Spinnaker Advisor File Nos. /811-8052
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. ____ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17 [X]
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(Check appropriate box or boxes.)
SAFECO SEPARATE ACCOUNT C
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(Exact Name of Registrant)
SAFECO Life Insurance Company
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(Name of Depositor)
5069 154th Place N.E., Redmond, Washington 98052
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (425) 376-8000
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Name and Address of Agent for Service
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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
_____ on (date) pursuant to paragraph (b) of Rule 485
__X _ 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>
<TABLE>
<S> <C>
SAFECO Separate Account C
Registration Statement on Form N-4
CROSS REFERENCE SHEET
Item No. Location
PART A
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
<PAGE>
Item No.
Location
PART B
Item 15. Cover Page............................................................ Cover Page
Item 16. Table of Contents..................................................... Cover Page
Item 17. General Information and History....................................... 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
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.
</TABLE>
<PAGE>
PART A
PROSPECTUS
Spinnaker(R) Advisor
Variable Annuity
issued by
SAFECO SEPARATE
ACCOUNT C
and
SAFECO LIFE
INSURANCE COMPANY
This prospectus describes the Spinnaker Advisor 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 Advisor Variable Annuity Contract, you
can obtain a copy of the Statement of Additional Information (SAI) dated
____________, 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:__________, 2000
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.
SAFECO RESOURCE SERIES TRUST
Managed by SAFECO Asset Management Company
o RST Equity Portfolio
o RST Growth Opportunities Portfolio
o RST Northwest Portfolio
o RST Bond Portfolio
o RST Money Market Portfolio
o RST Small Company Value Portfolio
AIM VARIABLE INSURANCE FUNDS, INC.
Managed by AIM Management Group
o AIM V.I. Aggressive Growth Fund
o AIM V.I. Growth Fund
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Managed by American Century Investment Management, Inc.
o VP Balanced
o VP International
DREYFUS INVESTMENT PORTFOLIOS ("Dreyfus IP")
Managed by the Dreyfus Corporation
o Dreyfus IP MidCap Stock Portfolio
o Dreyfus IP Technology Growth Portfolio
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Managed by the Dreyfus Corporation
o The Dreyfus Socially Responsible Growth Fund, Inc
DREYFUS VARIABLE INVESTMENT FUND("Dreyfus VIF")
Managed by the Dreyfus Corporation
o Dreyfus VIF Appreciation Portfolio
o Dreyfus VIF Quality Bond Portfolio
FEDERATED INSURANCE SERIES
Managed by Federated Investment Management Company
o Federated High Income Bond Fund II
o Federated Utility Fund II
VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Managed by Fidelity Management & Research Company
o VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND III ("VIP III")
Managed by Fidelity Management & Research Company
o VIP III Growth Opportunities Portfolio
o VIP III Growth & Income Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Managed by Franklin Advisers, Inc.
o Franklin Small Cap Fund - Class 2
o Franklin U.S. Government Fund - Class 2
Managed by Templeton Asset Management, Ltd.
o Templeton Developing Markets Securities Fund - Class 2
INVESCO VARIABLE INVESTMENT FUNDS, INC.
Managed by INVESCO Funds Group, Inc.
o VIF-Real Estate Opportunity Fund
J.P. MORGAN SERIES TRUST II
Managed by J.P. Morgan Investment Management Inc.
o J.P. Morgan U.S. Disciplined Equity Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND ("VLIF")
Managed by Scudder Kemper Investments, Inc.
o Scudder VLIF Balanced Portfolio
o Scudder VLIF International Portfolio
<PAGE>
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TABLE OF CONTENTS Page
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SUMMARY
FEE TABLE
EXAMPLES
1. THE ANNUITY CONTRACT
Owner
Annuitant
Assignment
2. ANNUITY PAYMENTS (INCOME PHASE)
Changing Portfolios During the Income Phase
3. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Accumulation Units
Right to Examine
4. INVESTMENTS
Variable Investment Options
Fixed Account Options
Transfers
Scheduled Transfers
Dollar Cost Averaging
Appreciation Sweep
Portfolio Rebalancing
Limits on Excessive Transfers
5. EXPENSES
Insurance Charges
Withdrawal Charge
Transfer Charge
Premium Taxes
Income or Other Taxes
Portfolio Expenses
6. TAXES
Annuity Contracts in General
Qualified Contracts
Non-qualified Contracts
Diversification
Tax Withholding
7. ACCESS TO YOUR MONEY
Free Withdrawal Amount
Repetitive Withdrawals
Withdrawal Restrictions on TSA or 403(b)
Withdrawal Restrictions on Texas Optional
Retirement Program ("Texas ORP")
Minimum Value
8. PERFORMANCE
9. DEATH BENEFIT
Death of Owner During the Accumulation Phase
Death of Annuitant During the Income Phase
Death of Owner During the Income Phase
Beneficiary
10. OTHER INFORMATION
SAFECO Life
Separate Account
General Account
Distribution (Principal Underwriter)
Legal Proceedings
Right to Suspend Annuity Payments, Transfers, or Withdrawals
Voting Rights
Reduction of Charges or Additional Amounts Credited
Internet Information
Financial Statements
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
APPENDIX
Accumulation Unit Value History - N/A
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
Accumulation Unit
Annuitant
Annuity Date
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Phase
Joint Owner
Non-qualified
Owner
Portfolios
Purchase Payment
Qualified
Tax Deferral
<PAGE>
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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.
