXINGTON
NATURAL RESOURCES
- -------------------------------------------------- ------------
--------------------------
(In Thousands) 1999 1998
<S> <C> <C>
- --------------------------------------------------
OPERATIONS:
Dividend income $ 19 $ 269
Mortality and expense risk charge (39) (51)
Asset-related administration charge (5) (6)
------------ ------------
Net Income (loss) (25) 212
Net realized gain (loss) on investments (210) (166)
Net change in unrealized appreciation
(depreciation) 595 (1,020)
------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 360 (974)
UNIT TRANSACTIONS:
Purchases 593 1,410
Redemptions (1,187) (1,712)
------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS (594) (302)
------------ ------------
TOTAL CHANGE IN NET ASSETS (234) (1,276)
NET ASSETS AT BEGINNING OF YEAR 3,278 4,554
------------ ------------
NET ASSETS AT END OF YEAR $ 3,044 $ 3,278
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
LEXINGTON FEDERATED
EMERGING MARKETS UTILITY
- ----------------------------------------------------------------------------------------------------------
-------------------------- --------------------------
(In Thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 10 $ 138 $ 548 $ 315
Mortality and expense risk charge (24) (18) (96) (67)
Asset-related administration charge (3) (2) (11) (8)
------------ ------------ ------------ ------------
Net Income (loss) (17) 118 441 240
Net realized gain (loss) on investments (46) (169) 112 179
Net change in unrealized appreciation
(depreciation) 2,077 (458) (500) 267
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 2,014 (509) 53 686
UNIT TRANSACTIONS:
Purchases 1,414 814 3,403 5,681
Redemptions (840) (598) (2,810) (3,276)
------------ ------------ ------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 574 216 593 2,405
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 2,588 (293) 646 3,091
NET ASSETS AT BEGINNING OF YEAR 1,377 1,670 7,073 3,982
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 3,965 $ 1,377 $ 7,719 $ 7,073
============ ============ ============ ============
<CAPTION>
SUB-ACCOUNTS
--------------------------
FEDERATED
HIGH INCOME
- -------------------------------------------------- ------------
--------------------------
(In Thousands) 1999 1998
<S> <C> <C>
- --------------------------------------------------
OPERATIONS:
Dividend income $ 561 $ 129
Mortality and expense risk charge (82) (67)
Asset-related administration charge (10) (8)
------------ ------------
Net Income (loss) 469 54
Net realized gain (loss) on investments (57) 16
Net change in unrealized appreciation
(depreciation) (358) (71)
------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 54 (1)
UNIT TRANSACTIONS:
Purchases 2,002 5,392
Redemptions (1,955) (2,654)
------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 47 2,738
------------ ------------
TOTAL CHANGE IN NET ASSETS 101 2,737
NET ASSETS AT BEGINNING OF YEAR 6,419 3,682
------------ ------------
NET ASSETS AT END OF YEAR $ 6,520 $ 6,419
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
FEDERATED WANGER
INTERNATIONAL US SMALL CAP
- ----------------------------------------------------------------------------------------------------------
-------------------------- --------------------------
(In Thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 101 $ 2 $ 180 $ 97
Mortality and expense risk charge (51) (32) (24) (25)
Asset-related administration charge (6) (4) (3) (3)
------------ ------------ ------------ ------------
Net Income (loss) 44 (34) 153 69
Net realized gain (loss) on investments 237 33 30 67
Net change in unrealized appreciation
(depreciation) 2,781 382 206 (65)
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 3,062 381 389 71
UNIT TRANSACTIONS:
Purchases 1,999 1,879 390 1,080
Redemptions (1,029) (471) (678) (1,028)
------------ ------------ ------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 970 1,408 (288) 52
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 4,032 1,789 101 123
NET ASSETS AT BEGINNING OF YEAR 3,317 1,528 1,996 1,873
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 7,349 $ 3,317 $ 2,097 $ 1,996
============ ============ ============ ============
<CAPTION>
SUB-ACCOUNTS
--------------------------
AMERICAN CENTURY
BALANCED
- -------------------------------------------------- ------------
--------------------------
(In Thousands) 1999 1998
<S> <C> <C>
- --------------------------------------------------
OPERATIONS:
Dividend income $ 1,556 $ 571
Mortality and expense risk charge (137) (84)
Asset-related administration charge (16) (10)
------------ ------------
Net Income (loss) 1,403 477
Net realized gain (loss) on investments (95) (36)
Net change in unrealized appreciation
(depreciation) (349) 369
------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 959 810
UNIT TRANSACTIONS:
Purchases 4,093 7,519
Redemptions (2,328) (1,580)
------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 1,765 5,939
------------ ------------
TOTAL CHANGE IN NET ASSETS 2,724 6,749
NET ASSETS AT BEGINNING OF YEAR 9,904 3,155
------------ ------------
NET ASSETS AT END OF YEAR $ 12,628 $ 9,904
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
AMERICAN CENTURY FIDELITY
INTERNATIONAL CONTRAFUND
- ----------------------------------------------------------------------------------------------------------
-------------------------- --------------------------
(In Thousands) 1999 1998 1999 1998#
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ - $ 280 $ 93 $ -
Mortality and expense risk charge (122) (75) (140) (5)
Asset-related administration charge (15) (9) (17) (1)
------------ ------------ ------------ ------------
Net Income (loss) (137) 196 (64) (6)
Net realized gain (loss) on investments 266 13 114 12
Net change in unrealized appreciation
(depreciation) 5,571 383 2,699 218
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 5,700 592 2,749 224
UNIT TRANSACTIONS:
Purchases 3,515 5,697 23,165 1,911
Redemptions (1,888) (1,378) (4,753) (396)
------------ ------------ ------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 1,627 4,319 18,412 1,515
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 7,327 4,911 21,161 1,739
NET ASSETS AT BEGINNING OF YEAR 8,204 3,293 1,739 -
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 15,531 $ 8,204 $ 22,900 $ 1,739
============ ============ ============ ============
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
FIDELITY
GROWTH INVESCO
OPPORTUNITIES REALTY
- -------------------------------------------------- ------------------------------------------------------
-------------------------- --------------------------
(In Thousands) 1999 1998# 1999 1998#
<S> <C> <C> <C> <C>
- --------------------------------------------------
OPERATIONS:
Dividend income $ 60 $ - $ 8 $ 3
Mortality and expense risk charge (74) (4) (3) (1)
Asset-related administration charge (9) (1) - -
------------ ------------ ------------ ------------
Net Income (loss) (23) (5) 5 2
Net realized gain (loss) on investments 40 (3) (5) (4)
Net change in unrealized appreciation
(depreciation) 165 150 - (15)
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 182 142 - (17)
UNIT TRANSACTIONS:
Purchases 10,555 1,566 115 229
Redemptions (2,970) (76) (101) (16)
------------ ------------ ------------ ------------
NET CHANGES IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 7,585 1,490 14 213
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 7,767 1,632 14 196
NET ASSETS AT BEGINNING OF YEAR 1,632 - 196 -
------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 9,399 $ 1,632 $ 210 $ 196
============ ============ ============ ============
</TABLE>
# For the period from May 1, 1998 (inception date) to December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
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 Life), a wholly-owned
subsidiary of SAFECO Corporation. Purchasers of various SAFECO Life
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 Life variable annuity products. The performance of
the underlying portfolios may differ substantially from publicly traded
mutual funds with similar names and objectives.
<TABLE>
<CAPTION>
Sub-Accounts Underlying Portfolios
<S> <C>
------------------------------------------------------------------------------------------------------
SAFECO Resource Series Trust
SAFECO RST Equity (SAFECO Equity) RST Equity Portfolio
SAFECO RST Growth (SAFECO Growth) RST Growth Portfolio
SAFECO RST Northwest (SAFECO Northwest) RST Northwest Portfolio
SAFECO RST Bond (SAFECO Bond) RST Bond Portfolio
SAFECO RST Money Market (SAFECO Money Market) RST Money Market Portfolio
SAFECO RST Small Company Stock (SAFECO Small
Company) RST Small Company Stock Portfolio
Scudder Variable Life Investment Fund
Scudder International Scudder International Portfolio
Scudder Balanced Scudder Balanced Portfolio
Lexington Natural Resources Trust
Lexington Natural Resources Lexington Natural Resources Trust
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Lexington Emerging Markets Fund, Inc.
Federated Insurance Series
Federated Utility Federated Utility Fund II
Federated High Income Bond (Federated High Income) Federated High Income Bond Fund II
Federated International Equity (Federated
International) Federated International Equity Fund II
Wanger Advisors Trust
Wanger US Small Cap US Small Cap Portfolio
American Century Variable Portfolios, Inc.
American Century Balanced VP Balanced
American Century International VP International
Variable Insurance Products Fund II (VIP II)
Fidelity Contrafund VIP II Contrafund Portfolio
Variable Insurance Products Fund III (VIP III)
Fidelity Growth Opportunities VIP III Growth Opportunities Portfolio
INVESCO Variable Investment Funds, Inc.
INVESCO Realty INVESCO VIF-Realty Portfolio
</TABLE>
11
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
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. The policies are in conformity with generally accepted
accounting principles.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
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 -- Security transactions are recorded on the trade
date. Effective January 1, 1998, realized gains and losses on security
transactions are determined using the average cost method. Prior to 1998,
the First-In First-Out cost method was used. This change in accounting
method has no net impact on the results of operations or on net assets.
DISTRIBUTIONS -- The net 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 Life, 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 Life assumes mortality and expense risks and incurs administrative
expenses related to the operations of the Separate Account. SAFECO Life
deducts a daily charge from the assets of the Separate Account to cover
these costs. This charge is, on an annual basis, equal to a rate of 1.40%
(1.25% for the mortality and expense risk charge and 0.15% for the
asset-related administration charge) of the average daily net assets of the
Separate Account.
There may be fees deducted by SAFECO Life from a contractholder's account
and not directly from the Separate Account. These fees may vary by product.
12
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
Purchase and sales activity in underlying portfolio shares for the year
ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
SUB-ACCOUNT PURCHASES SALES
<S> <C> <C>
------------------------------------------------------------
SAFECO Equity $74,906 $33,948
SAFECO Growth 31,645 30,798
SAFECO Northwest 7,718 3,790
SAFECO Bond 2,551 2,180
SAFECO Money Market 31,798 34,025
SAFECO Small Company 1,265 1,353
Scudder International 6,690 1,860
Scudder Balanced 17,829 4,367
Lexington Natural Resources 494 1,114
Lexington Emerging Markets 1,493 933
Federated Utility 3,321 2,285
Federated High Income 2,199 1,684
Federated International 2,088 1,070
Wanger US Small Cap 571 706
American Century Balanced 5,102 1,932
American Century International 3,223 1,726
Fidelity Contrafund 22,364 3,994
Fidelity Growth Opportunities 10,585 2,922
INVESCO Realty 166 150
</TABLE>
5. HISTORICAL ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
SAFECO Equity $64.812 $60.124 $48.808 $39.633 $32.209
SAFECO Growth 40.161 38.556 38.410 26.928 20.668
SAFECO Northwest 23.810 15.611 15.388 11.905 10.737
SAFECO Bond 19.452 20.536 19.130 17.915 18.045
SAFECO Money Market 16.457 15.951 15.413 14.874 14.370
SAFECO Small Company
* 11.426 10.040 12.731 - -
Scudder International 24.947 16.367 14.008 13.022 11.504
Scudder Balanced 23.315 20.501 16.872 13.771 12.481
Lexington Natural
Resources ** 13.327 11.844 14.952 14.148 -
Lexington Emerging
Markets ** 13.790 6.131 8.670 9.946 -
Federated Utility ** 17.058 17.010 15.135 12.117 -
Federated High Income
** 12.500 12.391 12.236 10.899 -
Federated
International ** 27.113 14.866 12.003 11.056 -
Wanger US Small Cap
** 28.278 22.925 21.391 16.754 -
American Century
Balanced ** 11.165 10.287 9.008 7.887 -
American Century
International ** 13.341 8.244 7.039 6.016 -
Fidelity Contrafund # 13.870 11.317 - - -
Fidelity Growth
Opportunities # 11.554 11.235 - - -
INVESCO Realty # 8.491 8.577 - - -
</TABLE>
* Unit value on the inception date (May 1, 1997) was $10.000.
** Unit values on the inception date (January 25, 1996) were $11.330,
$10.350, $11.110, $9.870, $10.220, $11.650, $7.020, and $5.330, for the
Lexington Natural Resources, Lexington Emerging Markets, Federated Utility,
Federated High Income, Federated International, Wanger US Small Cap,
American Century Balanced and American Century International Sub-accounts,
respectively.
# Unit value on the inception date (May 1, 1998) was $10.000 for the
Fidelity Contrafund, Fidelity Growth Opportunities, and INVESCO Realty
Sub-accounts.
13
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of SAFECO Life Insurance Company and Participants of
SAFECO Separate Account C
We have audited the accompanying statements of assets and liabilities of SAFECO
Separate Account C (comprising, respectively, the SAFECO RST Equity, SAFECO RST
Growth, SAFECO RST Northwest, SAFECO RST Bond, SAFECO RST Money Market, SAFECO
RST Small Company Stock, Scudder International, Scudder Balanced, Lexington
National Resources, Lexington Emerging Markets, Federated Utility, Federated
High Income Bond, Federated International Equity, Wanger US Small Cap, American
Century Balanced, American Century International, Fidelity Contrafund, Fidelity
Growth Opportunities, and Invesco Realty Portfolio Sub-Accounts) as of December
31, 1999, 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 the 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 auditing standards generally accepted
in the United States. 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 and the historical accumulation unit
values. Our procedures included confirmation of portfolio shares owned as of
December 31, 1999, by correspondence with the manager of 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, 1999, 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 accounting principles generally accepted
in the United States.
<TABLE>
<S> <C>
/s/ Ernst & Young LLP
Seattle, Washington
February 22, 2000
</TABLE>
14
<PAGE>
SAFECO Separate Account C
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
YEAR 2000 READINESS (UNAUDITED)
All Year 2000 readiness work was completed prior to December 31, 1999. The
Sub-Accounts have experienced no disruption in their operations or service
levels, and do not expect to incur any future disruptions or expense in
connection with the Year 2000 issue.
15
<PAGE>
Audited Consolidated Financial Statements
SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors.................................................. 1
Consolidated Financial Statements
Consolidated Balance Sheets................................................ 2
Statements of Consolidated Income.......................................... 4
Consolidated Statements of Changes in Shareholder's Equity................. 5
Statements of Consolidated Comprehensive Income (Loss)..................... 5
Statements of Consolidated Cash Flows...................................... 6
Notes to Consolidated Financial Statements................................. 8
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SAFECO Life Insurance Company
We have audited the accompanying consolidated balance sheets of SAFECO Life
Insurance Company and subsidiaries (the Company) as of December 31, 1999 and
1998, and the related statements of consolidated income, changes in
shareholder's equity, comprehensive income (loss), and cash flows for each of
the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 financial position of SAFECO Life Insurance Company
and subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Seattle, Washington /s/ Ernst & Young LLP
February 11, 2000
1
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
December 31
-----------
1999 1998
---------------- -------------
ASSETS
Investments:
<S> <C> <C>
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: $10,634,736; $9,718,627) .............................$ 10,322,572 $ 10,281,711
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: $2,772,099; $3,259,194) ................................ 2,733,290 2,720,883
Marketable Equity Securities, at Market Value
(Cost: $10,572; $14,665) .............................................. 15,205 18,737
First Mortgage Loans on Real Estate:
Nonaffiliates (At cost, less allowance for losses: $10,781; $11,173) . 746,232 503,734
Affiliates ............................................................ 74,583 160,693
Real Estate ............................................................. 3,829 2,942
Policy Loans ............................................................ 64,478 62,359
Short-Term Investments (At cost which approximates market) .............. 378,656 54,164
Other Invested Assets ................................................... 259 5,211
---------------- -------------
Total Investments .................................................... 14,339,104 13,810,434
Cash ....................................................................... 20,969 8,321
Accrued Investment Income .................................................. 210,207 190,887
Accounts and Notes Receivable (At cost, less allowance for doubtful
accounts: $168; $107) ................................................... 84,923 110,850
Reinsurance Recoverables ................................................... 37,762 32,354
Deferred Policy Acquisition Costs (Net of valuation allowance:
$225; $45,108) .......................................................... 265,830 213,022
Present Value of Future Profits ............................................ 11,741 12,362
Other Assets ............................................................... 70,351 61,510
Current Income Taxes Recoverable ........................................... -- 17,169
Deferred Income Taxes Recoverable (Includes tax benefit on
unrealized depreciation of investment securities: $107,714) ............ 106,453 --
Assets Held in Separate Accounts ........................................... 1,403,248 1,201,135
---------------- -------------
Total Assets ............................................................$ 16,550,588 $ 15,658,044
---------------- -------------
---------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
December 31
-----------
1999 1998
---------------- -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
<S> <C> <C>
Policy and Contract Liabilities:
Future Policy Benefits ................................................$ 164,475 $ 158,949
Policy and Contract Claims ............................................ 34,355 38,391
Premiums Paid in Advance .............................................. 8,054 8,161
Funds Held Under Deposit Contracts .................................... 13,402,480 12,364,937
Other Policyholders' Funds ............................................ 362,565 61,029
---------------- -------------
Total Policy and Contract Liabilities ............................... 13,971,929 12,631,467
Other Liabilities ....................................................... 130,623 149,684
Federal Income Taxes:
Current ............................................................... 11,678 --
Deferred (Includes tax on unrealized appreciation of
investment securities: $182,717) ..................................... -- 199,744
Liabilities Related to Separate Accounts ................................ 1,403,248 1,201,135
---------------- -------------
Total Liabilities .................................................... 15,517,478 14,182,030
---------------- -------------
Commitments and Contingencies
Shareholder's Equity:
Common Stock, $250 Par Value;
20,000 Shares Authorized, Issued and Outstanding ...................... 5,000 5,000
Additional Paid-In Capital .............................................. 85,000 85,000
Retained Earnings ....................................................... 1,143,041 1,046,572
Accumulated Other Comprehensive Income (Loss) ........................... (199,931) 339,442
---------------- -------------
Total Shareholder's Equity ........................................... 1,033,110 1,476,014
---------------- -------------
Total Liabilities and Shareholder's Equity.........................$ 16,550,588 $ 15,658,044
---------------- -------------
---------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
Revenues:
<S> <C> <C> <C>
Premiums ................................................................$ 256,742 $ 254,410 $ 240,595
Investment Income:
Interest on Fixed Maturities .......................................... 994,603 925,827 830,837
Interest on Mortgage Loans ............................................ 62,090 56,313 56,232
Interest on Short-Term Investments .................................... 3,827 4,898 3,419
Dividends from Marketable Equity Securities ........................... 416 693 1,044
Dividends from Redeemable Preferred Stock ............................. 17,990 17,088 16,026
Other Investment Income ............................................... 9,617 4,446 3,843
---------------- ------------- -------------
Total .............................................................. 1,088,543 1,009,265 911,401
Less Investment Expenses .............................................. 4,177 3,804 3,485
---------------- ------------- -------------
Net Investment Income ................................................... 1,084,366 1,005,461 907,916
---------------- ------------- -------------
Other Revenue ........................................................... 36,185 28,069 21,751
Realized Investment Gain (Loss) ......................................... (4,683) 13,612 6,807
---------------- ------------- -------------
Total .............................................................. 1,372,610 1,301,552 1,177,069
---------------- ------------- -------------
Benefits and Expenses:
Policy Benefits ......................................................... 1,025,233 994,081 844,926
Commissions ............................................................. 75,555 95,250 93,681
Personnel Costs ......................................................... 59,781 53,814 48,503
Taxes Other Than Payroll and Income Taxes ............................... 22,797 12,980 11,817
Other Operating Expenses ................................................ 47,074 54,815 46,639
Amortization of Deferred Policy Acquisition Costs ....................... 34,030 39,076 36,946
Write-off of Deferred Policy Acquisition Costs
and Other Write-offs .................................................. 12,993 46,800 --
Deferral of Policy Acquisition Costs .................................... (52,998) (65,944) (53,068)
Amortization of Present Value of Future Profits ......................... 803 3,790 --
---------------- ------------- -------------
Total .............................................................. 1,225,268 1,234,662 1,029,444
---------------- ------------- -------------
Income before Federal Income Taxes ......................................... 147,342 66,890 147,625
---------------- ------------- -------------
Provision (Benefit) for Federal Income Taxes:
Current ................................................................. 66,639 24,725 54,705
Deferred ................................................................ (15,766) (1,359) (4,689)
---------------- ------------- -------------
Total .............................................................. 50,873 23,366 50,016
---------------- ------------- -------------
Net Income .................................................................$ 96,469 $ 43,524 $ 97,609
---------------- ------------- -------------
---------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
<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 ...................................... 1,046,572 1,093,048 1,011,439
Net Income ............................................................ 96,469 43,524 97,609
Dividends to Parent ................................................... -- (90,000) (16,000)
---------------- ------------- -------------
Balance at the End of Year ............................................ 1,143,041 1,046,572 1,093,048
---------------- ------------- -------------
Accumulated Other Comprehensive Income (Loss):
Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax:
Balance at the Beginning of Year ..................................... 339,442 305,517 160,045
Change in Unrealized Appreciation (Depreciation),
Net of Deferred Policy Acquisition Costs Valuation
Allowance .......................................................... (539,373) 33,925 145,472
---------------- ------------- -------------
Balance at the End of Year ........................................... (199,931) 339,442 305,517
---------------- ------------- -------------
Shareholder's Equity ..............................................$ 1,033,110 $ 1,476,014 $ 1,488,565
---------------- ------------- -------------
---------------- ------------- -------------
</TABLE>
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
<S> <C> <C> <C>
Net Income .................................................................$ 96,469 $ 43,524 $ 97,609
---------------- ------------- -------------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Appreciation (Depreciation) of Investment
Securities Arising During the Year (Net of tax:
$(289,865); $21,842; $81,029) ........................................ (538,321) 40,563 150,482
Less: Reclassification Adjustment for Realized Gains
Included in Net Income (Net of tax: $566; $3,574;
$2,697) .............................................................. (1,052) (6,638) (5,010)
---------------- ------------- -------------
Other Comprehensive Income (Loss) ..................................... (539,373) 33,925 145,472
---------------- ------------- -------------
Comprehensive Income (Loss) ................................................$ (442,904) $ 77,449 $ 243,081
---------------- ------------- -------------
---------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received ........................................... $ 218,429 $ 224,293 $ 216,089
Dividends and Interest Received ....................................... 980,630 919,236 819,433
Other Operating Receipts .............................................. 35,972 27,498 19,299
Insurance Claims and Policy Benefits Paid ............................. (382,039) (402,118) (353,227)
Underwriting, Acquisition and Insurance
Operating Costs Paid ................................................ (194,743) (221,294) (202,077)
Income Taxes Paid ..................................................... (37,791) (61,086) (36,140)
---------------- ------------- -------------
Net Cash Provided by Operating Activities ........................ 620,458 486,529 463,377
---------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale ................................. (2,496,571) (2,117,938) (1,891,778)
Fixed Maturities Held-to-Maturity .................................. (901) (1,691) (199,589)
Purchase of Subsidiary, Net of Cash Acquired ........................ (2,000) -- 116,122
Other Investments ................................................... (493) (7,345) (5,788)
Policy and Nonaffiliated Mortgage Loans ............................. (251,144) (103,602) (96,019)
Affiliated Mortgage Loans ........................................... -- -- (40,000)
Options and Futures ................................................. (159,369) (168,554) (13,977)
Maturities of Fixed Maturities Available-for-Sale ..................... 914,839 732,377 435,788
Maturities of Fixed Maturities Held-to-Maturity ....................... 13,336 7,280 8,907
Sales of:
Fixed Maturities Available-for-Sale ................................. 683,225 643,539 869,091
Fixed Maturities Held-to-Maturity ................................... 6,296 18,235 --
Other Investments ................................................... 6,203 7,522 13,824
Policy and Nonaffiliated Mortgage Loans ............................. 98,366 65,797 61,159
Affiliated Mortgage Loans ........................................... 2,024 14,491 5,560
Options and Futures ................................................. 179,503 141,302 --
Net (Increase) Decrease in Short-Term Investments ..................... (323,152) 2,013 11,519
Other ................................................................. (12,081) (1,163) (36,164)
---------------- ------------- -------------
Net Cash Used in Investing Activities ............................ (1,341,919) (767,737) (761,345)
---------------- ------------- -------------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts ................................ 1,809,340 1,198,147 1,392,517
Return of Funds Held Under Deposit Contracts .......................... (1,050,947) (1,091,965) (861,221)
Dividends to Parent ................................................... -- (94,000) (13,000)
Net Proceeds from (Repayment of) Short-Term Borrowings ................ (24,284) 32,835 5,048
---------------- ------------- -------------
Net Cash Provided by Financing Activities 734,109 45,017 523,344
---------------- ------------- -------------
Net Increase (Decrease) in Cash .......................................... 12,648 (236,191) 225,376
Cash at Beginning of Year ................................................ 8,321 244,512 19,136
---------------- ------------- -------------
Cash at End of Year $ 20,969 $ 8,321 $ 244,512
---------------- ------------- -------------
---------------- ------------- -------------
</TABLE>
For purposes of reporting cash flows, cash consists of balances on hand and
on deposit in banks and financial institutions.
