<PAGE> 1
SAFECO LIFE INSURANCE COMPANY
SEPARATE ACCOUNT SL
Supplement to Prospectus dated April 30, 1995
On August 10, 1994 SAFECO Life Insurance Company ("SAFECO") applied to
the Securities and Exchange Commission ("SEC") for an order to allow SAFECO to
transfer Policy Account Values from Investment Divisions invested in Portfolios
of the Hudson River Trust (the "Trust") to certain Investment Divisions invested
in Portfolios of the Variable Insurance Products Fund and the Variable Insurance
Products Fund II (the "Funds"). The application for the order was granted by the
SEC and the order issued January 3, 1996.
On February 16, 1996 SAFECO will determine the Policy Account Unit
Values held in the Investment Divisions which invest in the corresponding
Portfolios of the Trust. On the same day, SAFECO will make a request for
redemption of all shares held by the Separate Account in the Trust. The Trust
will make the redemption and pay the cash proceeds to SAFECO. Because of the
anticipated delay in receiving the cash proceeds from the Trust, SAFECO will
advance the proceeds and make a contemporaneous purchase on February 16, 1996 of
shares of the Funds for the exact amount of the redemption proceeds to be
received from the Trust. Because SAFECO will advance the proceeds from the
redemption of the Trust Portfolio shares, Policy Account Unit Values which were
held in Trust Portfolios will remain fully invested. The Policy Account Value
will be identical immediately before and after the redemption, but the number of
Unit Values in each Policy may vary due to the difference in Unit Values of the
Investment Divisions corresponding to the Trust and the Investment Divisions
corresponding to the Funds.
The following chart shows the Portfolios of the Funds that will be
substituted for corresponding shares of the six Portfolios of the Trust(1). The
chart sets out the investment objectives of each Portfolio as stated in their
respective Prospectuses. More comprehensive information on the Funds is found in
the Prospectuses for the Funds which are included with this Policy Prospectus.
- --------------------
(1) In the alternative, the Policy Owner may allocate Policy Account
Values to Investment Divisions invested in any Portfolios of the Funds and the
Guaranteed Interest Division upon notification to SAFECO which is received prior
to February 16, 1996.
<PAGE> 2
HUDSON TRUST
Money Market Portfolio. This Portfolio's investment objective is to obtain a
high level of current income, preserve its assets and maintain liquidity.
Common Stock Portfolio. This Portfolio's investment objective is to achieve
long- term growth of its capital and increase income.
Balanced Portfolio. This Portfolio's investment objective is to achieve a high
return through both appreciation of capital and current income.
Aggressive Stock Portfolio. This Portfolio's investment objective is to achieve
long- term growth of capital.
High Yield Portfolio. This Portfolio's investment objective is to achieve high
return by maximizing current income and, to the extent consistent with that
objective, capital appreciation.
Global Portfolio. This Portfolio's investment objective is to achieve long-
term growth of capital.
THE FUNDS
Money Market Portfolio. This Portfolio's investment objective is to seek to
obtain as high a level of current income as is consistent with preserving
capital and providing liquidity.
Growth Portfolio. This Portfolio's investment objective is to seek to achieve
capital appreciation.
Asset Manager Portfolio. This Portfolio's investment objective is to seek high
total return with reduced risk over the long-term by allocating its assets among
domestic and foreign stocks, bonds and short-term, fixed-income instruments.
Growth Portfolio. This Portfolio's investment objective is to seek to achieve
capital appreciation.
High Income Portfolio. This Portfolio's investment objective is to seek a high
level of current income by investing primarily in high-yielding, lower-rated,
fixed income securities, while also considering growth of capital.
Overseas Portfolio. This Portfolio's investment objective is to seek long- term
growth of capital primarily through investments in foreign securities.
Within five days of the transfer of Policy Values described above,
SAFECO will mail each affected Policy Owner a notice and confirmation of the
transfer and the Policy Account Value involved. For a period of 30 days
following the date of mailing of the notice and confirmation, affected Policy
Owners will have the right to make a one-time transfer
<PAGE> 3
of their Policy Account Values to any other Investment Division invested in
Portfolios of the Funds and to the Guaranteed Investment Division without charge
and without the transfer counting as one of the free transfers permitted each
Policy Year. This one-time transfer will be at the value next computed after
SAFECO receives the request for such transfer.
<PAGE> 4
ENHANCED
ACCUMULATION
LIFE
PROSPECTUS
INDIVIDUAL FLEXIBLE
PREMIUM VARIABLE
LIFE INSURANCE POLICY
Life Insurance Issued by:
SAFECO Life
Accumulation Life
Prospectus
Dated: April 30, 1995
VARIABLE INSURANCE
PRODUCTS FUND &
VARIABLE INSURANCE
PRODUCTS FUND II
Portfolios Managed by:
Fidelity Investments
Variable Insurance
Products Fund
and
Variable Insurance
Products Fund II
Prospectuses Dated:
April 30, 1995
[logo] SAFECO LIFE [logo] FIDELITY
INVESTMENTS
<PAGE> 5
SAFECO LIFE INSURANCE COMPANY-
ISSUER OF THE LIFE INSURANCE
- -FOUNDED IN 1957
- -RATINGS* OF:
-A+ Superior by A.M. Best
-Aa2 by Moody
-AA by Standard & Poor
- -TOP 5% OF LIFE INSURANCE COMPANIES IN ASSETS AND INSURANCE IN FORCE
- -NETWORK OF OFFICES THROUGHOUT THE UNITED STATES
*The financial strength of SAFECO Life may be relevant with respect to SAFECO
Life's ability to satisfy its general account obligations under the Policies.
FIDELITY INVESTMENTS-
- -------------------------------------
MANAGER OF THE MUTUAL FUNDS
- -FOUNDED IN 1946
- -OFFERS OVER 200 FUNDS WITH MORE THAN 22 MILLION SHAREHOLDER ACCOUNTS
- -OVER $250 BILLION IN TOTAL ASSETS UNDER MANAGEMENT
- -INVESTMENT DIVISIONS MANAGED IN THE SAME STYLE AND WITH THE SAME ACKNOWLEDGED
EXPERTISE AS ALL FIDELITY FUNDS
Fidelity and Fidelity Investments, as used, refers to Fidelity Management &
Research Company
[logo] SAFECO
LIFE INSURANCE
SAFECO LIFE INSURANCE CO. REDMOND 98052
*Registered Trademark of SAFECO Corporation
HOME OFFICE:
Individual Marketing
P.O. Box 34690
Seattle, Washington
98124-1690
ADMINISTRATIVE OFFICE:
Client Services
P.O. Box 479
Haddam, Connecticut
06438-0479
DISTRIBUTED BY:
SAFECO Securities
P.O. Box 34890
Seattle, Washington
98124-1890
[logo]FIDELITY
INVESTMENTS
PRINCIPLE OFFICE:
Fidelity Investments
82 Devonshire Street
Boston, Massachusetts
02109
- -----------------------------------------------------------------
[logo] SAFECO LIFE
15411 N.E. 51st Street
Redmond, WA 98052-5114
Fidelity Investments is a registered trademark of FMR Corp. SAFECO Life is a
registered trademark of SAFECO Corporation. Accumulation Life is a registered
trademark of SAFECO Life Insurance Company.
<PAGE> 6
INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
- -------------------------------------------------------------------------------
This Prospectus describes an individual flexible premium variable life
insurance policy ("Policy"). The Policy is designed for the maximum flexibility
in meeting the insurance needs of individuals. The Policy provides death
protection until the Policy Anniversary following the Primary Insured's 95th
birthday.
Net premiums will be placed in the Owner's Policy Account, which are then
allocated to one or more Investment Divisions of SAFECO Life Insurance
Company's ("SAFECO") Separate Account SL ("Separate Account") and/or to
SAFECO's Guaranteed Interest Division.
The Separate Account has Investment Divisions, each of which invests in shares
of a corresponding Portfolio of Variable Insurance Products Fund or Variable
Insurance Products Fund II ("Funds"). (The Separate Account also contains
Investment Divisions investing in shares of The Hudson River Trust, which
shares are not available in connection with the Policies described in this
Prospectus. See "The Separate Account" on Page 6 for further information.)
Variable Insurance Products Fund is a mutual fund comprised of five Portfolios,
each of which is currently available in connection with the Policies. The five
Portfolios are: the Money Market Portfolio, the High Income Portfolio, the
Equity-Income Portfolio, the Growth Portfolio and the Overseas Portfolio.
Variable Insurance Products Fund II is a mutual fund comprised of five
Portfolios, each of which is currently available in connection with the
Policies. The five Portfolios are: the Investment Grade Bond Portfolio, the
Asset Manager Portfolio, Index 500 Portfolio, Contrafund Portfolio, and Asset
Manager: Growth Portfolio. The Guaranteed Interest Division is part of
SAFECO's general account.
The portion of the Policy Account that is in an Investment Division of the
Separate Account will vary up or down depending on the value of such Investment
Division, which in turn depends on the investment performance of the
corresponding Portfolio of the Funds. There are no minimum guarantees as to
such portion of the Policy Account. The portion of the Policy Account that is
in the Guaranteed Interest Division will accumulate, after deductions, at a
rate of interest determined by SAFECO. Such rate will not be less than 4% per
year.
It may not be advantageous to purchase the Policy as a replacement for another
type of life insurance. It also may not be advantageous to purchase flexible
premium variable life insurance to obtain additional insurance protection if
the purchaser already owns another flexible premium life insurance policy.
The amount of death benefit, or the duration of insurance coverage, or both,
may be variable or fixed as elected by the Owner.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY CURRENT PROSPECTUSES FOR
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1995.
- -------------------------------------------------------------------------------
(i)
<PAGE> 7
GLOSSARY
ADMINISTRATIVE OFFICE
Refers to the office where all premium payments and requests should be
addressed. The address of the Administrative Office is P.O. Box 30349,
Hartford, Connecticut 06150-0349. The phone number is 1-800-982-3656 or
1-203-345-8561.
ATTAINED AGE
Age on most recent Policy Anniversary.
BENEFICIARY
The Beneficiary is as named in the application, unless later changed. The
Beneficiary is entitled to the insurance benefits of the Policy.
CASH SURRENDER VALUE
The Cash Surrender Value on any date is equal to the amount in the Policy
Account on that date minus any applicable surrender charge.
EFFECTIVE DATE
The Effective Date is the date when insurance coverage begins under the Policy.
FACE AMOUNT OF INSURANCE
The amount chosen by the Owner used to determine the death benefit.
FINAL POLICY DATE
The date on which SAFECO will pay the value of the Policy Account less any
outstanding indebtedness if the Policy is in effect on such date.
GUARANTEED INTEREST DIVISION
The Guaranteed Interest Division is part of SAFECO's general account and
guarantees the principal and interest rate paid.
INVESTMENT DIVISION
A Division of the Separate Account invested wholly in shares of one of the
Portfolios of the Funds.
MAXIMUM PREMIUM
The annual premium for the Face Amount of Insurance at issue that would be
payable in equal amounts through the Final Policy Date and which is based on:
the guaranteed cost of insurance using the 1980 Commissioner's Standard
Ordinary Mortality Table, the other charges made in accordance with the Policy,
and the net investment earnings at an effective annual rate of 5%.
NET CASH SURRENDER VALUE
The Net Cash Surrender Value is equal to the Cash Surrender Value minus any
loan and loan interest.
OWNER
The Owner is the Primary Insured unless named otherwise in the application or
later changed.
POLICY ACCOUNT
The sum of the value of Policy assets both in the Guaranteed Interest Division
and the Separate Account.
POLICY ANNIVERSARY
The same day and month as the Effective Date, day and month, for each year the
Policy remains in effect.
(ii)
<PAGE> 8
POLICY MONTH
A period of time commencing on the same day of the month as the Effective Date
and ending on the day preceding the same day of the next month.
POLICY YEAR
The first Policy Year starts on the Effective Date. Future Policy Years start
on the same day and month in each subsequent year, i.e., the Policy
Anniversary.
PRIMARY INSURED
The insured person whose death benefit includes the Policy Account.
SEPARATE ACCOUNT
A segregated asset account maintained by SAFECO into which a portion of its
assets has been allocated for the Policies and certain other policies.
UNIT VALUE
The unit of measure used to determine the value of the Investment Divisions in
the Separate Account.
(iii)
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SAFECO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
THE SEPARATE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
VARIABLE INSURANCE PRODUCTS FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Objectives and Policies of the Funds' Portfolios . . . . . . . . . . . . . . . . . . . . . 7
Substitution of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PREMIUMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Initial Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Subsequent Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Deductions From Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Premium Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Sales Loads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Deductions from Policy Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
First Year Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Monthly Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Monthly Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Monthly Cost of Insurance for Primary Insured . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Monthly Cost of Any Benefits Provided by Riders . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Deductions from Investment Divisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Income Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Deductions for Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Transfers Among Investment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Increases in Face Amount of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Partial Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Surrender Charges (Deferred Sales Load) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Full Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Decreases in Face Amount of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Variable Insurance Products Funds' Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
POLICY BENEFITS AND RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Insurance Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Guaranteed Death Benefit Endorsement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Changing Face Amount of Insurance or Death Benefit Option . . . . . . . . . . . . . . . . . . . . . . 17
Transfers Among Investment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Loan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Loan Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Full Cash Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Partial Cash Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
(iv)
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
<S> <C>
VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Changing Owner or Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ADMINISTRATION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
DELAY OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Tax Treatment of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Tax Treatment of Loans & Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Multiple Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Tax Treatment of Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Qualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SEPARATE ACCOUNT VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Disregard of Voting Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
APPENDIX A-FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B-HYPOTHETICAL ILLUSTRATIONS
Of Death Benefits, Policy Account and Net Cash Surrender Values, and Accumulated Premiums . . . . . . B-1
APPENDIX C-ILLUSTRATIONS
Of Variation in Death Benefit, Policy Account and Cash Surrender Values in Relation to the Funds'
Investment Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D
Standard & Poor's 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E
Long-Term Market Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
</TABLE>
(v)
<PAGE> 11
SUMMARY
- -------------------------------------------------------------------------------
The following summary of Prospectus information and diagram of the Policy
should be read in conjunction with the detailed information appearing elsewhere
in this Prospectus. Unless otherwise indicated, the description of the Policy
contained in this Prospectus assumes that the Policy is in force and that there
is no outstanding indebtedness.
DIAGRAM OF POLICY
--------------------------------------------------
PREMIUM PAYMENTS
- You can vary amount and frequency.
--------------------------------------------------
------------------------------------------------------------------
DEDUCTIONS FROM PREMIUMS
- Sales load and distribution expense is 3%
- Premium Tax that varies by state or subdivision.
------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET PREMIUM
- You direct the net premium to be invested in the Guaranteed Interest
Division (GID) or to the Separate Account which offers ten different
Investment Divisions. Each Investment Division invests in a separate
Portfolio of the Variable Insurance Products Fund or the Variable
Insurance Products Fund II.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DEDUCTIONS FROM ASSETS
- Monthly charge for cost of insurance and cost of any riders.
- Monthly charge for administrative expenses of $24.00 per month the first
year, $4.00 per month thereafter.
- Daily charge, at an annual rate of 0.90% from the variable subaccounts
for mortality and expense risks. This Charge is not deducted from the GID.
- Investment advisory fees and fund expenses are deducted from each
Portfolio.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BENEFITS
LIVING BENEFITS:
- Loans may be taken at a net zero interest rate after twelve years.
- The Policy may be surrendered at any time for its Net Cash Surrender
Value.
- Partial withdrawals can be made after the first Policy Year (subject to
certain restrictions). The death benefit will be reduced by the amount of
the partial withdrawal.
- Accelerated payment of a portion of the lowest scheduled death benefit
is available under certain conditions to insureds suffering from terminal
illnesses.
RETIREMENT BENEFITS:
- Loans may be taken at a net zero interest rate after twelve years.