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THE ANNUITY CONTRACT
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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
fixed account options. 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 options
offer interest rates set and 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
options. 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)
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You can select from one of four payment options. This selection cannot be
changed once you switch to the income phase. You can choose to have fixed or
variable payments, or both. If you choose to have any part of your payments come
from the portfolios, the dollar amount of your payments will usually go up or
down.
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PURCHASE
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You can buy this contract with $10,000 or more under most circumstances. You can
add $30 or more as often as you like during the accumulation phase. Additional
purchase payments of $100 or more may be made automatically from your checking
or savings account. Higher minimum allocation requirements apply to purchase
payments made to the fixed account options.
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INVESTMENT OPTIONS
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Not all portfolios listed below may be available for all contracts. Each
portfolio is fully described in its accompanying prospectus. Depending upon
market conditions, you can make or lose money in any of these portfolios.
Managed by SAFECO Asset Management Company
o RST Equity Portfolio
o RST Growth Opportunities Portfolio
o RST Northwest Portfolio
o RST Bond Portfolio
o RST Money Market Portfolio
o RST Small Company Value Portfolio
Managed by AIM Management Group
o AIM V.I. Aggressive Growth Fund
o AIM V.I. Growth Fund
Managed by American Century Investment Management, Inc.
o VP Balanced
o VP International
Managed by the Dreyfus Corporation
o Dreyfus IP MidCap Stock Portfolio
o Dreyfus IP Technology Growth Portfolio
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Dreyfus VIF Appreciation Portfolio
o Dreyfus VIF Quality Bond Portfolio
Managed by Federated Investment Management Company
o Federated High Income Bond Fund II
o Federated Utility Fund II
Managed by Fidelity Management & Research Company
o VIP Growth Portfolio
o VIP III Growth Opportunities Portfolio
o VIP III Growth & Income Portfolio
Managed by Franklin Advisers, Inc.
o Franklin Small Cap Fund - Class 2
o Franklin U.S. Government Fund - Class 2
Managed by INVESCO Funds Group, Inc.
o VIF-Real Estate Opportunity Fund
Managed by J.P. Morgan Investment Management Inc.
o J.P. Morgan U.S. Disciplined Equity Portfolio
Managed by Scudder Kemper Investments, Inc.
o Scudder VLIF Balanced Portfolio
o Scudder VLIF International Portfolio
Managed by Templeton Asset Management, Ltd.
o Templeton Developing Markets Securities Fund - Class 2
You may also allocate money to the fixed account options which credit guaranteed
interest rates. If you move money out before the end of a guaranteed period
under the Guaranteed Interest Period Fixed Account Option, a market value
adjustment will apply.
<PAGE>
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EXPENSES
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The contract has insurance features and investment features, and there are costs
related to each.
We deduct insurance charges which equal 1.45% 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, 0.20%. These are not charged on money allocated to the
fixed account options.
If more than one withdrawal is made during a contract year, a 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 a transfer charge. However, certain restrictions apply to transfers made
to and/or from the fixed account options. 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 1.92%.
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.
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TAXES
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Generally, earnings (including any positive market value adjustments) 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.
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ACCESS TO YOUR MONEY
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You may take money out at any time during the accumulation phase unless you are
restricted by requirements of a retirement plan. You may have to pay income
taxes and tax penalties on any money you take out.
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PERFORMANCE
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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.
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DEATH BENEFIT
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If you die before moving to the income phase, your beneficiary will receive a
death benefit.
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OTHER INFORMATION
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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.
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
permitted by law.
Transactions. You can initiate transfers or withdrawals as needed or schedule
them in advance under the following strategies:
o Dollar Cost Averaging: In addition to the Dollar Cost Averaging Fixed
Account Option, you may elect to automatically transfer a set amount from
any portfolio to any of the other portfolios monthly or quarterly. This
feature attempts to achieve a lower average cost per unit over time.
o Appreciation Sweep: If your contract value exceeds $10,000, you may elect
to have earnings from the RST Money Market Portfolio automatically swept
monthly, quarterly, or annually into any portfolio of your choice.
o 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.
o Repetitive Withdrawals: You may elect to receive monthly, quarterly, or
annual checks during the accumulation phase.
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INQUIRIES
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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
<PAGE>
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SAFECO SEPARATE ACCOUNT C FEE TABLE
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OWNER TRANSACTION EXPENSES (See Note 2)
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.
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<TABLE>
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES Mortality and Expense Risk Charge..................... 1.25%
(as a percentage of average contract values in the Separate Account)
Asset Related Administration Charge................... 0.20%
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Total Separate Account Annual Expenses................ 1.45%
=====
===================================================================== ==========
PORTFOLIO EXPENSES Management Distribution and Other Total Annual
(as a percentage of average net assets) Fees Service (12b-1) Expenses Expenses
Fees
(after reimbursement and waiver for certain Portfolios)
------------------------------------------------------------------------ -----------------------------------------------------------
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 0.39% 1.19%
AIM V.I. Growth Fund 0.63% None 0.10% 0.73%
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 0.25% 1.00%
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 Fidelity Management & Research Company (a)
(Initial Class shares only)
VIP Growth 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%
Managed by INVESCO Funds Group, Inc. (a)
VIF-Real Estate Opportunity Fund 0.90% None 1.02% 1.92%
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 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%
------------------------------------------------------------------------ --------------- ------------------- ------------ ----------
(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, 2.42% for
the AIM V.I. Aggressive Growth Fund, 1.46% for the Dreyfus IP MidCap Stock
Portfolio, 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, 0.69% for the VIP III Growth Opportunities Portfolio, and 0.60%
for the VIP III Growth & Income Portfolio.