See Notes to Consolidated Financial Statements
6
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS -
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Net Income ............................................... $ 96,469 $ 43,524 $ 97,609
---------- --------- ----------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment (Gain) Loss ..................... 4,683 (13,612) (6,807)
Amortization of Fixed Maturity Investments .......... (37,141) (26,774) (24,929)
Deferred Federal Income Tax Benefit ................. (15,766) (1,359) (4,689)
Interest Expense on Deposit Contracts ............... 628,392 633,437 501,230
Mortality and Expense Charges and Administrative Fees (38,825) (29,753) (27,379)
Other ............................................... 265 5,535 (7,877)
Changes in:
Future Policy Benefits ............................. 5,526 7,274 1,855
Policy and Contract Claims ......................... (4,036) 703 2,830
Premiums Paid in Advance ........................... (107) (984) 299
Deferred Policy Acquisition Costs .................. (7,925) 17,062 (15,688)
Accrued Investment Income .......................... (19,320) (9,130) (11,451)
Accrued Interest on Accrual Bonds .................. (45,311) (50,440) (48,354)
Other Receivables .................................. 4,164 (9,979) (5,467)
Current Federal Income Taxes ....................... 28,847 (36,361) 18,565
Other Assets and Liabilities ....................... 25,027 (42,225) (2,350)
Other Policyholders' Funds ......................... (4,484) (389) (4,020)
---------- --------- ----------
Total Adjustments ................................ 523,989 443,005 365,768
---------- --------- ----------
Net Cash Provided by Operating Activities ................ $ 620,458 $ 486,529 $ 463,377
---------- --------- ----------
---------- --------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
7
<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 and its subsidiaries offer individual and group
insurance products, pension plans and annuity products, marketed through
professional agents in all states and the District of Columbia. 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. The Company owns five subsidiaries, SAFECO National
Life Insurance Company, First SAFECO National Life Insurance Company of New
York, Empire Life Insurance Company, D.W. Van Dyke & Co., Inc. and Medical
Risk Managers, Inc.
In December 1999, the Company acquired D.W. Van Dyke & Co., Inc. and
Medical Risk Managers, Inc., both of which are Delaware corporations doing
business as insurance services providers. The Company acquired WM Life
Insurance Company and Empire Life Insurance Company in December 1997. WM
Life Insurance Company was merged into the Company on July 1, 1998.
BASIS OF REPORTING. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
include amounts based on the best estimates and judgments of management.
The financial statements include the 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 1999 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) that the Company has the 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 (comprehensive income), 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 (comprehensive income), 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 Statements of Consolidated Income.
8
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
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 Statements of Consolidated Income.
DEFERRED POLICY ACQUISITION COSTS. Life and health acquisition costs,
consisting of commissions and certain other underwriting expenses, which
vary with and are primarily related to the production of new business, are
deferred.
Acquisition costs for pension deposit contracts, deferred annuity contracts
and universal life policies are amortized over the lives of the contracts
or policies in proportion to the present value of estimated future gross
profits. To the extent actual experience differs from assumptions, and to
the extent estimates of future gross profits require revision, the
unamortized balance of deferred policy acquisition costs is adjusted
accordingly; such adjustments would be included in current operations. In
1999, a $13 million write-off of deferred acquisition costs was charged to
current operations. This charge was related to the equity-indexed annuity
product. In 1998, a $46.8 million write-off of deferred acquisition costs
was charged to current operations. This charge was primarily tied to two
blocks of annuity business, the equity-indexed product and a declared rate
fixed annuity product, and to the universal life business, all of which had
been adversely affected by market conditions. Approximately $28 million of
the write-off was related to the equity-indexed annuity product. The cost
of the options purchased to fund the obligation under these contracts
increased significantly, adversely affecting the projected recoverability
of deferred acquisition costs. There were no significant adjustments made
in 1997.
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 change in the present value of future profits is comprised of
amortization and an adjustment to amortization for realized gains or losses
on investment securities of $(182) and $626 for the years ended December
31, 1999, and 1998, respectively. 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 1999 or 1998. Present value of future profits is amortized
using a model approach that results in volatile amortization patterns. Our
best estimate is that, over the next five years, four to seven percent of
the balance will be amortized each year.
9
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
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 options are recorded at
market value with unrealized gains and losses recorded in income. Realized
gains and losses on these instruments are recognized upon termination.
In December 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. multistate banking
network. The portion of this transaction relating to the distribution
agreement was valued at $35,000 and is being amortized on a straight-line
basis over 15 years. The unamortized balance of $30,333 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 4.5% 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
8.0% graded to 3.25%.
POLICY AND CONTRACT CLAIMS. The liability for policy and contract claims is
established on the basis of reported losses ("case basis" method).
Provision is also made for claims incurred but not reported, based on
historical experience. The estimates for claims incurred but not reported
are continually reviewed and any necessary adjustments are reflected in
current operations.
SEPARATE ACCOUNTS. The Company administers segregated asset accounts for
variable annuity and variable universal life clients. The assets of these
Separate Accounts, which consist of common stocks, are the property of the
Company. The liabilities of these Separate Accounts represent reserves
established to meet withdrawal and future benefit payment provisions of
contracts with these clients. The assets of the Separate Accounts, equal to
the reserves and other contract liabilities of the Separate Accounts, are
not chargeable with liabilities arising out of any other business the
Company may conduct. Investment risks associated with market value changes
are borne by the clients. Deposits, withdrawals, net investment income and
realized and unrealized capital gains and losses on the assets of the
Separate Accounts are not reflected in the Statements 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 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.
10
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
NEW ACCOUNTING STANDARD. The Financial Accounting Standards Board (FASB)
issued Statement 133, "Accounting for Derivative Instruments and Hedging
Activities," in June 1998. The FASB also issued Statement 137 in June 1999,
which deferred the effective date of Statement 133 to fiscal years
beginning after June 15, 2000. The Company will adopt Statement 133 no
later than the first quarter of 2001. Statement 133 amends or supersedes
several previous FASB statements and requires recognizing all derivatives
as either assets or liabilities in the statement of financial position and
measuring those instruments at fair value. The impact of Statement 133 is
currently being studied. Because of continuing emerging implementation
guidelines from the FASB, the effect of Statement 133 on the financial
statements has not yet been determined.
2. ACQUISITIONS AND AGREEMENTS
In December 1999, the Company acquired D.W. Van Dyke & Co., Inc. and
Medical Risk Managers, Inc. for $2,000. The acquisition has been treated as
a purchase for accounting purposes. The transaction was financed through
internal sources. As part of the agreement, the Company also agreed to pay
$11,941 and assume $20,309 in net liabilities for the right to reinsure the
policies of Medical Risk Solutions, a division of ING North America
Insurance Corporation, until the policy anniversary date. At the
anniversary date, the Company will offer its policy as a replacement. The
$32,250 total price was capitalized in other assets and will be amortized
beginning January 1, 2000, over 15 years.
In December 1999, the Company entered into an asset acquisition agreement
with Sound Benefits Administrators of Wisconsin, Inc., a third party
administrator. The agreement allows for the purchase of various assets
including, intellectual property, owned personal property, contract rights,
accounts receivable and the books and records used in the business. The
purchase price is based on the Company's profits from the Select Benefits
product and will be adjusted at various dates based on results. The initial
payment of $3,800, less the amount attributable to the personal property,
will be amortized over 5 years. The value of the personal property is yet
to be determined.
11
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
3. INVESTMENTS
A summary of fixed maturities and marketable equity securities classified
as available-for-sale at December 31, 1999 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities .............. $ 555,847 $ 25,921 $ (8,065) $ 17,856 $ 573,703
States, municipalities and political subdivisions ... 132,977 7,336 (3,969) 3,367 136,344
Foreign governments ................................. 90,852 2,826 (591) 2,235 93,087
Public utilities .................................... 1,413,426 10,474 (45,092) (34,618) 1,378,808
All other corporate bonds ........................... 5,528,543 35,946 (293,473) (257,527) 5,271,016
Mortgage-backed securities .......................... 2,913,091 31,406 (74,883) (43,477) 2,869,614
------------- ------------ ------------- ------------ -------------
Total fixed maturities classified as
available-for-sale ............................... 10,634,736 113,909 (426,073) (312,164) 10,322,572
Marketable equity securities ........................ 10,572 4,672 (39) 4,633 15,205
------------- ------------ ------------- ------------ -------------
Total investment securities classified as
available-for-sale ............................... $ 10,645,308 $ 118,581 $ (426,112) (307,531) $ 10,337,777
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Deferred policy acquisition costs valuation allowance ............................................ (225)
Applicable federal income tax .............................................................. 107,825
------------
Unrealized depreciation of investment securities,
net of tax, included in shareholder's equity (accumulated other comprehensive
income (loss)) ......................................................................... $ (199,931)
------------
------------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December
31, 1999 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities .......... $ 282,465 $ 27,580 $ (743) $ 26,837 $ 309,302
States, municipalities and political subdivisions 140,269 1,684 (6,000) (4,316) 135,953
Foreign governments ............................. 150,268 19,040 -- 19,040 169,308
Public utilities ................................ 415,715 17,957 (13,731) 4,226 419,941
All other corporate bonds ....................... 1,424,007 43,903 (55,647) (11,744) 1,412,263
Mortgage-backed securities ...................... 320,566 10,961 (6,195) 4,766 325,332
------------ ----------- ----------- ----------- ------------
Total fixed maturities classified as
held-to-maturity ............................. $ 2,733,290 $ 121,125 (82,316) $ 38,809 $ 2,772,099
------------ ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ------------
</TABLE>
12
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
A summary of fixed maturities and marketable equity securities classified
as available-for-sale at December 31, 1998 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 .......... $ 592,137 $ 85,453 $ (6) $ 85,447 $ 677,584
States, municipalities and political subdivisions 126,136 16,784 (3,191) 13,593 139,729
Foreign governments ............................. 101,106 9,730 -- 9,730 110,836
Public utilities ................................ 1,509,636 113,446 (1,957) 111,489 1,621,125
All other corporate bonds ....................... 4,504,120 225,765 (21,633) 204,132 4,708,252
Mortgage-backed securities ...................... 2,885,492 142,633 (3,940) 138,693 3,024,185
----------- ----------- ---------- ---------- ----------
Total fixed maturities classified as
available-for-sale ........................... 9,718,627 593,811 (30,727) 563,084 10,281,711
Marketable equity securities .................... 14,665 4,166 (94) 4,072 18,737
----------- ----------- ---------- ---------- ----------
Total investment securities classified as
available-for-sale ........................... 9,733,292 $ 597,977 (30,821) 567,156 $10,300,448
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Deferred policy acquisition costs valuation allowance ................................ (45,108)
Applicable federal income tax ........................................................ (182,606)
----------
Unrealized appreciation of investment securities,
net of tax, included in shareholder's equity (accumulated other
comprehensive income) ............................................................. $ 339,442
----------
----------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December
31, 1998 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 .......... $ 272,104 $ 102,409 $ -- $ 102,409 $ 374,513
States, municipalities and political subdivisions 127,180 26,403 -- 26,403 153,583
Foreign governments ............................. 149,558 48,523 -- 48,523 198,081
Public utilities ................................ 416,495 81,036 (239) 80,797 497,292
All other corporate bonds ....................... 1,447,436 243,657 (4,159) 239,498 1,686,934
Mortgage-backed securities ...................... 308,110 40,682 (1) 40,681 348,791
---------- ---------- ---------- ---------- ----------
Total fixed maturities classified as
held-to-maturity ............................. $2,720,883 $ 542,710 $ (4,399) $ 538,311 $3,259,194
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
13
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The amortized cost and estimated market value of fixed maturities at
December 31, 1999, 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 ........................................ $ 341,063 $ 343,174 $ -- $ --
Due after one year through five years .......................... 2,581,703 2,554,963 3 3
Due after five years through ten years ......................... 1,206,699 1,163,379 54,473 57,617
Due after ten years ............................................ 3,592,180 3,391,442 2,358,248 2,389,147
Mortgage-backed securities ..................................... 2,913,091 2,869,614 320,566 325,332
------------- ------------ ------------- ------------
Total .................................................... $ 10,634,736 $ 10,322,572 $ 2,733,290 $ 2,772,099
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
At December 31, 1999 and 1998, the Company held below investment grade
fixed maturities of $559 million and $438 million at amortized cost,
respectively. The respective market values of these investments were
approximately $515 million and $444 million. These holdings amounted to
3.9% and 3.3% of the Company's investments in fixed maturities at market
value at December 31, 1999 and 1998, respectively.
Certain fixed maturity securities with an amortized cost of $7,644 and
$7,596 at December 31, 1999 and 1998, respectively, were on deposit with
various regulatory authorities to meet requirements of insurance and
financial codes.
At December 31, 1999 and 1998, mortgage loans constituted approximately
5.0% and 4.2% 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 34% of the total
in California. Individual loans generally do not exceed $10 million.
The carrying value of investments in fixed maturities and mortgage loans
that did not produce income during the year ended December 31, 1999 is less
than one percent of the total of such investments.
14
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- -------------------
<S> <C> <C> <C>
Proceeds from sales ....................................... $ 683,225 $ 6,296 $ 5,534
------------ ------------ ------------
------------ ------------ ------------
Gross realized gains on sales ............................. $ 13,358 $ -- $ 947
Gross realized losses on sales ............................ (14,559) (6,266) --
------------ ------------ ------------
Realized gains (losses) on sales .................... (1,201) (6,266) 947
Other (Including net gain or loss on calls and redemptions) 2,472 (52) --
Writedowns (Including writedowns on
securities subsequently sold) ......................... (600) -- --
------------ ------------ ------------
Total realized gain (loss) ................................ $ 671 $ (6,318) $ 947
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
One fixed maturity security, classified as held-to-maturity, was sold
during 1999 due to evidence of a significant deterioration in credit
quality. The amortized cost of this security was $12,562, and the loss
realized on this sale was $6,266.
The proceeds from sales of investment securities and related gains and
losses for 1998 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
---------------- ---------------- -----------------
<S> <C> <C> <C>
Proceeds from sales............................................. $ 643,539 $ 18,235 $ 665
-------------- -------------- --------------
-------------- -------------- --------------
Gross realized gains on sales .................................. $ 12,350 $ 3,384 $ 335
Gross realized losses on sales ................................. (480) -- (3)
-------------- -------------- --------------
Realized gains on sales ................................... 11,870 3,384 332
Other (Including net gain or loss on calls and redemptions)..... (1,557) -- --
Writedowns (Including writedowns on
securities subsequently sold) .............................. (433) -- --
-------------- -------------- --------------
Total realized gain ............................................ $ 9,880 $ 3,384 $ 332
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
15
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
One fixed maturity security, classified as held-to-maturity, was sold
during 1998 due to restructuring by the bond issuer and the expected
significant downgrade resulting from it. This transaction meets the
"allowable sale" criteria of FASB Statement 115. The amortized cost of
this security was $14,851, and the gain realized on this sale was $3,384.
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 Securiities
----------------- ---------------- ----------------
<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>
The following summarizes the realized gain before federal income taxes and
the net change in unrealized appreciation:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities ......................................... $ (5,647) $ 13,264 $ 1,272
Marketable equity securities ............................. 947 332 6,435
First mortgage loans on real estate ...................... -- -- (900)
Real estate .............................................. 17 16 --
------------- ------------ ------------
Realized gain (loss) before federal income taxes ....... $ (4,683) $ 13,612 $ 6,807
------------- ------------ ------------
------------- ------------ ------------
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation/depreciation of:
Fixed maturities classified as available-for-sale ........ $ (875,248) $ 62,781 $ 244,483
Marketable equity securities ............................. 561 (829) (4,372)
Deferred policy acquisition costs valuation allowance .... 44,883 (9,759) (16,309)
Applicable federal income tax ............................ 290,431 (18,268) (78,330)
------------- ------------ ------------
Net change in unrealized appreciation/depreciation ....... $ (539,373) $ 33,925 $ 145,472
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
16
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The following table summarizes the Company's allowance for credit losses on
non-affiliated mortgage loans:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Allowance at beginning of year ........... $ 11,173 $ 11,609 $ 10,943
Provision for credit losses .............. -- -- 900
Loans charged off as uncollectible ....... (392) (436) (234)
------------ ------------ -------------
Allowance at end of year ................. $ 10,781 $ 11,173 $ 11,609
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The allowance includes specific reserves, as well as general reserve
amounts. The total investment in impaired loans before any reserve for
losses is $589 and $2,496 at December 31, 1999 and 1998, respectively. A
specific loan loss reserve has been established for each impaired loan, the
total of which is $59 and $250 and is included in the overall allowance of
$10,781 and $11,173 at December 31, 1999 and 1998, 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 are $2,485 at December 31, 1999.
At December 31, 1999, unfunded mortgage loan commitments approximate
$18,699. The Company has no other material commitments or contingencies at
December 31, 1999.
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.
17
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 5 (continued)
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>
1999 1998
----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale ...... $ 10,322,572 $ 10,322,572 $ 10,281,711 $ 10,281,711
Fixed maturities held-to-maturity ........ 2,733,290 2,772,099 2,720,883 3,259,194
Marketable equity securities ............. 15,205 15,205 18,737 18,737
Mortgage loans ........................... 820,815 749,000 664,427 692,000
Financial liabilities:
Funds held under deposit contracts ....... 13,402,480 13,136,000 12,364,937 12,874,000
</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 $3.2 billion and $3.4 billion, at market
values, at December 31, 1999 and 1998, respectively, are primarily
residential collateralized mortgage obligations (CMOs), pass-throughs and
commercial loan-backed mortgage obligations (CMBS). CMOs and CMBS, while
technically defined as derivative instruments, are exempt from derivative
disclosure requirements. The Company's investment in CMOs and CMBS
comprised of the riskier, more volatile type (e.g., principal only, inverse
floaters, etc.) has been intentionally limited to only a small amount,
approximately 1% of total mortgage-backed securities at both December 31,
1999 and 1998.
In 1997, the Company introduced an equity-indexed annuity product that
credits the policyholder based on a percentage of the gain in the S&P 500
index. Sales of this product were suspended in the fourth quarter of 1998.
A hedging program with the objective to hedge the exposure to changes in
the S&P 500 market risk has been established. The program consists of
buying and writing S&P 500 options, buying Treasury interest rate futures
and trading S&P 500 futures.
Realized gains and losses on both options and futures are recognized upon
termination of the options and future contracts. The Company records
futures and options at market value with unrealized gains and losses
recorded in policy benefits in current income.
The balance in other assets for call options purchased was $2,023 and
$23,985 at December 31, 1999 and 1998, respectively. The balance of futures
contracts at December 31, 1999 and 1998, respectively, was $8,287 and
$4,961. At December 31, 1999, the Company had a $5,819 liability for
written S&P 500 call options included in other liabilities.
18
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 5 (continued)
The Company does not enter into financial instruments for speculative
purposes. The Company's involvement in other investment-type derivatives is
also, intentionally, of a very limited nature. Such derivatives include
interest rate swaps on bond investments, currency-linked bonds and
fixed-rate loan commitments. Individually, and in the aggregate, these
derivatives are not material and thus no additional disclosures are
warranted.
6. REINSURANCE
The Company protects itself from excessive losses by ceding reinsurance to
other companies, using automatic and facultative treaties. The availability
and cost of reinsurance are subject to prevailing market conditions, both
in terms of price and available capacity. Although the reinsurer is liable
to the Company to the extent of the reinsurance ceded, the Company remains
primarily liable to the policyholder as the direct insurer on all risks
reinsured. The Company evaluates the financial condition of its reinsurers
to minimize its exposure to losses from reinsurer insolvencies. To the
Company's knowledge, none of its reinsurers is experiencing financial
difficulties.
Reinsurance Recoverables are comprised of the following amounts:
<TABLE>
<CAPTION>
December 31
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
Unpaid losses and adjustment expense ............. $ 767 $ 248
Paid claims ...................................... 1,179 1,347
Life policy liabilities .......................... 35,695 30,677
Other reinsurance recoverables ................... 121 82
------------ -------------
Total reinsurance recoverables $ 37,762 $ 32,354
------------ -------------
------------ -------------
</TABLE>
The effects of reinsurance on the premium and policy benefit amounts in the
Statements of Consolidated Income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums ................................ $ (21,216) $ (16,479) $ (13,305)
------------- -------------- --------------
------------- -------------- --------------
Policy benefits ......................... $ (9,347) $ (7,162) $ (7,853)
------------- -------------- --------------
------------- -------------- --------------
Reinsurance Assumed:
Premiums ................................ $ 697 $ 876 $ 180
------------- -------------- --------------
------------- -------------- --------------
Policy benefits ......................... $ 2,464 $ 3,487 $ 2,902
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
19
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
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.
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 Statements of
Consolidated Income for the year ended December 31, 1997, 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 capital and surplus, by company, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company ................................ $ 91,666 $ 64,599 $ 95,012
SAFECO National Life Insurance Company ....................... 1,121 1,012 1,322
First SAFECO National Life Insurance Company of New York ..... 751 576 314
Empire Life Insurance Company ................................ 596 1,799 --
------------ ------------- ------------
Total ................................................... $ 94,134 $ 67,986 $ 96,648
------------ ------------- ------------
------------ ------------- ------------
<CAPTION>
December 31
-----------------------------------------
1999 1998 1997
------------ ------------- ------------
Statutory Capital and Surplus:
<S> <C> <C> <C>
SAFECO Life Insurance Company and Subsidiaries ............... $ 637,522 $ 576,791 $ 672,230
------------ ------------- ------------
------------ ------------- ------------
</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, 1999.
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
$73,428 at December 31, 1999.
20
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
9. EMPLOYEE BENEFIT PLANS
SAFECO Corporation and subsidiary companies (the Companies) sponsor defined
contribution, defined benefit and profit sharing bonus plans covering
substantially all employees. The defined contribution plans include profit
sharing retirement plans and a 401(k) savings plan. A cash balance defined
benefit plan covering substantially all employees provides benefits 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 $2,479, $6,070 and $7,531 for the years
ended December 31, 1999, 1998 and 1997, respectively.
The Companies also provide certain healthcare and life insurance benefits
("other postretirement benefits") for retired employees. Substantially all
employees may become eligible for these benefits if they reach retirement
age while working for the Companies. The cost of these benefits is shared
with the retiree. Net periodic other postretirement benefit costs for the
Company were $1,091, $510 and $392 in 1999, 1998 and 1997, respectively.
The accrued postretirement benefit cost recorded in the balance sheet was
$6,634 and $5,544 at December 1999 and 1998, respectively.
10. INCOME TAXES
The Company uses the liability method of accounting for income taxes under
which 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 not material.
21
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
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
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Discounting of loss and adjustment expense reserves ............................. $ 463 $ 340
Uncollected premium adjustment .................................................. 3,303 2,963
Adjustment to life policy liabilities ........................................... 50,646 37,821
Capitalization of policy acquisition costs ...................................... 61,087 46,046
Postretirement benefits ......................................................... 2,322 1,940
Realized capital losses ......................................................... 3,114 3,461
Guarantee fund assessments ...................................................... 1,681 2,696
Intercompany sale of securities ................................................. 1,009 --
Unrealized depreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: $79) .............................. 107,714 --
Other ........................................................................... 1,610 3,105
------------ ------------
Total deferred tax assets .................................................. 232,949 98,372
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs .............................................. 93,119 90,346
Present value of future profits ................................................ 4,109 4,327
Bond discount accrual .......................................................... 17,180 19,587
Right to Reinsure .............................................................. 11,039 --
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: $15,788) ......................... -- 182,717
Other .......................................................................... 1,049 1,139
------------ ------------
Total deferred tax liabilities ............................................. 126,496 298,116
------------ ------------
Net deferred tax (asset) liability ......................................... $ (106,453) $ 199,744
------------ ------------
------------ ------------
</TABLE>
The following table reconciles the deferred tax benefit in the Statements
of Consolidated Income to the change in the deferred tax liability in the
balance sheet for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax benefit ............................................... $ (15,766) $ (1,359) $ (4,689)
Net deferred tax liability acquired in acquisitions ................ -- 3,539 2,008
Deferred tax changes reported in shareholder's equity:
Increase (decrease) in liability related to unrealized
appreciation or depreciation of investment securities .... (306,140) 21,684 84,037
(Increase) decrease in liability related to deferred
policy acquisition costs valuation allowance ............. 15,709 (3,416) (5,708)
------------ ------------ ------------
Increase (decrease) in net deferred tax liability .................. $ (306,197) $ 20,448 $ 75,648
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
22
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
11. SEGMENT DATA
The Company's reportable business segments are strategic business units
that offer distinctive products marketed through independent agents in
various distribution channels.
The Company has five reportable segments: Individual, Retirement Services,
Settlement Annuities, Group and Corporate. Individual issues traditional,
term and universal life insurance policies. Retirement Services issues
fixed and variable deferred annuity products. Settlement Annuities issues
immediate annuities for structured pay out situations. Group issues excess
loss health insurance to companies that have self-insured medical plans.