- Partial Withdrawals or Cash Surrender Values may be taken in a variety
of settlement options.
DEATH BENEFITS:
- Death benefits are income tax free to beneficiary.
- Lifetime income to beneficiary under certain settlement options.
- For certain Policies issued on or after April 29, 1994, a Guaranteed
Death Benefit Endorsement may be added to the Policy.
- -------------------------------------------------------------------------------
1
<PAGE> 12
THE POLICY
The Policy described in this Prospectus is a flexible premium variable life
insurance policy. The Policy is "flexible" because unlike the fixed premium and
benefits of an ordinary whole life insurance policy, the frequency and amount
of premium payments can vary, the Owner can choose between death benefit
options and increase or decrease the amount of insurance coverage, all within
the same policy of insurance.
After SAFECO accepts the Primary Insured, receives at least the minimum initial
premium and deducts certain charges, the Policy Account is established. For the
first 25 days after the Effective Date, the Policy Account will be allocated to
the Money Market Division of the Separate Account. At the end of this 25 day
period, the Policy Account will be allocated to the Investment Divisions of the
Separate Account and to the unloaned portion of the Guaranteed Interest
Division in accordance with the Owner's instructions. The Policy Account
reflects the amount and frequency of premium payments, deductions for the cost
of insurance and expenses, the investment experience of amounts allocated to
the Separate Account, interest earned on amounts allocated to the Guaranteed
Interest Division, loans and partial withdrawals. There is no minimum
guaranteed value with respect to any amounts allocated to the Separate Account.
The Guaranteed Interest Division guarantees the principal and interest credited
and paid. The declared interest rate will vary and is guaranteed to never be
less than 4% per year.
The Policy is "variable" because the Policy Account, and under certain
circumstances the death benefit under the Policy, may increase or decrease
depending upon the investment results of the selected Investment Divisions of
the Separate Account.
There are two death benefit options: Option A and Option B. If death benefit
Option A is in effect, the death benefit is the greater of the Face Amount of
Insurance or a percentage of the amount in the Policy Account. Under this
option, the amount of the death benefit is fixed, except when it is determined
by such a percentage. If death benefit Option B is in effect, the death benefit
is the greater of the Face Amount of Insurance plus the amount in the Policy
Account, or a percentage of the amount in the Policy Account. Under this
option, the amount of the death benefit is variable. The Owner can change the
selection of death benefit option.
SAFECO makes monthly deductions from the Policy Account (i) to cover the cost
of the benefits provided by the Policy, (ii) to cover the cost of any benefits
provided by riders to the Policy and (iii) for the cost of administering the
Policy. If the Net Cash Surrender Value of the Policy is not sufficient to
cover the monthly deduction when due, a grace period of 61 days will be allowed
for the payment of a premium or a loan repayment. If a premium or a loan
repayment sufficient to cover three monthly deductions of cost of insurance
plus other charges made in accordance with the Policy is still unpaid at the
end of the grace period, the Policy will lapse and all coverage under the
Policy will terminate. If the Guaranteed Death Benefit Endorsement has been
added to the Policy and subject to its provisions including payment of required
premiums, prior to the Policy Anniversary following the Primary Insured's 80th
birthday, the Policy will not terminate and a death benefit will be payable
upon the death of the Primary Insured regardless of the investment performance
of the Investment Divisions selected. (See "Guaranteed Death Benefit
Endorsement" on page 16.)
The Policy has been designed to comply with the definition of life insurance
contained in Section 7702 of the Internal Revenue Code of 1986, as amended.
However, the law in this regard is very complex
2
<PAGE> 13
and unclear. While every attempt has been made to comply, there is the risk
that the Internal Revenue Service will not concur with SAFECO's interpretations
of Section 7702 that were made in determining such compliance. For a further
discussion, see "Tax Status - Tax Treatment of the Policy" on Page 24.
THE SEPARATE ACCOUNT
The Separate Account has been established by SAFECO pursuant to the insurance
laws of the State of Washington and is organized as a unit investment trust
under the Investment Company Act of 1940. Net premiums are placed in the
Owner's Policy Account, which are then allocated to one or more Investment
Divisions of the Separate Account and/or to the Guaranteed Interest Division.
The Separate Account is divided into Investment Divisions. Each Investment
Division invests in one or more Portfolio(s) of Variable Insurance Products
Fund or Variable Insurance Products Fund II. Variable Insurance Products Fund
is a mutual fund comprised of five Portfolios, each of which is currently
available in connection with the Policies. The five Portfolios are: the Money
Market Portfolio, the High Income Portfolio, the Equity-Income Portfolio, the
Growth Portfolio and the Overseas Portfolio. Variable Insurance Products Fund
II is a mutual fund comprised of five Portfolios, each of which is currently
available in connection with the Policies. The five Portfolios are: the
Investment Grade Bond Portfolio, the Asset Manager Portfolio, Index 500
Portfolio, Contrafund Portfolio and Asset Manager: Growth Portfolio. (See "The
Separate Account" on Page 6 for information concerning The Hudson River Trust
which is also invested in by the Separate Account but which is not available in
connection with the Policies offered hereunder.)
RIGHT TO EXAMINE THE POLICY
The Owner may examine the Policy and if for any reason is not satisfied, the
Owner may cancel it by returning the Policy with a written request for
cancellation to SAFECO's Administrative Office by the later of: (a) the 10th
day after receipt; or (b) the 45th day after Part I of the application was
signed. If the Owner cancels the Policy, SAFECO will refund an amount equal to
the premium payments made under the Policy.
CHARGES AND DEDUCTIONS
FROM THE PREMIUM PAYMENTS
PREMIUM TAX CHARGE. State and/or local premium taxes are assessed based on the
Owner's residence. Premium taxes currently range up to 4%.
SALES LOADS. There is a sales charge equal to 3% of each premium payment.
(There is also a Surrender Charge, Deferred Sales Load, of up to 47% of the
Maximum Premium assessed in the event the Policy Account is surrendered for its
Net Cash Surrender Value. See "Surrender Charges" on Page 13.)
FROM THE POLICY ACCOUNT
FIRST YEAR ADMINISTRATIVE CHARGE. During the first Policy Year, a charge of
$20.00 is deducted from the Policy Account at the beginning of each Policy
Month.
3
<PAGE> 14
MONTHLY DEDUCTION. Deductions from the Policy Account at the beginning of each
Policy Month consist of:
1. The monthly administrative charge is currently $4.00 per Policy Month.
SAFECO has reserved the right to change this charge, but it will never be
more than $8.00 per Policy Month;
2. The monthly cost of insurance for the Primary Insured; and
3. The monthly cost of any benefits provided by riders to the Policy.
FROM THE INVESTMENT DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE. This charge is equal on an annual basis to
0.90% of the daily net asset value of the Separate Account. SAFECO estimates
that, of the Mortality and Expense Risk Charge, approximately 0.55% is for the
assumption of mortality risks and approximately 0.35% is for the assumption of
expense risks.
INCOME TAX CHARGE. SAFECO has reserved the right to make a provision for
federal, state and local income taxes which have resulted from the operation of
any Investment Division of the Separate Account.
FOR OTHER TRANSACTIONS
FOR TRANSFERS AMONG INVESTMENT OPTIONS. The first twelve transfers of amounts
in a Policy Year will be made without charge. A charge of up to $25.00 may be
deducted from the Policy Account for each additional transfer in that Policy
Year. However, under certain systematic investing programs this charge will not
be applicable.
FOR INCREASES IN FACE AMOUNT OF INSURANCE. $2.00 for each $1,000 of increase is
deducted from the Policy Account up to a maximum charge of $300.00 per
increase.
FOR PARTIAL WITHDRAWALS. A charge equal to $25.00 or 2% of the amount
withdrawn, if less, is deducted from the Policy Account whenever there is a
partial withdrawal of Net Cash Surrender Value.
SURRENDER CHARGES (DEFERRED SALES LOAD)
FOR FULL SURRENDERS. A surrender charge of up to 47% of the Maximum Premium
will be deducted from the Policy Account if the Policy is surrendered in the
first ten Policy Years. An Owner can minimize the amount of Surrender Charge by
limiting the amount of premiums paid in the first year. (See "Charges and
Deductions - Surrender Charges" on Page 13.)
FOR DECREASES IN FACE AMOUNT OF INSURANCE. A decrease in the Face Amount of
Insurance is a partial surrender, for which a portion of the Surrender Charge
will be deducted from the Policy Account. (See "Charges and Deductions
- -Surrender Charges" on Page 13.)
There are no Surrender Charges after the tenth Policy Year.
4
<PAGE> 15
VARIABLE INSURANCE PRODUCTS FUNDS' EXPENSES
- -------------------------------------------------------------------------------
Each of the Portfolios of the Funds pays an investment advisory fee. The Funds
have also assumed responsibility for paying certain operating expenses. (See
"Charges and Deductions - Variable Insurance Products Funds' Expenses" on Page
14.)
For a complete discussion of all the charges and deductions, see "Charges and
Deductions" on Page 11.
POLICY LOANS
The Owner may obtain a Policy loan, using the Policy Cash Surrender Value as
security. (See "Policy Benefits and Rights - Policy Loans" on Page 18.)
TAX STATUS
MODIFIED ENDOWMENT CONTRACTS
The Technical and Miscellaneous Revenue Act of 1988 (the "1988 Act") alters the
tax treatment accorded to loans and certain distributions from life insurance
policies which are deemed to be "modified endowment contracts."
A Policy will be a modified endowment contract if it is issued or materially
changed on or after June 21, 1988 and if the cumulative amount paid under it at
any time during the first 7 Policy Years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven (7) level
annual premiums (the "7-pay test"). A material change to the Policy at any time
results in the commencement of a new 7-pay period. An increase in death benefit
not as a result of investment performance is a material change. A Policy that
was entered into prior to June 21, 1988 may be deemed to be a modified
endowment contract if it is materially changed and fails to meet the 7-pay
test. If the Policy is acquired through an exchange of another life insurance
policy, the 7-pay test is applicable even though the original policy was
entered into prior to June 21, 1988. Due to the flexible premium nature of the
Policy, the determination of whether it qualifies for treatment as a modified
endowment contract depends on the individual circumstances of each Policy.
SAFECO will make every effort to provide Owners with information necessary to
determine the applicability of the 7-pay test. However, Owners should consult
with a tax advisor as to its applicability to their own circumstances.
If a Policy is a modified endowment contract, partial or full surrenders and/or
loan proceeds are taxable to the extent of income in the Policy and will also
be subject to an additional 10% federal income tax penalty applied to the
income. The penalty shall not, however, apply to any distribution: (1) made on
or after the date on which the taxpayer reaches age 59 1/2; (2) which is
attributable to the taxpayer becoming disabled (within the meaning of Section
72(m)(7) of the Internal Revenue Code); or (3) which is part of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of such taxpayer and his beneficiary. These distributions
are taxed using an "income-first" method rather than a "basis-first" method.
Owners should consult a tax adviser regarding the possible tax consequences of
loans and/or surrenders from the Policy.
5
<PAGE> 16
The 1988 Act further provides that multiple modified endowment contracts that
are issued during any calendar year to the same Owner by one company or its
affiliates are treated as one modified endowment contract for purposes of
determining the taxable portion of any loans or distributions. Such treatment
may result in adverse tax consequences including more rapid taxation of the
loans or distributed amounts from such combination of contracts. Owners should
consult a tax adviser prior to purchasing more than one modified endowment
contract during any calendar year.
For more details, see "Tax Status - Policy Proceeds" on Page 24 and "Tax Status
- - Tax Treatment of Loans and Surrenders on Page 25.
SAFECO
- -------------------------------------------------------------------------------
SAFECO Life Insurance Company ("SAFECO") is a stock life insurance company
which was organized under the laws of the State of Washington on January 23,
1957. SAFECO writes individual and group life, accident and health insurance
and annuities. SAFECO is licensed to do business in the District of Columbia
and all states except New York. SAFECO is a wholly-owned subsidiary of SAFECO
Corporation, which is a holding company whose subsidiaries are engaged
primarily in insurance and financial service businesses. SAFECO is rated A+
(Superior) by A.M. Best, an independent firm that analyzes insurance carriers.
SAFECO is also rated AA for excellent claims paying ability by Standard &
Poor's, and rated Aa2 for financial strength by Moody's. The financial strength
of SAFECO may be relevant with respect to SAFECO's ability to satisfy its
general account obligations under the Policies. The home office address of
SAFECO is P.O. Box 34690, Seattle, Washington 98124-1690. The address of the
Administrative Office is P.O. Box 30349, Hartford, Connecticut 06150-0349. The
phone number is 1-800-982-3656 or (203)-345-8561. All premium payments and any
requests should be directed to the Administrative Office.
THE SEPARATE ACCOUNT
- -------------------------------------------------------------------------------
The Board of Directors of SAFECO adopted a resolution to establish a segregated
asset account pursuant to Washington insurance law on November 6, 1986. This
segregated asset account has been designated Separate Account SL ("Separate
Account"). SAFECO has caused the Separate Account to be registered with the
Securities and Exchange Commission as a unit investment trust pursuant to the
provisions of the Investment Company Act of 1940. The Separate Account meets
the definition of a "separate account" under the federal securities laws.
The assets of the Separate Account are the property of SAFECO. However, the
assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business SAFECO may conduct. Income, gains
and losses, whether or not realized, are, in accordance with the Policies,
credited to or charged against the Separate Account without regard to other
income, gains or losses of SAFECO. SAFECO's obligations arising under the
Policies are general corporate obligations.
The Separate Account is divided into Investment Divisions. Each Investment
Division invests in shares of a corresponding Portfolio of Variable Insurance
Products Fund, Variable Insurance Products Fund II ("Funds") or of The Hudson
River Trust ("Trust"). As of September 30, 1991, SAFECO and the Separate
Account ceased offering for sale Policies under which net premiums are
allocable to Portfolios of the Trust. This Prospectus describes Policies under
which net premiums are allocable to Portfolios of the Funds through Investment
Divisions of the Separate Account.
6
<PAGE> 17
VARIABLE INSURANCE PRODUCT FUNDS
Each Investment Division of the Separate Account (other than the Investment
Divisions relating to The Hudson River Trust) is invested solely in the shares
of one or more of Portfolio(s) of Variable Insurance Products Fund or Variable
Insurance Products Fund II ("Funds"). Each of the Funds is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940. While a brief summary of the investment objectives and
policies of the Portfolios of the Funds is set forth below, more comprehensive
information, including a discussion of potential risks, is found in the
Prospectuses for the Funds which are included with this Prospectus. Each of the
Funds is intended for use in connection with variable annuity contracts and
variable life insurance policies offered by various life insurance companies.
For a further discussion, see the Funds' Prospectuses. Each of the Funds has
entered into an investment advisory agreement with Fidelity Management &
Research Company ("Fidelity Management"), 82 Devonshire Street, Boston,
Massachusetts 02109.
Shares of the Funds are issued and redeemed only in connection with variable
life policies issued through the Separate Account and variable annuity and/or
variable life insurance policies issued through separate accounts of life
insurance companies not affiliated with SAFECO. The Funds do not foresee any
disadvantage to Owners arising out of the fact that the Funds have been made
available to separate accounts of companies not affiliated with SAFECO.
Nevertheless, the Funds intend to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response thereto. If such a conflict
were to occur, one of the separate accounts might withdraw its investment in
the Fund(s). This might force the Fund(s) to sell portfolio securities at
disadvantageous prices.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS' PORTFOLIOS
VARIABLE INSURANCE PRODUCTS FUND
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- --------- ---------- ------ ----------
<S> <C> <C>
MONEY MARKET High-quality, U.S. dollar denominated money Seeks to obtain as high a level of
market securities of domestic and foreign current income as is consistent with
issuers, such as certificates of deposit, preserving capital and providing
obligations of governments and their liquidity.
agencies and commercial paper and notes.