</TABLE>
The above portfolio expenses were provided by the portfolios. We have not
independently verified the accuracy of the information.
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<PAGE>
EXAMPLES
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You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets whether or not the contract is surrendered or annuitized
at the end of each time period.
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
---------------------------------------------------------- ---------------- ---------------- ----------------- ----------------
Managed by SAFECO Asset Management Company
RST Equity Portfolio $ 22 $ 69 $ 118 $ 254
RST Growth Opportunities Portfolio $ 23 $ 70 $ 119 $ 256
RST Northwest Portfolio $ 23 $ 72 $ 123 $ 263
RST Bond Portfolio $ 24 $ 74 $ 126 $ 270
RST Money Market Portfolio $ 23 $ 70 $ 119 $ 256
RST Small Company Value Portfolio $ 24 $ 75 $ 128 $ 274
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Managed by AIM Management Group
AIM V.I. Aggressive Growth Fund $ 27 $ 82 $ 140 $ 297
AIM V.I. Growth Fund $ 22 $ 68 $ 117 $ 251
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Managed by American Century Investment Management, Inc.
VP Balanced $ 24 $ 73 $ 126 $ 269
VP International $ 28 $ 87 $ 147 $ 312
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Managed by the Dreyfus Corporation
Dreyfus IP MidCap Stock Portfolio $ 25 $ 75 $ 129 $ 276
Dreyfus IP Technology Growth Portfolio $ 25 $ 76 $ 131 $ 279
The Dreyfus Socially Responsible Growth Fund, Inc. $ 23 $ 70 $ 120 $ 257
Dreyfus VIF Appreciation Portfolio $ 23 $ 70 $ 119 $ 256
Dreyfus VIF Quality Bond Portfolio $ 22 $ 69 $ 117 $ 252
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Managed by Federated Investment Management Company
Federated High Income Bond Fund II $ 23 $ 70 $ 120 $ 257
Federated Utility Fund II $ 24 $ 75 $ 128 $ 273
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Managed by Fidelity Management & Research Company
VIP Growth Portfolio $ 21 $ 66 $ 113 $ 243
VIP III Growth Opportunities Portfolio $ 22 $ 67 $ 114 $ 246
VIP III Growth & Income Portfolio $ 21 $ 64 $ 110 $ 237
-------------------------------------------------------------------------------------------------------------------------------
Managed by Franklin Advisers, Inc.
Franklin Small Cap Fund - Class 2 $ 26 $ 78 $ 134 $ 286
Franklin U.S. Government Fund - Class 2 $ 22 $ 69 $ 118 $ 254
-------------------------------------------------------------------------------------------------------------------------------
Managed by INVESCO Funds Group, Inc.
VIF-Real Estate Opportunity Fund $ 34 $ 104 $ 176 $ 366
-------------------------------------------------------------------------------------------------------------------------------
Managed by J.P. Morgan Investment Management Inc.
J.P. Morgan U.S. Disciplined Equity Portfolio $ 23 $ 72 $ 123 $ 264
-------------------------------------------------------------------------------------------------------------------------------
Managed by Scudder Kemper Investments, Inc.
Scudder VLIF Balanced Portfolio $ 20 $ 63 $ 108 $ 233
Scudder VLIF International Portfolio $ 25 $ 77 $ 132 $ 282
-------------------------------------------------------------------------------------------------------------------------------
Managed by Templeton Asset Management, Ltd.
Templeton Developing Markets Securities Fund - $ 33 $ 100 $ 170 $ 356
Class 2
---------------------------------------------------------- ---------------- ---------------- ----------------- ----------------
<PAGE>
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.
As this is the initial registration, there is no
Accumulation Unit value history.
</TABLE>
<PAGE>
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1. THE ANNUITY CONTRACT
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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 you begin receiving annuity payments, your contract is
in 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 two fixed account options that earn interest at rates set
and guaranteed by us. The total interest credited to you in the fixed account
options 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 non-natural persons (e.g., corporations or 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.
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2. ANNUITY PAYMENTS (INCOME PHASE)
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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 require that the annuitant be the owner and
payee once annuity payments begin.
Switching to the income phase is irrevocable. Once you begin receiving 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:
o the first available payment date after you elect to begin annuity payments;
o the latest annuity date specified in your contract; or
o 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 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.
<PAGE>
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 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 Guaranteed
Interest Period Fixed Account Option in the contract. Each annuity payment
made from the Guaranteed Interest Period Fixed Account Option may be
subject to a market value adjustment. Annuity payments continue until the
entire value in the portfolios and/or Guaranteed Interest Period Fixed
Account Option has been paid out. You can stop these annuity payments and
receive a lump sum equal to the remaining contract value plus or minus any
market value adjustment if applicable. 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:
o 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;
o an assumed investment return; and
o 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 variable 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
variable annuity payments will be smaller. Under the Payments Based on a Number
of Years annuity option, actual performance of the portfolios, any market value
adjustments on fixed annuity payments, 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
options. Changes will affect the number of units used to calculate annuity
payments. See the SAI for more information.