The Corporate segment is used to retain profits from the four product lines
and pay dividends to the parent company, SAFECO Corporation.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Company management
evaluates performance based on operating profit or loss before income
taxes.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
-------- ----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums ................. $62,409 $ 536 $ -- $ 193,797 $ -- $ 256,742
Net Investment Income .... 113,830 410,908 486,561 1,845 71,222 1,084,366
Other Revenue ............ 3,808 32,348 29 -- -- 36,185
-------- ----------- ----------- ---------- --------- ---------
Total Revenue ......... 180,047 443,792 486,590 195,642 71,222 1,377,293
Expenses
Policy Benefits .......... 134,700 310,495 422,925 157,113 -- 1,025,233
Commissions .............. 10,237 24,255 11,764 29,149 150 75,555
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits ........ 5,447 24,979 -- 4,407 -- 34,833
Write-off of Deferred Policy
Acquisition Costs ...... -- 12,993 -- -- -- 12,993
Deferral of Policy Acquisition
Costs ................. (25,698) (18,932) -- (8,368) -- (52,998)
Other Expenses ........... 47,378 37,452 9,640 32,849 2,333 129,652
-------- ----------- ----------- ---------- --------- ---------
Total Expenses and
Policy Benefits .... 172,064 391,242 444,329 215,150 2,483 1,225,268
-------- ----------- ----------- ---------- --------- ---------
Income (Loss) From
Insurance Operations ....... 7,983 52,550 42,261 (19,508) 68,739 152,025
Realized Investment Gain (Loss) 325 (1,031) (5,927) 295 1,655 (4,683)
-------- ----------- ----------- ---------- --------- ---------
Income (Loss) before Federal
Income Taxes ............... $ 8,308 $ 51,519 $ 36,334 $ (19,213) $ 70,394 $ 147,342
-------- ----------- ----------- ---------- --------- ---------
-------- ----------- ----------- ---------- --------- ---------
<CAPTION>
December 31, 1999
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments ............ $ 1,946,604 $ 5,624,219 $ 5,879,843 $ 14,534 $ 873,904 $ 14,339,104
Assets Held in
Separate Accounts .......... 126,908 1,276,340 -- -- -- 1,403,248
Total Assets ................. 2,308,863 7,204,831 6,010,669 104,749 921,476 16,550,588
</TABLE>
23
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 11 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
----------- ----------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums ..................... $ 50,563 $ 698 $ -- $ 203,149 $ -- $ 254,410
Net Investment Income ........ 69,267 411,661 449,313 2,695 72,525 1,005,461
Other Revenue ................ 3,509 24,483 77 -- -- 28,069
------------ ----------- ------------ ----------- ------------ -----------
Total Revenue ............. 123,339 436,842 449,390 205,844 72,525 1,287,940
Expenses
Policy Benefits .............. 84,004 349,834 399,130 161,113 -- 994,081
Commissions .................. 10,864 46,236 12,211 25,639 300 95,250
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits ............ 8,438 30,576 -- 3,852 -- 42,866
Write-off of Deferred Policy
Acquisition Costs and
Other Write-offs ........... 11,500 32,300 -- -- 3,000 46,800
Deferral of Policy Acquisition
Costs ..................... (18,610) (42,788) -- (4,546) -- (65,944)
Other Expenses ............... 37,782 40,177 7,398 33,919 2,333 121,609
------------ ----------- ------------ ----------- ------------ -----------
Total Expenses and
Policy Benefits ........ 133,978 456,335 418,739 219,977 5,633 1,234,662
------------ ----------- ------------ ----------- ------------ -----------
Income (Loss) From
Insurance Operations ........... (10,639) (19,493) 30,651 (14,133) 66,892 53,278
Realized Investment Gain ......... 828 4,304 -- -- 8,480 13,612
------------ ----------- ------------ ----------- ------------ -----------
Income (Loss) before
Federal Income Taxes ........... $ (9,811) $ (15,189) $ 30,651 $ (14,133) $ 75,372 $ 66,890
------------ ----------- ------------ ----------- ------------ -----------
------------ ----------- ------------ ----------- ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments ..................... $ 1,075,256 $ 5,761,722 $ 5,877,496 $ 39,918 $ 1,056,042 $ 13,810,434
Assets Held in
Separate Accounts ................... 98,715 1,102,420 -- -- -- 1,201,135
Total Assets .......................... 1,307,561 7,195,140 5,971,534 90,125 1,093,684 15,658,044
</TABLE>
24
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 11 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums ..................... $ 46,873 $ -- $ -- $ 193,722 $ -- $ 240,595
Net Investment Income ........ 55,431 355,550 420,095 2,737 74,103 907,916
Other Revenue ................ 3,531 18,102 117 1 -- 21,751
---------- ----------- ---------- ------------ ------------- -------------
Total Revenue ............. 105,835 373,652 420,212 196,460 74,103 1,170,262
Expenses
Policy Benefits .............. 69,611 278,525 368,854 127,936 -- 844,926
Commissions .................. 9,979 38,337 20,060 24,855 450 93,681
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits ............ 6,615 26,613 -- 3,718 -- 36,946
Deferral of Policy Acquisition
Costs ..................... (15,275) (33,452) -- (4,341) -- (53,068)
Other Expenses ............... 32,494 36,677 5,803 31,985 -- 106,959
---------- ----------- ---------- ------------ ------------- -------------
Total Expenses and
Policy Benefits ........ 103,424 346,700 394,717 184,153 450 1,029,444
---------- ----------- ---------- ------------ ------------- -------------
Income From
Insurance Operations ........... 2,411 26,952 25,495 12,307 73,653 140,818
Realized Investment Gain (Loss) .. (472) 1,601 -- -- 5,678 6,807
---------- ----------- ---------- ------------ ------------- -------------
Income before Federal
Income Taxes ................... $ 1,939 $ 28,553 $ 25,495 $ 12,307 $ 79,331 $ 147,625
---------- ----------- ---------- ------------ ------------- -------------
---------- ----------- ---------- ------------ ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments ................. $ 903,487 $ 5,503,066 $ 5,516,799 $ 38,107 $ 935,967 $ 12,897,426
Assets Held in
Separate Accounts ............... 69,071 836,346 -- -- -- 905,417
Total Assets ...................... 1,110,541 6,833,146 5,610,901 83,293 984,576 14,622,457
</TABLE>
25
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
12. IMPACT OF YEAR 2000 (Unaudited)
The Companies believe that their program to address Year 2000 issues is
comprehensive and on schedule, and as of February 11, 2000, the Companies
have not experienced any material Year 2000 complications. The Companies,
like most other companies, have been concerned that some of their computer
programs have or had time sensitive logic that typically recognizes a date
using "00" as the year 1900 rather than the year 2000. The Companies are
highly dependent on automated systems and systems applications that use
computer programs to conduct ongoing operations. Such systems are used to
process claims, bill and collect premiums from customers, manage
investments and many other activities. If these systems were unable to
process data accurately because of Year 2000-related failures, these
activities would be interrupted and could have a material adverse effect on
the Companies' results of operations.
The Companies completed various assessments of Year 2000 issues in
connection with their computer systems and the technology embedded in the
equipment they use, prior to December 31, 1999. The Companies began
modifying and replacing portions of their systems in 1995 so that the
system modified or replaced would be suitable for use before, during and
after the year 2000 with no significant operational problems related to its
ability to process dates correctly ("Year 2000 ready"). In addition, the
Companies engaged in a regular program of testing and running the systems
once Year 2000 programming changes were made. This testing included trials
at the Companies' hot site, a location provided and maintained by a third
party separate from any of the Companies' facilities.
The total Year 2000 readiness cost for the Companies approximated $18
million, and as of February 11, 2000, the Companies had incurred all of
this amount. These amounts have included both modification costs, which
were expensed as incurred, and certain replacement systems costs, some of
which were capitalized and amortized. All of the Companies' existing
systems were internally verified as being Year 2000 ready as of December
31, 1999, and the program of testing and running the systems after Year
2000 programming changes have been made has been completed.
The Companies have worked with their third-party partners and vendors,
e.g., their independent insurance agents, local and long distance telephone
companies, banks and securities trading firms, to assure that they were on
schedule to detect and fix any Year 2000 problems which might affect the
Companies' systems or business processes. The Companies have assessed and
attempted to mitigate risks with respect to the failure of any mission
critical third-party partners and vendors to be Year 2000 ready. Where
applicable, this effort included physically testing their common
interfaces. Failure of such parties to be Year 2000 ready could have a
material adverse effect on the Companies' results of operations. As of
February 11, 2000, the Companies are not aware of any of their third party
partners or vendors experiencing any Year 2000 problems that would
materially impact the Companies' systems or business processes.
26
<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
Separate Account C and 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, 1999.
Statements of Operations and Changes in Net Assets for the Year or
Period Ended December 31, 1999 and 1998.
Notes to Financial Statements.
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Statements of Consolidated Income for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholder's Equity for the
years ended December 31, 1999, 1998 and 1997.
Statements of Consolidated Comprehensive Income (Loss) for the years
ended December 31, 1999, 1998 and 1997.
Statements of Consolidated Cash Flows for the years ended December
31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
b. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
1. Resolution of Board of Directors of SAFECO authorizing the
establishment of the Separate Account. 1/
2. Not Applicable.
3. (i) Form of Principal Underwriter's Agreement. 1/
(ii) Selling Agreement. 2/
4. (i) Individual Flexible Purchase Payment Deferred Variable
Annuity Contract.
5. Application for Annuity Contract. 2/
6. (i) Copy of Articles of Incorporation of SAFECO. 1/
(ii) Copy of the Bylaws of SAFECO. 1/
7. Not Applicable.
8.a. (i) Fund Participation Agreement (Scudder). 2/
(ii) Reimbursement Agreement (Scudder). 2/
(iii)Participating Contract and Policy Agreement (Scudder). 2/
(iv) Services Agreement (Scudder). 6/
8.b. Participation Agreement by and among SAFECO Life Insurance
Company,
<PAGE>
Federated Insurance Series, on behalf of the Federated High
Income Bond Fund II, Federated International Equity Fund II,
Federated Utility Fund II, Federated Securities Corp. and
Federated Advisers. 3/
8.c. Participation Agreement by and among SAFECO Life Insurance
Company, Lexington Emerging Markets Fund, Inc., Lexington
Natural Resources Trust, and Lexington Management Corporation.
3/
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. (TCI has since changed its
name to American Century). 4/
8.e. Form of Participation Agreement (Fidelity). 5/
8.f. Participation Agreement by and among INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group, Inc. and SAFECO
Life Insurance Company. 6/
8.g. Form of Participation Agreement (AIM).
8.h. Form of Participation Agreement (Dreyfus).
8.i. Form of Participation Agreement (Franklin Templeton).
8.j. Form of Participation Agreement (J.P. Morgan).
9. Opinion and Consent of Counsel. 7/
10. Consent of Independent Auditors.
11. Not Applicable.
12. Not Applicable.
13. Calculation of Performance Information. 3/
14. Power of Attorney.
15. Representation of Counsel.
1/ 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).
2/ Incorporated by reference to Registrants Post-Effective Amendment filed
with the SEC on December 29, 1995 (File No. 33-69712).
3/ Incorporated by reference to Registrants Post-Effective Amendment filed
with the SEC on April 29, 1996 (File No. 33-69712).
4/ Incorporated by reference to Post-Effective Amendment of SAFECO Separate
Account C filed with the SEC on April 29, 1996 (File No. 33-60331).
5/ Incorporated by reference to Post-Effective Amendment of SAFECO Separate
Account SL filed with the SEC on April 30, 1997 (File No. 33-10248).
6/ Incorporated by reference to Registrants Post-Effective Amendment filed
with the SEC on May 1, 1998 (File No. 33-69712).
<PAGE>
7/ Incorporated by reference to Registrants Post-Effective Amendment filed
with the SEC on April 30, 1999 (File No. 33-69712).
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 5069 154th Place N.E., Redmond, Washington
98052.
<TABLE>
<CAPTION>
NAME POSITION WITH SAFECO
<S> <C>
* Roger H. Eigsti Director, Chairman of the Board
Randall H. Talbot Director, President
* Boh A. Dickey Director
Roger F. Harbin Executive Vice President, Actuary
* Rod A. Pierson Director, Senior Vice President,
Secretary
* Donald S. Chapman Director
* James W. Ruddy Director
** Dale E. Lauer Director
* W. Randall Stoddard Director
Leslie J. Brandli Controller, Assistant Secretary
Michael J. Kinzer Vice President, Chief Actuary
*** Ronald L. Spaulding Director, Vice President, Treasurer
Jean Liebmann Actuary
George C. Pagos Associate General Counsel,
Vice President, Assistant
Secretary
</TABLE>
* The principal business address of these officers and directors is SAFECO
Plaza, Seattle, WA 98185.
** The principal business address of Dale E. Lauer is 500 N. Meridian
Street, Indianapolis, IN 46204.
***The principal business address of Ronald L. Spaulding is 601 Union
Street, Suite 2500, Seattle, WA 98101-4074.
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,
<PAGE>
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, SAFECO U.K. Limited, a corporation organized under the
laws of the United Kingdom, and American States Insurance Company, American
Economy Insurance Company, and American States Preferred Insurance Company, each
an Indiana corporation. General Insurance Company of America owns 100% of 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 SAFECO Management Company, a New York corporation.
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, American States Life Insurance Company, an
Indiana corporation, and D.W. Van Dyke & Co., Inc., a Delaware corporation.
SAFECO Life Insurance Company owns 15% of Medical Risk Managers, Inc., a
Delaware corporation. SAFECO Insurance Company of Illinois owns 100% of
Insurance Company of Illinois, an Illinois corporation. American Economy
Insurance Company owns 100% of American States Insurance Company of Texas, a
Texas 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
SAFECO Investment Services, Inc., F.B. Beattie & Co., Inc., and Talbot Financial
Corporation, each a Washington corporation, General America Corp. of Texas, a
Texas corporation, SAFECO Select Insurance Services, Inc., a California
corporation, and R.F. Bailey Holdings Limited, a U.K. 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 and American States Lloyds Insurance Company, both
Texas corporations. R.F. Bailey Holdings Limited owns 100% of R.F. Bailey
(Underwriting Agencies) Limited, a U.K. corporation. Talbot Financial
Corporation owns 100% of Talbot Agency, Inc., a New Mexico corporation. SAFECO
Properties Inc. owns 100% of the following, corporations: SAFECARE Company, Inc.
and Winmar Company, Inc. SAFECARE Company, Inc. owns 100% of the following, each
a Washington corporation: S.C. Bellevue, Inc., S.C. Marysville, Inc. Winmar
Company, Inc. owns 100% of the following: Winmar Metro, Inc., Winmar Redmond,
Inc. and Winmar of Kitsap, Inc., each a Washington corporation, and Capitol
Court Corp., a Wisconsin corporation, SCIT, Inc., a Massachusetts 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.
No person is directly or indirectly controlled by Registrant.
All subsidiaries are included in consolidated financial statements. In addition
SAFECO Life Insurance Company files a separate financial statement in connection
with its issuance of products associated with its registration statement.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 2000, there were 25,052 Contract Owners of the Registrant.
ITEM 28. INDEMNIFICATION
Under its Bylaws, SAFECO, to the full extent permitted by the Washington
Business Corporation Act, shall indemnify any person who was or is a party to
any proceeding (whether brought by or in the right of SAFECO or otherwise) by
reason of the fact that he or she is or was a director of SAFECO, or, while a
director of SAFECO, is or was serving at the request of SAFECO as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with such proceeding.
SAFECO shall extend such indemnification as is provided to directors above to
any person, not a director of SAFECO, who is or was an officer of SAFECO or is
or was serving at the request of SAFECO as a director, officer, partner,
-10-
<PAGE>
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:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address With Underwriter
----------------- ---------------------
<S> <C>
* Rod A. Pierson Director
** Ronald Spaulding Director
*** David F. Hill Director, President and Secretary
*** Neal A. Fuller Vice President, Controller, Treasurer,
Financial Principal and Assistant Secretary
</TABLE>
* The principal business address for Rod A. Pierson is SAFECO Plaza,
Seattle, WA 98185.
** The principal business address for Ronald Spaulding is 601 Union
Street, Suite 2500, Seattle, WA 98101-4074.
*** The principal business address for David F. Hill and Neal A. Fuller
is 10865 Willows Road NE, Redmond, Washington 98052.
c. During the fiscal year ended December 31, 1999, SAFECO Investment
Services, Inc., through SAFECO Securities, Inc., received $5,597,335 in
commissions for the distribution of certain annuity contracts sold in
connection with Registrant of which no payments were retained. SAFECO
Investment Services, Inc. did not receive any other compensation in
connection with the sale of Registrant's contracts.
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
SAFECO Life Insurance Company at 5069 154th Place N.E., Redmond, Washington
98052, and/or SAFECO Asset Management Company at 10865 Willows Road N.E., E-2,
Redmond, Washington 98052 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
1. 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,
Depositor 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.
2. In connection with the offer of Registrant's Contracts to Participants in
the Texas Optional Retirement Program, Registrant represents it is relying
upon Rule 6c-7 under the Investment Company Act of 1940 and that
subparagraphs (a)-(d) of Rule 6c-7 have been complied with as of the
effective date of Registrant's Post-Effective Amendment No. 10.
<PAGE>
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 14th day of April, 2000.
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.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
DONALD S. CHAPMAN* Director
- ---------------------------
Donald S. Chapman
/s/ BOH A. DICKEY Director
- ---------------------------
Boh A. Dickey
R. H. EIGSTI* Director and Chairman
- ---------------------------
R. H. Eigsti
LESLIE J. BRANDLI* Controller and
- --------------------------- Assistant Secretary (Principal
Leslie J. Brandli Accounting Officer)
<PAGE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
*By: /s/ BOH A. DICKEY
-----------------
Boh A. Dickey
Attorney-in-Fact
*By: /s/ RANDALL H. TALBOT
---------------------
Randall H. Talbot
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
99.4.(i) Individual Flexible Purchase Payment Deferred
Variable Annuity Contract
99.8.g. Form of Participation Agreement (AIM)
99.8.h. Form of Participation Agreement (Dreyfus)
99.8.i. Form of Participation Agreement (Franklin Templeton)
99.8.j. Form of Participation Agreement (J.P. Morgan)
99.10 Consent of Independent Auditors
99.14 Power of Attorney
99.15 Representation of Counsel
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT 99.4.(i)
================
================================================================================
SAFECO Life Insurance Company
5069 154th Place NE
Redmond, Washington 98052-9669
- --------------------------------------------------------------------------------
This is a legal Contract between the Owner (referred to in this Contract as
"you" and "your") and SAFECO Life Insurance Company (referred to in this
Contract as "SAFECO Life", "our", "us", and "we"). SAFECO Life is a stock
company with its Home Office in Redmond, Washington.
This Contract is issued in consideration of the application and payment of the
initial Purchase Payment. SAFECO Life will make annuity payments to the payee
(you or someone you choose), beginning on the Annuity Date, or pay a death
benefit to your Beneficiary(ies), subject to the terms of this Contract. SAFECO
Life has executed and attested this Contract as of the contract date at our Home
Office in Redmond, Washington.
IF YOU HAVE QUESTIONS, COMMENTS, OR COMPLAINTS, PLEASE CONTACT SAFECO LIFE AT
1-877-4SAFECO (472-3326).
READ YOUR CONTRACT CAREFULLY
RIGHT TO EXAMINE THE CONTRACT: If for any reason you are not satisfied with this
Contract, you may return it within 10 days from the date you received it to
SAFECO Life or to the registered representative who sold you this Contract. When
we receive this Contract, we will refund your contract value, your Purchase
Payments, or the greater of the two, depending on your state's requirements. In
states where we are required to return Purchase Payments, we reserve the right
to allocate all Purchase Payments designated for the various Portfolios to the
SAFECO RST Money Market Portfolio until the Contract is 15 days old.
Signed for SAFECO Life Insurance Company by:
/s/ R. A. Pierson /s/ Randall H. Talbot
R. A. Pierson Randall H. Talbot
Sr. Vice President and Secretary President
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
NON-PARTICIPATING
THIS IS A VARIABLE ANNUITY CONTRACT. WHEN YOUR CONTRACT VALUE AND ANNUITY
PAYMENTS ARE BASED ON THE INVESTMENT EXPERIENCE OF THE PORTFOLIOS, THE DOLLAR
AMOUNTS ARE NOT GUARANTEED AND WILL INCREASE OR DECREASE.
LPC-1175 4/00 -Registered Trademark-Registered Trademark of SAFECO Corporation
<PAGE>
================================================================================
CONTRACT DATA PAGE
PRODUCT: SPINNAKER-Registered Trademark-[NON-QUALIFIED ANNUITY]
OWNER: JOHN DOE
1234 MAIN ST.
ANY CITY, WA 99999-9999
ANNUITANT: JOHN DOE
CONTRACT NUMBER: LP12345678
CONTRACT DATE: 1/01/2000
ANNUITANT'S AGE ON CONTRACT DATE: 35
ANNUITY DATE 5/20/2035
DELIVERED IN THE STATE OF WASHINGTON AND GOVERNED BY ITS LAWS.
MAXIMUM ISSUE AGE: 85
MAXIMUM ANNUITIZATION AGE: 90 (annuity payments must begin prior to the
Annuitant's 91st birthday)
MINIMUM INITIAL PURCHASE PAYMENT: $2,000
MINIMUM SUBSEQUENT PURCHASE PAYMENT: $250
MINIMUM WITHDRAWAL: $250, or the contract value if less.
ASSET RELATED ADMINISTRATION CHARGE: Equal on an annual basis to 0.15% of the
average daily net asset value of each Portfolio.
MORTALITY AND EXPENSE RISK CHARGE: Equal on an annual basis to 1.25% of the
average daily net asset value of each Portfolio.
ANNUAL ADMINISTRATION MAINTENANCE CHARGE: $30 each Contract Year. The charge
is waived if the contract value is $50,000 or more. The charge is guaranteed
to never exceed $35.
CONTINGENT DEFERRED SALES CHARGE:
CONTRACT YEAR CHARGE
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 8 0% of amount withdrawn
Total Contingent Deferred Sales Charges will not exceed 8.5% of the Purchase
Payments made under this Contract.
WITHDRAWAL CHARGE: $25 or 2% of the amount withdrawn, whichever is less, for
each withdrawal after the first withdrawal in a Contract Year.
LPC-1180/EF 4/00 Page 1 of 2
<PAGE>
CONTRACT DATA PAGE
PRODUCT: SPINNAKER-Registered Trademark-[NON-QUALIFIED ANNUITY]
TRANSFER CHARGE: $10 or 2% of amount transferred, whichever is less, for
each transfer after the 12th transfer in a Contract Year.
PREMIUM TAXES: Do not apply in your state.
<TABLE>
<S> <C>
ELIGIBLE INVESTMENTS:
1. SAFECO RST Money Market Portfolio 15. Dreyfus IP Technology Growth Portfolio
2. SAFECO RST Bond Portfolio 16. Dreyfus Socially Responsible Growth Fund, Inc.
3. Franklin U.S. Government Fund - Class 2 17. Franklin Small Cap Fund - Class 2
4. Dreyfus VIF Quality Bond Portfolio 18. AIM V.I. Growth Fund
5. Federated High Income Bond Fund II 19. AIM V.I. Aggressive Growth Fund
6. Federated Utility Fund II 20. INVESCO VIF-Real Estate Opportunity Fund
7. Scudder VLIF Balanced Portfolio 21. Scudder VLIF International Portfolio
8. American Century VP Balanced 22. American Century VP International
9. J.P. Morgan U.S. Disciplined Equity Portfolio 23. Templeton Developing Markets Securities Fund - Class 2
10. Fidelity VIP III Growth Opportunities Portfolio 24. SAFECO RST Equity Portfolio
11. Fidelity VIP III Growth & Income Portfolio 25. SAFECO RST Northwest Portfolio
12. Fidelity VIP Growth Portfolio 26. SAFECO RST Growth Opportunities Portfolio
13. Dreyfus VIF Appreciation Portfolio 27. SAFECO RST Small Company Value Portfolio
14. Dreyfus IP MidCap Stock Portfolio 28. SAFECO Fixed Account
</TABLE>
SEPARATE ACCOUNT: SAFECO Separate Account C
ANNUITY SERVICE OFFICE:
HOME OFFICE: MAILING ADDRESS:
SAFECO Life Insurance Company SAFECO Life Insurance Company
Retirement Services Retirement Services
5069 154th Place NE P.O. Box 34690
Redmond, WA 98052-9669 Seattle, WA 98124-1690
Telephone: 877-472-3326
Fax: 425-867-8793
- -Registered Trademark- Spinnaker is a registered trademark of SAFECO Life
Insurance Company
LPC-1180/EF 4/00 Page 2 of 2
<PAGE>
<TABLE>
<CAPTION>
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TABLE OF CONTENTS
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<S> <C>
CONTRACT DATA PAGE.............................................................Insert
DEFINITIONS
Accumulation Phase........................................................1
Accumulation Unit.........................................................1
Annuitant.................................................................1
Annuity Date..............................................................1
Annuity Purchase Date.....................................................1
Annuity Unit..............................................................1
Beneficiary...............................................................1
Contract..................................................................1
Contract Year.............................................................1
Fixed Account.............................................................1
General Account...........................................................1
Income Phase..............................................................1
IRC.......................................................................1
Owner.....................................................................1
Portfolios................................................................1
Purchase Payment..........................................................1
Separate Account..........................................................1
THE ANNUITY CONTRACT
ABOUT THE CONTRACT........................................................2
OWNER.....................................................................2
ANNUITANT.................................................................2
BENEFICIARY...............................................................2
Change of Beneficiary............................................2
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS.........................................................3
ALLOCATION OF PURCHASE PAYMENTS...........................................3
ACCUMULATION UNITS........................................................3
INVESTMENT OPTIONS
VARIABLE INVESTMENT OPTIONS...............................................4
Substitution of Shares...........................................4
FIXED ACCOUNT.............................................................4
Interest Crediting...............................................4
Interest Compounding.............................................4
CONTRACT VALUE............................................................5
TRANSFERS.................................................................5
CHARGES
INSURANCE CHARGES.........................................................5
Mortality and Expense Risk Charge................................5
Asset Related Administration Charge..............................5
ANNUAL ADMINISTRATION MAINTENANCE CHARGE..................................5
CONTINGENT DEFERRED SALES CHARGE..........................................6
WITHDRAWAL CHARGE.........................................................7
TRANSFER CHARGE...........................................................7
PREMIUM TAXES.............................................................7
INCOME OR OTHER TAXES.....................................................7
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WITHDRAWAL PROVISIONS
WITHDRAWALS...............................................................7
Free Withdrawal Amount...........................................8
Repetitive Withdrawals...........................................8
ANNUITY PAYMENT PROVISIONS
ANNUITY PAYMENTS..........................................................8
Life Annuity.....................................................8
Life Annuity with Guaranteed Period..............................8
Joint and Survivor Life Annuity..................................8
Payments Based on a Number of Years..............................9
Automatic Option.................................................9
CALCULATION OF ANNUITY PAYMENTS..........................................10
Fixed Annuity Payments..........................................10
Variable Annuity Payments.......................................10
Changing Portfolio Elections after the Annuity Purchase Date....10
DEATH BENEFIT PROVISIONS
DEATH OF ANNUITANT Prior to the Annuity Purchase Date....................11
DEATH OF OWNER Prior to the Annuity Purchase Date........................11
Calculation of Death Benefit....................................11
Payment of Death Benefit........................................12
DEATH OF ANNUITANT On or After the Annuity Purchase Date.................12
GENERAL PROVISIONS
ACCOUNT STATEMENTS.......................................................13
ASSIGNMENT OF BENEFITS...................................................13
COMMUNICATIONS...........................................................13
ESSENTIAL DATA...........................................................13
EVIDENCE OF SURVIVAL.....................................................13
MISSTATEMENT OF AGE OR SEX...............................................13
NONPARTICIPATION.........................................................13
SEPARATE ACCOUNT.........................................................13
STATE REQUIRED BENEFITS..................................................13
SUSPENSION OF ANNUITY PAYMENTS, WITHDRAWALS, OR TRANSFERS................14
TERMINATION OF CONTRACT..................................................14
THE CONTRACT.............................................................14
VOTING RIGHTS............................................................14
ANNUITY PURCHASE RATE TABLES
VARIABLE ANNUITY PURCHASE RATE TABLE.....................................15
FIXED ANNUITY PURCHASE RATE TABLE........................................16
</TABLE>
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================================================================================
DEFINITIONS
================================================================================
ACCUMULATION PHASE The period between the date we allocate your
first Purchase Payment and the Annuity Purchase
Date.