HIGH INCOME At least 65% in income-producing debt Seeks to obtain a high level of
securities and preferred stocks, including current income by investing primarily
convertible securities; up to 20% in common in high-yielding, lower-rated, fixed-
stocks and other equity securities; and up income securities, while also
to 15% in securities that are illiquid by considering growth of capital. High-
virtue of restrictions on resale and all yielding lower grade corporate debt
other illiquid securities. securities are commonly known as
"junk bonds" and involve a
significant degree of risk. See
"Securities and Investment Practices"
in the accompanying Variable
Insurance Products Fund Prospectus.
</TABLE>
7
<PAGE> 18
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- --------- ---------- ------ ----------
<S> <C> <C>
EQUITY-INCOME At least 65% in income-producing common or Seeks reasonable income by investing
preferred stock and the remainder in debt primarily in income-producing equity
securities. securities, with the potential for
capital appreciation as a
consideration.
GROWTH Portfolio will normally purchase common Seeks to achieve capital
stocks, although investments are not appreciation.
restricted to any one type of security.
Capital appreciation may also be found in
other types of securities, including bonds
and preferred stocks.
OVERSEAS Normally invests at least 65% of its assets Seeks long-term growth of capital
in securities of companies from at least primarily through investments in
three countries outside of North America. foreign securities.
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- --------- ---------- ------ ----------
<S> <C> <C>
INVESTMENT The Portfolio will maintain a dollar- Seeks as high a level of current
GRADE BOND weighted average portfolio maturity of ten income as is consistent with the
years or less. Under normal conditions, at preservation of capital by investing
least 65% of the Portfolio's total assets in a broad range of investment-grade,
will be invested in investment-grade fixed- fixed-income securities.
income securities such as bonds, notes and
debentures. Investment-grade securities are
those rated Baa or better by Moody's
Investors Service, Inc. or BBB or better by
Standard & Poor's Corporation, and unrated
securities judged by Fidelity Management to
be of equivalent quality.
ASSET MANAGER The Portfolio allocates its assets among Seeks high total return with reduced
domestic and foreign stocks, bonds and risk over the long-term.
short-term fixed income instruments.
</TABLE>
8
<PAGE> 19
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- --------- ---------- ------ ----------
<S> <C> <C>
INDEX 500 The Portfolio's assets will be invested in Seeks investment results that
equity securities of companies which correspond to the total return (i.e.,
compose the S&P 500*. the combination of capital changes
and income) of common stocks publicly
traded in the United States, as
represented by the Standard & Poor's
Composite Index of 500 Stocks, while
keeping transaction costs and other
expenses low.
CONTRAFUND The Portfolio's assets will be invested Seeks long-term capital appreciation.
mainly in undervalued or out-of-favor
equity securities of companies and
industries. This strategy can lead to
investments in stocks of small companies
which may not be well-known.
ASSET MANAGER: The Portfolio's assets will be diversified Seeks maximum total return over the
GROWTH across domestic and foreign stocks, bonds long term.
and short term instruments while
maintaining a neutral mix which will vary
over short term periods gradually adjusting
the portfolio's holdings within defined
ranges.
</TABLE>
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500"
and "500" are trademarks of Standard & Poor's Corporation ("S&P") and have
been licensed for use by SAFECO. The Index 500 Portfolio is not sponsored,
endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Index 500 Portfolio.
There is no assurance that the investment objective of any of the Portfolios
will be met. Owners bear the complete investment risk for Policy Account values
allocated to an Investment Division.
Additional Portfolios and/or additional funds may from time to time be made
available as investments to underlie the Policy. However, the right to make
such selections will be limited by the terms and conditions imposed on such
transactions by SAFECO.
SUBSTITUTION OF SECURITIES
If the shares of the Funds or any Portfolio within the Funds become unavailable
for investment by the Separate Account or, if in the judgment of SAFECO,
further investment in such shares becomes inappropriate in view of the purposes
of the Policy, SAFECO may substitute shares of another mutual fund (or
Portfolio within the Fund(s)). No substitution of securities may take place
without prior approval of the Securities and Exchange Commission and under the
requirements it may impose.
9
<PAGE> 20
ALLOCATIONS
- -------------------------------------------------------------------------------
The Policy provides investment options for the amount in the Policy Account.
After SAFECO accepts the Primary Insured, receives at least the minimum initial
premium and deducts certain charges, the Policy Account is established for the
Owner. For the first 25 days after the Effective Date, the Policy Account will
be allocated to the Money Market Division of the Separate Account. At the end
of this 25 day period, the Policy Account will be allocated to the Investment
Divisions of the Separate Account and to the unloaned portion of the Guaranteed
Interest Division in accordance with the Owner's instructions. Amounts put into
the Policy Account subsequently and deductions from it are allocated to the
Investment Divisions of the Separate Account and to the unloaned portion of the
Guaranteed Interest Division at the Owner's direction. The Owner specifies the
original premium allocation and deduction allocation percentages in the
application for the Policy. Unless changed, such percentages also apply to
subsequent premium and deduction allocations.
Allocation percentages must be zero or a whole number not greater than 100. The
sum of the premium allocation percentages and of the deduction allocation
percentages must each equal 100.
If SAFECO cannot make a monthly deduction on the basis of the allocation
percentages, the deduction will be based on the proportion that the unloaned
value in the Guaranteed Interest Division and the values in the Investment
Divisions bear to the total unloaned value in the Policy Account.
PREMIUMS
- -------------------------------------------------------------------------------
THE INITIAL PREMIUM
The initial premium payment is due on or before delivery of the Policy. The
minimum initial premium required is that premium sufficient to cover 3 monthly
deductions for cost of insurance plus other charges made in accordance with the
Policy. The agent selling the Policy will provide a prospective purchaser with
this information. No insurance will take effect before the initial premium
payment is paid.
SUBSEQUENT PREMIUMS
Other premiums may be paid at any time at SAFECO's Administrative Office while
the Policy is in force and before the Final Policy Date. These premiums are to
be in the form of a check or money order payable to SAFECO Life. Such premiums
may be in any amount subject to the limits described below.
If the Owner elects to pay premiums on a planned periodic premium basis, SAFECO
will send premium reminder notices. Instead of receiving premium reminder
notices, an Owner can elect to have premiums automatically deducted from the
Owner's bank account.
The Owner may skip planned premium payments or change their frequency and
amount.
For certain Policies issued on or after April 29, 1994, a Guaranteed Death
Benefit Endorsement may be added to the Policy. In order to maintain this
Endorsement in force, the Monthly Guaranteed Death Benefit Premium must be
paid. When the Endorsement is issued or other changes in the Policy are
requested, SAFECO will send the Owner a new Policy Information section which
will show the Monthly Guaranteed Death Benefit Premium. (See "Guaranteed Death
Benefit Endorsement" on Page 16.)
10
<PAGE> 21
LIMITS
Each premium payment must be at least $50.00. SAFECO may increase this minimum
limit 90 days after sending the Owner a written notice of such increase.
SAFECO reserves the right not to accept premium payments in any given Policy
Year that it determines would cause the Policy to fail to qualify as life
insurance under applicable tax law as currently interpreted by SAFECO. For a
further explanation, see "Tax Status - Policy Proceeds" on Page 25.
GRACE PERIOD
The duration of insurance coverage depends upon the sufficiency of the Net Cash
Surrender Value to cover the monthly deductions described below. If the Net
Cash Surrender Value at the beginning of any Policy Month is less than such
deductions for that month, SAFECO will send a written notice to the Owner and
any assignee of record at the last known address stating that a Grace Period of
61 days has begun, starting on the date the notice was sent. The notice will
also state the amount of the payment (either a loan repayment or a premium
payment) sufficient to cover three monthly deductions of cost of insurance plus
other charges made in accordance with the Policy.
If SAFECO does not receive such amount at its Administrative Office before the
end of the Grace Period, SAFECO will send a written notice to the Owner and any
assignee of record stating that the Policy has ended without value.
If the insured dies during the Grace Period, SAFECO will pay the insurance
benefits.
The Grace Period provisions are not applicable while the Guaranteed Death
Benefit Endorsement is in effect.
REINSTATEMENT
If the Policy has ended without value, it may be reinstated while the Primary
Insured is alive if:
1. the request for reinstatement is made within five years after the end of
the Grace Period;
2. evidence of insurability satisfactory to SAFECO is provided; and
3. a premium payment is made in an amount sufficient, after the date of
reinstatement, to cover 3 monthly deductions of cost of insurance plus
other charges made in accordance with the Policy.
The coverage will become effective on the beginning of the Policy Month which
coincides with or next follows the date the reinstatement application is
approved.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUM PAYMENTS
PREMIUM TAX CHARGE. All states and certain jurisdictions, such as cities and
counties, tax premium payments and some levy other charges. Taxes currently
range up to 4%. SAFECO deducts the applicable tax which it has been charged
from each premium payment based on the Owner's residence.
SALES LOADS. SAFECO deducts a Sales Charge (Sales Load) of 3% of each premium
payment. The Sales Charge reimburses SAFECO, in part, for expenses incurred in
the distribution of the Policy. There
11
<PAGE> 22
is also a Surrender Charge (Deferred Sales Load) assessed in the event the
Policy Account is surrendered for its Net Cash Surrender Value. (See "Charges
and Deductions - Surrender Charges" on Page 13.)
DEDUCTIONS FROM POLICY ACCOUNT
FIRST YEAR ADMINISTRATIVE CHARGE. At the beginning of each Policy Month during
the first Policy Year, a deduction of $20.00 is made from the Policy Account.
It covers the cost of application processing, establishing Policy records and
underwriting costs. Underwriting is the process of assigning the insured to an
appropriate risk class. SAFECO does not make a profit from this charge.
MONTHLY CHARGES. At the beginning of each Policy Month, a deduction is made
from the Policy Account to cover monthly administrative charges and to provide
insurance coverage, subject to the Grace Period provision described above. Such
deduction for any Policy Month is the sum of the following amounts determined
as of the beginning of that month:
1. The monthly administrative charge is currently $4.00 per Policy Month.
However, SAFECO reserves the right to change this charge, but it will
never be more than $8.00 per Policy Month. This charge compensates SAFECO
for the ongoing administration of the Policy and the Separate Account.
Such administration includes the costs associated with maintenance of
Policy records, Policy Owner service, reports to Owners and all
accounting, reserve calculation, regulatory and reporting requirements and
auditing of the Separate Account. SAFECO does not expect to profit from
this charge.
2. The monthly cost of insurance for the Primary Insured. The monthly cost of
insurance is the current monthly "cost of insurance rate" times the "net
amount at risk" (current death benefit minus the amount in the Policy
Account) at the beginning of the Policy Month, plus any flat extra-rated
charge times the Face Amount of Insurance at the beginning of the Policy
Month. For this purpose the amount in the Policy Account is determined
before the monthly cost of insurance deduction, but after all other
deductions due on that date have been made. The cost of insurance rate is
based on the Attained Age and rating class of the Primary Insured. For
certain Policies issued on or after April 29, 1994, the cost of insurance
is based on issue age, coverage duration and rating class of the Primary
Insured and a preferred underwriting category is available to insureds who
are determined to have better than average nonsmoker mortality (preferred
nonsmoker) and smoker mortality (preferred smoker). As of the date hereof,
the current rates which SAFECO is charging are less than or equal to the
guaranteed rates. SAFECO may change the current rate no more frequently
than once per Policy Year. The Guaranteed Maximum Insurance Cost Rates for
standard risks are based on the 1980 Commissioner's Standard Ordinary
Mortality Table, Age Last Birthday.
3. The monthly cost of any benefits provided by riders to the Policy.
DEDUCTIONS FROM INVESTMENT DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE. SAFECO deducts a risk charge from each
Investment Division as part of the calculation of the Unit Value (see
"Valuation" on Page 20). This risk charge is equal on an annual basis to .90%
of the daily net asset value of the Investment Division. SAFECO estimates that,
of the Mortality and Expense Risk Charge, approximately 0.55% is for the
assumption of mortality risks and approximately 0.35% is for the assumption of
expense risks. This risk charge compensates SAFECO for assuming the mortality
and expense risks under the Policy. The mortality risk assumed by SAFECO is
that the Primary Insureds, as a group, may not live as long as expected. The
expense risk assumed by SAFECO is that actual expenses may be greater than
those assumed. SAFECO is responsible for all administration of the Policy and
the Separate Account. If this charge is not needed
12
<PAGE> 23
to cover mortality and expenses under the Policy, any excess may be used for
distribution costs not covered by the sales load. SAFECO will realize a gain
from this charge to the extent that it is not needed to provide benefits and
pay expenses under the Policy.
INCOME TAX CHARGE. SAFECO does not currently assess any charge for income taxes
incurred by SAFECO as a result of the operations of the Investment Divisions of
the Separate Account. SAFECO reserves the right to assess a charge for such
taxes against the Investment Divisions if SAFECO determines that such taxes
will be incurred.
DEDUCTIONS FOR OTHER TRANSACTIONS
TRANSFERS AMONG INVESTMENT OPTIONS. The first twelve transfers of amounts in a
Policy Year will be made without charge. Transfers can be made from one
Investment Division to another, or to or from the Guaranteed Interest Division.
SAFECO may charge up to $25.00 for each additional transfer in the Policy Year.
The current charge is $25.00. However, under certain systematic investing
programs this charge will not be applicable.
INCREASES IN FACE AMOUNT OF INSURANCE. There is a $2.00 charge for each $1,000
of increase in Face Amount of Insurance up to a maximum charge of $300.00 per
increase. This charge is deducted from the Policy Account and reimburses SAFECO
for its costs in implementing the increase.
PARTIAL WITHDRAWALS. When the Owner makes a partial withdrawal of Net Cash
Surrender Value, a charge of $25.00, or 2% of the amount withdrawn if less, is
deducted from the Policy Account. This charge reimburses SAFECO for the
expenses incurred in processing the transaction.
SURRENDER CHARGES (DEFERRED SALES LOAD)
FULL SURRENDERS. The Policy provides that a Surrender Charge, which is graded
down 20% per year starting in the seventh year, is deducted from the Policy
Account if the Policy is given up for its Net Cash Surrender Value in the first
ten Policy Years. The Surrender Charge at any time in a Policy Year is equal to
the lesser of (1) a percentage of the Maximum Premium for the Policy as
follows: 47% for Policy Years 1 through 6, 37.6% for Policy Year 7, 28.2% for
Policy Year 8, 18.8% for Policy Year 9, and 9.4% for Policy Year 10; or (2) an
amount equal to (A) minus (B), where (A) is 27% of the premium payments
received during the first Policy Year up to the Maximum Premium for the Policy,
plus 6% of all other premium payments received to the time of surrender; and
(B) is the amount of any pro rata Surrender Charge previously made under the
Policy.
The Maximum Premium is used solely to calculate the Surrender Charge (Sales
Load); it does not impose a limit on the amount of premium that an Owner can
pay. There is a limitation imposed by the Internal Revenue Code and the
regulations thereunder. (See "Premiums - Limits" on Page 11.) While an Owner
can minimize the amount of Surrender Charge by limiting the amount of premium
paid in the first year, this would adversely effect contract performance in
every aspect other than the contemplation of a total cash surrender.
EXAMPLE
- -------------------------------------------------------------------------------
Assume a $100,000 Policy for a male preferred non-smoker, age 45. For this
Policy the Maximum Premium is $1,716.00. The Table of Surrender Charges that
appears in the Policy Information section would be determined as follows:
13
<PAGE> 24
TABLE OF SURRENDER CHARGES
<TABLE>
<CAPTION>
POLICY MAXIMUM MAXIMUM SURRENDER
YEAR PERCENTAGE PREMIUM CHARGE
<S> <C> <C> <C> <C> <C>
1 47.0% x $1,716 = $807
2 47.0% x $1,716 = $807
3 47.0% x $1,716 = $807
4 47.0% x $1,716 = $807
5 47.0% x $1,716 = $807
6 47.0% x $1,716 = $807
7 37.6% x $1,716 = $645
8 28.2% x $1,716 = $484
9 18.8% x $1,716 = $323
10 9.4% x $1,716 = $161
</TABLE>
The Surrender Charges reimburse SAFECO in part for expenses incurred in the
distribution of the Policy.