<PAGE>
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3. PURCHASE
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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
contract with a minimum initial investment of $10,000. Additional purchase
payments of $30 or more may be added at anytime during the accumulation phase.
Your additional purchase payments may be made automatically from your checking
or savings account. This is referred to as Systematic Investing. Purchase
payments made through Systematic Investing must be $100 or more. Purchase
payments made to the Dollar Cost Averaging Fixed Account Option must be $5,000
or more. Purchase payments made to a guaranteed period under the Guaranteed
Interest Period Fixed Account Option must be $1,000 or more. 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 and subsequent purchase payments by
specifying your desired allocations on the contract application. 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 a fixed
account option 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 attributable to the
contracts;
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 attributable to the contracts.
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 transfer or
withdrawal 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 amounts will then be allocated in the
manner you selected unless you have canceled the contract.
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4. INVESTMENT OPTIONS
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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.
<PAGE>
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
o RST Equity Portfolio
o RST Growth Opportunities Portfolio
o RST Northwest Portfolio
o RST Bond Portfolio
o RST Money Market Portfolio
o RST Small Company Value Portfolio
Managed by AIM Management Group
o AIM V.I. Aggressive Growth Fund
o AIM V.I. Growth Fund
Managed by American Century Investment Management, Inc.
o VP Balanced
o VP International
Managed by the Dreyfus Corporation
o Dreyfus IP MidCap Stock Portfolio
o Dreyfus IP Technology Growth Portfolio
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Dreyfus VIF Appreciation Portfolio
o Dreyfus VIF Quality Bond Portfolio
Managed by Federated Investment Management Company
o Federated High Income Bond Fund II
o Federated Utility Fund II
Managed by Fidelity Management & Research Company
o VIP Growth Portfolio
o VIP III Growth Opportunities Portfolio
o VIP III Growth & Income Portfolio
Managed by Franklin Advisers, Inc.
o Franklin Small Cap Fund - Class 2
o Franklin U.S. Government Fund - Class 2
Managed by INVESCO Funds Group, Inc.
o VIF-Real Estate Opportunity Fund
Managed by J.P. Morgan Investment Management Inc.
o J.P. Morgan U.S. Disciplined Equity Portfolio
Managed by Scudder Kemper Investments, Inc.
o Scudder VLIF Balanced Portfolio
o Scudder VLIF International Portfolio
Managed by Templeton Asset Management, Ltd.
o Templeton Developing Markets Securities Fund - Class 2
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 Options
The contract also offers two fixed account options, the Dollar Cost Averaging
Fixed Account Option and the Guaranteed Interest Period Fixed Account Option,
which credit interest rates that are set and guaranteed by SAFECO Life.
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 the selection you make. Annual effective interest rates will never be less
than 3%.
Dollar Cost Averaging Fixed Account Option. We credit interest at a specified
rate on amounts prior to their being transferred to portfolios you select.
Monthly transfers are made over a 6-month or 12-month period as selected by
you. The entire value in this option must be transferred before you allocate
an additional purchase payment to this option. You may not choose this option
within 12 months of switching to the income phase.
Guaranteed Interest Period Fixed Account Option. We credit interest at a
specified rate for a guaranteed period. Different guaranteed periods may have
different interest rates. Each allocation starts its own guaranteed period.
You select one or more guaranteed periods from the available choices. From
time to time, we may change or limit the available choices of guaranteed
periods that exceed five years. Unless you tell us otherwise, we will
automatically apply your value at the end of a guaranteed period to a new
guaranteed period of the same or next shorter duration at the then current
interest rate for that guaranteed period. The next shorter duration will be
used if the prior guaranteed period is not currently available. If you move
money out during a guaranteed period, either as a transfer, withdrawal, or to
purchase annuity payments, there will be a market value adjustment. The
market value adjustment is based primarily on the difference between the
interest rate being credited to the money you move and the current interest
rate offered for a guaranteed period of the same duration. In general, if
interest rates have dropped, the market value adjustment will be positive and
if interest rates have risen, it will be negative. However, upon total
withdrawal from a guaranteed period, you will never receive less than 100% of
the original amount allocated to that guaranteed period accumulated at 3%
annualized interest and adjusted for any prior withdrawals. Unless you tell
us otherwise, the market value adjustment will be applied to your remaining
contract value. We will not apply a market value adjustment if you move money
within 30 days after the end of a guaranteed period. A market value
adjustment will apply if your contract value switches to the income phase
during the guaranteed period you have selected. You may avoid this result by
selecting a guaranteed period that does not extend beyond that date. See the
SAI for more information including other factors used in calculating the
market value adjustment.
<PAGE>
Transfers
During the accumulation phase you can transfer money from any of the portfolios
and/or any guaranteed periods under the Guaranteed Interest Period Fixed Account
Option to any of the portfolios and/or any new guaranteed periods 12 times per
contract year free of a transfer charge. We measure a contract year from the
anniversary of your contract date. Each 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 portfolio or guaranteed period
under the Guaranteed Interest Period Fixed Account Option at one time is $500,
or the entire value if less. You must transfer the entire amount out of a
portfolio or guaranteed period under the Guaranteed Interest Period Fixed
Account Option if, after a transfer, the remaining balance would be less than
$500. The minimum you can transfer into any portfolio is $50. The minimum you
can transfer into a new guaranteed period under the Guaranteed Interest Period
Fixed Account Option is $1,000.