ACCUMULATION UNIT A measurement used to calculate the value of a
Portfolio during the Accumulation Phase and variable
annuity payments made under the Payments Based on a
Number of Years annuity option.
ANNUITANT The natural person(s) on whose life/lives annuity
payments are based. You are the Annuitant unless you
designate someone else before the Annuity Purchase
Date.
ANNUITY DATE The date annuity payments begin under an annuity
option.
ANNUITY PURCHASE DATE The date that your contract value is applied to
purchase annuity payments.
ANNUITY UNIT A measurement used to calculate variable annuity
payments during the Income Phase, except for the
Payments Based on a Number of Years annuity option.
BENEFICIARY The person(s) entitled to receive any benefits upon
the death of the Owner or, if applicable, the
Annuitant.
CONTRACT This Flexible Premium Deferred Variable Annuity.
CONTRACT YEAR A 12-month period starting on the contract date
shown on your contract data page and each
anniversary of that date.
FIXED ACCOUNT An investment option of this Contract that provides
for guaranteed interest. Purchase Payments allocated
to the Fixed Account become part of SAFECO Life's
General Account.
GENERAL ACCOUNT The assets of SAFECO Life other than those
attributable to Separate Accounts.
INCOME PHASE The period beginning on the Annuity Purchase Date
during which the payee receives annuity payments.
IRC The Internal Revenue Code of 1986, as amended.
OWNER The person(s) or entity(ies) named on the contract
application, unless changed. The Owner has all
ownership rights under this Contract.
PORTFOLIOS The variable investment options available under the
Contract.
PURCHASE PAYMENT An amount paid to SAFECO Life for allocation under
this Contract, less any premium tax due at the time
this payment is made.
SEPARATE ACCOUNT A segregated asset account established under
Washington law and shown on the contract data page.
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================================================================================
THE ANNUITY CONTRACT
================================================================================
ABOUT THE CONTRACT This Contract is an agreement between SAFECO Life
and you, the Owner, where we promise to pay the
payee (you or someone you choose) an income in the
form of annuity payments, beginning on the date you
select, or a death benefit to your Beneficiary(ies).
When you are investing money, your Contract is in
the Accumulation Phase. Once your contract value is
applied to purchase annuity payments, your Contract
switches to the Income Phase.
You purchased this Contract with the initial
Purchase Payment you paid, and the Contract became
effective on the contract date, shown on your
contract data page.
The Contract is called a variable annuity because
you can allocate Purchase Payments among variable
investment Portfolios available within the Separate
Account or to the Fixed Account. The investment
performance of the Portfolio(s) you select may be
positive or negative and affects the value of your
Contract and the amount of any variable annuity
payments. Purchase Payments allocated to the Fixed
Account are credited with guaranteed interest.
OWNER The Owner is shown on the contract application,
unless changed. On the contract date, the Owner must
not have been older than the maximum issue age shown
on the contract data page. The Owner may exercise
all ownership rights under this Contract.
If this Contract is owned by joint Owners, they must
jointly exercise their ownership rights, unless we
are directed otherwise by both joint Owners in
writing. On the contract date, each joint Owner must
not have been older than the maximum issue age shown
on the contract data page.
ANNUITANT The Annuitant is/are the person(s) on whose
life/lives annuity payments are based. You are the
Annuitant unless you designate someone else before
the Annuity Purchase Date. If you designate someone
else as Annuitant, that person must not be older
than the maximum annuitization age shown on the
contract data page when annuity payments begin.
Owners who are not treated as individuals under IRC
Section 72 (for example, corporations or certain
trusts) may not change the Annuitant.
BENEFICIARY The Beneficiary receives any benefit payable after
you die or, if applicable, after the Annuitant(s)
dies. You initially name your Beneficiaries on the
contract application.
CHANGE OF You may change your Beneficiary designation at any
BENEFICIARY time by sending us a signed and dated request.
However, if a Beneficiary designation is
irrevocable, that Beneficiary must consent in
writing to any change. A new Beneficiary designation
revokes any prior designation and is not effective
until we record the change. We are not responsible
for the validity of any Beneficiary designation nor
for any actions we may take prior to receiving and
recording a Beneficiary change.
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================================================================================
PURCHASE PAYMENT PROVISIONS
================================================================================
PURCHASE PAYMENTS During the Accumulation Phase, you may make
additional Purchase Payments. You may change the
amount and frequency of Purchase Payments. The
minimum dollar amounts are shown on the contract
data page. If you stop making Purchase Payments, all
benefits under this Contract continue until the
contract value is completely withdrawn.
Purchase Payments must be in lawful currency of the
United States and submitted to our Home Office at
5069 154th Place NE, Redmond, WA 98052-9669, or P.O.
Box 34690, Seattle, WA 98124-1690, or in a manner
agreed to by SAFECO Life.
We reserve the right to refuse any Purchase Payment.
If we do not accept a Purchase Payment, we will
return it within five days.
ALLOCATION OF Your initial Purchase Payment will be allocated
PURCHASE PAYMENTS according to your instructions on your contract
application. Unless you tell us otherwise,
subsequent Purchase Payments will be allocated in
the same proportion as your most recent Purchase
Payment (unless that was a Purchase Payment you
directed us to allocate on a one-time-only basis).
Once we receive your Purchase Payment, the portion
to be allocated to the Fixed Account is credited as
of the day it is received. The portion to be
allocated to the Portfolios is effective and valued
as of the next close of the New York Stock Exchange
(NYSE). If for any reason the NYSE is closed when we
receive your Purchase Payment, it will be valued as
of the close of the NYSE on its next regular
business day.
When we are required to guarantee a return of
Purchase Payments during the Right to Examine
period, we reserve the right to initially apply
amounts designated for the Portfolios to the SAFECO
RST Money Market Portfolio until the Contract is 15
days old. These amounts will then be allocated in
the manner you selected, unless you have canceled
the Contract.
ACCUMULATION When you make Purchase Payments or transfers into a
UNITS Portfolio, we credit your Contract with Accumulation
Units. Conversely, when you request a withdrawal or
a transfer of money from a Portfolio, Accumulation
Units are liquidated. In either case, the increase
or decrease in the number of your Accumulation Units
is determined by taking the dollar amount of the
Purchase Payment, transfer, or withdrawal and
dividing it by the value of an Accumulation Unit on
the date the transaction occurs.
We calculate the value of an Accumulation Unit for
each Portfolio after the NYSE closes each day by:
- determining the total value of the particular
Portfolio;
- subtracting from that amount the mortality and
expense risk charge, the asset related
administration charge, and any taxes SAFECO Life
may incur on earnings attributable to your
Contract; and
- dividing this amount by the number of
outstanding Accumulation Units of the particular
Portfolio.
The value of an Accumulation Unit may go up or down
from day to day.
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================================================================================
INVESTMENT OPTIONS
================================================================================
VARIABLE You may allocate money to the Portfolios shown on
INVESTMENT OPTIONS the contract data page. We reserve the right to add,
combine, restrict, or remove any Portfolio as an
investment option of this Contract. Portfolios have
different investment objectives. Investment
performance of a Portfolio may be positive or
negative.
SUBSTITUTION If any shares of the Portfolios are no longer
OF SHARES available, or if in our view no longer meet the
purpose of the Contract, it may be necessary to
substitute shares of another Portfolio. We will seek
prior approval of the Securities and Exchange
Commission (SEC) and give you notice before doing
this.
FIXED ACCOUNT The Fixed Account is part of SAFECO Life's General
Account and provides for guaranteed interest as
follows.
INTEREST CREDITING We establish the annual effective interest rates
that apply to Purchase Payments allocated to the
Fixed Account. The annual effective interest rate
will be at least 3.00%.
Each Purchase Payment allocated to the Fixed Account
will be credited with the interest rate established
for the date that we receive the Purchase Payment.
This rate will apply to the Purchase Payment for an
initial period of at least 12 months from the date
we receive it.
We can adjust the interest rate after the completion
of that initial period. The adjusted rate will apply
to that Purchase Payment and its credited interest
for at least 12 months, when the rate can again be
adjusted. From then on, we cannot adjust the
interest rate more often than every 12 months.
Different interest rates may apply to each of your
Purchase Payments depending on the interest rate
established for the date that we received the
Purchase Payment and any subsequent rate
adjustments.
For the purpose of crediting interest, when you take
a withdrawal from the Fixed Account, the Purchase
Payment you last paid, and the interest credited to
it, is considered to be withdrawn first.
If you stop making Purchase Payments to the Fixed
Account, we will continue to credit your balance in
the Fixed Account with the applicable interest
rate(s).
INTEREST SAFECO Life credits interest daily on each Purchase
COMPOUNDING Payment allocated to the Fixed Account from the date
we receive your payment up to, but not including,
the date you withdraw the funds from the Fixed
Account.
Annual effective interest rates show the effect of
daily compounding of interest over a 12-month
period.
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<PAGE>
CONTRACT VALUE Your contract value is the sum of the values in the
Portfolios and the Fixed Account attributable to
your Contract. We calculate this by:
- adding all the Purchase Payments you invested;
- subtracting the charges which have been
deducted;
- subtracting the withdrawals you have made;
- adjusting for each Portfolio's gain or loss;
- adding the interest we credit while any of your
contract value is in the Fixed Account; and
- subtracting the amounts withdrawn for an annuity
option.
TRANSFERS During the Accumulation Phase, you can transfer
money among the Portfolios and the Fixed Account. In
each Contract Year you can make 12 transfers free of
charge. Each additional transfer in a Contract Year
may have a transfer charge, as shown on the contract
data page.
The minimum amount you can transfer out of any
investment option at one time is $500, or the entire
value of the investment option if less. In addition
to this minimum, transfers out of the Fixed Account
are limited to a maximum of 10% of the Fixed Account
value per Contract Year. You must transfer the
entire amount out of an investment option if, after
a transfer, the remaining balance would be less than
$500. The minimum amount you can transfer into any
investment option is $50.
We reserve the right to modify, suspend, or
terminate transfer privileges at any time.
================================================================================
CHARGES
================================================================================
The following charges apply to your Contract:
INSURANCE CHARGES Each day we make deductions for our insurance
charges. We do this as part of our calculation of
the value of Accumulation Units and Annuity Units.
The insurance charge has two parts: (1) the
mortality and expense risk charge and (2) the asset
related administration charge.
MORTALITY This charge is equal, on an annual basis, to a
AND EXPENSE RISK percentage of the average daily net asset
CHARGE value of each Portfolio. The percentage is shown on
the contract data page.
ASSET RELATED This charge is equal, on an annual basis, to a
ADMINISTRATION percentage of the average daily net asset
CHARGE value of each Portfolio. The percentage is shown on
the contract data page.
ANNUAL MAINTENANCE An annual administration maintenance charge will be
ADMINISTRATION deducted from your Contract on the last day
CHARGE of each Contract Year and when you surrender your
Contract. This charge, shown on the contract data
page, may be changed prior to the Annuity Purchase
Date but will never exceed $35 per Contract Year.
The investment option from which this charge is
deducted is determined by the hierarchical order of
the investment options shown on the contract data
page.
-5-
<PAGE>
We will not deduct this charge if your contract
value is at least $50,000 when the deduction is to
be made. During the Income Phase, we will not deduct
this charge unless the payee is receiving annuity
payments under the Payments Based on a Number of
Years annuity option and your contract value is less
than $50,000.
If the annual administration maintenance charge is
to be deducted from the Fixed Account, it will be
reduced if:
- it is greater than the Purchase Payments we
received for the current Contract Year; and
- the amount by which the charge exceeds the
Purchase Payments, when deducted from net
interest, would reduce net interest to below
3.00%.
If these conditions are met, the charge will be
limited to Purchase Payments received during the
current Contract Year plus the amount of interest
credited in excess of 3.00%.
CONTINGENT A contingent deferred sales charge may be assessed
DEFERRED SALES on withdrawals from your Contract. The charge is a
CHARGE percentage of the amount withdrawn and is shown on
the contract data page. This charge and the
withdrawal charge, if applicable, will be added to
the requested withdrawal amount, and the total
amount will be withdrawn from the specified
investment options.
You can withdraw 10% of your contract value each
Contract Year without a contingent deferred sales
charge. The determination of whether more than 10%
of the contract value has been withdrawn is made at
the time of withdrawal. If you take more than one
withdrawal in a Contract Year, the previous
withdrawals in the Contract Year are added to the
current contract value to determine whether more
than 10% of the contract value has been withdrawn in
that Contract Year.
In addition, contingent deferred sales charges will
not be assessed on the following:
- repetitive withdrawals, if the withdrawals are
equal or substantially equal and are expected to
deplete the contract value over your life
expectancy or the joint life expectancy of you
and your Beneficiary;
- annuity payments;
- withdrawals taken on account of your death; and
- withdrawals taken after you have been confined
to a hospital or nursing home for 60 consecutive
days if:
- the confinement begins after the contract
date; and
- the withdrawal is taken:
- during confinement; or
- within 60 days after confinement ends.
We may require proof of confinement.
Hospital may be defined in one of two ways. It
may mean a lawfully operated institution that is
licensed as a hospital by the Joint Commission
of Accreditation of Hospitals. Or it may mean a
lawfully operated institution that provides
in-patient treatment under the direction of a
staff of physicians and has 24-hour per day
nursing services.
-6-
<PAGE>
Nursing home is defined as a facility licensed
by the state that provides convalescent or
chronic care for in-patients who, by reason of
illness or infirmity, are unable to properly
care for themselves.
WITHDRAWAL CHARGE The withdrawal charge, shown on the contract data
page, is deducted from your Contract for each
withdrawal after the first withdrawal in a Contract
Year. This charge and the contingent deferred sales
charge, if applicable, will be added to the
requested withdrawal amount, and the total amount
will be withdrawn from the specified investment
options.
We will not deduct this charge for annuity payments
or repetitive withdrawals.
TRANSFER CHARGE The transfer charge, shown on the contract data
page, is deducted from your Contract for each
transfer after the 12th transfer in a Contract Year.
This charge will be added to the requested transfer
amount, and the total amount will be transferred
from the specified investment options.
Scheduled transfers authorized by us as part of an
investment strategy such as dollar cost averaging,
appreciation or interest sweep, or portfolio
rebalancing do not count against your 12 free
transfers, provided those transfers continue for at
least 6 months.
PREMIUM TAXES The contract data page shows whether or not premium
tax is charged in your state.
INCOME OR OTHER Currently we do not pay income or other taxes on
TAXES earnings attributable to your Contract. However, if
we ever incur such taxes, we reserve the right to
deduct them from your Contract.
================================================================================
WITHDRAWAL PROVISIONS
================================================================================
WITHDRAWALS During the Accumulation Phase, you may withdraw part
or all of your contract value. A withdrawal may have
a contingent deferred sales charge, a withdrawal
charge, and, if you surrender the Contract by
withdrawing the entire contract value, an annual
administration maintenance charge.
Each withdrawal must be at least $250, or the
contract value if less. If a withdrawal would reduce
the value of any investment option to less than
$500, the remaining amount will also be withdrawn.
If a withdrawal would reduce the contract value to
less than $500, the entire contract value will be
withdrawn and the Contract will be terminated.
To make withdrawals, you must send a written request
to our Home Office. Unless you tell us differently,
partial withdrawals will be made pro rata from each
investment option. Once we receive your request,
withdrawals from the Portfolios will be effective as
of the next close of the NYSE.
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<PAGE>
FREE WITHDRAWAL There will be no contingent deferred sales charge on
AMOUNT the first 10% of your contract value withdrawn in a
Contract Year. In addition, there is no withdrawal
charge on the first withdrawal you make in a
Contract Year.
REPETITIVE You may request repetitive withdrawals of a
WITHDRAWALS predetermined amount on a monthly, quarterly, or
annual basis by completing the appropriate form.
================================================================================
ANNUITY PAYMENT PROVISIONS
================================================================================
ANNUITY PAYMENTS You must choose a lump sum or start the Income Phase
no later than the maximum annuitization age show on
the contract data page, or an earlier date if
required by law. During the Income Phase, the payee
(you or someone you choose) receives regular annuity
payments beginning on the Annuity Date.
To start the Income Phase, you must notify us in
writing at least 30 days prior to the date that you
want annuity payments to begin. You may choose
annuity payments under an annuity option described
in this Contract or another annuity option that you
want and that we agree to provide. If the amount
applied to an annuity option is less than $5,000, we
may pay you in a lump sum where permitted by state
law. We reserve the right to change the payment
frequency if payment amounts would be less than
$250.
Switching to the Income Phase is irrevocable. After
the Annuity Purchase Date, you cannot switch back to
the Accumulation Phase. You cannot add Purchase
Payments, change or add an Annuitant, change the
annuity option, or change between fixed and variable
annuity payments.
LIFE ANNUITY The payee receives monthly annuity payments as long
as the Annuitant is living. Annuity payments stop
when the Annuitant dies.
LIFE ANNUITY The payee receives monthly annuity payments for the
WITH GUARANTEED longer of the Annuitant's life or a guaranteed
PERIOD period of five or more years as selected by
you and agreed to by us. If the Annuitant dies
before all guaranteed payments have been made, the
rest will be made to the Beneficiary. Annuity
payments stop the later of the date the Annuitant
dies or the date the last guaranteed payment is
made.
As an alternative to monthly payments, the
Beneficiary may elect to have the present value of
the guaranteed variable annuity payments remaining
as of the date the notice of death is received by us
commuted at the assumed investment rate of 4% and
paid in a single payment.
JOINT AND SURVIVOR The payee receives monthly annuity payments as long
LIFE ANNUITY as the Annuitant is living. After the Annuitant
dies, the payee receives a specified percentage of
each annuity payment as long as the second Annuitant
is living. You name the second Annuitant and payment
percentage at the time you elect this option.
Annuity payments stop on the later of the date the
Annuitant dies or the date the second Annuitant
dies.
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<PAGE>
PAYMENTS BASED ON The payee receives substantially equal annuity
A NUMBER OF YEARS payments based on a number of years as selected by
you and agreed to by us. You may select monthly,
quarterly, or annual annuity payments. Each annuity
payment reduces the number of Accumulation Units
and/or value of the Fixed Account in the Contract.
Annuity payments continue until the entire value in
the Portfolios and/or the Fixed Account has been
paid out. You can stop these annuity payments and
receive a lump sum equal to the contract value less
any contingent deferred sales charge. This option
does not promise to make payments for the
Annuitant's life. If the Annuitant dies before all
annuity payments have been made, there will be a
death benefit payable to the Beneficiary.
AUTOMATIC OPTION If you do not choose an annuity option at least 30
days before the latest Annuity Date allowed under
this Contract, we will make annuity payments under
the Payments Based on a Number of Years annuity
option. The number of years will be equal to the
Annuitant's life expectancy.
CALCULATION OF You can choose whether annuity payments will be made
ANNUITY PAYMENTS on a fixed basis, variable basis, or both. If you
don't tell us otherwise, annuity payments will be
based on the investment allocations in place on the
Annuity Purchase Date. After the Annuity Purchase
Date, you may not switch between fixed annuity
payments and variable annuity payments.
The calculation for annuity payments under the
Payments Based on a Number of Years annuity option
is described above in "Annuity Payments - Payments
Based on a Number of Years". The following
calculations apply to all other annuity options.
FIXED ANNUITY The dollar amount of each fixed annuity payment will
PAYMENTS stay the same. This amount will be calculated by
applying your contract value in the Fixed Account to
the Fixed Annuity Purchase Rate Table of this
Contract. If premium taxes are required by state
law, these taxes will be deducted from the Fixed
Account before the annuity payments are calculated.
VARIABLE ANNUITY The dollar amount of each variable annuity payment
PAYMENTS will vary depending on the investment performance of
the Portfolios that you selected.
FIRST VARIABLE ANNUITY PAYMENT: For each Portfolio,
the dollar amount of the first variable annuity
payment and the number of Annuity Units will be
calculated by applying your contract value in that
Portfolio, as of the 15th day of the preceding
month, to the Variable Annuity Purchase Rate Table
of this Contract. If the NYSE is not open on that
date, the calculation will be made on the next day
that the NYSE is open. If premium taxes are required
by state law, these taxes will be deducted from the
Portfolio before the annuity payment is calculated.
The total of the first variable annuity payment will
be sum of the amounts calculated for each Portfolio.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS: For each
Portfolio, the dollar amount of each subsequent
variable annuity payment is determined by
multiplying the number of Annuity Units credited for
that Portfolio by the Annuity Unit value of that
Portfolio as of the 15th of the month preceding the
annuity payment. If the NYSE is not open on that
date, the
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calculation will be made on the next day that the
NYSE is open. The total of each subsequent variable
annuity payment will be the sum of the amounts
calculated for each Portfolio.
NUMBER OF VARIABLE ANNUITY UNITS: The number of
Annuity Units credited for each Portfolio is the
amount of the first annuity payment attributable
to that Portfolio divided by the value of the
applicable Annuity Unit for that Portfolio as of
the 15th day of the month preceding the Annuity
Date. The number of Annuity Units used to
calculate the variable annuity payment each
month remains constant unless you change
Portfolio elections.
VALUE OF VARIABLE ANNUITY UNITS: The value of an
Annuity Unit may increase or decrease from one
month to the next. For each month after the
first month, the value of an Annuity Unit of a
particular Portfolio is:
- the value of that Annuity Unit as of the 15th
day of the preceding month (or the next day
that the NYSE is open);
- multiplied by the Net Investment Factor for
that Portfolio; and
- divided by the Assumed Investment Factor for
the period.
The Net Investment Factor is a number that
represents the change in the net asset value of
a Portfolio on successive periods when the NYSE
is open. The Net Investment Factor for any
Portfolio for any valuation period is determined
by dividing the current Accumulation Unit value
by the prior period's Accumulation Unit value.
The Net Investment Factor may be different than
the Assumed Investment Factor, and therefore the
Annuity Unit value may increase or decrease.
The Assumed Investment Factor for a one-day
valuation period is 1.00010746. This factor
neutralizes the assumed investment rate of 4% in
the Variable Annuity Purchase Rate Table.
We guarantee that the dollar amount of each variable
annuity payment made after the first payment will
not be adversely affected by variations in actual
mortality experience or actual expenses incurred in
excess of the expense deductions provided for in the
Contract.
CHANGING PORTFOLIO After the Annuity Purchase Date, you may request to
ELECTIONS AFTER THE change Portfolio elections once a month. Transfers
ANNUITY PURCHASE are not allowed to or from the Fixed Account.
DATE Changes will affect the number of units used to
calculate annuity payments.
-10-
<PAGE>
================================================================================
DEATH BENEFIT PROVISIONS
================================================================================
DEATH OF ANNUITANT If the Annuitant is not an Owner and the Annuitant
PRIOR TO THE ANNUITY dies before the Annuity Purchase Date, you must
PURCHASE DATE designate a new Annuitant. If no designation is made
within 30 days after we are notified of the
Annuitant's death, you will become the Annuitant.
If this Contract is owned by a non-natural person
(for example, a corporation or trust), the death of
the Annuitant will be treated as the death of the
Owner.
DEATH OF OWNER If any Owner dies before the Annuity Purchase Date,
PRIOR TO THE ANNUITY or if the Annuitant dies while annuity payments are
PURCHASE DATE being made under the Payments Based on a Number of
Years annuity option, we will pay a death benefit to
the:
- surviving Owner or joint Owner; or if none,
then
- surviving primary Beneficiary(ies); or if none,
then
- surviving contingent Beneficiary(ies); or if
none, then
- the estate of the last Owner to die.
CALCULATION OF DEATH The death benefit is the higher of:
BENEFIT (1) the current contract value; or
(2) if the death benefit is payable upon
the sole Owner's or oldest joint
Owner's death, the minimum guaranteed
death benefit.
When determining the higher of (1) or (2) above, the
calculations are based on the earlier of:
- the date we receive proof of death and the
Beneficiary's election of how to receive
payment; or
- six months from the date of death.
REQUIRED INFORMATION RECEIVED WITHIN 6 MONTHS OF
THE DATE OF DEATH: If the minimum guaranteed
death benefit exceeds the contract value, we
will add the difference to the contract value on
the date we receive the required information so
that the contract value will equal the minimum
guaranteed death benefit. This additional amount
will be allocated to the investment options in
the same proportion that Purchase Payments were
last allocated. Thereafter, the contract value
will be subject to investment performance and
applicable charges until the date the death
benefit is paid.
REQUIRED INFORMATION RECEIVED MORE THAN 6 MONTHS
AFTER THE DATE OF DEATH: If the minimum
guaranteed death benefit exceeds the contract
value on the 6-month anniversary of the date of
death, we will credit the difference with
interest at the prevailing money market rates
from the 6-month anniversary until the date we
receive the required information. At that time
we will allocate this additional amount, with
the credited interest, to the investment options
in the same proportion that Purchase Payments
were last allocated. Thereafter, the contract
value will be subject to investment performance
and applicable contract charges until the date
payment is made.
-11-
<PAGE>
The initial minimum guaranteed death benefit is
equal to the first Purchase Payment. It is reset on
each 8-year contract anniversary until the oldest
Owner attains age 72. The reset benefit is equal to
the immediately preceding minimum guaranteed death
benefit or the contract value on that date, if
higher.
The minimum guaranteed death benefit is immediately
increased by additional Purchase Payments and
adjusted for withdrawals and annuity payments made
under the Payments Based on a Number of Years
annuity option. The adjustment will be calculated by
multiplying the withdrawal or annuity payment by the
ratio of the contract value after the withdrawal or
annuity payment to the contract value before the
withdrawal or annuity payment.
PAYMENT OF DEATH To pay the death benefit, we need proof of death,
BENEFIT such as a certified copy of a death certificate,
plus written direction from the Beneficiary
regarding how he or she wants to receive the money.
If the death benefit is payable to an Owner's
estate, we will pay it in a single payment.
