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Registration No. 33-10248
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
POST EFFECTIVE AMENDMENT NO. 13
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUST
REGISTERED ON FORM N-8B-2
A. Exact name of Trust: Separate Account SL
B. Name of depositor: SAFECO Life Insurance Company
C. Complete address of depositor's principal executive offices:
15411 N.E. 51st St., Redmond, Washington 98052
D. Name and address of agent for service:
William E. Crawford, Esq.
SAFECO Life Insurance Company
15411 N.E. 51st Street
Redmond, Washington 98052
Copies to:
Leslie A. Harrison
SAFECO Corporation
SAFECO Plaza
Seattle, WA 98185
E. Title and amount of securities being registered:
Individual Flexible Premium Variable Life Insurance Policies
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Approximate Date of Proposed Public Offering.................. As soon as is practicable after Effective Date.
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It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[X] on April 30, 1996 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485.
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. Registrant filed the Rule 24f-2
Notice for the most recent fiscal year on or about February 29, 1996.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
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N-8B-2 Items Caption in Prospectus
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1. SAFECO, The Separate Account
2. SAFECO
3. Not Applicable
4. Distribution of the Policies
5. The Separate Account
6.(a) Not Applicable
6.(b) Not Applicable
9. Legal Proceedings
10. The Policy
11. Variable Insurance Products Funds
12. Variable Insurance Products Funds
13. Charges and Deductions
14. The Policy
15. The Separate Account
16. Variable Insurance Products Funds
17. Policy Benefits and Rights
18. The Policy
19. Not Applicable
20. Not Applicable
21. Not Applicable
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. SAFECO
26. SAFECO
27. SAFECO
28. SAFECO
29. SAFECO
30. SAFECO
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Not Applicable
36. SAFECO
37. Not Applicable
38. Distribution of the Policies
39. Distribution of the Policies
40. Not Applicable
41.(a) Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. The Policy
45. Not Applicable
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46. Policy Benefits and Rights
47. Not Applicable
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. SAFECO, The Policy
52. Variable Insurance Products Funds
53. Tax Status
54. Financial Statements
55. Not Applicable
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REPRESENTATIONS
1. Registrant represents that Section (b)(13)(iii)(F) of Rule 6e-3(T) is being
relied on.
2. Registrant represents that the level of the risk charge is reasonable in
relation to the risks assumed by the life insurer under the Policies.
3. Registrant represents that it has analyzed the risk charge taking into
consideration such facts as current charge levels, potential adverse
mortality, the manner in which charges are imposed, the markets in which
the Policy will be offered and anticipated sales and lapse rates.
Registrant also represents that a memorandum has been prepared in
connection with the analysis of the risk charge as set forth above.
Registrant undertakes to keep and make available to the Commission on
request the memorandum.
4. Registrant represents that the Company has concluded that there is a
reasonable likelihood that the distribution financing arrangement of the
Separate Account will benefit the Separate Account and policyholders and
will keep and make available to the Commission on request a memorandum
setting forth the basis for this representation.
5. Registrant represents that the Separate Account will invest only in
management investment companies which have undertaken to have a Board of
Directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
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INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
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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, at which
time SAFECO will pay the value of the Policy Account, less any outstanding
indebtedness.
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 Fidelity's Variable Insurance Products Fund,
Fidelity's Variable Insurance Products Fund II, Lexington Natural Resources
Trust, Lexington Emerging Markets Fund, Inc., and SAFECO Resource Series Trust,
collectively, the "Funds." (Until February 16, 1996, the Separate Account also
included 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.)
Fidelity's Variable Insurance Products Fund ("VIP") is a mutual fund comprised
of five portfolios, each of which is currently available in connection with the
Policies. The five portfolios are: Money Market, High Income, Equity-Income,
Growth and Overseas.
Fidelity's Variable Insurance Products Fund II ("VIPII") is a mutual fund
comprised of five portfolios, each of which is currently available in connection
with the Policies. The five portfolios are: Investment Grade Bond, Asset
Manager, Index 500, Asset Manager: Growth, and Contrafund.
Lexington Natural Resources Trust and the Lexington Emerging Markets Fund, Inc.
("Lexington Emerging Markets Fund") each consist of only one portfolio which are
offered hereunder; the Lexington Natural Resources Portfolio and the Lexington
Emerging Markets Portfolio, respectively.
SAFECO Resource Series Trust ("SAFECO RST") currently consists of five
portfolios, four of which are currently available in connection with the
Policies. The four portfolios are: Equity, Growth, Northwest and Bond.
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 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 the value of 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
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND, FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II, LEXINGTON NATURAL RESOURCES TRUST, LEXINGTON EMERGING MARKETS
FUND, INC., AND SAFECO RESOURCE SERIES TRUST.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1996.
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(i)
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GLOSSARY
ADMINISTRATIVE OFFICE
Refers to the office where all requests should be addressed. The address of the
Administrative Office is P.O. Box 344, Haddam, Connecticut 06438-0344. 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)
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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 named SAFECO Separate Account SL, maintained by
SAFECO into which a portion of its assets has been allocated for the
Accumulation Life 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)
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TABLE OF CONTENTS
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SUMMARY.................................................................................... 1
SAFECO..................................................................................... 5
Advertising and Performance....................................................... 5
THE SEPARATE ACCOUNT....................................................................... 6
SEPARATE ACCOUNT INVESTMENT DIVISIONS...................................................... 6
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS....................................... 6
Fidelity's Variable Insurance Products Fund Investment Objectives and Policies of
the Portfolios...................................................................... 6
Fidelity's Variable Insurance Products Fund II Investment Objectives and Policies
of the Portfolios................................................................... 7
Lexington Natural Resources Trust Investment Objectives and Policies of the
Portfolio.......................................................................... 8
Lexington Emerging Markets Fund Investment Objectives and Policies of the
Portfolio.......................................................................... 9
SAFECO Resource Series Trust Investment Objectives and Policies of the
Portfolios......................................................................... 9
Substitution of Securities........................................................ 9
ALLOCATIONS................................................................................ 9
PREMIUMS................................................................................... 10
The Initial Premium............................................................... 10
Subsequent Premiums............................................................... 10
Limits............................................................................ 10
Grace Period...................................................................... 10
Reinstatement..................................................................... 11
CHARGES AND DEDUCTIONS..................................................................... 11
Deductions From Premium Payments.................................................. 11
Premium Tax Charge.......................................................... 11
Sales Loads................................................................. 11
Deductions from Policy Account.................................................... 11
First Year Administrative Charge............................................ 11
Monthly Charges............................................................. 11
The Monthly Administrative Charge..................................... 11
The Monthly Cost of Insurance for Primary Insured..................... 11
The Monthly Cost of Any Benefits Provided by Riders................... 12
Deductions from Separate Account.................................................. 12
Mortality and Expense Risk Charge........................................... 12
Income Tax Charge........................................................... 12
Deductions for Other Transactions................................................. 12
Transfers Among Investment Options.......................................... 12
Increases in Face Amount of Insurance....................................... 12
Partial Withdrawals......................................................... 12
Surrender Charges................................................................. 12
Full Surrenders............................................................. 12
Decreases in Face Amount of Insurance....................................... 13
Fund Expenses..................................................................... 13
Fidelity's VIP Fund and VIPII Fund.......................................... 13
Lexington Natural Resources Trust and Lexington Emerging Markets Fund....... 14
SAFECO Resource Series Trust................................................ 15
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POLICY BENEFITS AND RIGHTS................................................................. 15
Insurance Benefits................................................................ 15
Death Benefit..................................................................... 15
Guaranteed Death Benefit Endorsement.............................................. 16
Changing Face Amount of Insurance or Death Benefit Option......................... 16
Transfers Among Investment Options................................................ 17
Policy Loans...................................................................... 17
Loan Interest..................................................................... 18
Loan Repayment.................................................................... 18
Full Cash Surrender............................................................... 18
Partial Cash Withdrawal........................................................... 19
VALUATION.................................................................................. 19
OTHER PROVISIONS........................................................................... 19
Owner............................................................................. 19
Beneficiary....................................................................... 20
Changing Owner or Beneficiary..................................................... 20
Assignment........................................................................ 20
ADMINISTRATION OF THE POLICIES............................................................. 20
DELAY OF PAYMENTS.......................................................................... 20
MANAGEMENT OF THE COMPANY.................................................................. 21
TAX STATUS................................................................................. 21
Introduction...................................................................... 21
Diversification................................................................... 22
Tax Treatment of the Policy....................................................... 23
Policy Proceeds................................................................... 23
Tax Treatment of Loans and Surrenders............................................. 23
Multiple Policies................................................................. 24
Tax Treatment of Assignments...................................................... 24
Qualified Plans................................................................... 24
SEPARATE ACCOUNT VOTING RIGHTS............................................................. 24
Disregard of Voting Instructions.................................................. 25
DISTRIBUTION OF THE POLICIES............................................................... 25
REPORTS TO POLICY OWNERS................................................................... 25
LEGAL PROCEEDINGS.......................................................................... 25
EXPERTS.................................................................................... 25
FINANCIAL STATEMENTS....................................................................... 26
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
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SUMMARY
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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
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PREMIUM PAYMENTS
- You can vary amount and frequency.