DECREASES IN FACE AMOUNT OF INSURANCE. A request for a decrease in the Face
Amount of Insurance is treated as a partial surrender. If there is a requested
decrease in the Face Amount of Insurance during the first ten Policy Years,
SAFECO will deduct a portion of the Surrender Charge from the Policy Account.
If the Owner increases the Face Amount of Insurance and later asks for a
decrease, a Surrender Charge will apply only to a decrease below the original
Face Amount of Insurance. A decrease in the Face Amount of Insurance that
follows a prior increase will be applied against the most recent increase. The
pro rata Surrender Charge for a partial surrender will be determined by
dividing the amount of decrease in the Face Amount of Insurance (below the
initial Face Amount of Insurance) by the initial Face Amount of Insurance and
multiplying that fraction by the Surrender Charge which would apply if the
Policy were fully surrendered.
The pro rata Surrender Charge will be deducted from the Policy Account for a
requested decrease in the Face Amount of Insurance of this Policy. The maximum
Surrender Charge payable in the future will be reduced proportionately. SAFECO
will send a new Policy Information section that shows the new maximum Surrender
Charges.
VARIABLE INSURANCE PRODUCTS FUNDS' EXPENSES
Each of the Portfolios of the Funds pays a fee to the Funds' investment
adviser, Fidelity Management. The advisory fee payable by each of the
Portfolios, other than the Index 500 Portfolio, is composed of a group fee rate
and an individual fund fee rate. The group fee rate is based on the average
monthly net assets of all registered investment companies with which Fidelity
Management has management contracts and is calculated on a cumulative basis
pursuant to a graduated schedule. For the Equity-Income, Growth, Overseas and
Asset Manager Portfolios, the group fee rate cannot rise above .52% and the
marginal rate declines as total assets increase. For the Money Market
Portfolio, Investment Grade Bond Portfolio and the High Income Portfolio, the
group fee rate cannot rise above .37% and the marginal rate declines as total
assets increase. Set forth in the table below is the individual fund fee rate
for each of the Portfolios and the 1994 aggregate advisory rate, comprised of
the individual and group fee rates, paid by each such Portfolio as a percentage
of average net assets.
<TABLE>
<CAPTION>
PORTFOLIO INDIVIDUAL RATE 1994 AGGREGATE ADVISORY RATE
--------- --------------- ----------------------------
<S> <C> <C>
Money Market .03%* 0.20%
High Income .35% 0.61%
</TABLE>
14
<PAGE> 25
<TABLE>
<S> <C> <C>
Equity-Income .20% 0.52%
Growth .30% 0.62%
Overseas .45% 0.77%
Investment Grade Bond .30% 0.46%
Asset Manager .40% 0.72%
Contrafund .30% 0.62%*
Asset Manager: Growth .40% 0.72%*
</TABLE>
* Estimated for 1995
In addition to the sum of the group and individual fund fee rate, the fee for
the Money Market Portfolio may also be affected by an income-based component.
If the fund's gross yield is 5% or less, the basic fee is the total management
fee. The income-based component is added to the basic fee only when the fund's
yield is greater than 5%. The income-based fee is 6% of that portion of the
fund's yield that represents a gross yield of more than 5% per year. The
maximum income-based component is .24%. For 1994, the Money Market Portfolio's
advisory fee was .20% of its average net assets. The Index 500 Portfolio pays a
monthly advisory fee to Fidelity Management at the annual rate of .28% of the
Portfolio's average net assets. (See the Funds' Prospectuses for more
information and a table showing each Portfolio's expenses for the year ended
December 31, 1994.)
<TABLE>
<CAPTION>
PORTFOLIO 1994 ADVISORY FEE
--------- -----------------
<S> <C>
Index 500 0.00%*
</TABLE>
* After reimbursement of the Portfolio's expenses.
Each Portfolio of the Funds pays all its expenses, without limitation, that are
not assumed by Fidelity Management or its affiliates. Each Portfolio pays for
the typesetting and printing of its Prospectuses, Statements of Additional
Information, reports and proxy material to existing shareholders, legal
expenses and the fees of the custodian, auditor and non-interested Trustees.
Other charges paid by each Portfolio include interest, taxes, brokerage
commissions, each Portfolio's proportionate share of insurance premiums and
Investment Company Institute dues, and the costs of registering shares under
federal and state securities laws. Each Portfolio is also liable for such
nonrecurring expenses as may arise, including costs of litigation to which each
Portfolio is a party and any obligation they may have to indemnify the officers
and Trustees of the Fund(s) with respect to litigation.
POLICY BENEFITS AND RIGHTS
- -------------------------------------------------------------------------------
INSURANCE BENEFITS
SAFECO will pay the insurance benefits of the Policy to the Beneficiary when it
receives at its Administrative Office (1) proof that the insured died before
the Final Policy Date; and (2) all other requirements deemed necessary before
such payment may be made. The insurance benefits of the Policy include the
following amounts for the Primary Insured, which are determined as of the date
of the Primary Insured's death:
(a) the death benefit described below;
(b) plus any other benefits then due from riders to the Policy;
(c) minus any loan (and loan interest) on the Policy; and
(d) minus any overdue deductions if the Primary Insured dies during the Grace
Period.
15
<PAGE> 26
DEATH BENEFIT
The death benefit will be determined at any time under either Option A or
Option B (as described below), whichever the Owner has chosen and is in effect
at such time.
Under Option A, the death benefit is the greater of the Face Amount of
Insurance, or a percentage (see table next page) of the amount in the Policy
Account. Under this option, the amount of the death benefit is fixed, except
when it is determined by such a percentage.
Under Option B, the death benefit is the greater of the Face Amount of
Insurance plus the amount in the Policy Account, or a percentage (see table
next page) of the amount in the Policy Account. Under this option, the amount
of death benefit is variable.
Under either option, the duration of insurance coverage depends upon the amount
in the Policy Account.
The percentage referred to above is the applicable percentage from the
following table for the Primary Insured's age (last birthday) at the beginning
of the Policy Year of determination.
TABLE OF APPLICABLE PERCENTAGES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIMARY PRIMARY
INSURED'S AGE PERCENTAGE INSURED'S AGE PERCENTAGE
------------- ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 65 120%
45 215% 70 115%
50 185% 75 thru 90 105%
55 150% 95 100%
60 130%
</TABLE>
For ages not shown, the applicable percentages shall decrease by a ratable
portion for each full year.
GUARANTEED DEATH BENEFIT ENDORSEMENT
In those states where approved, a Guaranteed Death Benefit Endorsement may be
added to the Policy. The Endorsement provides that prior to the Policy
Anniversary following the Primary Insured's 80th birthday (or the 20th Policy
Anniversary in Texas, once approved, if earlier), the Policy will not terminate
and a death benefit will be payable upon the death of the Primary Insured
regardless of the investment performance of the Investment Divisions selected,
provided the required premiums have been paid.
In order to keep the Endorsement in force, at the beginning of each Policy
Month, the Adjusted Guaranteed Death Benefit Premium must equal or exceed the
Accumulated Monthly Death Benefit Premium.
The Adjusted Guaranteed Death Benefit Premium is an amount equal to: (1) the
sum of the premiums received since issue; minus (2) any partial surrender;
minus (3) any loans and loan interest. The Accumulated Monthly Death Benefit
Premium is an amount equal to the sum of the Monthly Guaranteed Death Benefit
Premiums for each month since issue. The Monthly Guaranteed Death Benefit
Premium is shown in the Policy Information section of the Policy.
16
<PAGE> 27
CHANGING FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION
During the first Policy Year, the death benefit option and the Face Amount of
Insurance will be as selected on the application for the Policy. The minimum
Face Amount of Insurance is $50,000. At any time after the first Policy Year
while the Policy is in force, the Owner may change the death benefit option or
the Face Amount of Insurance by written request to SAFECO at its Administrative
Office, subject to the following:
1. The Owner may ask SAFECO to increase the Face Amount of Insurance if the
Owner provides satisfactory evidence of the insurability of the Primary
Insured. Any increase must be at least $10,000. There is a charge for
such increase. (See "Charges and Deductions - Increases in Face Amount of
Insurance" on Page 13.) The charge is deducted from the Policy Account as
of the date the increase takes effect.
The Owner may reconsider this Face Amount of Insurance increase after
requesting it. The Owner must mail a notice to SAFECO at its
Administrative Office canceling the increase within a ten day period
after receipt of new Policy Information pages. At such time the Policy
Account will be credited with the amount charged for the increase.
2. The Owner may ask SAFECO to reduce the Face Amount of Insurance, but not
to less than the minimum amount for which SAFECO would then issue the
Policy under its then existing administrative rules. If such a reduction
occurs in the first ten Policy Years, SAFECO will deduct from the Policy
Account a pro rata share of the applicable Surrender Charge. (See
"Charges and Deductions - Decreases in Face Amount of Insurance" on Page
14.)
3. The Owner may change the death benefit option. If the change is from
Option A to Option B, the Face Amount of Insurance will be decreased by
the amount in the Policy Account on the date of change. SAFECO has
reserved the right to decline to make such change if it would reduce the
Face Amount of Insurance below the minimum amount for which SAFECO would
then issue the Policy under its then existing administrative rules. If
the change is from Option B to Option A, the Face Amount of Insurance
will be increased by the amount in the Policy Account on the date of
change. Such decreases and increases in the Face Amount of Insurance are
made so that the death benefit remains the same on the date of change.
There is no charge for this change.
Any changes will take effect at the beginning of the Policy Month that
coincides with or next follows the date SAFECO approves the request. SAFECO has
reserved the right to decline to make any change that is determined would cause
the Policy to fail to qualify as life insurance under applicable tax law as
interpreted by SAFECO. An Owner may ask for a change by completing an
application for change and sending it to the Administrative Office.
TRANSFERS AMONG INVESTMENT OPTIONS
At the request of the Owner and subject to any conditions or requirements that
SAFECO may impose, SAFECO will transfer amounts from the Policy Account value
in any Investment Division to one or more other Investment Divisions of the
Separate Account or to the Guaranteed Interest Division. The minimum amount
that SAFECO will transfer from the Policy Account value in an Investment
Division on any date is the lesser of $200.00 or the Policy Account value in
that Investment Division on that date.
The Owner is permitted to transfer, on any Policy Anniversary, the Policy
Account value from the unloaned value in the Guaranteed Interest Division to
one or more Investment Divisions of the Separate Account. However, SAFECO will
make such a transfer only if (1) SAFECO receives the request for
17
<PAGE> 28
transfer at least 30 days before that Policy Anniversary; and (2) the amount
requested is not more than the greater of 25% of the unloaned value in the
Guaranteed Interest Division on that Anniversary or $200.00. In no event will
more than such unloaned value be transferred. The minimum amount that SAFECO
will transfer from the Policy Account value in the Guaranteed Interest Division
on any Policy Anniversary is the lesser of $200.00 or the unloaned value in the
Guaranteed Interest Division on that date.
Twelve transfers may be made in a Policy Year without charge. After the first
twelve transfers in a Policy Year, SAFECO may charge up to $25.00 for each
additional transfer in that Policy Year. The current transfer fee is $25.00.
The transfer charge will be allocated equally between the investment options
from which the requested amounts were transferred. However, under certain
systematic investing programs this charge will not be applicable.
All such requests must be in writing (or by telephone request, if authorized)
to the Administrative Office. A transfer will take effect on the date SAFECO
receives it at its Administrative Office, except that a transfer requested from
the Guaranteed Interest Division will be made as of the Policy Anniversary
following the date the request is received by SAFECO.
POLICY LOANS
The Owner may obtain a loan on the Policy while it has a loan value. The Policy
will be the only security for the loan. The initial loan and each subsequent
addition to the loan must be for at least $200.00. Any amount on loan is part
of the Policy Account. The loan value on any date is the Cash Surrender Value
on that date, less interest at the loan interest rate to the next Policy
Anniversary. The amount of the loan may not be more than the loan value.
A request for a Policy loan must be in writing to the Administrative Office.
The Owner can elect how much of the loan is to be allocated to the unloaned
value in the Guaranteed Interest Division and to the value in each Investment
Division. Such values will be determined on the date the request is received.
If a portion of the loan is allocated to an Investment Division of the Separate
Account, SAFECO will redeem Units sufficient to cover that part of the loan and
transfer the amount to the loaned portion of the Guaranteed Interest Division.
SAFECO's practice is to credit interest on amounts securing loans at a rate 2%
below the rate charged as loan interest during the first 12 Policy Years and at
a rate equal to the rate charged thereafter. This results in a 2% net loan cost
for Policy Years 1-12 and a zero net loan cost thereafter.
If the Owner does not elect an allocation, the loan will be allocated on the
basis of the monthly deduction allocation percentages then in effect. If the
loan cannot be allocated on the basis of the Owner's direction or those
percentages, the loan will be based on the proportion that the unloaned value
in the Guaranteed Interest Division and the values in the Investment Divisions
of the Separate Account bear to the total unloaned value in the Policy Account.
Any amount that secures a loan remains part of the Policy Account, but is
maintained in the loaned portions of the Guaranteed Interest Division.
LOAN INTEREST
Interest, payable in advance, will be charged on any Policy loan from the date
of the loan and shall be due and payable on each Policy Anniversary. The rate
is determined at the beginning of each Policy
18
<PAGE> 29
Year and applies to any new or existing loan under the Policy during the Policy
Year next following the date of determination.
The maximum loan interest rate for a Policy Year is the greater of: (1) the
"Published Monthly Average," as defined below, for the calendar month that ends
two months before the date of determination; or (2) 5%. "Published Monthly
Average" means the Monthly Average Corporate Yield shown in Moody's Corporate
Bond Yield Averages published by Moody's Investors Service, Inc., or any
successor thereto. If such averages are no longer published, SAFECO will use
such other averages as may be established by regulation by the insurance
supervisory official of the jurisdiction in which the Policy is delivered. In
no event will the loan interest rate for a Policy Year be greater than the
maximum rate permitted by applicable law.
No change in the rate shall be less than 1/2 of 1% a year. SAFECO may increase
the rate whenever the maximum rate as determined by clause (1) of the preceding
paragraph increases by 1/2 of 1% or more. SAFECO will reduce the rate to or
below the maximum rate as determined by clause (1) if such maximum is lower
than the rate to be charged by 1/2 of 1% or more.
SAFECO will notify the Owner of the initial loan interest rate when a loan is
made. SAFECO will also give the Owner advance written notice of any increase in
the interest rate of any outstanding loan. Loan interest is due on each Policy
Anniversary. If the interest is not paid when due, it will be added to the
outstanding loan and allocated on the basis of the deduction allocation
percentages then in effect. If the allocation cannot be made on the basis of
these percentages, the allocation will be based on the proportion that the
unloaned value in the Guaranteed Interest Division and the values in the
Investment Divisions bear to the total unloaned value in the Policy Account.
The unpaid interest will then be treated as part of the loaned amount and will
bear interest at the loan rate.
LOAN REPAYMENT
All or part of a Policy loan may be repaid at any time while the Primary
Insured is alive and the Policy is in force. SAFECO will assume that any
payment made, while a loan is outstanding, is a loan repayment, unless SAFECO
is notified in writing that it is a premium payment. This does not apply to
automatic bank withdrawal payments, as they will always be considered premium.
Each loan repayment must be at least $50.00 with an exception for the final
loan repayment which may be less.