The Beneficiary may elect to receive the death
benefit as:
- a lump sum payment or series of withdrawals that
are completed within five years from the date of
death; or
- annuity payments made over the Beneficiary's
life or life expectancy. To receive annuity
payments, the Beneficiary must make this
election within 60 days from our receipt of
proof of death. Annuity payments must begin
within one year from the date of death. Once
annuity payments begin, they cannot be changed.
If the Beneficiary is the Owner's spouse, the spouse
may have the option to continue the Contract and
will then be the Owner of the Contract. If this
spouse is also the oldest joint Owner, the minimum
guaranteed death benefit will apply on the death of
this spouse. Otherwise, the benefit on the death of
your spouse will be the contract value.
If a Beneficiary entitled to receive a death benefit
dies before the death benefit is distributed to the
Beneficiary, we will pay the death benefit to the
Beneficiary's named Beneficiary or, if none, to the
Beneficiary's estate.
DEATH OF ANNUITANT Any amounts paid after the death of the Annuitant
ON OR AFTER THE ANNUITY will depend on which annuity option was selected. If
PURCHASE DATE the Annuitant dies while annuity payments are being
paid under the Payments Based on a Number of
Years annuity option, a death benefit will be paid
as described above. If the last Annuitant dies while
annuity payments are being paid under another
option, any remaining guaranteed payments will be
paid to the Beneficiary. In both situations, all
remaining annuity payments will be distributed to
the Beneficiary at least as rapidly as they would
have been paid to the payee.
-12-
<PAGE>
================================================================================
GENERAL PROVISIONS
================================================================================
ACCOUNT At least once each calendar year we will furnish you
STATEMENTS with a statement showing your contract value or, if
applicable and required by law, your Annuity Units
and the Annuity Unit values.
ASSIGNMENT You can assign or otherwise transfer this Contract.
OF BENEFITS To the extent allowed by law, payments under this
Contract are not subject to legal process for the
claims of creditors.
COMMUNICATIONS All written communications to you will be addressed
to you at your last known address on file with
SAFECO Life.
All written communications to SAFECO Life must be
addressed to SAFECO Life at its Home Office at 5069
154th Place NE, Redmond, Washington 98052-9669 or
P.O. Box 34690, Seattle, Washington 98124-1690.
ESSENTIAL DATA You and each person entitled to receive benefits
under this Contract must provide us with any
information we need to administer this Contract. We
are entitled to rely exclusively on the completeness
and accuracy of data furnished by you and we will
not be liable with respect to any omission or
inaccuracy.
EVIDENCE OF SURVIVAL When any payments under this Contract depend upon
any person being alive on a given date, we may
require satisfactory proof that the person is living
before making such payments.
MISSTATEMENT OF We may require satisfactory proof of correct age
AGE OR SEX or sex at any time. If annuity payments are based on
life or life expectancy and the age or sex of any
Annuitant has been misstated, annuity payments will
be based on the corrected information. Underpayments
will be made up in a lump sum with the next
scheduled payment. Overpayments will be deducted
from future payments until the total is repaid.
NONPARTICIPATION This Contract is nonparticipating, which means it
will not share in any distribution of profits,
losses, or surplus of SAFECO Life.
SEPARATE ACCOUNT The Separate Account holds the assets that underlie
the contract values invested in the Portfolios. The
assets in the Separate Account are the property of
SAFECO Life. However, assets in the Separate Account
that are attributable to Contracts are not
chargeable with liabilities arising out of any other
business we may conduct. Income, gains and losses
(realized and unrealized), resulting from assets in
the Separate Account are credited to or charged
against the Separate Account without regard to other
income, gains or losses of SAFECO Life.
STATE REQUIRED The benefits of this Contract will not be less than
BENEFITS the minimum benefits required by any statute of any
state in which this Contract is delivered.
-13-
<PAGE>
SUSPENSION OF We may be required to suspend or postpone payment of
ANNUITY PAYMENTS, annuity payments, withdrawals, or transfers from the
WITHDRAWALS, OR Portfolios for any period of time when:
TRANSFERS
- the NYSE is closed (other than customary weekend
or holiday closings);
- trading on the NYSE is restricted;
- an emergency exists such that disposal of or
determination of the value of the Portfolio
shares is not reasonably practicable; or
- the SEC, by order, so permits for your
protection.
In addition, we retain the right to defer payment of
withdrawals or transfers from the Fixed Account for
a period of 6 months after receiving the request.
The interest rate credited to the Fixed Account
during this period will not be less than the rate
required under state law.
TERMINATION This Contract will terminate when SAFECO Life has
OF CONTRACT completed all of its duties and obligations under
the Contract.
THE CONTRACT The Contract, contract data page, and contract
application, as may be amended, and any endorsements
are the entire Contract. Only an authorized officer
of SAFECO Life may change this Contract. Any change
must be in writing. SAFECO Life reserves the right
to change the provisions of this Contract to conform
to any applicable law, regulation, or ruling issued
by a government agency.
VOTING RIGHTS SAFECO Life is the legal owner of the Portfolios'
shares. However, when a Portfolio solicits proxies
in connection with a shareholder vote, we are
required to ask you for instructions as to how to
vote those shares. All shares are voted in the same
proportion as the instructions we received. Should
we determine that we are no longer required to
comply with the above, we will vote the shares in
our own right.
-14-
<PAGE>
================================================================================
ANNUITY PURCHASE RATE TABLES
================================================================================
VARIABLE ANNUITY PURCHASE RATE TABLE
MORTALITY TABLE USED: The rates in the Variable Annuity Purchase Rate Table are
based upon the Annuity 2000 Mortality Table projected 20 Years. An age setback
of 1 year will be used if the annuity payments begin in the year 2013-2022, 2
years if the annuity payments begin in the year 2023-2032, and an additional
1-year setback for each additional 10 years. The effective interest rate assumed
in the table is 4.00%.
Age is to be taken for the exact number of years and completed months. Values
for fractional ages are obtained by simple interpolation. Consideration for ages
or combination of lives not shown will be furnished by SAFECO Life upon request.
CONSIDERATION REQUIRED TO PURCHASE $1 OF MONTHLY VARIABLE ANNUITY*
<TABLE>
<CAPTION>
LIFE ANNUITY LIFE ANNUITY LIFE ANNUITY JOINT & SURVIVOR*
NO PERIOD CERTAIN 5 YEARS CERTAIN 10 YEARS CERTAIN 5 YEARS
LIFE CERTAIN
AGE MALE FEMALE MALE FEMALE MALE FEMALE ANNUITY AND LIFE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
60 $196.53 $211.16 $198.01 $212.37 $199.87 $213.40 $229.94 $231.55
61 192.64 207.52 194.19 208.77 196.25 209.91 226.76 228.37
62 188.65 203.77 190.26 205.06 192.56 206.33 223.45 225.06
63 184.55 199.90 186.24 201.24 188.81 202.66 220.03 221.64
64 180.35 195.93 182.13 197.32 185.01 198.89 216.48 218.09
65 176.06 191.84 177.94 193.29 181.17 195.04 212.81 214.42
66 171.68 187.65 173.69 189.16 177.31 191.11 209.02 210.62
67 167.23 183.34 169.39 184.91 173.43 187.10 205.09 206.69
68 162.72 178.91 165.04 180.56 169.55 183.02 201.05 202.65
69 158.18 174.37 160.68 176.11 165.69 178.88 196.88 198.48
70 153.60 169.71 156.31 171.55 161.85 174.69 192.59 194.19
71 149.02 164.94 151.94 166.91 158.05 170.45 188.18 189.78
72 144.44 160.07 147.58 162.18 154.30 166.20 183.66 185.26
73 139.86 155.11 143.24 157.39 150.61 161.93 179.03 180.64
74 135.27 150.08 138.91 152.55 146.98 157.68 174.30 175.92
75 130.68 144.99 134.60 147.69 143.41 153.47 169.48 171.12
76 126.09 139.88 130.31 142.82 139.93 149.30 164.58 166.23
77 121.51 134.74 126.07 137.96 136.55 145.21 159.59 161.28
78 116.95 129.59 121.87 133.11 133.26 141.21 154.55 156.26
79 112.42 124.44 117.74 128.28 130.09 137.32 149.44 151.20
80 107.93 119.28 113.67 123.49 127.05 133.56 144.29 146.11
81 103.49 114.13 109.69 118.76 124.16 129.96 139.10 140.99
82 99.10 109.01 105.80 114.10 121.41 126.53 133.89 135.87
83 94.78 103.94 102.01 109.54 118.83 123.31 128.67 130.77
84 90.53 98.92 98.32 105.10 116.42 120.29 123.46 125.70
85 86.36 93.99 94.76 100.80 114.17 117.49 118.27 120.68
86 82.26 89.15 91.32 96.67 112.08 114.90 113.12 115.75
87 78.24 84.43 88.03 92.74 110.15 112.52 108.02 110.92
88 74.30 79.83 84.89 89.01 108.36 110.33 102.99 106.21
89 70.50 75.43 81.91 85.52 106.72 108.34 98.07 101.67
90 66.84 71.24 79.10 82.26 105.24 106.56 93.29 97.30
</TABLE>
* The consideration shown refers to the net value of the Portfolios used to
purchase a variable annuity after premium taxes or other applicable charges
are deducted. For example, if the Annuitant is a 65-year old male, a Life
Annuity initially equivalent to a monthly income of $1,000 will cost
$176,060. However, because this is a variable annuity, the dollar amount of
this monthly income is not guaranteed and may increase or decrease.
** Annuitant and co-annuitant are assumed to be the same age.
-15-
<PAGE>
FIXED ANNUITY PURCHASE RATE TABLE
MORTALITY TABLE USED: The rates in the Fixed Annuity Purchase Rate Table are
based upon the 2000 Mortality Table projected 20 years. The effective interest
rate assumed in the table is 2.00%.
Age is to be taken for the exact number of years and completed months. Values
for fractional ages are obtained by simple interpolation. Consideration for ages
or combination of lives not shown will be furnished by SAFECO Life upon request.
CONSIDERATION REQUIRED TO PURCHASE $1 OF MONTHLY FIXED ANNUITY*
<TABLE>
<CAPTION>
LIFE ANNUITY LIFE ANNUITY LIFE ANNUITY JOINT & SURVIVOR*
NO PERIOD CERTAIN 5 YEARS CERTAIN 10 YEARS CERTAIN 5 YEARS
LIFE CERTAIN
AGE MALE FEMALE MALE FEMALE MALE FEMALE ANNUITY AND LIFE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
60 $254.94 $278.92 $256.55 $280.24 $258.80 $281.52 $310.12 $311.90
61 248.36 272.38 250.04 273.74 252.52 275.16 303.87 305.65
62 241.72 265.76 243.47 267.16 246.22 268.73 297.51 299.28
63 235.01 259.05 236.84 260.51 239.91 262.24 291.04 292.81
64 228.25 252.27 230.17 253.79 233.60 255.70 284.46 286.23
65 221.44 245.42 223.48 246.99 227.32 249.11 277.79 279.56
66 214.61 238.50 216.78 240.13 221.07 242.49 271.02 272.78
67 207.76 231.51 210.09 233.21 214.88 235.84 264.15 265.91
68 200.92 224.45 203.42 226.24 208.75 229.18 257.20 258.96
69 194.12 217.32 196.81 219.20 202.72 222.51 250.16 251.92
70 187.37 210.14 190.28 212.13 196.80 215.86 243.06 244.81
71 180.68 202.90 183.82 205.02 191.01 209.23 235.88 237.64
72 174.07 195.62 177.45 197.90 185.35 202.66 228.66 230.42
73 167.55 188.33 171.18 190.79 179.83 196.16 221.38 223.15
74 161.10 181.04 165.00 183.71 174.46 189.76 214.08 215.86
75 154.71 173.78 158.92 176.69 169.25 183.49 206.75 208.55
76 148.41 166.58 152.94 169.75 164.21 177.37 199.41 201.23
77 142.20 159.44 147.09 162.90 159.34 171.43 192.08 193.93
78 136.08 152.39 141.36 156.17 154.67 165.68 184.77 186.66
79 130.07 145.41 135.77 149.54 150.21 160.14 177.49 179.42
80 124.19 138.52 130.34 143.05 145.96 154.84 170.25 172.24
81 118.42 131.74 125.07 136.71 141.95 149.81 163.06 165.14
82 112.80 125.08 119.96 130.54 138.18 145.07 155.95 158.12
83 107.31 118.55 115.03 124.56 134.65 140.64 148.93 151.22
84 101.96 112.18 110.29 118.80 131.38 136.53 142.01 144.45
85 96.76 105.98 105.74 113.28 128.36 132.75 135.21 137.84
86 91.70 99.97 101.39 108.02 125.56 129.27 128.54 131.40
87 86.79 94.16 97.25 103.05 123.00 126.10 122.02 125.17
88 82.02 88.57 93.33 98.38 120.64 123.20 115.67 119.17
89 77.46 83.26 89.65 94.04 118.50 120.59 109.53 113.43
90 73.10 78.24 86.19 90.02 116.58 118.28 103.61 107.95
</TABLE>
* The consideration shown refers to the net value of the Fixed Account used
to purchase a fixed annuity after premium taxes or other applicable charges
are deducted. For example, if the Annuitant is a 65-year old male, a Life
Annuity which provides a guaranteed monthly income of $1,000 will cost
$221,440.
** Annuitant and co-annuitant are assumed to be the same age.
-16-
<PAGE>
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
SAFECO LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
SAFECO SECURITIES, INC., PRINCIPAL UNDERWRITIER
OF VARIABLE CONTRACTS AND POLICIES
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 1. Available Funds.....................................................2
1.1 Availability..................................................2
1.2 Addition, Deletion or Modification of Funds...................2
1.3 No Sales to the General Public................................2
Section 2. Processing Transactions.............................................3
2.1 Timely Pricing and Orders.....................................3
2.2 Timely Payments...............................................3
2.3 Applicable Price..............................................3
2.4 Dividends and Distributions...................................4
2.5 Book Entry....................................................4
Section 3. Costs and Expenses..................................................4
3.1 General.......................................................4
3.2 Parties To Cooperate..........................................4
Section 4. Legal Compliance....................................................5
4.1 Tax Laws......................................................5
4.2 Insurance and Certain Other Laws..............................7
4.3 Securities Laws...............................................7
4.4 Notice of Certain Proceedings and Other Circumstances.........9
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.....9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY....10
Section 5. Mixed and Shared Funding...........................................12
5.1 General......................................................12
5.2 Disinterested Directors......................................12
5.3 Monitoring for Material Irreconcilable Conflicts.............12
5.4 Conflict Remedies............................................13
5.5 Notice to LIFE COMPANY.......................................14
5.6 Information Requested by Board of Directors..................14
5.7 Compliance with SEC Rules....................................15
5.8 Other Requirements...........................................15
Section 6. Termination........................................................15
6.1 Events of Termination........................................15
6.2 Notice Requirement for Termination...........................16
6.3 Funds To Remain Available....................................16
6.4 Survival of Warranties and Indemnifications..................17
6.5 Continuance of Agreement for Certain Purposes................17
i
<PAGE>
Section 7. Parties To Cooperate Respecting Termination........................17
Section 8. Assignment.........................................................17
Section 9. Notices............................................................17
Section 10. Voting Procedures.................................................18
Section 11. Foreign Tax Credits...............................................19
Section 12. Indemnification...................................................19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER..............19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM..............21
12.3 Effect of Notice.............................................24
12.4 Successors...................................................24
Section 13. Applicable Law....................................................24
Section 14. Execution in Counterparts.........................................24
Section 15. Severability......................................................24
Section 16. Rights Cumulative.................................................24
Section 17. Headings..........................................................24
Section 18. Confidentiality...................................................25
Section 19. Trademarks and Fund Names.........................................25
Section 20. Parties to Cooperate..............................................26
Section 21. Amendments........................................................26
</TABLE>
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 10th day of April, 2000
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
SAFECO Life Insurance Company, a Washington life insurance company ("LIFE
COMPANY"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts"); and SAFECO Securities, Inc., an
affiliate of LIFE COMPANY and the principal underwriter of the Contracts
("UNDERWRITER") (collectively, "the Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of seventeen separate series
("Series"), shares ("Shares") each of which are registered under the Securities
Act of 1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
1
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF 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 if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
2
<PAGE>
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS
(a) AVIF or its designated agent will use its best efforts to
provide LIFE COMPANY with the net asset value per Share for each Fund by 6:00
p.m. Central Time on each Business Day. As used herein, "Business Day" shall
mean any day on which (i) the New York Stock Exchange is open for regular
trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY
is open for business.
(b) LIFE COMPANY will use the data provided by AVIF each Business
Day pursuant to paragraph (a) immediately above to calculate Account unit values
and to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; PROVIDED, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY
and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract
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transactions") and that LIFE COMPANY receives prior to the close of regular
trading on the New York Stock Exchange on a Business Day will be executed at the
net asset values of the appropriate Funds next computed after receipt by AVIF or
its designated agent of the orders. For purposes of this Section 2.3(a), LIFE
COMPANY shall be the designated agent of AVIF for receipt of orders relating to
Contract transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; PROVIDED that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will
be effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 PARTIES TO COOPERATE
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
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SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each Fund
as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so qualify or that it might not so
qualify in the future.
(b) AVIF represents that it will use its best efforts to comply
and to maintain each Fund's compliance with the diversification requirements set
forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations
under the Code. AVIF will notify LIFE COMPANY immediately upon having a
reasonable basis for believing that a Fund has ceased to so comply or that a
Fund might not so comply in the future. In the event of a breach of this Section
4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Section
1.817-5 of the regulations under the Code.
(c) Notwithstanding any other provision of this Agreement, LIFE
COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing
in connection with any governmental audit or review of LIFE COMPANY or, to LIFE
COMPANY's knowledge, of any Participant, that any Fund has failed to comply with
the diversification requirements of Section 817(h) of the Code or LIFE COMPANY
otherwise becomes aware of any facts that could give rise to any claim against
AVIF or its affiliates as a result of such a failure or alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result of
such failure or alleged failure;
(iii) LIFE COMPANY shall use its best efforts to minimize
any liability of AVIF or its affiliates resulting
from such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations
Section 1.817-5(a)(2), to the Commissioner of the IRS
that such failure was inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and
their legal and accounting advisors to participate in
any conferences, settlement discussions or other
administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS,
any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or
its affiliates as a result of such a failure or
alleged failure; PROVIDED, however, that LIFE COMPANY
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will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE COMPANY
to the IRS, any Participant or any other claimant in
connection with any of the foregoing proceedings or
contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to
Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by LIFE COMPANY to AVIF (together
with any supporting information or analysis); subject
to the confidentiality provisions of Section 18, at
least ten (10) business days or such shorter period
to which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by LIFE COMPANY to any
such person without the express written consent of
AVIF which shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and
their accounting and legal advisors with such
cooperation as AVIF shall reasonably request
(including, without limitation, by permitting AVIF
and its accounting and legal advisors to review the
relevant books and records of LIFE COMPANY) in order
to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the
preceding clause or its assessment of the validity or
amount of any claim against its arising from such a
failure or alleged failure;
(vii) LIFE COMPANY shall not with respect to any claim of
the IRS or any Participant that would give rise to a
claim against AVIF or its affiliates (a) compromise
or settle any claim, (b) accept any adjustment on
audit, or (c) forego any allowable administrative or
judicial appeals, without the express written consent
of AVIF or its affiliates, which shall not be
unreasonably withheld, PROVIDED that LIFE COMPANY
shall not be required, after exhausting all
administrative remedies, to appeal any adverse
judicial decision unless AVIF or its affiliates shall
have provided an opinion of independent counsel to
the effect that a reasonable basis exists for taking
such appeal; and PROVIDED FURTHER that the costs of
any such appeal shall be borne equally by the Parties
hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if LIFE
COMPANY fails to comply with any of the foregoing
clauses (i) through (vii), and such failure could be
shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals
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thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; PROVIDED, that in no event shall LIFE COMPANY have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts
currently are and will be treated as annuity contracts or life insurance
contracts under applicable provisions of the Code and that it will use its best
efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately
upon having a reasonable basis for believing that any of the Contracts have
ceased to be so treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account
are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms
under Section 817 of the Code and the regulations thereunder.
LIFE COMPANY will use its best efforts to continue to meet
such definitional requirements, and it will notify AVIF
immediately upon having a reasonable basis for believing that
such requirements have ceased to be met or that they might not
be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an
insurance company duly organized, validly existing and in good standing under
the laws of the State of Washington and has full corporate power, authority and
legal right to execute, deliver and perform its duties and comply with its
obligations under this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under Section
48.18A.020 of the Revised Code of Washington and the regulations thereunder, and
(iii) the Contracts comply in all material respects with all other applicable
federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS
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(a) LIFE COMPANY represents and warrants that (i) interests in
each Account pursuant to the Contracts will be registered under the 1933 Act to
the extent required by the 1933 Act, (ii) the Contracts will be duly authorized
for issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and the
law(s) of LIFE COMPANY's state(s) of organization and domicile, (iii) each
Account is and will remain registered under the 1940 Act, to the extent required
by the 1940 Act, (iv) each Account does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, to the extent
required, (v) each Account's 1933 Act registration statement relating to the
Contracts, together with any amendments thereto, will at all times comply in all
material respects with the requirements of the 1933 Act and the rules
thereunder, (vi) LIFE COMPANY will amend the registration statement for its
Contracts under the 1933 Act and for its Accounts under the 1940 Act from time
to time as required in order to effect the continuous offering of its Contracts
or as may otherwise be required by applicable law, and (vii) each Account
Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other
jurisdiction if and to the extent reasonably deemed advisable
by AVIF.
(d) AVIF 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 reserves the right to make such
payments in the future. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, AVIF
undertakes to have its Board of Directors, a majority of whom
are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
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4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES
(a) AVIF or AIM will immediately notify LIFE COMPANY of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to AVIF's registration statement
under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or AVIF Prospectus that may affect the
offering of Shares of AVIF, (iii) the initiation of any proceedings for that
purpose or for any other purpose relating to the registration or offering of
AVIF's Shares, or (iv) any other action or circumstances that may prevent the
lawful offer or sale of Shares of any Fund in any state or jurisdiction,
including, without limitation, any circumstances in which (a) such Shares are
not registered and, in all material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY. AVIF and AIM will make every reasonable effort to
prevent the issuance, with respect to any Fund, of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) LIFE COMPANY or UNDERWRITER will immediately notify AVIF of
(i) the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to each Account's registration
statement under the 1933 Act relating to the Contracts or each Account
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or Account Prospectus that may affect the offering of Shares of AVIF,
(iii) the initiation of any proceedings for that purpose or for any other
purpose relating to the registration or offering of each Account's interests
pursuant to the Contracts, or (iv) any other action or circumstances that may
prevent the lawful offer or sale of said interests in any state or jurisdiction,
including, without limitation, any circumstances in which said interests are not
registered and, in all material respects, issued and sold in accordance with
applicable state and federal law. LIFE COMPANY and UNDERWRITER will make every
reasonable effort to prevent the issuance of any such stop order, cease and
desist order or similar order and, if any such order is issued, to obtain the
lifting thereof at the earliest possible time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF
(a) LIFE COMPANY will provide to AVIF or its designated agent at
least one (1) complete copy of all SEC registration statements, Account
Prospectuses, reports, any preliminary and final voting instruction solicitation
material, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at least
five (5) Business Days prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
AVIF or its designated agent objects to such use within five (5) Business Days
after receipt of such material or
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such shorter period as the Parties hereto may, from time to time, agree upon.
AVIF hereby designates AIM as the entity to receive such sales literature, until
such time as AVIF appoints another designated agent by giving notice to LIFE
COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (I.E.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither AVIF nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media,
(E.G., on-line networks such as the Internet or other electronic messages),
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, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY
(a) AVIF will provide to LIFE COMPANY at least one (1) complete
copy of all SEC registration statements, AVIF Prospectuses, reports, any
preliminary and final proxy material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to AVIF
or the Shares of a Fund, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all
AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of
AVIF statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY,
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as the case may be, to print and distribute such materials within the time
required by law to be furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which LIFE COMPANY, or any of its respective affiliates
is named, or that refers to the Contracts, at least five (5) Business Days prior
to its use or such shorter period as the Parties hereto may, from time to time,
agree upon. No such material shall be used if LIFE COMPANY or its designated
agent objects to such use within five (5) Business Days after receipt of such
material or such shorter period as the Parties hereto may, from time to time,
agree upon. LIFE COMPANY shall receive all such sales literature until such time
as it appoints a designated agent by giving notice to AVIF in the manner
required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or concerning
LIFE COMPANY, each Account, or the Contracts other than (i) the information or
representations contained in the registration statement, including each Account
Prospectus contained therein, relating to the Contracts, as such registration
statement and Account Prospectus may be amended from time to time; or (ii) in
published reports for the Account or the Contracts that are in the public domain
and approved by LIFE COMPANY for distribution; or (iii) in sales literature or
other promotional material approved by LIFE COMPANY or its affiliates, except
with the express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information concerning
LIFE COMPANY, and its respective affiliates that is intended for use only by
brokers or agents selling the Contracts (I.E., information that is not intended
for distribution to Participants) ("broker only materials") is so used, and
neither LIFE COMPANY, nor any of its respective affiliates shall be liable for
any losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (E.G.,
on-line networks such as the Internet or other electronic messages), 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, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
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SECTION 5. MIXED AND SHARED FUNDING
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other 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 interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
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(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 Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 CONFLICT REMEDIES
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested Directors
that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of
the Accounts from AVIF or any Fund and reinvesting
such assets in a different investment medium,
including another Fund of AVIF, or submitting the
question whether such segregation should be
implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (E.G., annuity Participants, life
insurance Participants or all Participants) that
votes in favor of such segregation, or offering to
the affected Participants the option of making such a
change; and
(ii) establishing a new registered investment company of
the type defined as a "management company" in Section
4(3) of the 1940 Act or a new separate account that
is operated as a management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each
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Account's investment in AVIF or any Fund. No charge or penalty will be imposed
as a result of such withdrawal. Any such withdrawal must take place within six
(6) months after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to LIFE COMPANY
conflicts with the majority of other state regulators, then LIFE COMPANY will
withdraw each Account's investment in AVIF within six (6) months after AVIF's
Board of Directors informs LIFE COMPANY that it has determined that such
decision has created a material irreconcilable conflict, and until such
withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY
for the purchase and redemption of Shares of AVIF. No charge or penalty will be
imposed as a result of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
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5.7 COMPLIANCE WITH SEC RULES
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other parties,
or, if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on LIFE COMPANY, or the Subaccount corresponding
to the Fund with respect to which the Agreement is to be terminated; or
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(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law precludes
the use of such Shares as an underlying investment medium of the Contracts
issued or to be issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as
a RIC under Subchapter M of the Code or under successor or similar provisions,
or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY
cease to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE
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Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted will be given by means
mutually acceptable to the Parties concerned. Each other notice or communication
required or permitted by this Agreement will be given to the following persons
at the following addresses and facsimile
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numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
SAFECO LIFE INSURANCE COMPANY
5069 154th PL. N.E.