We will accept transfers by written request or by telephone. Each transfer must
identify:
o your contract;
o the amount of the transfer; and
o which portfolios and/or guaranteed periods under the Guaranteed Interest
Period Fixed Account Option 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
portfolio that has not had a previous transfer or withdrawal taken during that
contract year. For each portfolio, 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" portfolio.
Scheduled transfers will otherwise continue until you instruct us to stop or all
money has been transferred out of the "source" portfolio. 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 to any of the other portfolios.
Appreciation 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 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 Sweep.
Limits On Excessive Transfers
Even though we permit the limited use of approved asset allocation programs,
this contract and the portfolios are not designed for short term trading or
professional market timing, or for organizations or other persons that use
programmed, large, or frequent transfers. The use of such transfers may be
disruptive to portfolio management strategies by causing forced and unplanned
portfolio turnover, increased trading and transaction costs, and lost
opportunity costs which must be indirectly borne by contract owners.
Therefore, we may restrict or eliminate the right to make transfers among
portfolios if such rights are executed by a market timing firm or similar third
party authorized to initiate transfers or exchange transactions on your behalf.
We reserve the right to reject any transfer request from any person if, in our
judgment, a portfolio would be unable to invest effectively in accordance with
its investment objectives and policies or would otherwise be potentially
adversely affected.
We will impose such restrictions only if we or any affected portfolio believe
that doing so will prevent harm to other contract owners.
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5. EXPENSES
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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.
<PAGE>
Mortality and Expense Risk Charge. This charge is equal, on an annual
basis, to 1.25% of the average daily value of your contract allocated to
the portfolios. 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 0.20% of the average daily value of your contract allocated to
the portfolios. 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 is
for all the expenses associated with contract administration. Some of these
expenses are: 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 is 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.
Withdrawal Charge
We may deduct a 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. Unless you tell us otherwise, 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 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.
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6. TAXES
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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
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 (including any
positive market value adjustments) 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.
<PAGE>
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.
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7. ACCESS TO YOUR MONEY
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Under your contract, money may be accessed:
o by withdrawing all or some of your money during the accumulation phase;
o by receiving payments during the income phase (see Section 2 - Annuity
Payments); or
o 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. If you take a partial withdrawal, you must
tell us from which portfolios and/or guaranteed periods under the Guaranteed
Interest Period Fixed Account Option we are to take the withdrawal. However,
withdrawals are not allowed from the Dollar Cost Averaging Fixed Account Option
except upon surrender of the contract. Once we receive your request, withdrawals
from the portfolios will be effective as of the next close of the NYSE.
There may be a withdrawal charge. If you move money out before the end of a
guaranteed period under the Guaranteed Interest Period Fixed Account Option, a
market value adjustment will apply.
Free Withdrawal Amount
There is no withdrawal charge on the first withdrawal you make in a contract
year. There is no market value adjustment on withdrawals from the Guaranteed
Interest Period Fixed Account Option that are taken within 30 days after the end
of the guaranteed period.
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:
o your life expectancy; or
o 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, a withdrawal charge 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:
o you attain age 59 1/2;
o you leave your job;
o you die or become disabled as defined by the Code;
o you experience a qualifying hardship (applies to contributions only);or
o you divorce and a distribution to your former spouse
is permitted under a Qualified Domestic Relations Order.
<PAGE>
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:
o terminate employment in all eligible Texas institutions of higher
education;
o retire;
o attain age 70 1/2; or
o die.
You must obtain a certificate of termination from your employer before you
request a withdrawal from the Texas ORP.
Minimum Value
You must withdraw the entire amount out of a portfolio or guaranteed period
under the Guaranteed Interest Period Fixed Account Option if, after a
withdrawal, the remaining value in the portfolio or guaranteed period would be
less than $500. Similarly, you must withdraw the contract value and your
contract will terminate if, after a withdrawal, the remaining contract value
would be less than the minimum, if any, stated in your contract. Investment
performance alone will not cause a forced withdrawal.
Withdrawals, including any charges, reduce the number of accumulation units in
the portfolios and/or the value of the Guaranteed Interest Period Fixed Account
Option as well as the death benefit. Income taxes, tax penalties and certain
restrictions may also apply. See Section 6 - Taxes.
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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.
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. Non-standardized portfolio performance may appear
higher. Non-standardized figures may also include performance of a portfolio
prior to the 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:
o "Lipper Variable Insurance Products Performance Analysis Service"
monitors performance for variable annuity
portfolios and is published by Lipper Analytical Services, Inc.
o "VARDS Report" is a monthly, variable annuity industry analysis
published by Financial Planning Resources, Inc.
o "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.
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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:
o the date we receive proof of death and the beneficiary's
election of how to receive payment; or
o six months from the date of death.
<PAGE>
The initial Minimum Guaranteed Death Benefit is equal to your first purchase
payment. It is reset on each 5-year contract anniversary until the oldest owner
attains age 75. 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, we will allocate it to the investment options in accordance with
instructions we receive from your beneficiary.