Repayments will first be allocated to the Guaranteed Interest Division until
loaned amounts that were allocated to the Guaranteed Interest Division have
been repaid. Repayments above that amount will be allocated among the
Guaranteed Interest Division and the Investment Divisions on the basis of the
premium allocation percentages then in effect.
Failure to repay a Policy loan or to pay loan interest will not terminate the
Policy unless the Net Cash Surrender Value is less than the monthly deduction
due on a Monthly Policy Anniversary, in which case the Grace Period Provision
would apply. (See "Premiums - Grace Period" on Page 11.)
A Policy loan will have a permanent effect on the benefits under the Policy
even if it is repaid, because the investment results of the Investment
Divisions will apply only to the amount remaining in such Investment Divisions.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Investment Divisions while the loan
is outstanding, the effect could be favorable or unfavorable.
FULL CASH SURRENDER
The Owner may give up the Policy for its Net Cash Surrender Value at any time
while the Primary
19
<PAGE> 30
Insured is living. All insurance coverage will then cease. Upon a full cash
surrender of the Policy, Surrender Charges may be incurred. (See "Charges and
Deductions - Full Surrenders" on Page 13.)
PARTIAL CASH WITHDRAWAL
After the first Policy Year, an Owner may ask for a partial withdrawal of the
Net Cash Surrender Value. Such partial withdrawal must be at least $400.00. A
partial withdrawal will result in reductions in the death benefit, the Net Cash
Surrender Value and the Policy Account. Such reductions are equal to the amount
requested plus the partial withdrawal charge. (See "Charges and Deductions -
Partial Withdrawals" on Page 13.)
Any request for a partial withdrawal must be in writing to the Administrative
Office. The Owner may inform SAFECO of the amount of each partial withdrawal
that is to come from the unloaned value in the Guaranteed Division and the
amount that is to come from values in each Investment Division. If the Owner
does not so inform SAFECO, the partial withdrawal will be made on the basis of
the monthly allocation percentages then in effect. If SAFECO cannot make the
partial withdrawal on the basis of the direction of the Owner or those
percentages, the partial withdrawal will be based on the proportion that the
unloaned value in the Guaranteed Interest Division and the values in the
Investment Division bear to the total unloaned value in the Policy Account. The
partial withdrawal charges will be allocated equally between the investment
options from which the requested amounts were withdrawn.
SAFECO reserves the right to decline a request for a partial withdrawal if (a)
the death benefit would be reduced below the minimum amount for which SAFECO
would then issue a Policy; or (b) SAFECO determines that the partial withdrawal
would cause the Policy to fail to qualify as life insurance under applicable
tax law.
VALUATION
- -------------------------------------------------------------------------------
The amount in the Policy Account in an Investment Division at any time is equal
to the number of units attributable to the Policy Account in that Investment
Division multiplied by the Division Unit Value at that time. Amounts allocated,
transferred or added to an Investment Division are used to purchase units of
that Division. Units are redeemed when amounts are deducted, transferred or
withdrawn.
Unit Values for the Investment Divisions will be determined at the close of
business on each day in which the degree of trading in the Portfolio of the
Fund(s) might materially affect the net asset value of such Portfolio.
Normally, this would be each day that the New York Stock Exchange is open. The
Unit Value of an Investment Division on any business day is equal to the Unit
Value for that Division on the immediately preceding business day multiplied by
the net investment factor for that Division on that business day.
The net investment factor for an Investment Division on any business day is (a)
divided by (b), minus (c), where:
(a) is the net asset value of the shares of the designated Portfolio at the
close of business on each business day before any Policy transactions are
made on that day, plus the per share amount of any dividend or capital
gain distribution paid by the Portfolio;
(b) is the value of the assets in that Investment Division at the close of
business on the immediately preceding business day after all Policy
transactions were made for that day; and
(c) is a charge for the mortality and expense risks, plus any charge for that
day for taxes or amounts set aside as a reserve for taxes.
20
<PAGE> 31
A Unit Value may increase or decrease in value from business day to business
day.
OTHER PROVISIONS
- -------------------------------------------------------------------------------
OWNER
If the Primary Insured is living on the Final Policy Date, the Owner will
receive the amount in the Policy Account on that date minus any outstanding
loan and loan interest. The Policy will then end.
The Owner is entitled to exercise all the rights of the Policy while the
Primary Insured is living. To exercise a right the Owner does not need the
consent of anyone who has only a conditional or future ownership interest in
the Policy.
BENEFICIARY
If two or more persons are named as Beneficiary, those who survive the insured
will share the insurance benefits equally, unless other arrangements have been
made. If there is no designated Beneficiary living at the death of the insured,
the benefits will be paid to the Owner or Owner's estate.
If any Beneficiary dies within 60 days after the insured, and before payment of
any proceeds, payment will be made as though the Beneficiary had died before
the insured. The Beneficiary designation may include provisions that replace
the ones described here.
CHANGING OWNER OR BENEFICIARY
While the insured is living, the Owner or Beneficiary may be changed by
providing written notice from the Policy Owner to the Administrative Office.
Such a change will be effective when written notice is received and recorded
and will control payment of proceeds made after that time.
ASSIGNMENT
The Policy may be assigned, but SAFECO will not be bound by an assignment
unless it has received such assignment in writing. The Owner's rights and those
of any other person under the Policy will be subject to the assignment. SAFECO
assumes no responsibility for the validity of an assignment. A collateral
assignment will not change ownership. An absolute assignment will be considered
as a change of ownership to the assignee.
ADMINISTRATION OF THE POLICIES
- -------------------------------------------------------------------------------
SAFECO has primary responsibility for all administration of the Policies and
the Separate Account. SAFECO has, however, retained Financial Administrative
Services, Inc. ("FAS") pursuant to a servicing agreement to provide certain
administrative services to SAFECO and its policyholders. On December 31, 1993,
PM Holdings, Inc., a holding company owned by Phoenix Home Life Mutual
Insurance Company, bought Fleet Administrative Services, Inc., and renamed the
company Financial Administrative Services, Inc., Prior to December 31, 1993,
FAS was owned by Fleet Financial Group. The address of the Administrative
Office referenced in this Prospectus is P.O. Box 30349 Hartford, Connecticut
06150-0349. This office has been established and is managed by FAS on behalf of
SAFECO and other life insurance companies which enter into similar servicing
agreements with FAS.
21
<PAGE> 32
FAS provides to SAFECO administration, electronic data processing and
policyholder services that are normally required for the Policies. All such
services are performed in accordance with the guidelines and standards
established by SAFECO.
DELAY OF PAYMENTS
- -------------------------------------------------------------------------------
SAFECO will generally pay Policy proceeds within seven business days of receipt
of a completed request for such payment. However, SAFECO reserves the right to
postpone surrender payments and loans from the Guaranteed Interest Division for
up to six months. SAFECO reserves the right to postpone any type of payment
from the Separate Account for any period when:
1. the New York Stock Exchange is closed other than customary weekend and
holiday closings;
2. trading on the Exchange is restricted;
3. an emergency exists as a result of which it is not reasonably practicable
to dispose of securities held in the Separate Account or determine their
value; or
4. the Securities and Exchange Commission so permits delay for the
protection of security holders.
The applicable rules of the Securities and Exchange Commission shall govern as
to whether the conditions in 2 and 3 exist.
MANAGEMENT OF THE COMPANY
- -------------------------------------------------------------------------------
The following are the Officers and Directors of SAFECO:
<TABLE>
<CAPTION>
OFFICERS
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS * WITH SAFECO
- ------------------ -----------
<S> <C>
Roger H. Eigsti Chairman of the Board
Richard E. Zunker President
Boh A. Dickey Executive Vice President
John P. Fenlason Senior Vice President
James T. Flynn Vice President, Controller and Assistant Secretary
I. Richard Green Vice President
Roger F. Harbin Senior Vice President and Actuary
Michael J. Kinzer Vice President and Chief Actuary
Rod A. Pierson Senior Vice President and Secretary
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS * WITH SAFECO
- ------------------ -----------
<S> <C>
Donald S. Chapman Director
Dan D. McLean Director
Boh A. Dickey Director
Roger H. Eigsti Director
James T. Flynn Director
Rod A. Pierson Director
James W. Ruddy Director
Robert L. Spalding Director
Robert W. Swegle Director
Richard E. Zunker Director
</TABLE>
22
<PAGE> 33
* The business address for Messrs. Zunker, Fenlason, Flynn, Green, Harbin,
and Kinzer is 15411 N.E. 51st Street, Redmond, Washington 98052. The
business address for all other individuals listed is SAFECO Plaza, Seattle,
Washington 98185.
TAX STATUS
- -------------------------------------------------------------------------------
NOTE:The following description is based upon SAFECO's understanding of current
federal income tax law applicable to life insurance in general. SAFECO cannot
predict the probability that any changes in such laws will be made. Purchasers
are cautioned to seek competent tax advice regarding the possibility of such
changes. Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"), defines the term "life insurance contract" for purposes of the Code.
SAFECO believes that the Policies to be issued will qualify as "life insurance
contracts" under Section 7702. SAFECO does not guarantee the tax status of the
Policies. Purchasers bear the complete risk that the Policies may not be
treated as "life insurance" under federal income tax laws. Purchasers should
consult their own tax advisers. It should be further understood that the
following discussion is not exhaustive and that special rules not described in
this Prospectus may be applicable in certain situations.
INTRODUCTION
The discussion contained herein is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion herein is based upon SAFECO's understanding of current federal
income tax laws as they are currently interpreted. No representation is made
regarding the likelihood of continuation of those current federal income tax
laws or of the current interpretations by the Internal Revenue Service.
SAFECO is taxed as a life insurance company under the Code. For federal income
tax purposes, the Separate Account is not a separate entity from SAFECO and its
operations form a part of SAFECO.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable life insurance policies. The Code provides that
a variable life insurance policy will not be treated as life insurance 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 Policy
as a life insurance contract would result in imposition of federal income tax
on the Owner with respect to earnings allocable to the Policy prior to the
receipt of payments under the Policy. The Code contains a safe harbor provision
which provides that life insurance policies such as the Policies meet the
diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than fifty-five (55%) percent of the total assets consist
of cash, cash items, U.S. Government securities and securities of other
regulated investment companies. There is an exception for securities issued by
the U.S. Treasury in connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
Section 1.817-5), which establish diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. 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
23
<PAGE> 34
Regulations, an investment portfolio will be deemed adequately diversified if:
(i) no more than 55% of the value of the total assets of the portfolio is
represented by any one investment; (ii) no more than 70% of the value of the
total assets of the portfolio is represented by any two investments; (iii) no
more than 80% of the value of the total assets of the portfolio is represented
by any three investments; and (iv) no more than 90% of the value of the total
assets of the portfolio is represented by any four investments. For purposes of
these Regulations, all securities of the same issuer are treated as a single
investment.
The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") provides that,
for purposes of determining whether or not the diversification standards
imposed on the underlying assets of variable contracts by Section 817(h) of the
Code have been met, "each United States government agency or instrumentality
shall be treated as a separate issuer."
SAFECO intends that each Portfolio of the Funds underlying the Policies will be
managed by Fidelity Management in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Policy. 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 Policy is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered as the owner of the assets of the
Separate Account.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owner
being retroactively determined to be the owner of the assets of the Separate
Account.
Due to the uncertainty in this area, SAFECO reserves the right to modify the
Policy in an attempt to maintain favorable tax treatment.
TAX TREATMENT OF THE POLICY
The Policy has been designed to comply with the definition of life insurance
contained in Section 7702 of the Code. Although some interim guidance has been
provided and proposed regulations have been issued, final regulations have not
been adopted. Section 7702 of the Code requires the use of reasonable mortality
and other expense charges. In establishing these charges, SAFECO has relied on
the interim guidance provided in IRS Notice 88-128 and proposed regulations
issued on July 5, 1991. Currently, there is even less guidance as to a Policy
issued on a substandard risk basis and thus it is even less clear whether a
Policy issued on such basis would meet the requirements of Section 7702 of the
Code.
While SAFECO has attempted to comply with Section 7702, the law in this area is
very complex and unclear. There is a risk, therefore, that the Internal Revenue
Service will not concur with SAFECO's interpretations of Section 7702 that were
made in determining such compliance. In the event the Policy is determined not
to so comply, it would not qualify for the favorable tax treatment usually
accorded
24
<PAGE> 35
life insurance policies. Owners should consult their tax advisers with respect
to the tax consequences of purchasing the Policy.
POLICY PROCEEDS
The tax treatment accorded to loan proceeds and/or surrender payments from the
Policies will depend on whether the Policy is considered to be a modified
endowment contract. (See "Tax Treatment of Loans and Surrenders.") Otherwise,
SAFECO believes that the Policy should receive the same federal income tax
treatment as any other type of life insurance. As such, the death benefit
thereunder is excludable from the gross income of the Beneficiary under Section
101(a) of the Code. Also, the Owner is not deemed to be in constructive receipt
of the Policy Account or Cash Surrender Value, including increments thereon,
under a Policy until there is a distribution of such amounts.
Federal, state and local estate, inheritance and other tax consequences of
ownership, or receipt of Policy proceeds, depend on the circumstances of each
Owner or Beneficiary.
TAX TREATMENT OF LOANS AND SURRENDERS
Section 7702A of the Code sets forth the rules for determining when a life
insurance policy will be deemed to be a modified endowment contract. A modified
endowment contract is a contract which is entered into or materially changed on
or after June 21, 1988 and fails to meet the 7-pay test. A Policy fails to meet
the 7-pay test when the cumulative amount paid under the Policy at any time
during the first 7 Policy Years exceeds the sum of the net level premiums which
would have been paid on or before such time if the Policy provided for paid-up
future benefits after the payment of seven (7) level annual premiums. A
material change would include any increase in the future benefits or addition
of qualified additional benefits provided under a Policy unless the increase is
attributable to: (1) the payment of premiums necessary to fund the lowest
death benefit and qualified additional benefits payable in the first seven
Policy years; or (2) the crediting of interest or other earnings (including
policyholder dividends) with respect to such premiums.
Furthermore, any Policy received in exchange for a Policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. The status of an exchange of a
contract issued before June 21, 1988 is unclear, however, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988 will be considered as entered
into as of the date of the exchange and therefore subject to Section 7702A.
Due to the flexible premium nature of the Policy, the determination of whether
it qualifies for treatment as a modified endowment contract depends on the
individual circumstances of each Policy.
If the Policy is classified as a modified endowment contract, then surrenders
and/or loan proceeds are taxable to the extent of income in the Policy. Such
distributions are deemed to be on a last-in, first-out basis, which means the
taxable income is distributed first. Loan proceeds and/or surrender payments
may also be subject to an additional 10% federal income tax penalty applied to
the income portion of such distribution. The penalty shall not apply, however,
to any distributions: (1) made on or after the date on which the taxpayer
reaches age 59 1/2; (2) which is attributable to the taxpayer becoming disabled
(within the meaning of Section 72(m)(7) of the Code); or (3) which is part of a
series of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the taxpayer or the joint lives
(or joint life expectancies) of such taxpayer and his beneficiary.
25
<PAGE> 36
If a Policy is not classified as a modified endowment contract, then any
surrenders shall be treated first as a recovery of the investment in the Policy
which would not be received as taxable income. However, if a distribution is
the result of a reduction in benefits under the Policy within the first fifteen
years after the Policy is issued in order to comply with Section 7702, such
distribution will, under rules set forth in Section 7702, be taxed as ordinary
income to the extent of income in the Policy.
Any loans from a Policy which is not classified as a modified endowment
contract, will be treated as indebtedness of the Owner and not a distribution.
Personal interest payable on a loan under a Policy owned by an individual is
generally not deductible. Furthermore, no deduction will be allowed for
interest on loans under Policies covering the life of any employee or officer
of the taxpayer or any person financially interested in the business carried on
by the taxpayer to the extent the indebtedness for such employee, officer or
financially interested person exceeds $50,000. The deductibility of interest
payable on Policy loans may be subject to further rules and limitations under
Sections 163 and 264 of the Code.