Redmond, WA, 98052
Facsimile: (425) 376-6080
Attn: William E. Crawford, Esq.
SAFECO SECURITIES, INC.
10865 Willows Road N.E.
Redmond, WA 98052
Facsimile: (425) 376-8244
Attn: David Longhurst
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared
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Funding exemptive order it has obtained. AVIF will comply with all provisions of
the 1940 Act requiring voting by shareholders, and in particular, AVIF either
will provide for annual meetings (except insofar as the SEC may interpret
Section 16 of the 1940 Act not to require such meetings) or will comply with
Section 16(c) of the 1940 Act (although AVIF 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, AVIF will act in accordance with the SEC's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of directors and with whatever rules the SEC may promulgate with
respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
AIM, their affiliates, and each person, if any, who controls AVIF, AIM, or their
affiliates within the meaning of Section 15 of the 1933 Act and each of their
respective directors and officers, (collectively, the "Indemnified Parties" for
purposes of this Section 12.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise;
PROVIDED, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or
sales literature or advertising 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 to LIFE COMPANY or UNDERWRITER by or on
behalf of AVIF or AIM for use in any Account's 1933
Act registration statement, any Account Prospectus,
the Contracts, or sales literature or advertising or
otherwise for use in
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connection with the sale of Contracts or Shares (or
any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing, not supplied
for use therein by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the
Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement,
AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading if such a statement or omission was
made in reliance upon and in conformity with
information furnished to AVIF, AIM or their
affiliates by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates for use in
AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF,
or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the
services and furnish the materials required of them
under the terms of this Agreement, or any material
breach of any representation and/or warranty made by
LIFE COMPANY or UNDERWRITER in this Agreement or
arise out of or result from any other material breach
of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by LIFE COMPANY to qualify as annuity contracts or
life insurance contracts under the Code, otherwise
than by reason of any Fund's failure to comply with
Subchapter M or Section 817(h) of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under
this Section 12.1 with respect to any losses, claims, damages, liabilities or
actions to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the
20
<PAGE>
performance by that Indemnified Party of its duties or by reason of that
Indemnified Party's reckless disregard of obligations or duties (i) under this
Agreement, or (ii) to AVIF or AIM.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under
this Section 12.1 with respect to any action against an Indemnified Party unless
AVIF or AIM shall have notified LIFE COMPANY and UNDERWRITER in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY and
UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER
from any liability which they may have to the Indemnified Party against whom
such action is brought otherwise than on account of this Section 12.1. Except as
otherwise provided herein, in case any such action is brought against an
Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to
participate, at their own expense, in the defense of such action and also shall
be entitled to assume the defense thereof, with counsel approved by the
Indemnified Party named in the action, which approval shall not be unreasonably
withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof,
the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and
shall bear the fees and expenses of any additional counsel retained by it, and
neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF and/or AIM) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; PROVIDED, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement,
AVIF Prospectus or sales literature or advertising of
AVIF (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
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information furnished to AVIF or its affiliates by or
on behalf of LIFE COMPANY, UNDERWRITER or their
respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or
any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of AVIF, AIM
or their affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of AVIF, AIM or their affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member" as that term is defined in Section (q)
of Article I of the NASD By-Laws), in connection with
the sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon and in conformity with information
furnished to LIFE COMPANY, UNDERWRITER or their
respective affiliates by or on behalf of AVIF or AIM
for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform
the obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any
representation and/or warranty made by AVIF in this
Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF and/or AIM) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M of
the Code and regulations
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thereunder, or (ii) Section 817(h) of the Code and regulations thereunder,
including, without limitation, any income taxes and related penalties,
rescission charges, liability under state law to Participants asserting
liability against LIFE COMPANY pursuant to the Contracts, the costs of any
ruling and closing agreement or other settlement with the IRS, and the cost of
any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
<PAGE>
(d) Neither AVIF nor AIM shall be liable under this Section 12.2
with respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF and/or AIM in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF and/or
AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense
thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall
bear the fees and expenses of any additional counsel retained by it, and AVIF
and AIM will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
(e) In no event shall AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company
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to maintain its variable annuity or life insurance contracts (with respect to
which any Fund serves as an underlying funding vehicle) as annuity contracts or
life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
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, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
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The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the AVIF Protected Parties' for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties, customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement
among A I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE
COMPANY nor UNDERWRITER or any of their respective affiliates, shall use any
trademark, trade name, service mark or logo of AVIF, AIM or any of their
respective affiliates, or any variation of any such
25
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trademark, trade name, service mark or logo, without AVIF's or AIM's prior
written consent, the granting of which shall be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement,
neither AVIF, its investment adviser, its principal underwriter, or any
affiliates thereof shall use any trademark, trade name, service mark or logo of
LIFE COMPANY, UNDERWRITER or any of their affiliates, or any variation of any
such trademark, trade name, service mark or logo, without LIFE COMPANY's or
UNDERWRITER's prior written consent, the granting of which shall be at LIFE
COMPANY's or UNDERWRITER's sole option.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 21. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
--------------------------------
26
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
-------------------------- ---------------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: By:
------------------------- ----------------------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
SAFECO LIFE INSURANCE COMPANY, on behalf
of itself and its separate accounts
Attest: By:
------------------------- -----------------------------------------
Name: Name:
------------------------- ----------------------------------------
Title: Title:
------------------------- ---------------------------------------
SAFECO SECURITIES, INC.
Attest: By:
------------------------- -----------------------------------------
Name: Name:
------------------------- ----------------------------------------
Title: Title:
------------------------- ---------------------------------------
27
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Aggressive Growth Fund
AIM V.I. Growth Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
SAFECO Separate Account C
SAFECO Separate Account SL
SAFECO Resource Variable Account B
SAFECO SafeFlex Separate Account (non-registered)
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Spinnaker
Spinnaker Plus
Primier Variable Universal Life
SafeFlex (non-registered)
Ultra 401 (non-registered)
28
<PAGE>
SCHEDULE B
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
===========================================================================================
LIFE COMPANY AVIF / AIM
- -------------------------------------------------------------------------------------------
<S> <C>
preparing and filing the Account's preparing and filing the Fund's
registration statement registration statement
- -------------------------------------------------------------------------------------------
text composition for Account text composition for Fund prospectuses
prospectuses and supplements and supplements
- -------------------------------------------------------------------------------------------
text alterations of prospectuses text alterations of prospectuses (Fund)
(Account) and supplements (Account) and supplements (Fund)
- -------------------------------------------------------------------------------------------
printing Account and Fund prospectuses a camera ready Fund prospectus
and supplements
- -------------------------------------------------------------------------------------------
text composition and printing Account text composition and printing Fund SAIs
SAIs
- -------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to mailing and distributing Fund SAIs to
policy owners upon request by policy policy owners upon request by policy
owners owners
- -------------------------------------------------------------------------------------------
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
- -------------------------------------------------------------------------------------------
text composition (Account), printing, text composition of annual and
mailing, and distributing annual and semi-annual reports (Fund)
semi-annual reports for Account (Fund
and Account as, applicable)
- -------------------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction statements and voting instruction
solicitation materials to policy owners solicitation materials to policy owners
with respect to proxies related to the with respect to proxies related to the
Account Fund
- -------------------------------------------------------------------------------------------
preparation, printing and distributing
sales material and advertising relating
to the Funds, insofar as such materials
relate to the Contracts and filing such
materials with and obtaining approval
from, the SEC, the NASD, any state
insurance regulatory authority, and any
other appropriate regulatory authority,
===========================================================================================
29
<PAGE>
- -------------------------------------------------------------------------------------------
to the extent required
===========================================================================================
</TABLE>
30
<PAGE>
EXHIBIT 99.8.H.
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the___day of____, 1999, INSURANCE COMPANY,
a life insurance company organized under the laws of the State of Washington
(Insurance Company"), and each of DREYFUS VARIABLE INVESTMENT FUND; THE DREYFUS
SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS LIFE AND ANNUITY INDEX FUND,
INC. (d/b/a DREYFUS STOCK INDEX FUND); AND DREYFUS INVESTMENT PORTFOLIOS (each a
"Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control of
the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract are
"Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement of the parties hereto, the shares of which
are available to serve as the underlying investment medium for the
aforesaid Contracts.
<PAGE>
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean _______________, a separate account
established by Insurance Company in accordance with the laws of the State
of ______________.
1.13 "Software Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations where
the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion System
shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a
Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b)
it has legally and validly established the Separate Account pursuant to
the insurance laws of the State of Washington and the regulation
thereunder the purpose of offering to the public certain individual and
group variable annuity and life insurance contracts; (c) it has
registered the Separate Account as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts;
and (d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any
Participating Fund as an investment medium for insurance company
separate accounts supporting variable annuity contracts or variable
life insurance contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will
be described in a registration statement filed under the Securities Act
of 1933, as amended ("1933 Act"); (b) the Contracts will be issued and
sold in compliance in all material respects with all applicable federal
and state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions imposed by state insurance law and applicable
to the Participating Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be
credited to or charged against such Separate Account without regard to
other income, gains or losses from assets
2
<PAGE>
allocated to any other accounts of Insurance Company. Insurance
Company represents and warrants that the assets of the Separate
Account are and will be kept separate from Insurance Company's General
Account and any other separate accounts Insurance Company may have,
and will not be charged with liabilities from any business that
Insurance Company may conduct or the liabilities of any companies
affiliated with Insurance Company.
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating
Fund to operate and offer its shares as an underlying investment medium
for Participating Companies.
2.5 Each Participating Fund 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 such qualification (under Subchapter M or any
successor or similar provision) and that it will notify 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.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify each
Participating Fund and Dreyfus 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. Insurance Company
agrees that any prospectus offering a Contract that is a "modified
endowment contract," as that term is defined in Section 7702A of the
Code, will identify such Contract as a modified endowment contract (or
policy).
2.7 Each Participating Fund agrees that its assets shall be managed and
invested in a manner that complies with the requirements of Section
817(h) of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be
permitted (subject to the other terms of this Agreement) to make its
shares available to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and
other individuals/entities who deal with the money and/or securities of
the Participating Fund are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit
of the Participating Fund in an amount not less than that required by
Rule 17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
3
<PAGE>
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the
coverage required to be maintained by the Participating Fund. The
aforesaid Bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for
purchase at the then applicable net asset value per share by Insurance
Company and the Separate Account on each Business Day pursuant to rules
of the Commission. Notwithstanding the foregoing, each Participating
Fund may refuse to sell its shares to any person, or suspend or
terminate the offering of its shares, if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of its Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund
will be sold only to (a) Participating Companies and their separate
accounts or (b) "qualified pension or retirement plans" as determined
under Section 817(h)(4) of the Code. Except as otherwise set forth in
this Section 3.3, no shares of any Participating Fund will be sold to
the general public.
3.4 Each Participating Fund shall use its best efforts to provide closing
net asset value, dividend and capital gain information on a per-share
basis to Insurance Company by 6:00 p.m. Eastern time on each Business
Day. Any material errors in the calculation of net asset value,
dividend and capital gain information shall be reported immediately
upon discovery to Insurance Company. Non-material errors will be
corrected in the next Business Day's net asset value per share.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit
values of the Separate Account for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to
4
<PAGE>
determine the net dollar amount of each Participating Fund's shares
that will be purchased or redeemed at that day's closing net asset
value per share. The net purchase or redemption orders will be
transmitted to each Participating Fund by Insurance Company by 11:00
a.m. Eastern time on the Business Day next following Insurance
Company's receipt of that information. Subject to Sections 3.6 and
3.8, all purchase and redemption orders for Insurance Company's
General Accounts shall be effected at the net asset value per share of
each Participating Fund next calculated after receipt of the order by
the Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the
conditions specified in Section 3.8, as applicable, are satisfied. A
redemption or purchase request that does not satisfy the conditions
specified above and in Section 3.8, as applicable, will be effected at
the net asset value per share computed on the Business Day immediately
preceding the next following Business Day upon which such conditions
have been satisfied in accordance with the requirements of this Section
and Section 3.8. Insurance Company represents and warrants that all
orders submitted by the Insurance Company for execution on the
effective trade date shall represent purchase or redemption orders
received from Contractholders prior to the close of trading on the New
York Stock Exchange on the effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 12:00 noon Eastern time on the
Business Day the Participating Fund receives the notice of the order
pursuant to Section 3.5. Each applicable Participating Fund will
execute such orders at the applicable net asset value per share
determined as of the close of trading on the effective trade date if
the Participating Fund receives payment in Federal Funds by 12:00
midnight Eastern time on the Business Day the Participating Fund
receives the notice of the order pursuant to Section 3.5. If payment in
Federal Funds for any purchase is not received or is received by a
Participating Fund after 12:00 noon Eastern time on such Business Day,
Insurance
5
<PAGE>
Company shall promptly, upon each applicable Participating Fund's
request, reimburse the respective Participating Fund for any charges,
costs, fees, interest or other expenses incurred by the Participating
Fund in connection with any advances to, or borrowings or overdrafts
by, the Participating Fund, or any similar expenses incurred by the
Participating Fund, as a result of portfolio transactions effected by
the Participating Fund based upon such purchase request. If Insurance
Company's order requests the redemption of any Participating Fund's
shares valued at or greater than $1 million dollars, the Participating
Fund will wire such amount to Insurance Company within seven days of
the order.
3.9 Each Participating Fund has the obligation to ensure that its shares
are registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will
be by book entry only. No share certificates will be issued to
Insurance Company. Insurance Company will record shares ordered from a
Participating Fund in an appropriate title for the corresponding
account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund
shall communicate to Insurance Company the amount of dividend and
capital gain, if any, per share. All dividends and capital gains shall
be automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date. Each Participating Fund shall, on the day after the ex-dividend
date or, if not a Business Day, on the first Business Day thereafter,
notify Insurance Company of the number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as
of the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices,
periodic reports and other printed materials (which the Participating
Fund customarily provides to its shareholders) in quantities as
Insurance Company may reasonably request for distribution to each
Contractholder and Participant. Insurance Company may elect to print
the Participating Fund's prospectus and/or its statement of additional
information in combination with other fund companies' prospectuses and
6
<PAGE>
statements of additional information, which are also offered in
Insurance Companies insurance product at their own cost. At Insurance
Company's request, the Participating Fund will provide, in lieu of
printed documents, camera-ready copy or diskette of prospectuses,
annual and semi-annual reports for printing by the Insurance Company.
4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, reports,
proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Participating Fund
or its shares, contemporaneously with the filing of such document with
the Commission or other regulatory authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the
Separate Account, contemporaneously with the filing of such document
with the Commission.
4.5 Insurance Company will provide Participating Funds on a semi-annual
basis, or more frequently as reasonably requested by the Participating
Funds, with a current tabulation of the number of existing Variable
Contract owners of Insurance Company whose Variable Contract values are
invested in the Participating Funds. This tabulation will be sent to
Participating Funds in the form of a letter signed by a duly authorized
officer of the Insurance Company attesting to the accuracy of the
information contained in the letter.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be
included in the determination of the Participating Fund's daily net
asset value per share.
5.2 Except as provided in Article IV and V, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any
Participating Fund materials, including the cost of printing a
Participating Fund's Prospectus, or marketing materials for
prospective Insurance Company
7
<PAGE>
Contractholders and Participants as Dreyfus and Insurance
Company shall agree from time to time.
b. Distribution expenses of any Participating Fund
materials or marketing materials for prospective Insurance
Company Contractholders and Participants.
c. Distribution expenses of any Participating Fund
materials or marketing materials for Insurance Company
Contractholders and Participants.
Except as provided herein, all other expenses of each Participating
Fund shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment
Fund and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order
dated February 5, 1998 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to The Dreyfus Socially
Responsible Growth Fund, Inc. and Dreyfus Investment Portfolios, and,
in particular, has reviewed the conditions to the relief set forth in
each related Notice. As set forth therein, if Dreyfus Variable
Investment Fund, Dreyfus Life and Annuity Index Fund, Inc., The Dreyfus
Socially Responsible Growth Fund, Inc. or Dreyfus Investment Portfolios
is a Participating Fund, Insurance Company agrees, as applicable, to
report any potential or existing conflicts promptly to the respective
Board of Dreyfus Variable Investment Fund, Dreyfus Life and Annuity
Index Fund, Inc., The Dreyfus Socially Responsible Growth Fund, Inc.
and/or Dreyfus Investment Portfolios, and, in particular, whenever
contract voting instructions are disregarded, and recognizes that it
will be responsible for assisting each applicable Board in carrying out
its responsibilities under such application. Insurance Company agrees
to carry out such responsibilities with a view to the interests of
existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate the
8
<PAGE>
irreconcilable material conflict. Such necessary action may include,
but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account
from the Participating Fund and reinvesting such assets in
another Participating Fund (if applicable) or a different
investment medium, or submitting the question of whether such
segregation should be implemented to a vote of all affected
Contractholders; and/or
b. Establishing a new registered management investment
company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a
new funding medium for any Contract. Insurance Company shall not be
required by this Article to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority
of the Contractholders materially adversely affected by the
irreconcilable material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company of its obligations under,
or otherwise affect the operation of, Article V.
ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other communications to
shareholders in such quantity as Insurance Company shall reasonably
require for distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with
applicable law;
9
<PAGE>
(b) vote the Participating Fund shares in accordance with
instructions received from Contractholders or Participants;
and
(c) vote the Participating Fund shares for which no
instructions have been received in the same proportion as
Participating Fund shares for which instructions have been
received.
Insurance Company agrees at all times to vote its General Account
shares in the same proportion as the Participating Fund shares for
which instructions have been received from Contractholders or
Participants. Insurance Company further agrees to be responsible for
assuring that voting the Participating Fund shares for the Separate
Account is conducted in a manner consistent with other Participating
Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit,
induce or encourage Contractholders to (a) change or supplement the
Participating Fund's current investment adviser or (b) change, modify,
substitute, add to or delete from the current investment media for the
Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to
each applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating
Fund, its investment adviser or the administrator is named, at least
fifteen Business Days prior to its use. No
10
<PAGE>
such material shall be used unless the Participating Fund or its
designee approves such material. Such approval (if given) must be in
writing and shall be presumed not given if not received within ten
Business Days after receipt of such material. Each applicable
Participating Fund or its designee, as the case may be, shall use all
reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in
the registration statement or Prospectus of, as may be amended or
supplemented from time to time, or in reports or proxy statements for,
the applicable Participating Fund, or in sales literature or other
promotional material approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished,
to Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least fifteen Business Days prior to
its use. No such material shall be used unless Insurance Company
approves such material. Such approval (if given) must be in writing and
shall be presumed not given if not received within ten Business Days
after receipt of such material. Insurance Company shall use all
reasonable efforts to respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning Insurance
Company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from
time to time, or in published reports for the Separate Account that are
in the public domain or approved by Insurance Company for distribution
to Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or 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, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and
any other
11
<PAGE>
material constituting sales literature or advertising under National
Association of Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any
of the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted)
for which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the respective Participating Fund or with respect
to the Separate Account or Contracts, 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; (ii) arise out of or as a result of conduct,
statements or representations (other than statements or representations
contained in the Prospectus and sales literature or advertisements of
the respective Participating Fund) of Insurance Company or its agents,
with respect to the sale and distribution of Contracts for which the
respective Participating Fund's shares are an underlying investment;
(iii) arise out of the wrongful conduct of Insurance Company or persons
under its control with respect to the sale or distribution of the
Contracts or the respective Participating Fund's shares; (iv) arise out
of Insurance Company's incorrect calculation and/or untimely reporting
of net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result
of any failure by Insurance Company to provide the services and furnish
the materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the respective Participating Fund specifically for
use therein. This
12
<PAGE>
indemnity agreement will be in addition to any liability which
Insurance Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees,
agents and each person, if any, who controls Insurance Company within
the meaning of the 1933 Act against any losses, claims, damages or
liabilities to which Insurance Company or any such director, officer,
employee, agent or controlling person may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) (1) 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 or advertisements of the respective Participating
Fund; (2) arise out of or are based upon the omission to state in the
registration statement or Prospectus or sales literature or
advertisements of the respective Participating Fund any material fact
required to be stated therein or necessary to make the statements
therein not misleading; or (3) 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 or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company by the respective Participating Fund; and the
respective Participating Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the respective Participating Fund will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or omission or alleged omission made in such registration statement,
Prospectus, sales literature or advertisements in conformity with
written information furnished to the respective Participating Fund by
Insurance Company specifically for use therein. This indemnity
agreement will be in addition to any liability which the respective
Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to
pay due to the respective Participating Fund's (1) incorrect
calculation of the daily net asset value, dividend rate or capital gain
distribution rate; (2) incorrect reporting of the daily net asset
value, dividend rate or capital gain distribution rate; and (3)
untimely reporting of the net asset value, dividend rate or capital
gain distribution rate; provided that the respective Participating Fund
shall have no obligation to indemnify and hold harmless Insurance
Company if the incorrect calculation or incorrect or untimely reporting
was the result of incorrect information furnished by Insurance Company
or information furnished untimely by Insurance Company or otherwise as
a result of or relating to a breach of this Agreement by Insurance
Company.
13
<PAGE>
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and to the extent that the
indemnifying party has given notice to such effect to the indemnified
party and is performing its obligations under this Article, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
The provisions of this Article IX shall survive termination of this
Agreement.
9.5 Insurance Company shall indemnify and hold each respective
Participating Fund, Dreyfus and sub-investment adviser of the
Participating Fund harmless against any tax liability incurred by the
Participating Fund under Section 851 of the Code arising from purchases
or redemptions by Insurance Company's General Accounts or the account
of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty:
14
<PAGE>
a. As to any Participating Fund, at the option of
Insurance Company or the Participating Fund at any time from
the date hereof upon 180 days' notice, unless a shorter time
is agreed to by the respective Participating Fund and
Insurance Company;
b. As to any Participating Fund, at the option of
Insurance Company, if shares of that Participating Fund are
not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of
notice unless the Participating Fund makes available a
sufficient number of shares to meet the requirements of the
Contracts within said ten-day period;
c. As to a Participating Fund, at the option of
Insurance Company, upon the institution of formal proceedings
against that Participating Fund by the Commission, National
Association of Securities Dealers or any other regulatory
body, the expected or anticipated ruling, judgment or outcome
of which would, in Insurance Company's reasonable judgment,
materially impair that Participating Fund's ability to meet
and perform the Participating Fund's obligations and duties
hereunder. Prompt notice of election to terminate shall be
furnished by Insurance Company with said termination to be
effective upon receipt of notice;
d. As to a Participating Fund, at the option of each
Participating Fund, upon the institution of formal proceedings
against Insurance Company by the Commission, National
Association of Securities Dealers or any other regulatory
body, the expected or anticipated ruling, judgment or outcome
of which would, in the Participating Fund's reasonable
judgment, materially impair Insurance Company's ability to
meet and perform Insurance Company's obligations and duties
hereunder. Prompt notice of election to terminate shall be
furnished by such Participating Fund with said termination to
be effective upon receipt of notice;
e. As to a Participating Fund, at the option of that
Participating Fund, if the Participating Fund shall determine,
in its sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material
adverse impact upon the business and operation of that
Participating Fund or Dreyfus, such Participating Fund shall
notify Insurance Company in writing of such determination and
its intent to terminate this Agreement, and after considering
the actions taken by Insurance Company and any other changes
in circumstances since the giving of such notice, such
determination of the Participating Fund shall continue to
apply on the
15
<PAGE>
sixtieth (60th) day following the giving of such
notice, which shall be the effective date of termination;
f. As to a Participating Fund, at the option of
Insurance Company, if Insurance Company shall determine, in
its sole judgment reasonably exercised in good faith that the
Participating Fund has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material
adverse impact upon the business and operations of Insurance
Company or its Separate Account, the Insurance Company shall
notify the Participating Fund in writing of such determination
and its intent to terminate this Agreement, and after
considering the actions taken by the Participating Fund and
any other changes in circumstances since the giving of such
notice, such determination of Insurance Company shall continue
to apply to the sixtieth (60th) day following the giving of
such notice, which sixtieth day shall be the effective date of
termination;
g. Upon termination of the Investment Advisory Agreement
between that Participating Fund and Dreyfus or its successors
unless Insurance Company specifically approves the selection
of a new Participating Fund investment adviser. Such
Participating Fund shall promptly furnish notice of such
termination to Insurance Company;
h. As to a Participating Fund, in the event that
Participating Fund's shares are not registered, issued or sold
in accordance with applicable federal law, or such law
precludes the use of such shares as the underlying investment
medium of Contracts issued or to be issued by Insurance
Company. Termination shall be effective immediately as to that
Participating Fund only upon such occurrence without notice;
i. At the option of a Participating Fund upon a
determination by its Board in good faith that it is no longer
advisable and in the best interests of shareholders of that
Participating Fund to continue to operate pursuant to this
Agreement. Termination pursuant to this Subsection (h) shall
be effective upon notice by such Participating Fund to
Insurance Company of such termination;
j. At the option of a Participating Fund if the
Contracts cease to qualify as annuity contracts or life
insurance policies, as applicable, under the Code, or if such
Participating Fund reasonably believes that the Contracts may
fail to so qualify;
k. At the option of any party to this Agreement, upon
another party's breach of any material provision of this
Agreement;
16
<PAGE>
l. At the option of a Participating Fund, if the
Contracts are not registered, issued or sold in accordance
with applicable federal and/or state law; or
m. Upon assignment of this Agreement, unless made with
the written consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided
below, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if that Participating Fund and
Dreyfus so elect to make additional Participating Fund shares
available, the owners of the Existing Contracts or Insurance Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in that Participating Fund, redeem investments
in that Participating Fund and/or invest in that Participating Fund
upon the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, such Participating Fund and Dreyfus, as promptly
as is practicable under the circumstances, shall notify Insurance
Company whether Dreyfus and that Participating Fund will continue to
make that Participating Fund's shares available after such termination.