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. We will waive any negative market value
adjustment on the portion of the death benefit in a guaranteed period under the
Guaranteed Interest Period Fixed Account Option that is withdrawn from the
contract by the beneficiary within 60 days from the date we receive proof of
death.
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 calculated in the same manner 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.
Death of Owner During the Income Phase
If the owner dies during the income phase, any remaining annuity payments will
continue to be distributed at least as rapidly as under the annuity option then
in effect. All of the owner's contract rights will pass to the beneficiary.
Beneficiary
The beneficiary under the contract is determined as follows:
o surviving owner or joint owner; or if none, then
o surviving primary beneficiaries; or if none, then
o surviving contingent beneficiaries; or if none, then
o 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 established SAFECO Separate Account C ("Separate Account") under Washington
law on February 11, 1994. 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.
<PAGE>
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 options, 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 options or any interests
therein, with the SEC. For this reason, SEC staff has not reviewed disclosure
relating to the fixed account options. 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 1% of purchase payments. In addition, annual trail 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:
o the NYSE is closed (other than customary weekend or holiday closings);
o trading on the NYSE is restricted;
o an emergency exists such that disposal of or determination of the
value of the portfolio shares is not reasonably practicable; or
o the SEC, by order, so permits for your protection.
Additionally, we reserve the right to defer payment of transfers or withdrawals
from the fixed account options 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 options.
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, 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 or crediting
additional interest to the fixed account options.
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.
<PAGE>
Financial Statements
The financial statements of SAFECO Life and SAFECO Separate Account C have not
been included in the Statement of Additional Information. These financial
statements will be added by amendment at a later date.
Table of Contents of the Statement of Additional Information
Separate Account
Experts
Distribution
Performance Information
Market Value Adjustment
Federal Tax Status
Annuity Provisions
Financial Statements
<PAGE>
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APPENDIX
--------------------------------------------------------------------------------
Accumulation Unit Value History
As this is the initial registration, there is no Accumulation Unit value
history.
PART B
STATEMENT OF ADDITIONAL INFORMATION
SPINNAKER(R) ADVISOR VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM 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 Premium 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
__________, 2000.
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TABLE OF CONTENTS Page
SEPARATE ACCOUNT..........................................................
Mortality and Expense Guarantee........................................
EXPERTS...................................................................
DISTRIBUTION..............................................................
PERFORMANCE INFORMATION...................................................
Total Return...........................................................
Yield..................................................................
Performance Comparison.................................................
Tax Comparison.........................................................
MARKET VALUE ADJUSTMENT...................................................
FEDERAL TAX STATUS........................................................
Note...................................................................
General................................................................
Diversification........................................................
Multiple Contracts.....................................................
Contracts Owned by Other than Natural Persons..........................
Income Tax Withholding.................................................
Tax Treatment of Withdrawals - Non-Qualified Contracts.................
Retirement Plans.......................................................
Tax Treatment of Withdrawals - Qualified Contracts.....................
Tax Sheltered Annuities - Withdrawal Limitations.......................
ANNUITY PROVISIONS........................................................
Annuity Unit Value.....................................................
Variable Annuity Payments..............................................
Fixed Annuity Payments.................................................
FINANCIAL STATEMENTS........................................................N/A
<PAGE>
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 11,
1994, 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 annuity date.
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).
A portion of the proceeds from the mortality and expense risk charge will also
be utilized to meet distribution costs and related 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, to be included herein by amendment at a later date,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon, also to be included herein by amendment at a later date,
and will be 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.
<PAGE>
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 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. Additional
quotations may be given that do not assume a termination (surrender) 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. 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, and use of time weighted average annual returns which take
into consideration the length of time each investment has been invested.
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)n = ERV
where:
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.
"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. 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
<PAGE>
causes effective yield to be higher than current yield. Calculation of effective
yield begins with the same base period return used in the calculation of current
yield, which is then annualized to reflect weekly compounding pursuant to the
following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
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)6 - 1]
where:
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.
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.
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.
<PAGE>
MARKET VALUE ADJUSTMENT
If money is withdrawn from a guaranteed period under the Guaranteed Interest
Period Fixed Account Option before the end of the guaranteed period, we will
apply a Market Value Adjustment ("MVA"). The MVA reflects the impact that
changing interest rates have on the value of money invested at a fixed interest
rate. In general, the longer the time remaining to the end of the
guaranteed period when the money is withdrawn, the greater the impact due to
changing interest rates. The MVA can be positive or negative. However, upon
total withdrawal from a guaranteed period, you will never receive less than 100%
of the original amount allocated to that guaranteed period accumulated at 3%
annualized interest and adjusted for any prior withdrawals. If amounts are taken
from more than one guaranteed period at the same time, the MVA is calculated
individually for each guaranteed period. The MVA formula is as follows:
MVA = W x (Ic - In) x Fs
Where:
W =the amount withdrawn, transferred, or annuitized from a guaranteed period
under the Guaranteed Interest Period Fixed Account Option;
Ic =the interest rate, in decimal form, credited on the money withdrawn,
transferred, or annuitized;
In =the interest rate, in decimal form, that would be credited on new money
allocated to a guaranteed period of the same duration as the guaranteed
period from which money is being taken;
Fs =the adjustment factor, which varies by the length of time remaining in the
guaranteed period and the interest rate credited on the money withdrawn,
transferred, or annuitized;
s =the number of years remaining until the end of the guaranteed period from
which money is being taken. The adjustment factor for partial years will be
interpolated between whole-year adjustment factors.