Policy Owners should seek competent tax advice on the tax consequences of
taking loans, distributions or surrendering any Policy.
MULTIPLE POLICIES
TAMRA further provides that multiple modified endowment contracts that are
issued within a calendar year period to the same owner by one company or its
affiliates are treated as one modified endowment contract for purposes of
determining the taxable portion of any loans or distributions. Such treatment
may result in adverse tax consequences including more rapid taxation of the
loans or distributed amounts from such combination of contracts. Policy Owners
should consult a tax adviser prior to purchasing more than one Modified
Endowment Contract in any calendar year period.
TAX TREATMENTS OF ASSIGNMENTS
An assignment of a Policy may be a taxable event. Policy Owners should
therefore consult competent tax advisers should they wish to assign their
Policies.
QUALIFIED PLANS
The Policies may be used in conjunction with certain qualified plans. Because
the rules governing such use are complex, a purchaser should not do so until he
has consulted a competent qualified plans consultant.
SEPARATE ACCOUNT VOTING RIGHTS
- -------------------------------------------------------------------------------
In accordance with its view of present applicable law, SAFECO will vote the
shares with respect to each Fund Portfolio held in the Separate Account at
regular and special meetings of the shareholders of the Fund in accordance with
instructions received from persons having the voting interest in the Separate
Account. SAFECO will vote shares with respect to each Fund Portfolio, for which
it has not received instructions, in the same proportion as it votes shares for
which it has received instructions. SAFECO will vote shares of the Fund
Portfolios which it owns in the same proportion as it votes shares for which it
has received instructions.
26
<PAGE> 37
However, if the Investment Company Act of 1940 or any Regulation thereunder
should be amended or if the present interpretation thereof should change, and
as a result SAFECO determines that it is permitted to vote the shares of the
Funds in its own right, it may elect to do so.
The voting interests of the Owner (or the Beneficiary) in the Funds will be one
vote for each share. The number of shares will be determined as follows: The
Policy Account allocated to the Investment Division will be divided by the net
asset value of one share of the corresponding Fund Portfolio as of the record
date for the shareholder meeting of the Fund. Fractional votes are counted.
Policy Account values in the Guaranteed Interest Division will not be
considered in determining the voting interests of the Owner.
The number of shares which a person has a right to vote will be determined as
of the record date set by the Fund's Board which must be at least 14 days and
not more than 90 days prior to the meeting of the Fund.
Each person having the voting interest in the Separate Account will receive
periodic reports relating to the Fund(s) in which he or she has an interest,
proxy material and a form with which to give such voting instructions with
respect to the proportion of the shares held in the Separate Account
corresponding to his or her interest in the Separate Account.
DISREGARD OF VOTING INSTRUCTIONS
- -------------------------------------------------------------------------------
SAFECO may, when required to do so by state insurance authorities, vote shares
of the Fund without regard to instructions from Owners if such instructions
would require such shares to be voted to cause any Portfolio of the Funds to
make (or refrain from making) investments which would result in changes in the
sub-classification or investment objectives of the Funds or a Portfolio.
SAFECO may also disapprove changes in the investment policy initiated by the
Owners or Trustees of the Funds, if such disapproval is reasonable and is based
on a good faith determination by SAFECO that the change would violate state law
or the change would not be consistent with the investment objective of the
Funds or Portfolio or which varies from the general quality and nature of
investments and investment techniques used by other funds with similar
investment objectives underlying other separate accounts of SAFECO or of an
affiliated life insurance company. In the event that SAFECO does disregard
voting instructions, a summary of that action and the reasons for such action
will be included in the next semi-annual report to Owners
DISTRIBUTION OF THE POLICIES
- -------------------------------------------------------------------------------
The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for the
Separate Account, SAFECO Securities, Inc., P.O. Box 34890, Seattle, Washington
98124-1890, a wholly-owned subsidiary of SAFECO Corporation. Prior to April 29,
1994, PNMR Securities, Inc., an affiliate of SAFECO Securities, acted as
principal underwriter for the Separate Account. SAFECO pays commissions to the
selling broker dealers which may vary.
The commissions paid to registered representatives on the sale of the Policies
are not more than 60% of the premiums paid in the first year nor more than 3%
during renewal years. In addition to
27
<PAGE> 38
commissions, overrides and bonuses may be paid to the distributors of the
Policies. There are no separate deductions, other than previously described, to
pay sales commissions or sales expenses.
REPORTS TO POLICY OWNERS
- -------------------------------------------------------------------------------
SAFECO will send to each Owner unaudited semi-annual and audited annual reports
of the Separate Account. Within 30 days after each Policy Anniversary, an
annual statement will be sent to each Owner. The statement will show the
current amount of death benefits payable under the Policy, the current value of
the Policy Account, the current Cash Surrender Value and any loan, including
loan interest. The statement will also show premiums paid, investment returns
and all charges deducted during the Policy Year.
LEGAL PROCEEDINGS
- -------------------------------------------------------------------------------
There are no legal proceedings to which the Separate Account or the Principal
Underwriter is a party. On January 9, 1995, a class action seeking actual and
punitive damages was brought by an owner of a qualified pension annuity
contract, DeVoy v. SAFECO Life Insurance Company, Case No. 684407 pending in
the Superior Court of California, County of San Diego. With respect to such
contracts plaintiffs challenge both the representations as to interest rates
and the calculation of interest. This action does not directly involve the
Separate Account described herein. The Company is defending against the action.
SAFECO is also engaged in various kinds of routine litigation which, in the
opinion of SAFECO, is not of material importance in relation to the total
capital and surplus of SAFECO.
EXPERTS
- -------------------------------------------------------------------------------
The financial statements of the Separate Account and SAFECO appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young,
independent auditors, as set forth to the extent indicated in their reports
thereon appearing elsewhere herein and in the Registration Statement and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
LEGAL OPINIONS
- -------------------------------------------------------------------------------
Legal matters in connection with the Policy described herein are being passed
upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The financial statements of SAFECO that are included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Policy. They should not be considered as bearing upon the
investment experience of the Investment Divisions of the Separate Account. The
Separate Account contains certain Investment Divisions which invest in shares
of The Hudson River Trust, but financial statements for these Divisions have
been omitted because these Divisions are not available under this Prospectus.
28
<PAGE> 39
(This page intentionally left blank)
<PAGE> 40
Audited Consolidated Financial Statements
SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
For the Year Ended December 31, 1994+
+Registrant's Audited Consolidated Financial Statements were
filed with the SEC on or about June 16, 1995.
<PAGE> 41
SEPARATE ACCOUNT SL
DECEMBER 31, 1994
TABLE OF CONTENTS
<TABLE>
<S> <C>
Statement of Assets and Liabilities . . . . . . . . . . . A-3
Statement of Operations . . . . . . . . . . . . . . . . . A-4
Statement of Changes in Net Assets . . . . . . . . . . . A-5
Notes to Financial Statement . . . . . . . . . . . . . . A-6
</TABLE>
A-1
<PAGE> 42
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of SAFECO Life Insurance Company and
Certain Unitholders of Separate Account SL
We have audited the accompanying statement of assets and liabilities of certain
divisions of Separate Account SL (comprising, respectively, the Growth, Money
Market, Equity-Income, Overseas, High Income, Investment Grade Bond, Asset
Manager and Index 500 divisions) as of December 31, 1994, and the statement of
operations for the year then ended, and the statement of changes in net assets
for the year then ended and for the year or period ended December 31, 1993.
These financial statements are the responsibility of Separate Account SL's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
Fidelity Management & Research Company. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of certain divisions of Separate
Account SL as listed above at December 31, 1994, and the results of their
operations and the changes in their net assets for the periods referred to
above, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
- ------------------------
Seattle, Washington
February 10, 1995
See Notes to Financial Statements
A-2
<PAGE> 43
SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY EQUITY
GROWTH MARKET INCOME OVERSEAS HIGH INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C> <C> <C>
NET ASSETS:
Investments at value in:
Variable Insurance Products Fund
Cost:
Growth Portfolio - $3,881,147 $ 3,944,872
Money Market Portfolio - 1,920,074 $1,920,074
Equity Income Portfolio - 1,887,898 $1,889,199
Overseas Portfolio - 2,058,582 $2,029,570
High Income Portfolio - 275,716 $274,431
Due (To) From SAFECO LIFE (9,330) 601 (98) (125) (1)
----------- ----------- ----------- ----------- ------------
Net Assets ................................ $ 3,935,542 $ 1,920,675 $ 1,889,101 $ 2,029,445 $ 274,430
=========== =========== =========== =========== ============
Units Outstanding ......................... 28,380.016 17,635.916 12,330.786 16,429.958 2,602.339
=========== =========== =========== =========== ============
Unit Value and Redemption Price Per Unit... $ 138.673 $ 108.907 $ 154.013 $ 123.521 $ 105.455
=========== =========== =========== =========== ============
</TABLE>
SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
INVESTMENT ASSET
GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION
<S> <C> <C> <C>
NET ASSETS: (CONTINUED)
Investments at value in:
Variable Insurance Products Fund II
Cost:
Investment Grade Bond Portfolio - $761,537 $ 745,448
Asset Manager Portfolio - 5,423,952 $5,254,259
Index 500 Portfolio - 176,500 $ 178,226
Due (To) From SAFECO LIFE 1,569 (683) (3)
--------- ---------- ------------
Net Assets ...................................... $ 747,017 $5,253,576 $ 178,223
========= ========== ============
Units Outstanding ............................... 6,742.880 40,875.270 1,693.511
========= ========== ============
Unit Value and Redemption Price Per Unit......... $ 110.786 $ 128.527 $ 105.239
========= ========== ============
</TABLE>
See Notes to Financial Statements
A-1
<PAGE> 44
SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
------------------------------------------------------------
MONEY EQUITY
GROWTH MARKET INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................................ $ 127,034 $ 44,907 $ 78,864 $ 3,152
Expenses (Note 3):
Mortality and Expense Risk Charge ........... (24,528) (9,229) (11,537) (11,227)
--------- --------- --------- ---------
Net Investment Income (Loss) ..................... 102,506 35,678 67,327 (8,075)
--------- --------- --------- ---------
</TABLE>
See Notes to Financial Statements
A-4
<PAGE> 45
SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
YEAR ENDED
DECEMBER 31, 1994
-----------------------------------------------------------
MONEY EQUITY
GROWTH MARKET INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C> <C>
Net Realized Gain (Loss) on Investments ........... 57,066 -- 9,581 42,122
Net Increase (Decrease) in Unrealized
Appreciation of Investments ....................... (138,699) -- (9,817) (70,257)
--------- --------- --------- ---------
Net Gain (Loss) on Investments .................... (81,633) -- (236) (28,135)
--------- --------- --------- ---------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS: ................................. $ 20,873 $ 35,678 $ 67,091 $ (36,210)
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
A-4a
<PAGE> 46
SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
--------------------------------------------------------------
INVESTMENT ASSET
GRADE BOND MANAGER HIGH INCOME INDEX 500
DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................. $ 684 $ 163,105 $ 12,138 $ 56
Expenses (Note 3):
Mortality and Expense Risk Charge .... (3,433) (38,558) (1,424) (748)
--------- --------- --------- ---------
Net Investment Income (Loss) .............. (2,749) 124,547 10,714 (692)
--------- --------- --------- ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Investments ... (3,055) 63,196 (12,662) (59)
Net Increase (Decrease) in Unrealized
Appreciation of Investments ............... (12,610) (500,150) (3,924) 2,104
--------- --------- --------- ---------
Net Gain (Loss) on Investments ............ (15,665) (436,954) (16,586) 2,045
--------- --------- --------- ---------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS: .......................... ($ 18,414) ($312,407) ($ 5,872) $ 1,353
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
A-4.a
<PAGE> 47
SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH DIVISION MONEY MARKET DIVISION EQUITY INCOME DIVISION
--------------- --------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1994 1993 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income (Loss) .............. $ 102,506 $ 4,405 $ 35,678 $ 5,974 $ 67,327 $ 9,023
Net Realized Gain (Loss) on Investments ... 57,066 50,105 -- -- 9,581 31,642
Net Increase (Decrease) in Unrealized
Appreciation of Investments ............... (138,699) 143,181 -- -- (9,817) 14,399
----------- ----------- ----------- ----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations ................. 20,873 197,691 35,678 5,974 67,091 55,064
FROM POLICY RELATED TRANSACTIONS:
Transfers in from Net Premiums ............ 1,910,899 1,016,749 3,919,546 1,736,763 960,415 474,967
Transfers out for
Policy Related Transactions ............... (569,996) (213,874) (205,822) (65,512) (252,613) (139,128)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division, Net ......... 628,926 322,611 (2,427,022) (1,371,535) 258,714 346,707
Gain /(Loss) Attributable to SAFECO LIFE .. (9,288) (266) 590 (864) (228) 549
----------- ----------- ----------- ----------- ----------- -----------
Net Increase in Net Assets
from Policy Related Transactions .......... 1,960,541 1,125,220 1,287,292 298,852 966,288 683,095
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets ..... 1,981,414 1,322,911 1,322,970 304,826 1,033,379 738,159
Net Assets, Beginning of Period ........... 1,954,128 631,217 597,705 292,879 865,722 127,563
----------- ----------- ----------- ----------- ----------- -----------
Net Assets, End of Period ................. $ 3,935,542 $ 1,954,128 $ 1,920,675 $ 597,705 $ 1,899,101 $ 865,722
=========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
A-5
<PAGE> 48
SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
INVESTMENT
OVERSEAS DIVISION GRADE BOND DIVISION ASSET MANAGER DIVISION
----------------- ------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1994 1993 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) .............. $ (8,075) $ (129) $ (2,749) $ 9,945 $ 124,547 $ 31,332
Net realized Gain (Loss) on Investments ... 42,122 908 (3,055) 226 63,196 24,222
Net Increase (Decrease) in Unrealized
Appreciation of Investments ............... (70,257) 41,851 (12,610) 9,898 (500,150) $ 284,623
----------- ----------- ----------- ----------- ----------- -----------
Net increase in Net Assets
Resulting from Operation .................. (36,210) 42,630 (18,414) 20,069 (312,407) 340,177
FROM POLICY RELATED TRANSACTIONS:
Transfers in from Net Premiums ............ 1,077,937 240,870 248,878 132,240 2,668,069 1,588,238
Transfers out for
Policy Related Transactions ............... (186,589) (28,701) (54,190) (62,785) (897,234) (245,152)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division, Net ......... 683,921 182,828 341,249 (104,540) 709,041 556,855
Gain /(Loss) Attributable to SAFECO LIFE .. (112) 675 1,582 (125) (543) 2,736
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
from Policy Related Transactions .......... 1,575,157 395,672 537,519 (35,210) 2,479,333 1,902,677
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets ..... 1,538,947 438,302 519,105 (15,141) 2,166,926 2,242,854
Net Assets, Beginning of Period ........... 490,498 52,196 227,912 243,053 3,086,650 843,796
----------- ----------- ----------- ----------- ----------- -----------
Net Assets, End of Period ................. $ 2,029,445 $ 490,498 $ 747,017 $ 227,912 $ 5,253,576 $ 3,086,650
=========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
A-5.a
<PAGE> 49
SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
HIGH INCOME DIVISION INDEX 500 DIVISION
-------------------- ------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 (1) 1994 1993 (1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income (Loss) .............. $ 10,714 $ (167) $ (692) $ 757
Net Realized Gain (Loss) on Investments ... (12,662) 98 (59) 108
Net Increase (Decrease) in Unrealized
Appreciation of Investments ............... (3,924) 2,640 2,104 (380)
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations ................. (5,872) 2,571 1,353 485
FROM POLICY RELATED TRANSACTIONS:
Transfers in from Net Premiums ............ 151,556 11,117 114,712 14,950
Transfers out for
Policy Related Transactions ............... (35,295) (3,137) (20,731) (2,903)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division, Net ......... 96,388 57,082 55,506 14,842
Gain /(Loss) Attributable to SAFECO LIFE .. 1 19 (3) 12
--------- --------- --------- ---------
Net Increase in Net Assets
from Policy Related Transactions .......... 212,650 65,081 149,484 26,901
--------- --------- --------- ---------
Net Increase in Net Assets ................ 206,778 67,652 150,837 27,386
Net Assets, Beginning of Period ........... 67,652 -- 27,386 --
--------- --------- --------- ---------
Net Assets, End of Period ................. $ 274,430 $ 67,652 $ 178,223 $ 27,386
========= ========= ========= =========
</TABLE>
(1) For the period from date of inception (April 30, 1993) through December 31,
1993.