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DEDUCTIONS FROM PREMIUMS
- Sales load and distribution expense is 3%.
- Premium tax that varies by state or subdivision.
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NET PREMIUM
- You direct the net premium to be invested in the Guaranteed Interest
Division (GID) or to the Separate Account which offers sixteen different
Investment Divisions. Each Investment Division invests in a separate
portfolio of Fidelity's Variable Insurance Products Fund, Fidelity's
Variable Insurance Products Fund II, Lexington Natural Resources Trust,
Lexington Emerging Markets Fund or SAFECO Resource Series Trust.
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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 Investment Divisions
for mortality and expense risks. This charge is not deducted from the
GID.
- Investment advisory fees and fund expenses are deducted from each
portfolio.
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BENEFITS
LIVING BENEFITS:
- Loans may be taken at a zero net 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 zero net interest rate after twelve years.
- Partial withdrawals of Cash Surrender Values may be taken.
DEATH BENEFITS:
- Death benefits are income tax free to the Beneficiary.
- Lifetime income to the Beneficiary is available in a variety of
settlement options.
- For certain Policies issued on or after April 29, 1994, a Guaranteed
Death Benefit Endorsement may be added to the Policy.
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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 Investment 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, then as long as required premiums are paid, the Policy will not
terminate prior to the Primary Insured's 80th birthday 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 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 23.
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, as amended. 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 portfolio(s) of
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the Funds. The owner can choose to allocate net premiums or cash value in up to
nine of the available sixteen Investment Divisions at any one time.
Fidelity's Variable Insurance Products Fund ("VIP") is a mutual fund comprised
of five portfolios, each of which is currently available in connection with the
Policies. The five portfolios are: Money Market, High Income, Equity-Income,
Growth and Overseas.
Fidelity's Variable Insurance Products Fund II ("VIPII") is a mutual fund
comprised of five portfolios, each of which is currently available in connection
with the Policies. The five portfolios are: Investment Grade Bond, Asset
Manager, Index 500, Asset Manager: Growth and Contrafund.
Lexington Natural Resources Trust and the Lexington Emerging Markets Fund, Inc.
("Lexington Emerging Markets Fund") each consist of only one portfolio which are
offered hereunder; the Lexington Natural Resources Portfolio and the Lexington
Emerging Markets Portfolio, respectively.
SAFECO Resource Series Trust ("SAFECO RST") currently consists of five
portfolios, four of which are currently available in connection with the
Policies. The four portfolios are: Equity, Growth, Northwest and Bond.
RIGHT TO EXAMINE THE POLICY
The Owner may examine the Policy and if for any reason is not satisfied, may
cancel the Policy by returning it 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 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 12.)
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.
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 SEPARATE ACCOUNT
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.
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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
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 12.)
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 12.)
There are no Surrender Charges after the tenth Policy Year.
FUND EXPENSES
Each portfolio of the Funds pays an investment advisory fee. The Funds have also
assumed responsibility for paying certain operating expenses. (See "Charges and
Deductions - Fund Expenses" on Page 13.)
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 17.)
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 seven 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 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 test period. An increase in a 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
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applied to the income. However, the penalty does not 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 or her 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 from and/or surrenders of the Policy.
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 23 and "Tax
Status - Tax Treatment of Loans and Surrenders on Page 23.
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. 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 344, Haddam, Connecticut 06438-0344. The phone
number is 1-800-982-3656 or (203)-345-8561. All requests should be directed to
the Administrative Office. All premium payments should be directed to the
Address, P.O. Box 30349, Hartford, CT 06150.
SAFECO is rated A++ (Superior), the highest ranking available, by A.M. Best, an
independent firm that analyzes insurance carriers. SAFECO is also rated Aa2
(Excellent) for financial strength by Moody, and AA (Excellent) for claims
paying ability by Standard & Poor ("S&P"), both of which are the third highest
ranking out of 21 classifications. The financial strength of SAFECO may be
relevant with respect to SAFECO's ability to satisfy its general account
obligations under the Policies.
ADVERTISING AND PERFORMANCE
Total returns for the Funds may be quoted in advertising and marketing materials
when accompanied by policy performance at the Separate Account level.
Comparative performance information may also be used from time to time,
including Lipper Analytical Services, Inc., Morningstar, Inc. and The VARDS
Report by Financial Planning Resources, Inc., or major market indices such as
the Dow Jones Industrial Average Index, Standard & Poor's 500 Composite Stock
Price Index, Morgan Stanley Capital International World Index, Morgan Stanley
Emerging Markets Free Index, Morgan Stanley Capital International, Europe,
Australiasia, Far East (EAFE) Index and other circular services and
publications. Such comparative performance information will be stated in the
same terms in which the comparative data and indices are stated. The services
utilize industry standard measurements some of which are described below:
Relative volatility measures the variability of a return from its mean, in terms
of a standard measurement. Beta is a measure of a portfolio's market risk. The
beta of the market is 1.00 as measured with the S&P 500 Index. Accordingly, a
portfolio with a beta of 1.10 is expected to perform 10% better than the market
in up markets and 10% worse than the market in down markets. Conversely, a beta
of .85 indicates that the portfolio is expected to perform 15% worse than the
market in up markets and 15% better than the market in down markets. R2 is a
measure of correlation between the portfolio and a benchmark index, such as the
S&P 500 Index, calculated over three years. R2 is a proportion that ranges
between 0.00 and 1.00. As R2 decreases, so does the validity of the benchmark
comparison.
5
<PAGE> 15
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. 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, as amended (the "1940 Act"). 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 the Funds. This
Prospectus describes Policies under which net premiums are allocable to
portfolios of the Funds through Investment Divisions of the Separate Account.