Adjustment Factors (Fs)
Number of Years
Remaining in the Where Where
Guaranteed Period Ic < 6% Ic => 6%
--------------------------- ------------- -------------
0 0.00 0.00
1 0.90 0.90
2 1.80 1.75
3 2.60 2.50
4 3.40 3.15
5 4.10 3.80
6 4.80 4.35
7 5.40 4.85
8 6.00 5.35
9 6.50 5.75
10 7.00 6.15
Examples of a MVA on withdrawals taken before the end of a guaranteed period
under the Guaranteed Interest Period Fixed Account Option:
EXAMPLE 1
Assume a 5-year guaranteed period is purchased for $25,000 and earns
annualized interest at 6.6%. Two years and 61 days later a total
withdrawal is requested from this guaranteed period (there are 2 years and
304 days left to the end of the guaranteed period). A new 5-year
guaranteed period is now earning 7.0%.
The MVA that applies equals:
$25,000 x 1.066(2+61/365) x (.066 - .070) x (1.75 + (2.50 - 1.75) x
304/365) =
$28,713.97 x (-.004) x 2.375 = -$272.74
$28,713.97 - 272.74=$28,441.23
The minimum guaranteed value after the MVA is $25,000 x 1.03(2+61/365) =
$26,653.84. Since $28,441.23 is greater than $26,653.84, the customer will
receive $28,441.23.
<PAGE>
EXAMPLE 2
Assume a 3-year guaranteed period is purchased for $20,000 and earns
annualized interest at 5.45%. Two years and 182 days later a total
withdrawal is requested from this guaranteed period (there are 183 days
left to the end of the guaranteed period). A new 3-year guaranteed period
is now earning 5.00%.
The MVA that applies equals:
$20,000 x 1.0545(2+182/365) x (.0545 - .0500) x (.90 x 183/365) =
$22,835.73 x .0045 x .4512 = $46.37
$22,835.73 + 46.37 = $22,882.10
The minimum guaranteed value after the MVA is $20,000 x 1.03(2+182/365) =
$21,533.05. Since $22,882.10 is greater than $21,533.05 the customer will
receive $22,882.10.
From time to time we may limit or change guaranteed periods under the Guaranteed
Interest Period Fixed Account Option that exceed five years; (i.e., if our
credited interest rate would be lower than 7.0%, we will not offer the 7-year
nor the 10-year guaranteed period). For purposes of calculating MVAs, we will
continue to set new money rates for all guaranteed periods.
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.
<PAGE>
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
contract as an annuity contract would result in imposition of federal income tax
to the owner with respect to earnings allocable to the contract prior to the
receipt of payments under the contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the 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.
<PAGE>
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.
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 (including any positive MVAs) 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.)
<PAGE>
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.
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.
<PAGE>
c. Roth Individual Retirement Annuities
Section 408A of the Code permits eligible individuals to make
nondeductible contributions to an individual retirement program known as
a Roth Individual Retirement Annuity. Section 408A includes limits on
how much you may contribute to a Roth Individual Retirement Annuity and
when distributions may commence. Qualified distributions from Roth
Individual Retirement Annuities are excluded from taxable gross income.
"Qualified distributions" are distributions which (a) are made more than
five years after the taxable year of the first contribution to the Roth
Individual Retirement Annuity, and (b) meet any of the following
conditions; (1) the annuity owner has reached age 59 1/2; (2) the
distribution is paid to a beneficiary after the owner's death; (3) the
annuity owner is disabled; or (4) the distribution will be used for a
first time home purchase. (Qualified distributions for first time home
purchases may not exceed $10,000.) Non-qualified distributions are
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.
<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 return 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(s) 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
accumulation unit value of a portfolio on successive days when the NYSE is open.
The Net Investment Factor for any portfolio for any valuation day is determined
by taking the accumulation unit value of the portfolio as of the current
valuation day and dividing it by the accumulation unit value for the preceding
day. The Net Investment Factor may be greater than or equal to one, therefore
the annuity unit value will usually 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 date. The amount of the first payment
is the sum of the payments from each portfolio determined by applying the value
of the contract used to purchase variable annuity payments, 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 will usually increase or
decrease from one month to the next.
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.
<PAGE>
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 return of 4%. (2nd option described in the prospectus).
(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.....$200.20
(5) Amount of first payment from a portfolio, (3) divided
by (4) .............................................$1,560.94
(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).......................................120.0722
The $312,500 value at maturity provides a first payment from the portfolio of
$1,560.94, and payments thereafter of the varying dollar value of 120.0722
annuity units. The amount of subsequent payments from the portfolio is
determined by multiplying 120.0722 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 120.0722 multiplied by
$13.25, or $1,590.96.
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 return 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 120.0722 x $12.75, or $1,530.92.
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.