If such Participating Fund shares continue to be made available after
such termination, the provisions of this Agreement shall remain in
effect and thereafter either of that Participating Fund or Insurance
Company may terminate the Agreement as to that Participating Fund, as
so continued pursuant to this Section 10.3, upon prior written notice
to the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Participating Fund, need
not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall
not be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the
addition or deletion of any Participating Fund as specified in Exhibit
A, shall be made by
17
<PAGE>
agreement in writing between Insurance Company and each respective
Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company:
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: General Counsel
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and
that the Funds have executed one instrument for convenience only.
18
<PAGE>
ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.
ARTICLE XV
FOREIGN TAX CREDITS
15.1 Each Participating Fund agrees to consult in advance with Insurance
Company concerning any decision to elect or not to pass through the
benefit of any foreign tax credits to the Participating Fund's
shareholders pursuant to Section 853 of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
INSURANCE COMPANY
By:
Its:
Attest:
---------------------------
DREYFUS LIFE AND ANNUITY INDEX FUND,
INC. (d/b/a DREYFUS STOCK INDEX FUND)
By:
Its:
Attest:
---------------------------
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
By:
Its:
Attest:
---------------------------
19
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
By:
Its:
Attest:
---------------------------
DREYFUS INVESTMENT PORTFOLIOS
By:
Its:
Attest:
---------------------------
20
<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
21
<PAGE>
EXHIBIT 99.8.i.
PARTICIPATION AGREEMENT
as of [ , ] 2000
Franklin Templeton Variable Insurance Products Trust
Franklin Templeton Distributors, Inc.
[Company]
CONTENTS
PARAGRAPH SUBJECT MATTER
1. Parties and Purpose
2. Representations and Warranties
3. Purchase and Redemption of Trust Portfolio Shares
4. Fees, Expenses, Prospectuses, Proxy Materials and Reports
5. Voting
6. Sales Material, Information and Trademarks
7. Indemnification
8. Notices
9. Termination
10. Miscellaneous
SCHEDULES TO THIS AGREEMENT
A. The Company
B. Accounts of the Company
C. Available Portfolios and Classes of Shares of the Trust;
Investment Advisers
D. Contracts of the Company
E. Other Portfolios Available under the Contracts
F. Rule 12b-1 Plans of the Trust
G. Addresses for Notices
H. Shared Funding Order
1. PARTIES AND PURPOSE
This agreement (the "Agreement") is between Franklin Templeton Variable
Insurance Products Trust, an open-end management investment company organized as
a business trust under Massachusetts law (the "Trust"), Franklin Templeton
Distributors, Inc., a California corporation which is the principal underwriter
for the Trust (the "Underwriter," and together with the Trust, "we" or "us") and
the insurance company identified on Schedule A ("you"), on your own behalf and
on behalf of each segregated asset account maintained by you that is listed on
Schedule B, as that schedule may be amended from time to time ("Account" or
"Accounts").
The purpose of this Agreement is to entitle you, on behalf of the
Accounts, to purchase the shares, and classes of shares, of portfolios of the
Trust ("Portfolios") that are identified on Schedule C, solely for the purpose
of funding benefits of your variable life insurance policies or variable annuity
contracts ("Contracts") that are identified on Schedule D. This Agreement does
not authorize any other purchases or redemptions of shares of the Trust.
2. REPRESENTATIONS AND WARRANTIES
(a) REPRESENTATIONS AND WARRANTIES BY YOU
<PAGE>
You represent and warrant that:
1. You are an insurance company duly organized and in
good standing under the laws of your state of incorporation.
2. All of your directors, officers, employees, and other
individuals or entities dealing with the money and/or securities of the Trust
are and shall be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust, in an amount not less than $5 million.
Such bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. You agree to make all reasonable efforts
to see that this bond or another bond containing such provisions is always in
effect, and you agree to notify us in the event that such coverage no longer
applies.
3. Each Account is a duly organized, validly existing
segregated asset account under applicable insurance law and interests in each
Account are offered exclusively through the purchase of or transfer into a
"variable contract" within the meaning of such terms under Section 817 of the
Internal Revenue Code of 1986, as amended ("Code") and the regulations
thereunder. You will use your best efforts to continue to meet such definitional
requirements, and will notify us immediately upon having a reasonable basis for
believing that such requirements have ceased to be met or that they might not be
met in the future.
4. Each Account either: (i) has been registered or,
prior to any issuance or sale of the Contracts, will be registered as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act"); or (ii)
has not been so registered in proper reliance upon an exemption from
registration under Section 3(c) of the 1940 Act; if the Account is exempt from
registration as an investment company under Section 3(c) of the 1940 Act, you
will make every effort to maintain such exemption and will notify us immediately
upon having a reasonable basis for believing that such exemption no longer
applies or might not apply in the future.
5. The Contracts or interests in the Accounts: (i) are or,
prior to any issuance or sale will be, registered as securities under the
Securities Act of 1933, as amended (the "1933 Act"); or (ii) are not registered
because they are properly exempt from registration under Section 3(a)(2) of the
1933 Act or will be offered exclusively in transactions that are properly exempt
from registration under Section 4(2) or Regulation D of the 1933 Act, in which
case you will make every effort to maintain such exemption and will notify us
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future.
6. The Contracts: (i) will be sold by broker-dealers, or their
registered representatives, who are registered with the Securities and Exchange
Commission ("SEC") under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and (iii) will be sold in compliance in all material respects with
state insurance suitability requirements and NASD suitability guidelines.
7. The Contracts currently are and will be treated as annuity
contracts or life insurance contracts under applicable provisions of the Code
and you will use your best efforts to maintain such treatment; you will notify
us immediately upon having a reasonable basis for believing that any of the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
8. The fees and charges deducted under each Contract, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by you.
9. You will use shares of the Trust only for the purpose of
funding benefits of the Contracts through the Accounts.
<PAGE>
10. Contracts will not be sold outside of the United States.
11. With respect to any Accounts which are exempt from
registration under the 1940 Act in reliance on 3(c)(1) or Section 3(c)(7)
thereof:
a. the principal underwriter for each such
Account and any subaccounts thereof is a
registered broker-dealer with the SEC under
the 1934 Act;
b. the shares of the Portfolios of the Trust
are and will continue to be the only
investment securities held by the
corresponding subaccounts; and
c. with regard to each Portfolio, you, on
behalf of the corresponding subaccount;
will:
(i) vote such shares held by it in the
same proportion as the vote of all
other holders of such shares; and
(ii) refrain from substituting shares of
another security for such shares
unless the SEC has approved such
substitution in the manner provided
in Section 26 of the 1940 Act.
(b) REPRESENTATIONS AND WARRANTIES BY THE TRUST
The Trust represents and warrants that:
1. It is duly organized and in good standing under the
laws of the State of Massachusetts.
2. All of its directors, officers, employees and others
dealing with the money and/or securities of a Portfolio are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust in an amount not less that the minimum coverage required by Rule 17g-1
or other regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3. It is registered as an open-end management investment
company under the 1940 Act.
4. Each class of shares of the Portfolios of the Trust
is registered under the 1933 Act.
5. It will amend its registration statement under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
6. It will comply, in all material respects, with the
1933 and 1940 Acts and the rules and regulations thereunder.
7. It is currently qualified as a "regulated investment
company" under Subchapter M of the Code, it will make every effort to maintain
such qualification, and will notify you 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.
8. The investments of each Portfolio will comply with
the diversification requirements for variable annuity, endowment or life
insurance contracts set forth in Section 817(h) of the Code, and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5. Upon having a reasonable basis for believing any Portfolio has ceased
to comply and will not be able to
<PAGE>
comply within the grace period afforded by Regulation 1.817-5, the Trust will
notify you immediately and will take all reasonable steps to adequately
diversify the Portfolio to achieve compliance.
9. It currently intends for one or more classes of
shares (each, a "Class") to make payments to finance its distribution expenses,
including service fees, pursuant to a plan ("Plan") adopted under rule 12b-1
under the 1940 Act ("Rule 12b-1"), although it may determine to discontinue such
practice in the future. To the extent that any Class of the Trust finances its
distribution expenses pursuant to a Plan adopted under rule 12b-1, the Trust
undertakes to comply with any then current SEC interpretations concerning rule
12b-1 or any successor provisions.
(c) REPRESENTATIONS AND WARRANTIES BY THE UNDERWRITER
The Underwriter represents and warrants that:
1. It is registered as a broker dealer with the SEC
under the 1934 Act, and is a member in good standing of the NASD.
2. Each investment adviser listed on Schedule C (each,
an "Adviser") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and any applicable state securities law.
(d) WARRANTY AND AGREEMENT BY BOTH YOU AND US
We received an order from the SEC dated November 16, 1993 (file no.
812-8546), which was amended by a notice and an order we received on September
17, 1999 and October 13, 1999, respectively (file no. 812-11698) (collectively,
the "Shared Funding Order," attached to this Agreement as Schedule H). The
Shared Funding Order grants exemptions from certain provisions of the 1940 Act
and the regulations thereunder to the extent necessary to permit shares of the
Trust to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
and qualified pension and retirement plans outside the separate account context.
You and we both warrant and agree that both you and we will comply with the
"Applicants' Conditions" prescribed in the Shared Funding Order as though such
conditions were set forth verbatim in this Agreement, including, without
limitation, the provisions regarding potential conflicts of interest between the
separate accounts which invest in the Trust and regarding contract owner voting
privileges.
3. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
(a) We will make shares of the Portfolios available to the
Accounts for the benefit of the Contracts. The shares will be available for
purchase at the net asset value per share next computed after we (or our agent)
receive a purchase order, as established in accordance with the provisions of
the then current prospectus of the Trust. Notwithstanding the foregoing, the
Trust's Board of Trustees ("Trustees") may refuse to sell shares of any
Portfolio to any person, or may suspend or terminate the offering of shares of
any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees, they deem
such action to be in the best interests of the shareholders of such Portfolio.
Without limiting the foregoing, the Trustees have determined that there is a
significant risk that the Trust and its shareholders may be adversely affected
by investors whose purchase and redemption activity follows a market timing
pattern, and have authorized the Trust, the Underwriter and the Trust's transfer
agent to adopt procedures and take other action (including, without limitation,
rejecting specific purchase orders) as they deem necessary to reduce, discourage
or eliminate market timing activity. You agree to cooperate with us to assist us
in implementing the Trust's restrictions on purchase and redemption activity
that follows a market timing pattern.
(b) We agree that shares of the Trust will be sold only to life
insurance companies which have entered into fund participation agreements with
the Trust ("Participating Insurance Companies") and
<PAGE>
their separate accounts or to qualified pension and retirement plans in
accordance with the terms of the Shared Funding Order. No shares of any
Portfolio will be sold to the general public.
(c) You agree that all net amounts available under the Contracts
shall be invested in the Trust or in your general account. Net amounts available
under the Contracts may also be invested in an investment company other than the
Trust if: (i) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of the Portfolios; or (ii) you give us forty-five (45)
days written notice of your intention to make such other investment company
available as a funding vehicle for the Contracts; or (iii) such other investment
company is available as a funding vehicle for the Contracts at the date of this
Agreement and you so inform us prior to our signing this Agreement (a list of
such investment companies appears on Schedule E to this Agreement); or (iv) we
consent in writing to the use of such other investment company.
(d) You shall be the designee for us for receipt of purchase
orders and requests for redemption resulting from investment in and payments
under the Contracts ("Instructions"). The Business Day on which such
Instructions are received in proper form by you and time stamped by the close of
trading will be the date as of which Portfolio shares shall be deemed purchased,
exchanged, or redeemed as a result of such Instructions. Instructions received
in proper form by you and time stamped after the close of trading on any given
Business Day shall be treated as if received on the next following Business Day.
You warrant that all orders, Instructions and confirmations received by you
which will be transmitted to us for processing on a Business Day will have been
received and time stamped prior to the Close of Trading on that Business Day.
Instructions we receive after 9 a.m. Eastern Time shall be processed on the next
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net asset
value pursuant to the rules of the SEC and its current prospectus.
(e) We shall calculate the net asset value per share of each
Portfolio on each Business Day, and shall communicate these net asset values to
you or your designated agent on a daily basis as soon as reasonably practical
after the calculation is completed (normally by 6:30 p.m. Eastern time).
(f) You shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after we receive the purchase order. Payment shall be made in
federal funds transmitted by wire to the Trust or to its designated custodian.
(g) We will redeem any full or fractional shares of any Portfolio,
when requested by you on behalf of an Account, at the net asset value next
computed after receipt by us (or our agent) of the request for redemption, as
established in accordance with the provisions of the then current prospectus of
the Trust. We shall make payment for such shares in the manner we establish from
time to time, but in no event shall payment be delayed for a greater period than
is permitted by the 1940 Act. Payments for the purchase or redemption of shares
by you may be netted against one another on any Business Day for the purpose of
determining the amount of any wire transfer on that Business Day.
(h) Issuance and transfer of the Portfolio shares will be by book
entry only. Stock certificates will not be issued to you or the Accounts.
Portfolio shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
(i) We shall furnish, on or before the ex-dividend date, notice to
you of any income dividends or capital gain distributions payable on the shares
of any Portfolio. You hereby elect to receive all such income dividends and
capital gain distributions as are payable on shares of a Portfolio in additional
shares of that Portfolio, and you reserve the right to change this election in
the future. We will notify you of the number of shares so issued as payment of
such dividends and distributions.
4. FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND
REPORTS
<PAGE>
(a) We shall pay no fee or other compensation to you under this
Agreement except as provided on Schedule F, if attached.
(b) We shall prepare and be responsible for filing with the SEC,
and any state regulators requiring such filing, all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of the Trust. We shall bear the costs of preparation and filing of the documents
listed in the preceding sentence, registration and qualification of the Trust's
shares of the Portfolios.
(c) We shall use reasonable efforts to provide you, on a timely
basis, with such information about the Trust, the Portfolios and each Adviser,
in such form as you may reasonably require, as you shall reasonably request in
connection with the preparation of disclosure documents and annual and
semi-annual reports pertaining to the Contracts.
(d) At your request, we shall provide you with camera ready copy,
in a form suitable for printing, of portions of the Trust's current prospectus,
annual report, semi-annual report and other shareholder communications,
including any amendments or supplements to any of the foregoing, pertaining
specifically to the Portfolios. We shall delete information relating to series
of the Trust other than the Portfolios to the extent practicable. We shall
provide you with a copy of the Trust's current statement of additional
information, including any amendments or supplements, in a form suitable for you
to duplicate. The expenses of furnishing such documents shall be borne by you.
You shall bear the costs of distributing prospectuses and statements of
additional information to Contract owners.
(e) We shall provide you, at our expense, with copies of any
Trust-sponsored proxy materials in such quantity as you shall reasonably require
for distribution to Contract owners who are invested in a designated subaccount.
You shall bear the costs of distributing proxy materials (or similar materials
such as voting solicitation instructions) to Contract owners.
(f) You assume sole responsibility for ensuring that the Trust's
prospectuses, shareholder reports and communications, and proxy materials are
delivered to Contract owners in accordance with applicable federal and state
securities laws.
5. VOTING
(a) All Participating Insurance Companies shall have the
obligations and responsibilities regarding pass-through voting and conflicts of
interest corresponding to those contained in the Shared Funding Order.
(b) If and to the extent required by law, you shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. You reserve
the right to vote Trust shares held in any Account in your own right, to the
extent permitted by law.
(c) So long as, and to the extent that, the SEC interprets the
1940 Act to require pass-through voting privileges for Contract owners, you
shall provide pass-through voting privileges to Contract owners whose Contract
values are invested, through the Accounts, in shares of one or more Portfolios
of the Trust. We shall require all Participating Insurance Companies to
calculate voting privileges in the same manner and you shall be responsible for
assuring that the Accounts calculate voting privileges in the manner established
by us. With respect to each Account, you will vote shares of each Portfolio of
the Trust held by an Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by that
Account for which voting instructions are received. You and your agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares
<PAGE>
held to fund the Contracts without our prior written consent, which consent may
be withheld in our sole discretion.
6. SALES MATERIAL, INFORMATION AND TRADEMARKS
(a) For purposes of this Section 6, "Sales literature or other
Promotional material" includes, but is not limited to, portions of the following
that use any logo or other trademark related to the Trust or Underwriter or
refer to the Trust or affiliates of the Trust: advertisements (such as material
published or designed for use in a newspaper, magazine or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, electronic communication 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 or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees in
any media, and disclosure documents, shareholder reports and proxy materials.
(b) You shall furnish, or cause to be furnished to us or our
designee, at least one complete copy of each registration statement, prospectus,
statement of additional information, private placement memorandum, retirement
plan disclosure information or other disclosure documents or similar
information, as applicable (collectively "disclosure documents"), as well as any
report, solicitation for voting instructions, Sales literature or other
Promotional materials, and all amendments to any of the above that relate to the
Contracts or the Accounts prior to its first use. You shall furnish, or shall
cause to be furnished, to us or our designee each piece of Sales literature or
other Promotional material in which the Trust or an Adviser is named, at least
fifteen (15) Business Days prior to its proposed use. No such material shall be
used unless we or our designee approve such material and its proposed use.
(c) You and your agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser, other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and prospectus
may be amended or supplemented from time to time), annual and semi-annual
reports of the Trust, Trust-sponsored proxy statements, or in Sales literature
or other Promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee.
(d) We shall not give any information or make any representations
or statements on behalf of you or concerning you, the Accounts or the Contracts
other than information or representations contained in and accurately derived
from disclosure documents for the Contracts (as such disclosure documents may be
amended or supplemented from time to time), or in materials approved by you for
distribution, including Sales literature or other Promotional materials, except
as required by legal process or regulatory authorities or with your written
permission. We may use the names of you, the Accounts and the Contracts in our
sales literature and disclosure documents.
(e) Except as provided in Section 6(b), you shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any logo or other trademark relating to the Trust or the
Underwriter without prior written consent, and upon termination of this
Agreement for any reason, you shall cease all use of any such name or mark as
soon as reasonably practicable.
7. INDEMNIFICATION
(a) INDEMNIFICATION BY YOU
<PAGE>
1. You agree to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers, employees and agents
and each person, if any, who controls the Trust within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" and individually the
"Indemnified Party" for purposes of this Section 7) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with your
written consent, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of
shares of the Trust or the Contracts and
a. arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact contained
in a disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by you on
behalf of the Contracts or Accounts (or any amendment or supplement to
any of the foregoing) (collectively, "Company Documents" for the
purposes of this Section 7), 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 indemnity 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 was accurately
derived from written information furnished to you by or on behalf of
the Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
b. arise out of or result from statements or
representations (other than statements or representations contained in
and accurately derived from Trust Documents as defined below in Section
7(b)) or wrongful conduct of you or persons under your control, with
respect to the sale or acquisition of the Contracts or Trust shares; or
c. arise out of or result from any untrue
statement or alleged untrue statement of a material fact contained in
Trust Documents as defined below in Section 7(b) 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 statement or omission was made in reliance upon and accurately
derived from written information furnished to the Trust by or on behalf
of you; or
d. arise out of or result from any failure by
you to provide the services or furnish the materials required under the
terms of this Agreement;
e. arise out of or result from any material
breach of any representation and/or warranty made by you in this
Agreement or arise out of or result from any other material breach of
this Agreement by you; or
f. arise out of or result from a Contract
failing to be considered a life insurance policy or an annuity
Contract, whichever is appropriate, under applicable provisions of the
Code thereby depriving the Trust of its compliance with Section 817(h)
of the Code.
2. You shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Trust or Underwriter,
whichever is applicable. You shall also not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified you 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 such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
<PAGE>
designated agent), but failure to notify you of any such claim shall not relieve
you 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,
you shall be entitled to participate, at your own expense, in the defense of
such action. Unless the Indemnified Party releases you from any further
obligations under this Section 7(a), you also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from you to such party of the your election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and you will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
3. The Indemnified Parties will promptly notify you of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust shares or the Contracts or the operation
of the Trust.
(b) INDEMNIFICATION BY THE UNDERWRITER
1. The Underwriter agrees to indemnify and hold harmless
you, and each of your directors and officers and each person, if any, who
controls you within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually an "Indemnified Party" for purposes of
this Section 7(b)) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the shares of
the Trust or the Contracts and:
a. arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact contained
in the Registration Statement, prospectus or sales literature of the
Trust (or any amendment or supplement to any of the foregoing)
(collectively, the "Trust Documents") 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 of
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to us by or on behalf of you for
use in the Registration Statement or prospectus for the Trust or in
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
b. arise out of or as a result of statements or
representations (other than statements or representations contained in
the disclosure documents or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful
conduct of the Trust, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or
Trust shares; or
c. arise out of any untrue statement or alleged
untrue statement of a material fact contained in a disclosure document
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
to you by or on behalf of the Trust; or
d. arise as a result of any failure by us to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
<PAGE>
good faith or otherwise, to comply with the qualification
representation specified above in Section 2(b)(7) and the
diversification requirements specified above in Section 2(b)(8); or
e. arise out of or result from any material
breach of any representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other material breach
of this Agreement by the Underwriter; as limited by and in accordance
with the provisions of Sections 7(b)(2) and 7(b)(3) hereof.
2. The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to you or the Accounts, whichever
is applicable.
3. The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter 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 such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter 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 Underwriter will be entitled to
participate, at its own expense, in the defense thereof. Unless the Indemnified
Party releases the Underwriter from any further obligations under this Section
7(b), the Underwriter also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
4. You agree promptly to notify the Underwriter of the
commencement of any litigation or proceedings against you or the Indemnified
Parties in connection with the issuance or sale of the Contracts or the
operation of each Account.
<PAGE>
(c) INDEMNIFICATION BY THE TRUST
1. The Trust agrees to indemnify and hold harmless you,
and each of your directors and officers and each person, if any, who controls
you within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7(c)) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust, which consent shall not be unreasonably
withheld) 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 result from the gross negligence, bad
faith or willful misconduct of the Board or any member thereof, are related to
the operations of the Trust, and arise out of or result from any material breach
of any representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Trust; as limited by and in accordance with the provisions of Sections 7(c)(2)
and 7(c)(3) hereof. It is understood and expressly stipulated that neither the
holders of shares of the Trust nor any Trustee, officer, agent or employee of
the Trust shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
2. The Trust shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against any Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to you, the Trust, the Underwriter or each Account,
whichever is applicable.
3. The Trust shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust 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 Trust will be entitled to participate, at
its own expense, in the defense thereof. Unless the Indemnified Party releases
the Trust from any further obligations under this Section 7(c), the Trust also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust to such party of the
Trust's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the Trust
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
4. You agree promptly to notify the Trust of the
commencement of any litigation or proceedings against you or the Indemnified
Parties in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of the Account, or the sale or
acquisition of shares of the Trust.
8. NOTICES
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth in Schedule G below or
at such other address as such party may from time to time specify in writing to
the other party.
<PAGE>
9. TERMINATION
(a) This Agreement may be terminated by any party in its entirety
or with respect to one, some or all Portfolios for any reason by sixty (60) days
advance written notice delivered to the other parties, and shall terminate
immediately in the event of its assignment, as that term is used in the 1940
Act.
(b) This Agreement may be terminated immediately by us upon
written notice to you if:
1. you notify the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no
longer applies, or might not apply in the future, to the unregistered
Accounts, or that the exemption from registration under Section 4(2) or
Regulation D promulgated under the 1933 Act no longer applies or might
not apply in the future, to interests under the unregistered Contracts;
or
2. either one or both of the Trust or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that you have suffered a material adverse change in your
business, operations, financial condition or prospects since the date
of this Agreement or are the subject of material adverse publicity; or
3. you give us the written notice specified above in
Section 3(c) and at the same time you give us such notice there was no
notice of termination outstanding under any other provision of this
Agreement; provided, however, that any termination under this Section
9(b)(3) shall be effective forty-five (45) days after the notice
specified in Section 3(c) was given; or
4. upon your assignment of this Agreement without our
prior written approval.
(c) If this Agreement is terminated for any reason, except as
required by the Shared Funding Order or pursuant to Section 9(b)(1), above, we
shall, at your option, continue to make available additional shares of any
Portfolio and redeem shares of any Portfolio pursuant to all of the terms and
conditions of this Agreement for all Contracts in effect on the effective date
of termination of this Agreement. If this Agreement is terminated as required by
the Shared Funding Order, its provisions shall govern.
(d) The provisions of Sections 2 (Representations and Warranties)
and 7 (Indemnification) shall survive the termination of this Agreement. All
other applicable provisions of this Agreement shall survive the termination of
this Agreement, as long as shares of the Trust are held on behalf of Contract
owners in accordance with Section 9(c), except that we shall have no further
obligation to sell Trust shares with respect to Contracts issued after
termination.
(e) You shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to your assets held in the
Account) except: (i) as necessary to implement Contract owner initiated or
approved transactions; (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"); or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, you shall promptly furnish to us the opinion of your counsel (which
counsel shall be reasonably satisfactory to us) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
you shall not prevent Contract owners from allocating payments to a Portfolio
that was otherwise available under the Contracts without first giving us ninety
(90) days notice of your intention to do so.
10. MISCELLANEOUS
(a) The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions of this
Agreement or otherwise affect their construction or effect.
<PAGE>
(b) This Agreement may be executed simultaneously in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.
(c) 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.
(d) This Agreement shall be construed and its provisions
interpreted under and in accordance with the laws of the State of California. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder, to any orders of the SEC on behalf of the
Trust granting it exemptive relief, and to the conditions of such orders. We
shall promptly forward copies of any such orders to you.