SEPARATE ACCOUNT INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
Each Investment Division of the Separate Account is invested solely in the
shares of one portfolio of the Funds. Each of the Funds, except Lexington
Natural Resources Trust, is an open-end, diversified management investment
company registered under the 1940 Act. Lexington Natural Resources Trust is an
open-ended, non-diversified management investment company registered under the
1940 Act. 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 the respective Funds' investment advisor.
Shares of the Funds are issued and redeemed in connection with variable life
policies issued through the Separate Account, other SAFECO Separate Accounts
issuing variable contracts and variable annuity and/or variable life insurance
policies issued through separate accounts of life insurance companies not
affiliated with SAFECO. Shares of the SAFECO RST may also be made directly
available to qualified plans. 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 PORTFOLIOS
- --------------------------------------------------------------------------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND ("VIP")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
VIP MONEY MARKET High-quality, U.S. dollar denominated Seeks to obtain as high a level of
money market securities of domestic and current income as is consistent
foreign issuers, such as certificates with preserving capital and
of deposit, obligations of governments providing liquidity.
and their agencies and commercial paper
and notes.
</TABLE>
6
<PAGE> 16
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
VIP HIGH INCOME At least 65% in income-producing debt Seeks to obtain a high level of
securities and preferred stocks, current income by investing
including convertible securities; up to primarily in high-yielding, lower-
20% in common stocks and other equity rated, fixed-income securities,
securities; and up to 15% in securities while also considering growth of
that are illiquid by virtue of capital. High-yielding lower grade
restrictions on resale and all other corporate debt securities are
illiquid securities. 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.
VIP EQUITY-INCOME At least 65% in income-producing common Seeks reasonable income by
or preferred stock and the remainder in investing primarily in income-
debt securities. producing equity securities, with
the potential for capital
appreciation as a consideration.
VIP 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.
VIP OVERSEAS Normally invests at least 65% of its Seeks long-term growth of capital
assets in securities of companies from primarily through investments in
at least three countries outside of foreign securities.
North America.
</TABLE>
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II ("VIPII")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
VIPII INVESTMENT GRADE The Portfolio will maintain a dollar- Seeks as high a level of current
BOND weighted average portfolio maturity of income as is consistent with the
ten years or less. Under normal preservation of capital by
conditions, at least 65% of the investing in a broad range of
Portfolio's total assets will be investment- grade, fixed-income
invested in investment-grade securities.
fixed-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.
VIPII ASSET MANAGER The Portfolio allocates its assets Seeks high total return with
among domestic and foreign stocks, reduced risk over the long-term.
bonds and short-term fixed income
instruments.
</TABLE>
7
<PAGE> 17
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
VIPII INDEX 500 The Portfolio's assets will be invested Seeks investment results that
in equity securities of companies which correspond to the total return
compose the S&P 500*. (i.e., 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.
VIPII ASSET MANAGER: The Portfolio's assets will be Seeks maximum total return over the
GROWTH diversified across domestic and foreign long term.
stocks, bonds 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.
VIPII CONTRAFUND The Portfolio's assets will be invested Seeks long-term capital
mainly in undervalued or out-of-favor appreciation.
equity securities of companies and
industries. This strategy can lead to
investments in stocks of small
companies which may not be well-known.
</TABLE>
LEXINGTON NATURAL RESOURCES TRUST
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
LEXINGTON NATURAL Natural resource assets are materials Seeks long-term growth of capital
RESOURCES derived from natural sources which have through investing primarily in
economic value. The Portfolio seeks to common stocks of companies that own
identify securities of companies that, or develop natural resources and
in its management's opinion, are other basic commodities, or supply
undervalued relative to the value of goods and services to such
natural resource holdings of such companies.
companies in light of current and
anticipated economic or financial
conditions. Examples of natural
resource assets include companies that
specialize in energy sources, forest
products, environmental technology,
agriculture products, chemical
products, metals (ferrous and non-
ferrous, strategic, precious) and other
basic commodities.
</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.
8
<PAGE> 18
LEXINGTON EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
LEXINGTON EMERGING The Portfolio invests primarily in Seeks long-term growth of capital
MARKETS emerging country and emerging market primarily through investment in
equity securities. For purposes of its equity securities and equivalents
objective, the Portfolio considers of companies domiciled in, or doing
emerging country equity securities to business in emerging countries and
be any country whose economy and market emerging markets.
the World Bank or United Nations
considers to be emerging or developing.
Examples of these countries include
Malaysia, Thailand, Philippines,
Brazil, Chile and Poland.
</TABLE>
SAFECO RESOURCE SERIES TRUST ("SAFECO RST")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
SAFECO RST EQUITY The Portfolio ordinarily invests Seeks long-term growth of capital
principally in common stocks or and reasonable current income.
securities convertible into common
stocks.
SAFECO RST GROWTH The Portfolio ordinarily invests a Seeks growth of capital and the
preponderance of its assets in common increased income that ordinarily
stock selected for potential follows from such growth.
appreciation.
SAFECO RST NORTHWEST The Portfolio invests at least 65% of Seeks long-term growth of capital
its total assets in securities issued through investing primarily in
by companies with their principal Northwest companies.
executive offices located in, Alaska,
Idaho, Montana, Oregon or Washington.
SAFECO RST BOND The Portfolio invests primarily in Seeks as high a level of current
medium-term debt securities. income as is consistent with the
relative stability of capital.
</TABLE>
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.
ALLOCATIONS
- --------------------------------------------------------------------------------
The Policy provides investment options for the amount in the Policy Account. The
Owner specifies the original premium allocation and deduction allocation
percentages in the application for the Policy. Unless
9
<PAGE> 19
changed, such percentages also apply to subsequent premium and deduction
allocations. The Owner can maintain balances in a maximum of nine Investment
Divisions at any one time. 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. 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 Investment Division of the Separate Account. At the end of this 25
day period, the Policy Account may be allocated to one or more Investment
Divisions up to a maximum of nine and to the unloaned portion of the Guaranteed
Interest Division in accordance with the Owner's instructions. Additional
premiums and deductions will be allocated to the Investment Divisions of the
Separate Account and to the unloaned portion of the Guaranteed Interest Division
as specified by the Owner.
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 three
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
Additional premiums may be paid at any time at P.O. Box 30349, Hartford,
Connecticut, 06150, while the Policy is in force and before the Final Policy
Date. These premiums must 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.)
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 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 239.
GRACE PERIOD
The duration of insurance coverage depends on whether the Net Cash Surrender
Value is sufficient 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
10
<PAGE> 20
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 P.O. Box 30349, Hartford, Connecticut,
06150, 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. a 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 three 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 is also a Surrender Charge assessed in the
event the Policy is surrendered for its Net Cash Surrender Value. (See "Charges
and Deductions - Surrender Charges" on Page 12.)
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
11
<PAGE> 21
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 SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. SAFECO deducts a risk charge from the
Separate Account as part of the calculation of the Unit Value (see "Valuation"
on Page 19). This risk charge is equal on an annual basis to .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. 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 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.
(See "Transfers Among Investment Options" on page 17.) 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
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; 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 10.) While an Owner can minimize the
12
<PAGE> 22
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:
<TABLE>
<CAPTION>
TABLE OF SURRENDER CHARGES
POLICY MAXIMUM MAXIMUM SURRENDER
YEAR PERCENTAGE PREMIUM CHARGE
------ ---------- ------- ---------
<C> <C> <S> <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.
FUND EXPENSES
FIDELITY'S VIP FUND AND VIPII FUND
Each of the VIP and VIPII Fund portfolios pays a fee to the Fund's investment
adviser. 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
1995 aggregate advisory rate, comprised of the individual and group fee rates,
paid by each such portfolio as a percentage of average net assets.
13
<PAGE> 23
<TABLE>
<CAPTION>
PORTFOLIO INDIVIDUAL RATE 1995 AGGREGATE ADVISORY RATE
- ---------------------------- --------------- ----------------------------
<S> <C> <C>
VIP Money Market .03% 0.24%
VIP High Income .45% 0.60%
VIP Equity-Income .20% 0.51%
VIP Growth .30% 0.61%
VIP Overseas .45% 0.76%
VIPII Investment Grade Bond .30% 0.45%
VIPII Asset Manager .40% 0.71%
VIPII Asset Manager: Growth .40% 0.71%
VIPII Contrafund .30% 0.61%
</TABLE>
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 1995, the Money Market Portfolio's advisory
fee was .24% 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, 1995.)