See Notes to Financial Statements
A-5.b
<PAGE> 50
SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS
1) ORGANIZATION
Separate Account SL (Account SL) is a separate account of SAFECO Life
Insurance Company (SAFECO), a wholly-owned subsidiary of SAFECO Corporation,
and is a unit investment trust registered under the Investment Company Act
of 1940, as amended.
Account SL was formed by SAFECO to support the operations of its variable
life insurance policies (Policies). SAFECO Securities, Inc., a wholly-owned
subsidiary of SAFECO Corporation, is the principal underwriter of the
Policies issued through Account SL. The assets of Account SL are the
property of SAFECO and such assets applicable to the Policies will not be
chargeable with liabilities arising out of any other business SAFECO may
conduct.
Account SL consists of sixteen investment divisions, the original six of
which (the Common Stock, Money Market, Balanced, Aggressive Stock, High
Yield and Global) are invested in shares of designated portfolios of The
Hudson River Trust (HRT), an open-end diversified management investment
company registered under the Investment Company Act of 1940. Activity in the
six original divisions is restricted to Policies sold prior to September 30,
1991.
The remaining ten investment divisions are invested in designated Portfolios
of either Variable Insurance Products Fund (VIP) or Variable Insurance
Products Fund II (VIP II). These eight investment divisions are available to
Policies sold on or after September 30, 1991.
The financial statements included herein present only those investment
divisions related to Policies purchased on or after September 30, 1991. The
financial statement of the remaining investment divisions are presented
separately.
Unitholders are permitted to transfer their accounts to other investment
divisions in Account SL and tothe guaranteed investment division, which is
not part of Account SL.
2) SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION. Investments in shares are valued at the net asset value
of the respective Portfolio.
SECURITY TRANSACTIONS. Investment transactions are recorded on the trade
date. Realized gains (losses) on sales of shares are determined on the basis
of identified cost. Net investment income and net realized and unrealized
gain (loss) on investments are allocated to the contracts on a pro rata
basis.
FEDERAL INCOME TAXES. The operations of Account SL are included in the
Federal Income Tax return of SAFECO. Under the provisions of the Policies,
SAFECO has the right to charge Account SL for Federal Income Tax
attributable to Account SL. No charge is currently being made against
Account SL for such tax since, under current tax law, SAFECO pays no tax on
investment income and capital gains reflected in variable life insurance
policy reserves.
3) EXPENSES
SAFECO assumes mortality and expense risks related to the operations of
Account SL and deducts a charge from the assets of Account SL at an annual
rate of .90% of policyowners' net assets to cover these risks. SAFECO also
makes deductions from premiums for administrative expenses and state premium
taxes before amounts are allocated to Account SL.
A-6
<PAGE> 51
SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4) UNIT ACTIVITY
<TABLE>
<CAPTION>
GROWTH DIVISION * MONEY MARKET DIVISION EQUITY INCOME DIVISION *
----------------- --------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1994 1993 1994 1993
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
UNITS:
Units Sold ............... 18,069 10,529 34,466 16,584 7,896 5,927
Units Redeemed ........... (3,652) (1,631) (22,500) (13,756) (1,530) (992)
------- ------- ------- ------- ------- -------
Net Increase (Decrease) .. 14,417 8,898 11,966 2,828 6,366 4,935
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
OVERSEAS DIVISION * GRADE BOND DIVISION ASSET MANAGER DIVISION *
------------------- ------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1994 1993 1994 1993
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
UNITS:
Units Sold ............... 13,642 3,679 5,214 1,160 24,565 16,635
Units Redeemed ........... (1,215) (255) (433) (1,499) (6,041) (1,614)
------- ------- ------- ------- ------- -------
Net Increase (Decrease) .. 12,427 3,424 4,781 (339) 18,524 15,021
======= ======= ======= ======= ======= =======
</TABLE>
*Officers of SAFECO have minor investments in this division at December 31,
1994.
A-7
<PAGE> 52
SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4) UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
HIGH INCOME DIVISION INDEX 500 DIVISION
-------------------- ------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- ----------- -----------
1994 1993 (1) 1994 1993 (1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
UNITS:
Units Sold ................ 2,287 656 1,612 289
Units Redeemed ............ (311) (30) (179) (28)
------ ------ ------ ------
Net Increase (Decrease) ... 1,976 626 1,433 261
====== ====== ====== ======
</TABLE>
(1) For the period from date of inception (April 30, 1993) through December 31,
1993.
A-7a
<PAGE> 53
SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
5) INVESTMENT TRANSACTIONS DECEMBER 31, 1994
---------------------------------------------------------------------
GROWTH MONEY MARKET EQUITY INCOME OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
Purchases ............... $ 2,479,464 $ 3,339,005 $ 1,523,643 $ 1,810,998
=========== =========== =========== ===========
Sales ................... $ (407,129) $(2,016,625) $ (489,801) $ (243,802)
=========== =========== =========== ===========
Number of Shares Owned
at December 31, 1994 181,875 1,920,074 123,726 129,519
=========== =========== =========== ===========
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
---------------------------------------------------------------------
INVESTMENT
GRADE BOND ASSET MANAGER HIGH INCOME INDEX 500
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
Purchases ............... $ 669,938 $ 3,405,232 $ 410,982 $ 169,204
=========== =========== =========== ===========
Sales ................... $ 136,750 $ (800,809) $ 187,617 $ 20,410
=========== =========== =========== ===========
Number of Shares Owned
#VALUE 67,645 381,019 25,505 3,170
=========== =========== =========== ===========
</TABLE>
6) UNIT VALUES
The following are unit values attributable to unitholders as of the date
indicated:
<TABLE>
<CAPTION>
GROWTH MONEY MARKET EQUITY INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C>
December 31, 1991 ....... $ 109.196 $ 100.078 $ 106.881 N/A *
December 31, 1992 ....... 118.301 103.032 123.900 $ 90.087
December 31, 1993 ....... 139.950 105.409 145.146 122.522
December 31, 1994 ....... 138.673 108.907 154.013 123.521
<CAPTION>
INVESTMENT
GRADE BOND ASSET MANAGER HIGH INCOME INDEX 500
DIVISION DIVISION DIVISION DIVISION
<S> <C> <C> <C>
December 31, 1991 ....... N/A * $ 103.882 N/A * N/A *
December 31, 1992 ....... $ 105.619 115.113 N/A * N/A *
December 31, 1993 ....... 116.148 138.097 $ 108.076 $ 105.094
December 31, 1994 ....... 110.786 128.527 105.455 105.239
</TABLE>
*N/A Unit values are shown beginning the first year end and after inception of
the respective division.
A-8
<PAGE> 54
HYPOTHETICAL ILLUSTRATIONS
- -------------------------------------------------------------------------------
OF DEATH BENEFITS, POLICY ACCOUNT, CASH SURRENDER VALUES, AND ACCUMULATED
PREMIUMS
The following tables have been prepared to show how the key financial elements
of the Policy work. The tables show how death benefits, Policy Account and Cash
Surrender Values (policy benefits) could vary over an extended period of time
if the Investment Division of the Separate Account had constant hypothetical
gross annual investment returns of 0%, 6% or 12% over the years covered by each
table. The policy benefits will differ from those shown in the tables if the
annual investment returns are not absolutely constant. That is, the figures
will be different if the returns averaged 0%, 6% or 12% over a period of years,
but went above or below those figures in individual Policy Years. The Policy
benefits will also differ, depending on the premium allocations to each
Investment Division, if the overall actual rates of return averaged 0%, 6% or
12%, but went above or below those figures for the individual Investment
Divisions. The tables are for preferred and standard risk male non-smokers.
Planned premium payments are assumed to be paid at the beginning of each Policy
Year. The difference between the Policy Account and the Cash Surrender Value in
the first ten years is the surrender charge. The Policy Account amounts reflect
the front-end charges.
The tables illustrates cost of insurance and expense charges (Policy cost
factors) at both the current rates and the maximum rates guaranteed in the
Policies. The amounts shown at the end of each Policy Year reflect a daily
charge against the Investment Divisions. This charge includes a .90% charge
against the Separate Account for mortality and expense risks; the effect on
each Division's investment experience of the charge to Funds' assets for
investment management (.52%, an average of the 1993 actual investment
management fees charged to the various Portfolios of the Funds); and .15%
direct Funds' operating expenses. The effect of these adjustments is that on a
0% gross rate of return the net rate of return would be -1.57%, on 6% it would
be 4.43%, and on 12% it would be 10.43%.
The tables assume deduction of an applicable premium tax rate based on 2.1% of
premiums and 3% of premium sales load. There are tables for both male
preferred non-smoker age 45 and male standard non-smoker age 45 and each class
is illustrated using CURRENT and GUARANTEED Policy cost factors. The current
tables assume that the monthly charge remains constant at $4.00. The guaranteed
tables assume that the monthly charge remains constant at $8.00. The tables
reflect the fact that SAFECO does not currently make any charge for federal
taxes.
If SAFECO charged for those taxes in the future, it will take a higher rate of
return to produce after-tax returns of 0%, 6% or 12%.
The second column of each tables shows what would happen if an amount equal to
the premiums was invested to earn interest, after taxes, of 5% compounded
annually. These tables show that if a policy is returned in its very early
years for payment of its Cash Surrender Value, that Cash Surrender Value will
be low in comparison to the amount of the premiums accumulated with interest.
Thus, the cost of holding a policy for a relatively short time will be high.
INDIVIDUAL ILLUSTRATIONS. If requested, SAFECO will furnish a comparable
illustration based on the age, sex and underwriting classification of the
proposed Primary Insured, and an initial Face Amount of Insurance and planned
premiums as selected. If a Policy is purchased, SAFECO will deliver an
individualized illustration reflecting the planned premium chosen and the
Primary insured's actual risk class.
B-1
<PAGE> 55
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Initial Face Amount: $100,000 Annual Planned Premium (1): $2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
________________________________________________________________________________
</TABLE>
RESULTS ASSUMING CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
________________________________ _______________________________ _______________________________
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,381 900 100,000 1,479 998 100,000 1,577 1,097
2 4,305 100,000 2,940 2,340 100,000 3,230 2,630 100,000 3,533 2,933
3 6,620 100,000 4,444 3,724 100,000 5,028 4,308 100,000 5,661 4,941
4 9,051 100,000 5,901 5,094 100,000 6,883 6,076 100,000 7,989 7,182
5 11,604 100,000 7,316 6,509 100,000 9,802 7,995 100,000 10,544 9,737
6 14,284 100,000 8,691 8,046 100,000 10,790 10,145 100,000 13,352 12,707
7 17,098 100,000 10,016 9,532 100,000 12,840 12,356 100,000 16,430 15,946
8 20,053 100,000 11,290 10,967 100,000 14,954 14,631 100,000 19,809 19,487
9 23,156 100,000 12,512 12,351 100,000 17,135 16,974 100,000 23,522 23,361
10 26,414 100,000 13,681 13,681 100,000 19,384 19,384 100,000 27,605 27,605
11 29,834 100,000 14,789 14,789 100,000 21,701 21,701 100,000 32,096 32,096
12 33,426 100,000 15,831 15,831 100,000 24,081 24,081 100,000 37,040 37,040
13 37,197 100,000 16,803 16,803 100,000 26,528 26,528 100,000 42,488 42,488
14 41,157 100,000 17,699 17,699 100,000 29,041 29,041 100,000 48,502 48,502
15 45,315 100,000 18,513 18,513 100,000 31,621 31,621 100,000 55,151 55,151
16 49,681 100,000 19,239 19,239 100,000 34,269 34,269 100,000 62,515 62,515
17 54,265 100,000 19,875 19,875 100,000 36,992 36,992 100,000 70,692 70,692
18 59,078 100,000 20,417 20,417 100,000 39,795 39,795 100,540 79,794 79,794
19 64,132 100,000 20,958 20,858 100,000 42,684 42,684 111,435 89,867 89,867
20 69,438 100,000 21,190 21,190 100,000 45,662 45,662 123,160 100,951 100,951
Age 75 148,598 100,000 11,741 11,741 100,000 87,322 87,322 343,219 326,876 326,876
____________________________________________________________________________________________________________________________
</TABLE>
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency
or in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-2
<PAGE> 56
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $100,000 Annual Planned Premium(1): $2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS ASSUMING GUARANTEED CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
----------------------------- ----------------------------- -----------------------------
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,197 717 100,000 1,289 809 100,000 1,382 901
2 4,305 100,000 2,592 1,992 100,000 2,860 2,259 100,000 3,139 2,539
3 6,620 100,000 3,941 3,221 100,000 4,476 3,756 100,000 5,057 4,337
4 9,051 100,000 5,243 4,437 100,000 6,139 5,332 100,000 7,150 6,343
5 11,604 100,000 6,497 5,690 100,000 7,849 7,042 100,000 9,437 8,630
6 14,284 100,000 7,698 7,053 100,000 9,604 8,958 100,000 11,935 11,290
7 17,098 100,000 8,844 8,360 100,000 11,403 10,919 100,000 14,665 14,181
8 20,053 100,000 9,931 9,608 100,000 13,245 12,922 100,000 17,649 17,327
9 23,156 100,000 10,952 10,791 100,000 15,126 14,965 100,000 20,913 20,752
10 26,414 100,000 11,904 11,904 100,000 17,044 17,044 100,000 24,485 24,485
11 29,834 100,000 12,780 12,780 100,000 18,997 18,997 100,000 28,399 28,399
12 33,426 100,000 13,577 13,577 100,000 20,986 20,986 100,000 32,696 32,696
13 37,197 100,000 14,293 14,293 100,000 23,010 23,010 100,000 37,423 37,423
14 41,157 100,000 14,922 14,922 100,000 25,069 25,069 100,000 42,633 42,633
15 45,315 100,000 15,454 15,454 100,000 27,158 27,158 100,000 48,386 48,386
16 49,681 100,000 15,879 15,879 100,000 29,274 29,274 100,000 54,753 54,753
17 54,265 100,000 16,188 16,188 100,000 31,416 31,416 100,000 61,818 61,818
18 59,078 100,000 16,363 16,363 100,000 33,574 33,574 100,000 69,678 69,678
19 64,132 100,000 16,387 16,387 100,000 35,744 35,744 100,000 78,451 78,451
20 69,438 100,000 16,243 16,243 100,000 37,921 37,921 107,637 88,227 88,227
Age 75 148,598 100,000 61,497 61,497 300,241 285,944 285,944
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-3
<PAGE> 57
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
STANDARD NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $100,000 Annual Planned Premium(1): $2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
- --------------------------------------------------------------------------------
</TABLE>
RESULTS ASSUMING CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
----------------------------- ----------------------------- -----------------------------
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,326 846 100,000 1,422 942 100,000 1,519 1,038
2 4,305 100,000 2,832 2,232 100,000 3,116 2,515 100,000 3,411 2,811
3 6,620 100,000 4,284 3,564 100,000 4,854 4,133 100,000 5,471 4,750
4 9,051 100,000 5,691 4,884 100,000 6,646 5,839 100,000 7,723 6,917
5 11,604 100,000 7,057 6,251 100,000 8,501 7,695 100,000 10,196 9,389
6 14,284 100,000 8,385 7,739 100,000 10,424 9,778 100,000 12,914 12,269
7 17,098 100,000 9,663 9,179 100,000 12,405 11,921 100,000 15,895 15,411
8 20,053 100,000 10,892 10,569 100,000 14,449 14,127 100,000 19,167 18,845
9 23,156 100,000 12,070 11,908 100,000 16,557 16,396 100,000 23,763 22,602
10 26,414 100,000 13,194 13,194 100,000 18,730 18,730 100,000 26,717 26,717
11 29,834 100,000 14,260 14,260 100,000 20,968 20,968 100,000 31,069 31,069
12 33,426 100,000 15,253 15,253 100,000 23,260 23,260 100,000 35,853 35,853
13 37,197 100,000 16,170 16,170 100,000 25,609 25,609 100,000 41,122 41,122
14 41,157 100,000 17,006 17,006 100,000 28,015 28,015 100,000 46,934 46,934
15 45,315 100,000 17,755 17,755 100,000 30,478 30,478 100,000 53,359 53,359
16 49,681 100,000 18,409 18,409 100,000 32,998 32,998 100,000 60,473 60,473
17 54,265 100,000 18,968 18,968 100,000 35,583 35,583 100,000 68,375 68,375
18 59,078 100,000 19,426 19,426 100,000 38,235 38,235 100,000 77,172 77,172
19 64,132 100,000 19,776 19,776 100,000 40,960 40,960 107,820 86,952 86,952
20 69,438 100,000 20,011 20,011 100,000 43,762 43,762 119,213 97,716 97,716
Age 75 148,598 100,000 8,810 8,810 100,000 82,043 82,043 332,779 316,932 316,932
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-4
<PAGE> 58
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
STANDARD NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $100,000 Annual Planned Premium(1): $2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
- --------------------------------------------------------------------------------------
</TABLE>
RESULTS ASSUMING GUARANTEED CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
----------------------------- ----------------------------- -----------------------------
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,197 717 100,000 1,289 809 100,000 1,382 901
2 4,305 100,000 2,592 1,992 100,000 2,860 2,259 100,000 3,139 2,539
3 6,620 100,000 3,941 3,221 100,000 4,476 3,756 100,000 5,057 4,337
4 9,051 100,000 5,243 4,437 100,000 6,139 5,332 100,000 7,150 6,343
5 11,604 100,000 6,497 5,690 100,000 7,849 7,042 100,000 9,437 8,630
6 14,284 100,000 7,698 7,053 100,000 9,604 8,958 100,000 11,935 11,290
7 17,098 100,000 8,844 8,360 100,000 11,403 10,919 100,000 14,665 14,181
8 20,053 100,000 9,931 9,608 100,000 13,245 12,922 100,000 17,649 17,327
9 23,156 100,000 10,952 10,791 100,000 15,126 14,965 100,000 20,913 20,752
10 26,414 100,000 11,904 11,904 100,000 17,044 17,044 100,000 24,485 24,485
11 29,834 100,000 12,780 12,780 100,000 18,997 18,997 100,000 28,399 28,399
12 33,426 100,000 13,577 13,577 100,000 20,986 20,986 100,000 32,696 32,696
13 37,197 100,000 14,293 14,293 100,000 23,010 23,010 100,000 37,423 37,423
14 41,157 100,000 14,922 14,922 100,000 25,069 25,069 100,000 42,633 42,633
15 45,315 100,000 15,454 15,454 100,000 27,158 27,158 100,000 48,386 48,386
16 49,681 100,000 15,879 15,879 100,000 29,274 29,274 100,000 54,753 54,753
17 54,265 100,000 16,188 16,188 100,000 31,416 31,416 100,000 61,818 61,818
18 59,078 100,000 16,363 16,363 100,000 33,574 33,574 100,000 69,678 69,678
19 64,132 100,000 16,387 16,387 100,000 35,744 35,744 100,000 78,451 78,451
20 69,438 100,000 16,243 16,243 100,000 37,921 37,921 107,637 88,227 88,227
Age 75 148,598 100,000 61,497 61,497 300,241 285,944 285,944
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-5
<PAGE> 59
ILLUSTRATIONS
- --------------------------------------------------------------------------------
OF VARIATION IN DEATH BENEFIT, POLICY ACCOUNT AND CASH SURRENDER VALUES IN
RELATION TO THE FUNDS' INVESTMENT EXPERIENCE.