FIXED ANNUITY PAYMENTS
The amount of fixed annuity payments under a life annuity option remains
constant and is determined by applying the adjusted value of the contract used
to purchase fixed annuity payments to the Fixed Annuity Purchase Rate Table
contained in the contract. SAFECO Life may substitute more favorable payment
rates for the rates in the Fixed Annuity Purchase Rate Table on a
non-discriminatory basis. The adjusted value of the contract in the fixed
account options is equal to:
o the value of the contract in the fixed account options as of
the date you switch to the income phase;
o plus or minus the MVA applicable to guaranteed periods under the
Guaranteed Interest Period Fixed Account Option that are not at the
end of their guaranteed periods; and
o minus any applicable premium taxes.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company and subsidiaries are not
included herein. This information along with the "Consent of Independent
Auditors" will be added by amendment to be filed under Rule 485(b), prior to
this registration's effective date.
<PAGE>
FINANCIAL STATEMENTS
(To be added by amendment)
<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
not included in the Statement of Additional Information of this
Registration Statement. These statements will be filed by subsequent
amendment:
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 Premium Deferred Variable
Annuity Contract.
5. Application for Annuity Contract.
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, 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/
<PAGE>
8.c. Participation Agreement by and among SAFECO Life Insurance
Company, TCI Portfolios, Inc. and/or Adviser for TCI Balanced
Fund and mTCI International Fund. (TCI has since changed its
name to American Century). 4/
8.d. Form of Participation Agreement (Fidelity). 5/
8.e. Participation Agreement by and among INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group, Inc. and SAFECO
Life Insurance Company. 6/
8.f. Form of Participation Agreement (AIM). 8/
8.g. Form of Participation Agreement (Dreyfus). 8/
8.h. Form of Participation Agreement (Franklin Templeton). 8/
8.i. Form of Participation Agreement (J.P. Morgan). 8/
9. Opinion and Consent of Counsel.
10. Consent of Independent Auditors. 9/
11. Not Applicable.
12. Not Applicable.
13. Calculation of Performance Information. 3/
14. Power of Attorney. 8/
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 Post-Effective Amendment of SAFECO Separate
Account C filed with the SEC on December 29, 1995 (File No. 33-69712).
3/ Incorporated by reference to Post-Effective Amendment of SAFECO Separate
Account C 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 Post-Effective Amendment of SAFECO Separate
Account C filed with the SEC on May 1, 1998 (File No. 33-69712).
7/ Incorporated by reference to Post-Effective Amendment of SAFECO Separate
Account C filed with the SEC on April 30, 1999 (File No. 33-69712).
8/ Incorporated by reference to Post-Effective Amendment of SAFECO Separate
Account C filed with the SEC on or about April 28, 2000 (File No.
33-69712).
9/ To be filed by amendment.
<PAGE>
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.
Name Position with SAFECO
* 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 Vice President, 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
* 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, 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.
<PAGE>
Item 27. Number of Contract Owners
As of June 30, 2000, there were 26,021 Contract Owners of the Registrant.
Item 28. Indemnification
Under its Bylaws, SAFECO, to the full extent permitted by the Washington
Business Corporation Act, shall indemnify any person who was or is a party to
any proceeding (whether brought by or in the right of SAFECO or otherwise) by
reason of the fact that he or she is or was a director of SAFECO, or, while a
director of SAFECO, is or was serving at the request of SAFECO as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with such proceeding.
SAFECO shall extend such indemnification as is provided to directors above to
any person, not a director of SAFECO, who is or was an officer of SAFECO or is
or was serving at the request of SAFECO as a director, officer, partner,
trustee, or agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan. In addition, the
Board of Directors of SAFECO may, by resolution, extend such further
indemnification to an officer or such other person as may to it seem fair and
reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of SAFECO
pursuant to such provisions of the bylaws or statutes or otherwise, SAFECO has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by SAFECO of expenses incurred or paid
by a director, officer or controlling person of SAFECO in the successful defense
of any such action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the Contracts issued by the Separate
Account, SAFECO will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in said Act and will be governed by the final adjudication of such
issue.
<PAGE>
Item 29. Principal Underwriters
a. SAFECO Securities, Inc., the principal underwriter for the Contracts,
also acts as the principal underwriter for SAFECO's
Individual Flexible Premium Variable Life Insurance Policies and Group
Variable Annuity Contracts.
b. The following information is provided for each principal officer and
director of the principal underwriter:
Name and Principal Positions and Offices
Business Address with Underwriter
----------------- ---------------------
* Rod A. Pierson Director
** Ronald Spaulding Director
*** David F. Hill Director, President
*** David Longhurst Vice President,
Controller, Treasurer,
Financial Principal
and Secretary
* 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 Dave Longhurst
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 date
of this Amendment.
<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(a) 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 17th day of July, 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.
Name Title Date
DONALD S. CHAPMAN* Director
--------------------------
Donald S. Chapman
/S/ BOH A. DICKEY Director
--------------------------------
Boh A. Dickey
R. H. EIGSTI* Director and Chairman
------------------------------------
R. H. Eigsti
LESLIE J. BRANDLI*
---------------------------------- Vice President, Controller and
Leslie J. Brandli Assistant Secretary (Principal
Accounting Officer)
<PAGE>
RONALD SPAULDING*
----------------- Director, Vice
Ronald Spaulding President and Treasurer
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
*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
Exhibit Number Description
99.4.(i) Individual Flexible Premium Deferred
Variable Annuity Contract
99.5 Application for Annuity Contract
99.9 Consent of Counsel
99.15 Representation of Counsel