<TABLE>
<CAPTION>
PORTFOLIO 1995 ADVISORY FEE
----------------------------------------- -----------------
<S> <C>
VIPII Index 500 0.09%*
</TABLE>
* After reimbursement of the portfolio's expenses.
Each portfolio of the Funds pays all its expenses, without limitation, that are
not assumed by the investment advisor 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.
LEXINGTON NATURAL RESOURCES TRUST AND LEXINGTON EMERGING MARKETS FUND
Lexington Management Corporation ("LMC") is the investment advisor for Lexington
Natural Resources Trust and Lexington Emerging Markets Fund. For its investment
management services to the Funds, under its investment advisory agreement, LMC
will receive a monthly fee at the annual rate of 1.00% for Lexington Natural
Resources Trust and 0.85% for Lexington Emerging Markets Fund of the respective
Fund's average daily net assets.
Each Fund pays all its expenses, without limitation, that are not assumed by
Lexington Management Corporation. These expenses include, but are not limited
to, accounting, printing and mailing expenses; custodian, directors',
professional, registration and computer processing fees; and other operating
expenses.
For Lexington Emerging Markets Fund, LMC has agreed to voluntarily limit the
total expenses of the Fund (excluding interest, taxes, brokerage, and
extraordinary expenses but including management fee and operating expenses) to
an annual rate of 1.75% of the Fund's average net assets through April 30, 1997.
<TABLE>
<CAPTION>
PORTFOLIO ADVISORY FEE
----------------------------------------------- ------------
<S> <C>
Lexington Natural Resources Trust 1.00%
Lexington Emerging Markets Fund 0.85%
</TABLE>
14
<PAGE> 24
SAFECO RESOURCE SERIES TRUST*
<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER AFTER
FEES EXPENSES REIMBURSEMENT
---------- -------- -------------
<S> <C> <C> <C>
SAFECO RST Equity Portfolio 0.72% 0.03% 0.75%
SAFECO RST Growth Portfolio 0.72% 0.07%** 0.79%
SAFECO RST Northwest Portfolio 0.71% 0.00%** 0.71%
SAFECO RST Bond Portfolio 0.72% 0.00%** 0.72%
</TABLE>
* As a percentage of average net assets.
** SAFECO pays all Other Expenses of each portfolio until a portfolio's assets
reach $20 million. Once a portfolio's assets exceed $20 million, the Other
Expenses of the portfolio will be paid by such portfolio.
The Growth Portfolio began paying Other Expenses in August 1995. During the
year ended December 31, 1995, SAFECO paid for or reimbursed a portion of
the Other Expenses of the Growth Portfolio and all of the Other Expenses of
the Northwest and Bond Portfolios. Expenses before such reimbursement as a
percentage of net assets were as follows:
<TABLE>
<S> <C>
SAFECO RST Growth Portfolio 0.84%
SAFECO RST Northwest Portfolio 1.18%
SAFECO RST Bond Portfolio 0.94%
</TABLE>
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.
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 the following table) 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 the following table)
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.
15
<PAGE> 25
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 through 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, 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.
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 12.) 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 13.)
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.
16
<PAGE> 26
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 allocation limits and 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
owner can maintain balances in a maximum of nine investment divisions at any one
time. 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 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.
17
<PAGE> 27
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 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 10.)
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 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 12.)
18
<PAGE> 28
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 12.)
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.
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.
19
<PAGE> 29
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 344, Haddam, Connecticut 06438-0344.
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.
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.
20
<PAGE> 30
MANAGEMENT OF THE COMPANY
- --------------------------------------------------------------------------------
The following are the Officers and Directors of SAFECO:
OFFICERS
<TABLE>
<CAPTION>
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>
DIRECTORS
<TABLE>
<CAPTION>
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
Rod A. Pierson Director
James W. Ruddy Director
Robert L. Spaulding Director
Robert W. Swegle Director
Richard E. Zunker Director
</TABLE>
* 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.
21
<PAGE> 31
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 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, Lexington Management Corporation and SAFECO
Asset Management Company 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.
22
<PAGE> 32
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 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" on Page 23.)
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 seven 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 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
23
<PAGE> 33
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.
If a Policy is not classified as a modified endowment contract, then any
surrenders will 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.
However, if the 1940 Act 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.
24
<PAGE> 34
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 voting in accordance
with 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, 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 every third Policy Month, a
quarterly statement will be sent to each Owner. Taken together every four
Quarterly Statements make up an annual statement providing a complete year to
date policy history for the proceeding Policy Year. These statements 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. These statements 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. SAFECO is 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 LLP,
independent auditors, as set forth to the extent indicated in their reports
thereon appearing elsewhere herein and in the Registration Statement and
25
<PAGE> 35
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
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. Prior to
February 16, 1996, the Separate Account contained certain Investment Divisions
which invested 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. The financial statements included herein present only the
investment divisions invested in portfolios of VIP and VIP II, which are
available to all policyholders on and after February 16, 1996. The Lexington
Emerging Markets Fund Portfolio, Lexington Natural Resources Portfolio and the
SAFECO Resources Series Trust Portfolios will be available May 1, 1996.
Therefore, financials for the corresponding investment divisions are not
included.
26
<PAGE> 36
SEPARATE ACCOUNT SL
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 1995
A-1
<PAGE> 37
SEPARATE ACCOUNT SL
DECEMBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<S> <C>
Statement of Assets and Liabilities.......................................... A-4
Statement of Operations...................................................... A-5
Statement of Changes in Net Assets........................................... A-6
Notes to Financial Statement................................................. A-7
</TABLE>
A-2
<PAGE> 38
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, Index 500, Contrafund, and Asset Manager: Growth divisions) as of
December 31, 1995. For the Growth, Money Market, Equity-Income, Overseas, High
Income, Investment Grade Bond, Asset Manager, and Index 500 divisions, we have
audited the statement of operations for the year ended December 31, 1995 and the
statement of changes in net assets for each of the two years in the period then
ended. For the Contrafund and Asset Manager: Growth divisions, we have audited
the statement of operations and the statement of changes in net assets for the
period from April 30, 1995 (date of inception) to December 31, 1995. 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, 1995, 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, 1995, and the results of their
operations and changes in their net assets for the periods referred to above, in
conformity with generally accepted accounting principles.