(e) The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
(f) Each party to this Agreement shall cooperate with each other
party and all appropriate governmental authorities (including without limitation
the SEC, the NASD, and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
(g) Each party to this Agreement shall treat as confidential all
information reasonably identified as confidential in writing by any other party
to this Agreement, and, except as permitted by this Agreement or as required by
legal process or regulatory authorities, shall not disclose, disseminate, or use
such names and addresses and other confidential information until such time as
they may come into the public domain, without the express written consent of the
affected party. Without limiting the foregoing, no party to this Agreement shall
disclose any information that such party has been advised is proprietary, except
such information that such party is required to disclose by any appropriate
governmental authority (including, without limitation, the SEC, the NASD, and
state securities and insurance regulators).
(h) 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 to this Agreement are
entitled to under state and federal laws.
(i) The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided above in
Section 3(c).
(j) Neither this Agreement nor any rights or obligations created
by it may be assigned by any party without the prior written approval of the
other parties.
(k) No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties.
<PAGE>
IN WITNESS WHEREOF, each of the parties have caused their duly
authorized officers to execute this Agreement.
The Company:
-------------------------------------
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
The Trust: FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST
By:
---------------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant
Secretary
The Underwriter: FRANKLIN TEMPLETON DISTRIBUTORS, INC.
By:
---------------------------------
Name: [ ]
Title: [ ]
<PAGE>
SCHEDULE A
THE COMPANY
[name]
[address]
[state of incorporation]
[name]
[address]
[state of incorporation]
<PAGE>
SCHEDULE B
ACCOUNTS OF THE COMPANY
1. Name: [name]
Date Established: [date]
SEC Registration Number: 811-____
2. Name: [name]
Date Established: [date]
SEC Registration Number: 811-____
...
<PAGE>
SCHEDULE C
AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST; INVESTMENT ADVISERS
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST INVESTMENT ADVISER
<PAGE>
SCHEDULE D
CONTRACTS OF THE COMPANY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT 1 CONTRACT 2 CONTRACT 3
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONTRACT/PRODUCT NAME
- ----------------------------------------------------------------------------------------------------------------------------
REGISTERED (Y/N)
- ----------------------------------------------------------------------------------------------------------------------------
SEC REGISTRATION NUMBER
- ----------------------------------------------------------------------------------------------------------------------------
REPRESENTATIVE FORM
NUMBERS
- ----------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT
NAME/DATE ESTABLISHED
- ----------------------------------------------------------------------------------------------------------------------------
SEC REGISTRATION NUMBER
- ----------------------------------------------------------------------------------------------------------------------------
PORTFOLIOS AND CLASSES
- -ADVISER
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE D CONT.
CONTRACTS OF THE COMPANY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT 4 CONTRACT 5 CONTRACT 6
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONTRACT/PRODUCT NAME
- ----------------------------------------------------------------------------------------------------------------------------
REGISTERED (Y/N)
- ----------------------------------------------------------------------------------------------------------------------------
SEC REGISTRATION NUMBER
- ----------------------------------------------------------------------------------------------------------------------------
REPRESENTATIVE FORM
NUMBERS
- ----------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT
NAME/DATE ESTABLISHED
- ----------------------------------------------------------------------------------------------------------------------------
SEC REGISTRATION NUMBER
- ----------------------------------------------------------------------------------------------------------------------------
PORTFOLIOS AND CLASSES
- -ADVISER
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE E
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
[names of other portfolios]
<PAGE>
SCHEDULE F
RULE 12b-1 PLANS
COMPENSATION SCHEDULE
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
PORTFOLIO NAME MAXIMUM ANNUAL PAYMENT RATE
AGREEMENT PROVISIONS
If the Company, on behalf of any Account, purchases Trust Portfolio
shares ("Eligible Shares") which are subject to a Rule 12b-1 plan adopted under
the 1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") provide administrative and other services which assist in
the promotion and distribution of Eligible Shares or variable contracts offering
Eligible Shares, the Underwriter, the Trust or their affiliates (collectively,
"we") may pay you a Rule 12b-1 fee. "Administrative and other services" may
include, but are not limited to, furnishing personal services to owners of
Contracts which may invest in Eligible Shares ("Contract Owners"), answering
routine inquiries regarding a Portfolio, coordinating responses to Contract
Owner inquiries regarding the Portfolios, maintaining such accounts or providing
such other enhanced services as a Trust Portfolio or Contract may require, or
providing other services eligible for service fees as defined under NASD rules.
Your acceptance of such compensation is your acknowledgment that eligible
services have been rendered. All Rule 12b-1 fees, shall be based on the value of
Eligible Shares owned by the Company on behalf of its Accounts, and shall be
calculated on the basis and at the rates set forth in the Compensation Schedule
stated above. The aggregate annual fees paid pursuant to each Plan shall not
exceed the amounts stated as the "annual maximums" in the Portfolio's
prospectus, unless an increase is approved by shareholders as provided in the
Plan. These maximums shall be a specified percent of the value of a Portfolio's
net assets attributable to Eligible Shares owned by the Company on behalf of its
Accounts (determined in the same manner as the Portfolio uses to compute its net
assets as set forth in its effective Prospectus). The Rule 12b-1 fee will be
paid to you within thirty (30) days after the end of the three-month periods
ending in January, April, July and November.
You shall furnish us with such information as shall reasonably be
requested by the Trust's Boards of Trustees ("Trustees") with respect to the
Rule 12b-1 fees paid to you pursuant to the Plans. We shall furnish to the
Trustees, for their review on a quarterly basis, a written report of the amounts
expended under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must
be approved annually by a vote of the Trustees, including the Trustees who are
not interested persons of the Trust and who have no financial interest in the
Plans or any related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the Disinterested Trustees,
or by a vote of a majority of the outstanding shares as provided in the Plan, on
sixty (60) days' written notice, without payment of any penalty. The Plans may
also be terminated by any act that terminates the Underwriting Agreement between
the Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. and its affiliates and the Trust. Continuation
of the Plans is also conditioned on Disinterested Trustees being ultimately
responsible for selecting and nominating any new Disinterested Trustees. Under
Rule 12b-1, the Trustees have a duty to request and evaluate, and persons who
are party to any agreement related to a Plan have a duty to furnish, such
information as may reasonably be necessary to
<PAGE>
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule F relating to the Plans will also terminate. You
agree that your selling agreements with persons or entities through whom you
intend to distribute Contracts will provide that compensation paid to such
persons or entities may be reduced if a Portfolio's Plan is no longer effective
or is no longer applicable to such Portfolio or class of shares available under
the Contracts.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Trust.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule F, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the Contracts.
<PAGE>
SCHEDULE G
ADDRESSES FOR NOTICES
To the Company: [ ] Insurance Company
[address]
[address]
Attention: [name, title]
To the Trust: Franklin Templeton Variable Insurance
Products Trust
777 Mariners Island Boulevard
San Mateo, California 94404
Attention: Karen L. Skidmore
[title]
To the Underwriter: Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
Attention: [name, title]
<PAGE>
SCHEDULE H
SHARED FUNDING ORDER
<PAGE>
EXHIBIT 99.8.j.
12/98
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 3rd day of January, 2000, between
SAFECO Life Insurance Company ("Insurance Company"), a life insurance company
organized under the laws of the State of Washington, and J.P. Morgan Series
Trust II ("Fund"), a business trust organized under the laws of Delaware, with
respect to the Fund's portfolio or portfolios set forth on Schedule 1 hereto, as
such Schedule may be revised from time to time (the "Series"; if there are more
than one Series to which this Agreement applies, the provisions herein shall
apply severally to each such Series).
ARTICLE I 1.
DEFINITIONS
1.1. "Act" shall mean the Investment Company Act of 1940, as amended.
1.2. "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3. "Business Day" shall mean any day for which the Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4. "Commission" shall mean the Securities and Exchange Commission.
1.5. "Contract" shall mean a variable annuity or variable life insurance
contract that uses the Fund as an underlying investment medium.
Individuals who participate under a group Contract are "Participants".
1.6. "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company.
1.7. "Disinterested Board Members" shall mean those members of the Board that
are not deemed to be "interested persons" of the Fund, as defined by the
Act.
1.8. "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an agreement
with the Fund for the purpose of making Fund shares available to serve as
the underlying investment medium for the aforesaid Contracts.
1.9. "Plans" shall mean qualified pension and retirement benefit plans.
1.10. "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission, with
respect to the Series.
1.11. "Separate Account" shall mean any SAFECO Life Insurance Company variable
annuity or variable life separate account established by Insurance
Company in accordance with the laws of the State of Washington and listed
in Schedule 1 attached hereto.
1.12. "Software Program" shall mean the software program used by the Fund for
providing Fund and account balance information including net asset value
per share.
1.13. "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to
Section 48.18A.020 of the Revised Washington Insurance Code for the
purpose of offering to the public certain individual variable annuity
contracts or variable life insurance policies; (c) to the extent
required, it has registered the Separate Account as a unit investment
trust under the Act to serve as the segregated investment account for the
Contracts; (d) each Separate Account is eligible to invest in shares
<PAGE>
of the Fund without such investment disqualifying the Fund as an
investment medium for insurance company separate accounts supporting
variable annuity contracts or variable life insurance contracts; and
(e) each Separate Account shall comply with all applicable legal
requirements.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to inform the Fund promptly of any investment restrictions
imposed by state insurance law and applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities from
any business that Insurance Company may conduct or the liabilities of any
companies affiliated with Insurance Company.
2.4 Fund represents that the Fund is registered with the Commission under the
Act as an open-end management investment company and possesses, and shall
maintain, all legal and regulatory licenses, approvals, consents and/or
exemptions required for the Fund to operate and offer its shares as an
underlying investment medium for Participating Companies. The Fund has
established five portfolios and may in the future establish other
portfolios.
2.5 Fund 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 such
qualification (under Subchapter M or any successor or similar provision)
and that it will notify 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.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies
or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain
such treatment and that it will notify the Fund and its investment
adviser 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. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that term
is defined in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Fund agrees that the Fund's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h) of the Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to the
other terms of this Agreement) to make Series' shares available to other
Participating Companies and contractholders and to Plans.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
with the money and/or securities of the Fund are and shall continue to be
at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the coverage required to be
maintained by the Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11 Insurance Company agrees that the Fund's investment adviser shall be
deemed a third party beneficiary under this Agreement and may enforce any
and all rights conferred by virtue of this Agreement.
<PAGE>
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in the Series' shares
3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series 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 its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the shareholders of such Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates and to Plans. No
shares of any Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 7:00 p.m. Eastern Time
on each Business Day. Any material errors in the calculation of net asset
value, dividend and capital gain information shall be reported
immediately upon discovery to Insurance Company. Non-material errors will
be corrected in the next Business Day's net asset value per share for the
Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the Separate
Account unit values for the day. Using this unit value, Insurance Company
will process the day's Separate Account transactions received by it by
the close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m. Eastern time) to determine the net dollar amount of
Series shares which will be purchased or redeemed at that day's closing
net asset value per share for such Series. The net purchase or redemption
orders will be transmitted to the Fund by Insurance Company by 10:00 a.m.
Eastern Time on the Business Day next following Insurance Company's
receipt of that information. Subject to Sections 3.6 and 3.8, all
purchase and redemption orders for Insurance Company's General Accounts
shall be effected at the net asset value per share of the relevant Series
next calculated after receipt of the order by the Fund or its Transfer
Agent.
3.6 Fund appoints Insurance Company as its agent for the limited purpose of
accepting orders for the purchase and redemption of shares of each Series
for the Separate Account. Fund will execute orders for any Series at the
applicable net asset value per share determined as of the close of
trading on the day of receipt of such orders by Insurance Company acting
as agent ("effective trade date"), provided that the Fund receives notice
of such orders by 10:00 a.m. Eastern Time on the next following Business
Day and, if such orders request the purchase of Series shares, the
conditions specified in Section 3.8, as applicable, are satisfied. A
redemption or purchase request for any Series that does not satisfy the
conditions specified above and in Section 3.8, as applicable, will be
effected at the net asset value computed for such Series on the Business
Day immediately preceding the next following Business Day upon which such
conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in advance of
any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds to
Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by the close of the Federal
Reserve wire system on the Business Day the Fund receives the notice of
the order pursuant to Section 3.5. Fund will execute such orders at the
applicable net asset value per share determined as of the close of
trading on the effective trade date if Fund receives payment in Federal
Funds by the close of the Federal Reserve wire system on the Business Day
the Fund receives the notice of the order pursuant to Section 3.5. If
payment in Federal Funds for any purchase is not received on such
Business Day, Insurance Company shall promptly upon the Fund's request,
reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or
borrowings or overdrafts by, the Fund, or any similar expenses incurred
by the Fund, as a result of portfolio transactions effected by the Fund
based upon such purchase request. If Insurance Company's order requests
the redemption of Series shares valued at or greater than $1 million
dollars, the Fund may wire such amount to Insurance Company within seven
days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered with
applicable federal agencies at all times.
<PAGE>
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No share
certificates will be issued to Insurance Company. Insurance Company will
record shares ordered from Fund in an appropriate title for the
corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of
shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series at
the applicable net asset value per share of such Series on the payable
date. Fund shall, on the day after the payable date or, if not a Business
Day, on the first Business Day thereafter, notify Insurance Company of
the number of shares so issued.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably request
for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Fund or its shares, contemporaneously with the filing
of such document with the Commission or other regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Contracts or the Separate Account, contemporaneously
with the filing of such document with the Commission.
ARTICLE V 5.
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses and
legal and regulatory costs, will be made in the determination of the
relevant Series' daily net asset value per share so as to accumulate to
an annual charge at the rate set forth in the Fund's Prospectus. Excluded
from the expense limitation described herein shall be brokerage
commissions and transaction fees and extraordinary expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or marketing
materials for prospective Insurance Company Contractholders and
Participants as the Fund's investment adviser and Insurance
Company shall agree from time to time.
b. Distribution expenses of any Fund materials or marketing materials
for prospective Insurance Company Contractholders and
Participants.
c. Distribution expenses of Fund materials or marketing materials for
Insurance Company Contractholders and Participants.
Except as provided herein, all other Fund expenses shall not be borne by
Insurance Company.
<PAGE>
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 1996 of
the Securities and Exchange Commission under Section 6(c) of the Act and,
in particular, has reviewed the conditions to the relief set forth in the
related Notice. As set forth therein, Insurance Company agrees to report
any potential or existing conflicts promptly to the Board, and in
particular whenever contract voting instructions are disregarded, and
recognizes that it will be responsible for assisting the Board in
carrying out its responsibilities under such application. Insurance
Company agrees to carry out such responsibilities with a view to the
interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board Members,
determines that a material irreconcilable conflict exists with regard to
Contractholder investments in the Fund, the Board shall give prompt
notice to all Participating Companies. If the Board determines that
Insurance Company is responsible for causing or creating said conflict,
Insurance Company shall at its sole cost and expense, and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Board Members), take such action as is necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may include,
but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Series and reinvesting such assets in a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractholders;
and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision by
Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a majority
vote by all Contractholders having an interest in the Fund, Insurance
Company may be required, at the Board's election, to withdraw the
Separate Account's investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Fund be required to bear the expense of establishing a new funding medium
for any Contract. Insurance Company shall not be required by this Article
to establish a new funding medium for any Contract if an offer to do so
has been declined by vote of a majority of the Contractholders materially
adversely affected by the irreconcilable material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act or
failure to act by Insurance Company pursuant to this Article VI shall
relieve Insurance Company of its obligations under, or otherwise affect
the operation of, Article V.
ARTICLE VII 7.
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to Insurance
Company, of the Fund's proxy material, reports to shareholders and other
communications to shareholders in such quantity as Insurance Company
shall reasonably require for distributing to Contractholders or
Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Series shares in accordance with instructions received
from Contractholders or Participants; and
(c) vote Series shares for which no instructions have been received in
the same proportion as Series shares for which instructions have
been received.
Insurance Company agrees at all times to votes its General Account shares
in the same proportion as Series shares for which instructions have been
received from Contractholders or Participants. Insurance Company further
agrees to be responsible for assuring that voting Series shares for the
Separate Account is conducted in a manner consistent with other
Participating Companies.
<PAGE>
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and its investment adviser, solicit, induce or
encourage Contractholders to change or supplement the Fund's current
investment adviser.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance Company
with the following documents, in quantities as Insurance Company may
reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by Insurance
Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, each piece of sales literature or other promotional material in
which the Fund, its investment adviser or the administrator is named, at
least five Business Days prior to its use. No such material shall be used
unless the Fund approves such material. Such approval (if given) must be
given within five Business Days after receipt of such material either
orally or in writing.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance Company,
each piece of the Fund's sales literature or other promotional material
in which Insurance Company or the Separate Account is named, at least
five Business Days prior to its use. No such material shall be used
unless Insurance Company approves such material. Such approval (if given)
must be given within five Business Days after receipt of such material
either orally or in writing
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company or
concerning Insurance Company, the Separate Account, or the Contracts
other than the information or representations contained in a registration
statement or prospectus for the Contracts, as may be amended or
supplemented from time to time, or in published reports for the Separate
Account approved by Insurance Company, or in sales literature or other
promotional material approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or 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, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any
other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
<PAGE>
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund, its
investment adviser, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any of
the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted) for which the
Indemnified Parties may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect to thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the Fund
or with respect to the Separate Account or Contracts, 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; (ii) arise out of or as a result of
conduct, statements or representations (other than statements or
representations contained in the Prospectus and sales literature or
advertisements of the Fund) of Insurance Company or its agents, with
respect to the sale and distribution of Contracts for which Series shares
are an underlying investment; (iii) arise out of the wrongful conduct of
Insurance Company or persons under its control with respect to the sale
or distribution of the Contracts or Series shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result of
any failure by Insurance Company to provide the services and furnish the
materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission or alleged omission made in such
registration statement, prospectus, sales literature, or advertisement in
conformity with written information furnished to Insurance Company by the
Fund specifically for use therein; and provided, further, that Insurance
Company shall not be liable for special, consequential or incidental
damages. This indemnity agreement will be in addition to any liability
which Insurance Company may otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company and each
of its directors, officers, employees, agents and each person, if any,
who controls Insurance Company within the meaning of the 1933 Act against
any losses, claims, damages or liabilities to which Insurance Company or
any such director, officer, employee, agent or controlling person may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) (1) 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 or advertisements of the Fund; (2) arise
out of or are based upon the omission or the alleged omission to state in
the registration statement or Prospectus or sales literature or
advertisements of the Fund any material fact required to be stated
therein or necessary to make the statements therein not misleading; or
(3) 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 or advertisements with respect to the
Separate Account or the Contracts and such statements were based on
information provided to Insurance Company by the Fund; and the Fund will
reimburse any legal or other expenses reasonably incurred by Insurance
Company or any such director, officer, employee, agent or controlling
person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Fund will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
omission or alleged omission made in such Registration Statement,
Prospectus, sales literature or advertisements in conformity with written
information furnished to the Fund by Insurance Company specifically for
use therein; and provided, further, that the Fund shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless against any
and all liability, loss, damages, costs or expenses which Insurance
Company may incur, suffer or be required to pay due to the Fund's (1)
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate of a Series; (2) incorrect reporting of
the daily net asset value, dividend rate or capital gain distribution
rate; and (3) untimely reporting of the net asset value, dividend rate or
capital gain distribution rate; provided that the Fund shall have no
obligation to indemnify and hold harmless Insurance Company if the
incorrect calculation or incorrect or untimely reporting was the result
of incorrect information furnished by Insurance Company or information
furnished untimely by Insurance Company or otherwise as a result of or
relating to a breach of this Agreement by Insurance Company; and
provided, further, that the Fund shall not be liable for special,
consequential or incidental damages.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party
under this Article, notify the indemnifying party of the commencement
thereof. The omission to so notify the indemnifying party will not
relieve the indemnifying party
<PAGE>
from any liability under this Article IX, except to the extent that the
omission results in a failure of actual notice to the indemnifying party
and such indemnifying party is damaged solely as a result of the failure
to give such notice. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party, and to the extent that the indemnifying party has given notice to
such effect to the indemnified party and is performing its obligations
under this Article, the indemnifying party shall not be liable for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof, other than reasonable costs of
investigation. Notwithstanding the foregoing, in any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against any
tax liability incurred by the Fund under Section 851 of the Code arising
from purchases or redemptions by Insurance Company's General Accounts or
the account of its affiliates.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more Series
at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time from
the date hereof upon 180 days' notice, unless a shorter time is
agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series are
not reasonably available to meet the requirements of the Contracts
as determined by Insurance Company. Prompt notice of election to
terminate shall be furnished by Insurance Company, said
termination to be effective ten days after receipt of notice
unless the Fund makes available a sufficient number of shares to
meet the requirements of the Contracts within said ten-day period;
c. At the option of Insurance Company, upon the institution of formal
proceedings against the Fund by the Commission, National
Association of Securities Dealers or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which
would, in Insurance Company's reasonable judgment, materially
impair the Fund's ability to meet and perform the Fund's
obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by Insurance Company with said
termination to be effective upon receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission, National
Association of Securities Dealers or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which
would, in the Fund's reasonable judgment, materially impair
Insurance Company's ability to meet and perform Insurance
Company's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by the Fund with said
termination to be effective upon receipt of notice;
e. At the option of the Fund, if the Fund shall determine, in its
sole judgment reasonably exercised in good faith, that Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse
publicity is likely to have a material adverse impact upon the
business and operation of the Fund or its investment adviser, the
Fund shall notify Insurance Company in writing of such
determination and its intent to terminate this Agreement, and
after considering the actions taken by Insurance Company and any
other changes in circumstances since the giving of such notice,
such determination of the Fund shall continue to apply on the
sixtieth (60th) day following the giving of such notice, which
sixtieth day shall be the effective date of termination;
<PAGE>
f. Upon termination of the Investment Advisory Agreement between the
Fund and its investment adviser or its successors unless Insurance
Company specifically approves the selection of a new Fund
investment adviser. The Fund shall promptly furnish notice of such
termination to Insurance Company;
g. In the event the Fund's shares are not registered, issued or sold
in accordance with applicable federal law, or such law precludes
the use of such shares as the underlying investment medium of
Contracts issued or to be issued by Insurance Company. Termination
shall be effective immediately upon such occurrence without
notice. The Fund will notify Insurance Company as promptly as
practicable after such termination event;
h. At the option of the Fund upon a determination by the Board in
good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts
may fail to so qualify;
j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;
k. At the option of the Fund, if the Contracts are not registered,
issued or sold in accordance with applicable federal and/or state
law; or
l. Upon assignment of this Agreement, unless made with the written
consent of the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and its investment adviser may, at the option of
the Fund, continue to make available additional Series shares for so long
as the Fund desires pursuant to the terms and conditions of this
Agreement as provided below, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, if the Fund so
elects to make additional Series shares available, the owners of the
Existing Contracts or Insurance Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the
Series, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, the Fund, as promptly as is practicable under the circumstances,
shall notify Insurance Company whether the Fund will continue to make
Series shares available after such termination. If Series shares continue
to be made available after such termination, the provisions of this
Agreement shall remain in effect and thereafter either the Fund or
Insurance Company may terminate the Agreement, as so continued pursuant
to this Section 10.3, upon prior written notice to the other party, such
notice to be for a period that is reasonable under the circumstances but,
if given by the Fund, need not be for more than six months.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
<PAGE>
ARTICLE XII 12.
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company:
SAFECO Life Insurance Company
5069 154th Pl NE
Redmond, WA 98052
Attn: William E. Crawford
Fund:
J.P. Morgan Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Kathleen H. Tripp
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII 13.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and
property of the Fund and shall not be binding upon any Trustee, officer
or shareholder of the Fund individually.
ARTICLE XIV 14.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
INSURANCE COMPANY
By:
--------------------------
Scott L. Bartholomaus
Its:
----------------
Vice-President
J.P.MORGAN SERIES TRUST II
By:
-----------------
Its:
----------------
<PAGE>
SCHEDULE 1
NAME OF SERIES
J.P. Morgan U.S. Disciplined Equity Portfolio
NAME OF REGISTERED SEPARATE ACCOUNTS
SAFECO Resource Variable Account B
SAFECO Separate Account C
SAFECO Separate Account SL
NAME OF NON-REGISTERED GROUP VARIABLE ANNUITY SEPARATE ACCOUNTS
SAFECO SafeFlex Separate Account D
particpk.doc
<PAGE>
EXHIBIT 99.10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Statement of Additional Information and to the use of our report on the
financial statements of SAFECO Separate Account C, dated February 22, 2000,
and our report on the consolidated financial statements of SAFECO Life
Insurance Company and Subsidiaries, dated February 11, 2000, in
Post-Effective Amendment No. 10 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 14, 2000
<PAGE>
EXHIBIT 99.14
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 15th day of February, 2000.
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)
<PAGE>
NAME TITLE
/s/ Randall H. Talbot Director and President
- ----------------------------------- (Principal Executive Officer)
Randall H. Talbot
/s/ Leslie J. Brandli Controller and Asst. Secretary
- ----------------------------------- (Principal Accounting Officer)
Leslie J. Brandli
/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
<PAGE>
EXHIBIT 99.15
April 14, 2000
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
RE: REPRESENTATION OF COUNSEL FOR SAFECO LIFE INSURANCE COMPANY ("SAFECO LIFE")
AND ITS SAFECO SEPARATE ACCOUNT C ("SEPARATE ACCOUNT") POST-EFFECTIVE AMENDMENT
NO. 10, FORM N-4
FILE NOS. 33-69712 AND 811-8052
Commissioners:
SAFECO and its Separate Account believe that the filing of Post-Effective
Amendment No. 10 is consistent with the purposes and requirements for filing
under Rule 485(b) under the Securities Act of 1933 ("1933 Act"). This
representation is based on the fact that the changes included in this
Post-Effective Amendment No. 10 are consistent with the purposes and
requirements described in the adopting release for the changes to Rule 485
(IC-Rel. 20486).
Based on the above, the filing of Post-Effective Amendment No. 10 is made
pursuant to Rule 485(b) of the 1933 Act to become automatically effective on
April 28, 2000. The undersigned has prepared and reviewed Post-Effective
Amendment No. 10, and it is his opinion that Post-Effective Amendment No. 10
does not contain disclosures which would render it ineligible to become
effective pursuant to paragraph (b) of Rule 485.
Sincerely,
/s/ William E. Crawford
William E. Crawford
Counsel