In order to demonstrate how actual investment experience of the Funds affected
the Death Benefits, Policy Account and Cash Surrender Values ("policy
benefits") of a Policy, the following hypothetical illustrations were
developed and are based upon the actual experience of the Portfolios of the
Variable Insurance Products Fund or Variable Insurance Products Fund II. These
illustrations assume that the Separate Account acquired an interest in the
Portfolios at their inception.
These tables illustrate cost of insurance and expense charges (Policy cost
factors) at both the current rates and the maximum rates guaranteed in the
Policies. The amounts shown at the end of each Policy Year reflect a daily
charge against the Investment Divisions. This charge includes a .90% charge
against the Separate Account for mortality and expense risks, the effect on
each Division's actual investment experience of the investment management fees
and direct operating expenses. These tables also assume deduction of a premium
tax rate based on 2.1% of premiums and 3% of premium sales load. The tables are
for preferred risk male non-smoker age 45. Planned premium payments are assumed
to be paid at the beginning of each Policy Year.
C-1
<PAGE> 60
VARIABLE UNIVERSAL LIFE
Flexible Premium Variable Life Insurance
MALE
PREFERRED NON-SMOKER
Initial Face Amount: $100,000 Annual Planned Premium(1): $2,000,000
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
================================================================================
MONEY MARKET INVESTMENT DIVISIONS
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------- -------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1983 100,000 1,542 1,061 100,000 1,349 868
1984 100,000 3,464 2,864 100,000 3,075 2,475
1985 100,000 5,418 4,698 100,000 4,834 4,114
1986 100,000 7,389 6,582 100,000 6,603 5,797
1987 100,000 9,434 8,627 100,000 8,427 7,621
1988 100,000 11,682 11,037 100,000 10,418 9,773
1989 100,000 14,283 13,799 100,000 12,715 12,231
1990 100,000 16,902 16,579 100,000 15,012 14,689
1991 100,000 19,321 19,159 100,000 17,110 16,949
1992 100,000 21,379 21,379 100,000 18,865 18,865
1993 100,000 23,311 23,311 100,000 20,486 20,486
1994 100,000 25,505 25,505 100,000 22,316 22,316
</TABLE>
- --------------------------------------------------------------------------------
HIGH INCOME INVESTMENT DIVISIONS
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------- -------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1986 100,000 1,682 1,201 100,000 1,480 1,000
1987 100,000 3,302 2,702 100,000 2,931 2,331
1988 100,000 5,421 4,701 100,000 4,841 4,120
1989 100,000 6,616 5,809 100,000 5,906 5,099
1990 100,000 7,893 7,086 100,000 7,035 6,228
1991 100,000 12,697 12,052 100,000 11,327 10,682
1992 100,000 17,412 16,928 100,000 15,525 15,041
1993 100,000 22,634 22,312 100,000 20,161 19,838
1994 100,000 23,519 23,358 100,000 20,899 20,737
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency
or in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEIFTS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-2
<PAGE> 61
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C>
Initial Face Amount: $100,000 Annual Planned Premium(1): $2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
====================================================================================
</TABLE>
EQUITY-INCOME INVESTMENT DIVISIONS
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------------- ---------------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1987 100,000 1,373 893 100,000 1,190 710
1988 100,000 3,663 3,063 100,000 3,252 2,652
1989 100,000 6,130 5,410 100,000 5,478 4,757
1990 100,000 6,418 5,612 100,000 5,723 4,916
1991 100,000 10,442 9,635 100,000 9,334 8,528
1992 100,000 13,915 13,270 100,000 12,431 11,786
1993 100,000 18,144 17,660 100,000 16,195 15,711
1994 100,000 20,864 20,541 100,000 18,591 18,268
- ----------------------------------------------------------------------------------------------------------
</TABLE>
GROWTH INVESTMENT DIVISIONS
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------------- ---------------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1987 100,000 1,452 971 100,000 1,264 783
1988 100,000 3,530 2,930 100,000 3,133 2,533
1989 100,000 6,723 6,002 100,000 6,018 5,298
1990 100,000 7,217 6,410 100,000 6,450 5,643
1991 100,000 12,747 11,940 100,000 11,428 10,622
1992 100,000 15,503 14,858 100,000 13,883 13,238
1993 100,000 20,201 19,717 100,000 18,077 17,593
1994 100,000 21,503 21,180 100,000 19,203 18,880
==========================================================================================================
</TABLE>
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different
frequency or in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST
AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY
THE OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE
RESULTS CAN BE ACHIEVED IN THE FUTURE.
C-3
<PAGE> 62
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
Initial Face Amount: $100,000 Annual Planned Premium(1): $2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
================================================================================
<TABLE>
<CAPTION>
OVERSEAS INVESTMENT DIVISIONS
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
---------------------------------------- ---------------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1988 100,000 1,525 1,044 100,000 1,333 852
1989 100,000 3,965 3,365 100,000 3,533 2,933
1990 100,000 5,399 4,679 100,000 4,820 4,100
1991 100,000 7,462 6,655 100,000 6,672 5,866
1992 100,000 7,936 7,129 100,000 7,077 6,270
1993 100,000 12,974 12,329 100,000 11,581 10,936
1994 100,000 14,600 14,116 100,000 13,004 12,520
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT GRADE BOND INVESTMENT DIVISIONS
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
---------------------------------------- ---------------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1989 100,000 1,560 1,079 100,000 1,365 885
1990 100,000 3,344 2,744 100,000 2,966 2,366
1991 100,000 5,709 4,989 100,000 5,099 4,379
1992 100,000 7,695 6,888 100,000 6,881 6,075
1993 100,000 10,183 9,377 100,000 9,107 8,301
1994 100,000 11,156 10,511 100,000 9,950 9,304
==============================================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year. Values would be different if
premiums are paid with a different frequency or in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF FUTURE RESULTS. FUTURE POLICY
BENEFITS WILL FLUCTUATE BASED UPON ACTUAL INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN
THE PAST AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER. NO
REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS CAN BE ACHIEVED IN THE FUTURE.
</TABLE>
C-4
<PAGE> 63
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $100,000 Annual Planed Premium(1): $2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
====================================================================================
</TABLE>
ASSET MANAGER INVESTMENT DIVISIONS
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
1990 100,000 1,502 1,021 100,000 1,311 831
1991 100,000 3,815 3,215 100,000 3,395 2,795
1992 100,000 5,995 5,275 100,000 5,360 4,640
1993 100,000 9,124 8,318 100,000 8,181 7,374
1994 100,000 9,912 9,106 100,000 8,870 8,064
- ---------------------------------------------------------------------------------------------------------
</TABLE>
INDEX 500 INVESTMENT DIVISIONS
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
1993 100,000 1,551 1,071 100,000 1,357 877
1994 100,000 3,165 2,565 100,000 2,802 2,202
=========================================================================================================
<FN>
(1) Assumes the premium shown is paid at the beginning of each policy year. Values would be different if
premiums are paid with a different frequency or in different amounts.
</TABLE>
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST
AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY
THE OWNERS. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE
RESULTS CAN BE ACHIEVED IN THE FUTURE.
C-5
<PAGE> 64
STANDARD AND POOR'S 500
- --------------------------------------------------------------------------------
The Standard and Poor's (S&P 500) is a weighted index of 500 widely
held stocks; 400 Industrials, 40 Financial Company Stocks, 40 Public Utilities,
and 20 Transportation stocks, most of which are traded on the New York Stock
Exchange. The S&P 500 is generally regarded as an accurate composite of the
overall stock market.
[Graph appears here showing growth of 500 indexed stocks from 1980 through 1992]
Illustration of Policy Values-
Variable Universal Life
Policy accumulation values are calculated assuming the Standard and Poor's 500
Index annual rates of return on a $100,000 policy, death benefit option A, which
was purchased in 1980 by a 45 year old, male, preferred non-smoker. The current
schedule of cost of insurance rates were used.
<TABLE>
<CAPTION>
S&P 500 POLICY CASH
ANNUAL ACCOUNT SURRENDER DEATH
YEAR RETURN VALUE VALUE BENEFIT
---- ------ ----- ----- -------
<S> <C> <C> <C> <C>
1980 32.42% 1,925 1,444 100,000
1981 -4.91% 3,322 2,721 100,000
1982 21.58% 5,946 5,226 100,000
1983 22.43% 9,158 8,351 100,000
1984 6.10% 11,270 10,463 100,000
1985 31.57% 16,789 16,143 100,000
1986 18.21% 21,516 21,032 100,000
1987 5.17% 24,018 23,695 100,000
1988 16.50% 29,524 29,363 100,000
1989 31.43% 40,558 40,558 100,000
1990 -3.19% 40,334 40,334 100,000
1991 30.55% 54,298 54,298 100,000
1992 7.68% 59,636 59,636 100,000
1993 10.00% 66,774 66,774 100,000
1994 1.30% 68,614 66,614 105,915
</TABLE>
1) Assumes an annual $2000 premium is paid at the beginning of each policy
year. Values would be different if premiums are paid with a different
frequency or in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals
may cause this policy to lapse because of insufficient cash values.
THE STANDARD AND POOR'S INDEX RATES SHOWN ABOVE FOR THE LAST 15 YEARS IS A
DEMONSTRATION OF A WEIGHTED AVERAGE OF 500 WIDELY HELD STOCKS. IT SHOULD NOT BE
DEEMED A REPRESENTATION OF FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS
MADE BY THE OWNER, THE SIZE OF THE POLICY, ACTUAL PREMIUMS PAID, AND COST OF
INSURANCE. THE INFORMATION IN THE CHART IS NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
D-1
<PAGE> 65
LONG TERM MARKET TRENDS
- -------------------------------------------------------------------------------
The information below covering the period of 1926-1994 an examination of the
basic relationship between risk and return among the different asset classes,
and between nominal and real (inflation-adjusted) returns. The information is
provided because the policyowners have varied investment portfolios available
which have different investment objectives and policies. The chart generally
demonstrates how different classes of investments have performed during the
period. The study of asset returns provides a period long enough to include
most of the major types of events that investors have experienced in the past
and may experience in the future. This is a historical record and is not
intended as a projection of future performance.
The graph depicts the growth of a dollar invested in large company stocks,
small company stocks, long-term government bonds, Treasury bills, and a
hypothetical asset returning the inflation rate over the period from the end of
1925 to the end of 1994. All results assume reinvestment of dividends on stocks
or coupons on bonds and no taxes. Transaction costs are not included, except in
the small company stock index starting in 1982. Charges associated with a
variable insurance policy are not reflected in the chart.
Each of the cumulative index values is initiated at $1.00 at year-end 1925. The
graph illustrates that large company stocks and small company stocks gained the
most over the entire period: investments of one dollar would have grown to
$810.54 and $2,842.77 respectively, by year-end 1994. This growth, however, was
earned by taking substantial risk. In contrast, long-term government bonds
(with approximately 20-year maturity), which exposed the holder to less risk,
grew only $25.86.
The lowest risk strategy over the entire period was to buy U.S. Treasury bills.
Since Treasury bills tended to track inflation, the resulting real
(inflation-adjusted) returns were near zero for the entire 1926-1994 period.
[Graph appears here showing
the growth of a dollar
invested in large company
stocks, long-term government
bonds, Treasury bills, and a
hypothetical asset returning
the inflation rate over the
period from the end of 1925
to the end of 1994.]
E-1