/s/ Ernst and Young LLP
---------------------------
Seattle, Washington
February 9, 1996
A-3
<PAGE> 39
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> <C>
NET ASSETS:
Investments at fair
value in:
Variable Insurance
Products Fund
Cost:
Growth Portfolio - $7,231,482 $ 8,828,359
Money Market
Portfolio - 1,266,813 $ 1,266,813
Equity Income
Portfolio - 3,975,339.. $ 4,694,086
Overseas
Portfolio - 2,734,628.. $ 2,910,406
High Income
Portfolio - 675,105... $ 693,524
Due (To) From SAFECO LIFE.......... (13,261) 610 (377) (173) (75 )
----------- ----------- ----------- ----------- ----------
Net Assets......................... $ 8,815,098 $ 1,267,423 $ 4,693,709 $ 2,910,233 $ 693,449
=========== =========== =========== =========== ==========
Units Outstanding.................. 47,383.187 11,091.484 22,762.547 21,675.404 5,501.537
=========== =========== =========== =========== ==========
Unit Value and Redemption
Price Per Unit................... $ 186.039 $ 114.270 $ 206.203 $ 134.264 $ 126.046
=========== =========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements
A-4
<PAGE> 40
SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSET
INVESTMENT ASSET MANAGER:
GRADE BOND MANAGER INDEX 500 CONTRAFUND GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS: (CONTINUED)
Investments at fair value
in:
Variable Insurance Products Fund II
Cost:
Investment Grade Bond
Portfolio - $ 926,835 $ 987,668
Asset Manager
Portfolio - 6,120,964 $ 6,731,685
Index 500 Portfolio - 1,057,163 $1,156,876
Contrafund Portfolio - 1,061,001 $1,066,780
Asset Manager: Growth
Portfolio - 199,270 $ 196,501
Due (To) From SAFECO LIFE.............. 1,788 (1,161) (185) (14) (4)
---------- ----------- ---------- ---------- ----------
Net Assets............................. $ 989,456 $ 6,730,524 $1,156,691 $1,066,766 $ 196,497
========== =========== ========== ========== ==========
Units Outstanding...................... 7,681.136 45,178.379 8,083.709 8,931.449 1,701.758
========== =========== ========== ========== ==========
Unit Value and Redemption
Price Per Unit....................... $ 128.816 $ 148.977 $ 143.089 $ 119.439 $ 115.467
========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
A-4a
<PAGE> 41
SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
MONEY EQUITY HIGH
GROWTH MARKET INCOME OVERSEAS INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................... $ 22,309 $ 75,038 $184,151 $ 16,363 $ 22,525
Expenses (Note 3):
Mortality and Expense Risk Charge..... (58,866) (11,920) (28,796) (22,506) (5,208)
---------- -------- -------- -------- --------
Net Investment Income (Loss)............ (36,557) 63,118 155,355 (6,143) 17,317
---------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net Realized Gain on Investments........ 188,204 -- 40,434 20,370 59,151
Net Change in Unrealized Appreciation
of Investments........................ 1,533,152 -- 707,446 204,791 19,704
---------- -------- -------- -------- --------
Net Realized and Unrealized Gain
on Investments........................ 1,721,356 -- 747,880 225,161 78,855
---------- -------- -------- -------- --------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS:........................... $1,684,799 $ 63,118 $903,235 $219,018 $ 96,172
========== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
A-5
<PAGE> 42
SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995*
YEAR ENDED
DECEMBER 31, 1995 ---------------------
--------------------------------- ASSET
INVESTMENT ASSET MANAGER:
GRADE BOND MANAGER INDEX 500 CONTRAFUND GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................ $ 26,984 $113,020 $ 7,541 $ 13,859 $ 7,927
Expenses (Note 3):
Mortality and Expense Risk
Charge............................. (7,037) (54,831) (5,708 ) (2,440) (356 )
-------- ------- -------- ------- -------
Net Investment Income................ 19,947 58,189 1,833 11,419 7,571
-------- ------- -------- ------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain on Investments..... 21,080 83,052 86,079 5,064 766
Net Change in Unrealized Appreciation
(Depreciation) of Investments...... 76,923 780,414 97,988 5,779 (2,769 )
-------- ------- -------- ------- -------
Net Realized and Unrealized Gain
(Loss) on Investments.............. 98,003 863,466 184,067 10,843 (2,003 )
-------- ------- -------- ------- -------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS:........... $117,950 $921,655 $185,900 $ 22,262 $ 5,568
======== ======= ======== ======= =======
</TABLE>
- ---------------
* For the period from April 30, 1995 (date of inception) through December 31,
1995.
See Notes to Financial Statements
A-5a
<PAGE> 43
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
------------------------ ------------------------- -----------------------
1995 1994 1995 1994 1995 1994
----------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net Investment Income (Loss)...... $ (36,557) $ 102,506 $ 63,118 $ 35,678 $ 155,355 $ 67,327
Net Realized Gain on
Investments..................... 188,204 57,066 -- - 40,434 9,581
Net Change in Unrealized
Appreciation (Depreciation) of
Investments..................... 1,533,152 (138,699) -- -- 707,446 (9,817)
---------- ---------- ---------- ---------- ---------- ----------
Net Change in Net Assets from
Operations...................... 1,684,799 20,873 63,118 35,678 903,235 67,091
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums.... 2,788,510 1,910,899 2,556,160 3,919,546 1,581,131 960,415
Transfers out for Policy Related
Transactions.................... (1,047,233) (569,996) (262,728) (205,822) (503,402) (252,613)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net............................. 1,455,022 628,926 (3,011,769) (2,427,022) 813,922 258,714
Gain/(Loss) Attributable to SAFECO
LIFE............................ (1,542) (9,288) 1,967 590 (278) (228)
---------- ---------- ---------- ---------- ---------- ----------
Net Change in Net Assets from
Policy Transactions............. 3,194,757 1,960,541 (716,370) 1,287,292 1,891,373 966,288
---------- ---------- ---------- ---------- ---------- ----------
Net Change in Net Assets.......... 4,879,556 1,981,414 (653,252) 1,322,970 2,794,608 1,033,379
Net Assets, Beginning of Period... 3,935,542 1,954,128 1,920,675 597,705 1,899,101 865,722
---------- ---------- ---------- ---------- ---------- ----------
Net Assets, End of Period......... $ 8,815,098 $3,935,542 $ 1,267,423 $ 1,920,675 $4,693,709 $1,899,101
========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
A-6
<PAGE> 44
SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
HIGH INCOME INVESTMENT GRADE ASSET MANAGER
OVERSEAS DIVISION DIVISION BOND DIVISION DIVISION
----------------------- ------------------- -------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
----------------------- ------------------- -------------------- ------------------------
1995 1994 1995 1994 1995 1994 1995 1994
---------- ---------- -------- -------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CHANGE IN NET ASSETS
FROM OPERATIONS:
Net Investment Income
(Loss)............... $ (6,143) $ (8,075) $ 17,317 $ 10,714 $ 19,947 $ (2,749) $ 58,189 $ 124,547
Net Realized Gain
(Loss) on
Investments.......... 20,370 42,122 59,151 (12,662) 21,080 (3,055) 83,052 63,196
Net Change in
Unrealized
Appreciation
(Depreciation) of
Investments.......... 204,791 (70,257) 19,704 (3,924) 76,923 (12,610) 780,414 (500,150)
---------- ---------- --------- -------- ---------- ---------- -------- --------
Net Change in Net
Assets from
Operations........... 219,018 (36,210) 96,172 (5,872) 117,950 (18,414) 921,655 (312,407)
CHANGE IN NET ASSETS
FROM POLICY
TRANSACTIONS:
Transfers in from Net
Premiums............. 1,213,891 1,077,937 300,343 151,556 269,765 248,878 2,403,059 2,668,069
Transfers out for
Policy
Transactions......... (334,256) (186,589) (78,496) (35,295) (185,044) (54,190) (1,114,423) (897,234)
Transfers between
Separate Account SL's
Divisions and (to)
from Guaranteed
Interest Division,
Net.................. (217,295) 683,921 101,072 96,388 39,576 341,249 (733,021) 709,041
Gain/(Loss)
Attributable to
SAFECO LIFE.......... (570) (112) (72) 1 192 1,582 (322) (543)
---------- ---------- --------- -------- ---------- ---------- -------- --------
Net Change in Net
Assets from Policy
Transactions......... 661,770 1,575,157 322,847 212,650 124,489 537,519 555,293 2,479,333
---------- ---------- --------- -------- ---------- ---------- -------- --------
Net Change in Net
Assets............... 880,788 1,538,947 419,019 206,778 242,439 519,105 1,476,948 2,166,926
Net Assets, Beginning
of Period............ 2,029,445 490,498 274,430 67,652 747,017 227,912 5,253,576 3,086,650
---------- ---------- --------- -------- ---------- ---------- -------- --------
Net Assets, End of
Period............... $2,910,233 $2,029,445 $693,449 $274,430 $ 989,456 $747,017 $ 6,730,524 $5,253,576
========== ========== ========= ======== ========== ========== ======== ========
</TABLE>
See Notes to Financial Statements
A-6a
<PAGE> 45
SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
ASSET
MANAGER:
GROWTH
INDEX 500 DIVISION CONTRAFUND DIVISION DIVISION
----------------------- ------------------- ------------
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995* 1995*
---------- -------- ------------------- ------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)........................ $ 1,833 $ (692) $ 11,419 $ 7,571
Net Realized Gain (Loss) on Investments............. 86,079 (59) 5,064 766
Net Change in Unrealized Appreciation (Depreciation)
of Investments.................................... 97,988 2,104 5,779 (2,769)
---------- -------- ------------------- ------------
Net Change in Net Assets from Operations............ 185,900 1,353 22,262 5,568
CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums...................... 512,837 114,712 352,947 52,359
Transfers out for Policy Transactions............... (123,725) (20,731) (34,578) (5,450)
Transfers between Separate Account SL's Divisions
and (to) from Guaranteed
Interest Division, Net............................ 403,638 55,506 727,253 142,922
Gain/(Loss) Attributable to SAFECO LIFE............. (182) (3) (1,118) 1,098
---------- -------- ------------------- ------------
Net Change in Net Assets from Policy Transactions... 792,568 149,484 1,044,504 190,929
---------- -------- ------------------- ------------
Net Change in Net Assets............................ 978,468 150,837 1,066,766 196,497
Net Assets, Beginning of Period..................... 178,223 27,386 -- --
---------- -------- ------------------- ------------
Net Assets, End of Period........................... $1,156,691 $178,223 $ 1,066,766 $196,497
========== ======== ================ =============
</TABLE>
- ---------------
* For the period from April 30, 1995 (date of inception) through December 31,
1995.
See Notes to Financial Statements
A-6b
<PAGE> 46
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. 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 has been 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). Included in these ten investment
divisions are two new investment divisions, Contrafund and Asset Manager:
Growth which were made available on April 30, 1995. These ten 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 statements of the remaining investment divisions are presented
separately.
Unitholders are permitted to transfer their accounts to other investment
divisions in Account SL and to the guaranteed investment division, which is
not part of Account SL.
On January 3, 1996, SAFECO was granted approval in an order by the SEC to
transfer Policy Account Values from investment divisions invested in
portfolios of HRT to certain investment divisions invested in portfolios of
VIP and VIP II. On February 16, 1996, SAFECO will transfer the Policy
Account Values specified in the order. As a result of the transfer,
Separate Account SL will consist solely of investment divisions invested in
portfolios of VIP and VIP II.
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-7
<PAGE> 47
SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. UNIT ACTIVITY
<TABLE>
<CAPTION>
GROWTH MONEY MARKET
DIVISION(1) DIVISION EQUITY INCOME DIVISION(1)
--------------- ----------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994 1995 1994
------ ------ ------- ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Units:
Units Sold........................ 25,127 18,069 22,743 34,466 13,207 7,896
Units Redeemed.................... (6,124) (3,652) (29,287) (22,500) (2,775) (1,530)
------ ------ ------- ------- ------- -------
Net Increase (Decrease)........... 19,003 14,417 (6,544) 11,966 10,432 6,366
====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
OVERSEAS HIGH INCOME INVESTMENT
DIVISION(1) DIVISION GRADE BOND DIVISION
--------------- ----------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994 1995 1994
------ ------ ------- ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Units:
Units Sold........................ 9,562 13,642 3,566 2,287 2,446 5,214
Units Redeemed.................... (4,317) (1,215) (667) (311) (1,508) (433)
------ ------ ------- ------- ---------- --------------
Net Increase (Decrease)........... 5,245 12,427 2,899 1,976 938 4,781
======= ======= ======== ======== ========== ===============
</TABLE>
<TABLE>
<CAPTION>
ASSET MANAGER
DIVISION(1)
---------------- INDEX 500
DIVISION(1)
YEAR ENDED -----------------
YEAR ENDED CONTRAFUND ASSET MANAGER:
DIVISION GROWTH
---------- DIVISION
--------------
PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1994 1995 1994 1995* 1995*
------- ------ ------- ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Units:
Units Sold....................... 17,674 24,565 7,326 1,612 9,226 1,750
Units Redeemed................... (13,371) (6,041) (936) (179) (295) (48)
------- ------ ------- ------- ---------- --------------
Net Increase (Decrease).......... 4,303 18,524 6,390 1,433 8,931 1,702
======== ======= ======== ======== ========== ===============
</TABLE>
(1) Officers of SAFECO have minor investments in this division at
December 31, 1995.
* For the period from April 30, 1995 (date of inception) through
December 31, 1995.
A-8
<PAGE> 48
SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
------------------------------------------------------------------------
GROWTH MONEY MARKET EQUITY INCOME OVERSEAS HIGH INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Purchases................ $4,036,611 $ 2,369,449 $ 2,521,757 $1,312,859 $1,333,764
=========== =========== ========== ========== =========
Sales.................... $(874,480 ) $(3,022,710) $ (474,750) $ (657,183) $ (993,526)
=========== =========== ========== ========== =========
Number of Shares Owned at
December 31, 1995...... 302,341 1,266,813 243,596 170,698 57,554
=========== =========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995*
------------------------------------------ ---------------------------
INVESTMENT ASSET
GRADE BOND ASSET MANAGER INDEX 500 CONTRAFUND MANAGER-GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Purchases................ $ 916,844 $ 1,756,159 $ 1,357,182 $1,109,309 $ 208,630
=========== =========== ========== ========== =========
Sales.................... $(772,440 ) $(1,142,199) $ (562,599) $ (53,372) $ (10,126)
=========== =========== ========== ========== =========
Number of Shares Owned at
December 31, 1995...... 79,140 426,326 15,280 77,415 16,681
=========== =========== ========== ========== =========
</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 HIGH INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION
------------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
December 31, 1992...... $ 118.301 $103.032 $ 123.900 $ 90.087 N/A
December 31, 1993...... 139.950 105.409 145.146 122.522 $ 108.076
December 31, 1994...... 138.673 108.907 154.013 123.521 105.455
December 31, 1995...... 186.039 114.270 206.203 134.264 126.046
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT ASSET ASSET
GRADE BOND MANAGER INDEX 500 CONTRAFUND MANAGER: GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
------------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
December 31, 1992...... $ 105.619 $115.113 N/A N/A N/A
December 31, 1993...... 116.148 138.097 $ 105.094 N/A N/A
December 31, 1994...... 110.786 128.527 105.239 N/A N/A
December 31, 1995...... 128.816 148.977 143.089 $119.439 $ 115.467
</TABLE>
N/A Unit values are shown beginning the first year end after inception of
the respective division.
* For the period from April 30, 1995 (date of inception) through December
31, 1995.
A-9
<PAGE> 49
(This page intentionally left blank)
A-10
<PAGE> 50
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 1995
A-11
<PAGE> 51
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors............................................................. A-13
Consolidated Financial Statements
Consolidated Balance Sheet........................................................... A-14
Statement of Consolidated Income..................................................... A-15
Statement of Changes in Stockholder's Equity......................................... A-16
Statement of Consolidated Cash Flows................................................. A-17
Notes to Consolidated Financial Statements........................................... A-19
</TABLE>
A-12
<PAGE> 52
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SAFECO Life Insurance Company
We have audited the accompanying consolidated balance sheet of SAFECO Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
related statements of consolidated income, changes in stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SAFECO Life
Insurance Company and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As described in Note 1 to the Consolidated Financial Statements, SAFECO Life
Insurance Company and subsidiaries adopted certain new accounting standards in
1995, 1994, and 1993 as required by the Financial Accounting Standards Board.
/s/ Ernst and Young LLP
----------------------------
Seattle, Washington
February 9, 1996
A-13
<PAGE> 53
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
Investments (Note 2):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1995-$7,195,332; 1994-$6,116,932)........................... $ 7,720,108 $5,915,662
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1995-$2,388,514; 1994-$1,948,309)............................. 2,044,517 2,053,132
Marketable Equity Securities, at Market Value
(Cost: 1995-$14,904; 1994-$15,846)........................................... 25,776 22,747
First Mortgage Loans on Real Estate:
Nonaffiliates (Less allowance for losses: 1995-$9,633; 1994-$9,511).......... 416,110 418,440
Affiliates................................................................... 137,823 134,157
Real Estate (At cost, less accumulated depreciation:
1995-$398; 1994-$412)........................................................ 4,972 5,149
Policy Loans................................................................... 55,925 53,329
Short-Term Investments (At cost which approximates market)..................... 68,614 62,789
Investment in Limited Partnerships............................................. 1,289 1,219
----------- ----------
Total Investments............................................................ 10,475,134 8,666,624
Cash............................................................................. 34,886 26,710
Accrued Investment Income........................................................ 150,897 141,907
Accounts and Notes Receivable (Less allowance for doubtful accounts:
1995-$72; 1994-$160)........................................................... 27,971 21,189
Reinsurance Recoverables (Note 5)................................................ 16,656 15,517
Deferred Policy Acquisition Costs (Less valuation allowance:
1995-$42,815; 1994-$0)......................................................... 210,491 247,190
Other Assets..................................................................... 5,739 6,494
Deferred Income Taxes Recoverable (Includes tax on unrealized depreciation of
investment securities: 1994-$68,028) (Note 9).................................. -- 30,229
Assets Held in Separate Accounts................................................. 276,399 158,266
----------- ----------
Total Assets............................................................ $11,198,173 $9,314,126
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and Contract Liabilities (Note 5):
Future Policy Benefits....................................................... $ 154,090 $ 155,322
Policy and Contract Claims................................................... 26,407 29,050
Premiums Paid in Advance..................................................... 8,209 8,783
Funds Held Under Deposit Contracts........................................... 8,756,384 7,988,456
Other Policyholders' Funds................................................... 323,302 74,308
----------- ----------
Total Policy and Contract Liabilities...................................... 9,268,392 8,255,919
Other Liabilities.............................................................. 112,008 89,239
Federal Income Taxes (Note 9):
Current...................................................................... 13,047 12,464
Deferred (Includes tax on unrealized appreciation of
investment securities: 1995 - $172,493).................................... 196,492 --
Liabilities Related to Separate Accounts....................................... 276,399 158,266
----------- ----------
Total Liabilities.......................................................... 9,866,338 8,515,888
----------- ----------
Stockholder's Equity:
Common Stock, $250 Par Value;
20,000 Shares Authorized, Issued and Outstanding............................. 5,000 5,000
Additional Paid-In Capital..................................................... 85,000 85,000
Retained Earnings (Note 7)..................................................... 921,383 834,467
Unrealized Appreciation (Depreciation) of Investment Securities,
Net of Tax (Note 2).......................................................... 320,452 (126,229)
----------- ----------
Total Stockholder's Equity................................................. 1,331,835 798,238
----------- ----------
Total Liabilities and Stockholder's Equity.............................. $11,198,173 $9,314,126
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
A-14
<PAGE> 54
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums.................................................. $ 237,025 $252,929 $ 279,628
Investment Income:
Interest on Fixed Maturities........................... 716,510 648,296 612,805
Interest on Mortgage Loans............................. 51,912 51,135 48,207
Interest on Short-Term Investments..................... 4,017 3,351 3,334
Dividends from Marketable Equity Securities............ 1,387 1,446 1,817
Dividends from Redeemable Preferred Stock.............. 3,065 618 --
Other Investment Income................................ 4,155 4,375 4,862
---------- -------- ----------
Total................................................ 781,046 709,221 671,025
Less Investment Expenses.................................. 3,546 3,551 3,303
---------- -------- ----------
Net Investment Income..................................... 777,500 705,670 667,722
---------- -------- ----------
Other Revenue............................................. 11,608 9,795 11,850
Realized Investment Gain.................................. 5,676 5,639 53,544
---------- -------- ----------
Total................................................ 1,031,809 974,033 1,012,744
---------- -------- ----------
Benefits and Expenses:
Policy Benefits........................................... 723,466 674,215 675,479
Commissions............................................... 79,163 84,760 82,262
Personnel Costs........................................... 42,314 42,439 43,244
Taxes Other Than Payroll and Income Taxes................. 7,913 7,652 8,477
Other Operating Expenses.................................. 42,978 44,519 40,430
Amortization of Deferred Policy Acquisition Costs......... 32,376 29,407 26,350
Deferral of Policy Acquisition Costs...................... (35,347) (43,360) (38,925)
---------- -------- ----------
Total................................................ 892,863 839,632 837,317
---------- -------- ----------
Income before Federal Income Taxes.......................... 138,946 134,401 175,427
---------- -------- ----------
Provision (Benefit) for Federal Income Taxes (Note 9):
Current................................................... 61,830 57,365 91,597
Deferred.................................................. (13,800) (10,154) (26,135)
---------- -------- ----------
Total................................................ 48,030 47,211 65,462
---------- -------- ----------
Income Before Cumulative Effect of Accounting Changes....... 90,916 87,190 109,965
Cumulative Effect of Accounting Changes (Notes 8 and 9):
Postretirement Benefits (Net of tax)...................... -- -- (2,493)
Income Taxes.............................................. -- -- 9,092
---------- -------- ----------
Net Income.................................................. $ 90,916 $ 87,190 $ 116,564
========== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
A-15
<PAGE> 55
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock................................................ $ 5,000 $ 5,000 $ 5,000
---------- --------- --------
Additional Paid-In Capital.................................. 85,000 85,000 85,000
---------- --------- --------
Retained Earnings:
Balance at the Beginning of Year.......................... 834,467 751,277 638,713
Net Income................................................ 90,916 87,190 116,564
Dividends to Parent....................................... (4,000) (4,000) (4,000)
---------- --------- --------
Balance at the End of Year................................ 921,383 834,467 751,277
---------- --------- --------
Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax (Note 2):
Balance at the Beginning of Year....................... (126,229) 6,828 5,968
Net Effect of Adoption of FASB Statement 115........... -- 279,957 --
Change in Unrealized Appreciation (Depreciation)....... 474,511 (413,014) 860
Change in Deferred Policy Acquisition Costs
Valuation Allowance.................................. (27,830) -- --
---------- --------- --------
Balance at the End of Year............................. 320,452 (126,229) 6,828
---------- --------- --------
Stockholder's Equity................................. $1,331,835 $ 798,238 $848,105
========== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
A-16
<PAGE> 56
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received......................... $ 216,269 $ 233,129 $ 264,254
Dividends and Interest Received..................... 703,053 641,234 589,916
Other Operating Receipts............................ 10,607 11,419 11,814
Insurance Claims and Policy Benefits Paid........... (272,206) (242,523) (270,702)
Underwriting, Acquisition and Insurance
Operating Costs Paid............................. (169,904) (177,188) (168,809)
Income Taxes Paid................................... (61,247) (60,566) (94,169)
----------- ----------- -----------
Net Cash Provided by Operating Activities...... 426,572 405,505 332,304
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale.............. (1,424,510) (1,110,154) --
Fixed Maturities Held-to-Maturity................ (291,965) (358,297) (2,106,558)
Marketable Equity Securities..................... (260) (407) (132)
Other Investments................................ (14) (24,381) (53)
Policy and Nonaffiliated Mortgage Loans.......... (55,302) (68,710) (62,156)
Affiliated Mortgage Loans........................ (12,643) (54,000) --
Maturities of Fixed Maturities Available-for-Sale... 375,291 476,410 --
Maturities of Fixed Maturities Held-to-Maturity..... 17,878 54,564 644,532
Sales of:
Fixed Maturities Available-for-Sale.............. 327,160 250,227 --
Fixed Maturities Held-to-Maturity................ -- -- 675,044
Marketable Equity Securities..................... 2,172 65 6,323
Other Investments................................ 180 23,992 --
Real Estate...................................... 876 1,885 115
Policy and Nonaffiliated Mortgage Loans.......... 50,734 42,038 43,107
Affiliated Mortgage Loans........................ 8,977 6,714 2,324
Net (Increase) Decrease in Short-Term Investments... (5,811) 11,793 10,343
Other............................................... (122) 947 (1,190)
----------- ----------- -----------
Net Cash Used in Investing Activities.......... (1,007,359) (747,314) (788,301)
----------- ----------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts.............. 1,304,665 1,012,164 1,001,880
Return of Funds Held Under Deposit Contracts........ (720,845) (659,697) (555,429)
Dividends to Parent................................. (4,000) (4,000) (4,000)
Net Proceeds from Short-Term Borrowings............. 9,143 842 15,569
----------- ----------- -----------
Net Cash Provided by Financing Activities...... 588,963 349,309 458,020
----------- ----------- -----------
Net Increase in Cash.................................. 8,176 7,500 2,023
Cash at Beginning of Year............................. 26,710 19,210 17,187
----------- ----------- -----------
Cash at End of Year................................... $ 34,886 $ 26,710 $ 19,210
=========== =========== ===========
</TABLE>
For purposes of reporting cash flows, cash consists of balances on hand and on
deposit in banks and financial institutions.
See Notes to Consolidated Financial Statements
A-17
<PAGE> 57
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS -
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Income...................................................... $ 90,916 $ 87,190 $116,564
---------- --------- --------
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Realized Investment Gain................................... (5,676) (5,639) (53,544)
Amortization of Fixed Maturity Investments................. (26,050) (12,247) (10,476)
Deferred Federal Income Tax Benefit........................ (13,800) (10,154) (26,135)
Interest Expense on Deposit Contracts...................... 432,327 405,536 400,122
Cumulative Effect of Accounting Changes.................... -- -- (6,599)
Other...................................................... 3,140 (440) 205
Changes in:
Future Policy Benefits..................................... (1,232) 3,834 1,322
Policy and Contract Claims................................. (2,643) (4,136) (5,577)
Premiums Paid in Advance................................... (574) (1,174) (476)
Deferred Policy Acquisition Costs.......................... (6,116) (12,990) (12,575)
Accrued Investment Income.................................. (8,990) (13,695) (9,185)
Accrued Interest on Accrual Bonds.......................... (36,908) (41,285) (56,712)
Other Receivables.......................................... (2,353) 5,064 (3,937)
Current Federal Income Taxes............................... 583 (3,201) (2,572)
Other Assets and Liabilities............................... 449 1,820 7,397
Other Policyholders' Funds................................. 3,499 7,022 (5,518)
---------- --------- --------
Total Adjustments........................................ 335,656 318,315 215,740
---------- --------- --------
Net Cash Provided by Operating Activities....................... $426,572 $405,505 $332,304
========== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
A-18
<PAGE> 58
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. SAFECO Life Insurance Company (the Company) is a
stock life insurance company organized under the laws of the state of
Washington. The Company offers individual and group insurance products,
pension plans and annuity products, marketed through professional agents in
all states and the District of Columbia. The Company owns two subsidiaries,
SAFECO National Life Insurance Company and First SAFECO National Life
Insurance Company of New York. The Company is a wholly-owned subsidiary of
SAFECO Corporation which is a Washington corporation whose subsidiaries are
engaged primarily in insurance and financial service businesses.
BASIS OF REPORTING. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
appropriate in the circumstances and include amounts based on the best
estimates and judgments of management. The financial statements include
SAFECO Life Insurance Company and its subsidiaries.
All significant intercompany transactions have been eliminated in the
consolidated financial statements. Certain reclassifications have been made
to prior year financial information to conform to the 1995 classifications.
ACCOUNTING FOR PREMIUMS. Life and health insurance premiums are reported as
income when collected for traditional individual life policies and when
earned for group policies. Funds received under pension deposit contracts,
annuities and universal life policies are recorded as liabilities rather
than premium income when received. Revenues for universal life products
consist of front-end loads, mortality charges and expense charges assessed
against individual policyholder account balances. These loads and charges
are recognized as income when earned.
INVESTMENTS. The Company adopted Financial Accounting Standards Board
(FASB) Statement 115, "Accounting for Certain Investments in Debt and
Equity Securities," on January 1, 1994, applying the provisions of the
Statement to investments held as of, or acquired after that date. See
discussion of new accounting standards on page 10.
Fixed maturity investments (i.e., bonds and redeemable preferred stocks)
which the Company has the positive intent and ability to hold to maturity
are classified as held-to-maturity and carried at amortized cost in the
balance sheet. Fixed maturities classified as available-for-sale are
carried at market value, with changes in unrealized gains and losses
recorded directly to stockholder's equity, net of applicable income taxes
and deferred policy acquisition costs valuation allowance. The Company has
no fixed maturities classified as trading.
All marketable equity securities are classified as available-for-sale and
carried at market value, with changes in unrealized gains and losses
recorded directly to stockholder's equity, net of applicable income taxes.
When the collectibility of income on certain investments is considered
doubtful, they are placed on non-accrual status and thereafter interest
income is recognized only when payment is received. Investments that have
declined in market value below cost and for which the decline is judged to
be other than temporary are written down to fair value. Writedowns are made
directly on an individual security basis and reduce realized investment
gains in the Statement of Consolidated Income.
The cost of security investments sold is determined by the "identified
cost" method.
Mortgage loans are carried at outstanding principal balances, less an
allowance for loan losses.
REAL ESTATE AND DEPRECIATION. Income-producing real estate is classified as
an investment. The Company provides straight-line depreciation on its
buildings based upon their estimated useful lives.
Investment real estate that has declined in market value below cost and for
which the decline is judged to be other than temporary is written down to
estimated realizable value. Writedowns reduce realized investment gains in
the Statement of Consolidated Income.
DEFERRED POLICY ACQUISITION COSTS. Acquisition costs, consisting of
commissions and certain other underwriting expenses, which vary with and
are primarily related to the production of new business, are deferred.
A-19
<PAGE> 59
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 (continued)
Acquisition costs for deferred annuity and pension deposit contracts and
universal life policies are amortized over the lives of the contracts or
policies in proportion to the present value of estimated future gross
profits. To the extent actual experience differs from assumptions, and to
the extent estimates of future gross profits require revision, the
unamortized balance of deferred policy acquisition costs is adjusted
accordingly. There were no significant revisions made in 1995, 1994 or
1993.
Acquisition costs for traditional individual life insurance policies are
amortized over the premium payment period of the related policies using
assumptions consistent with those used in computing policy benefit
liabilities.
FUTURE POLICY BENEFITS. Liabilities for universal life insurance policies,
deferred annuity and pension deposit contracts are equal to the accumulated
account value of such policies or contracts as of the valuation date.
Liabilities for structured settlement annuities are based on interest rate
assumptions using market rates at issue, graded downward over 40 years to a
range of 5.5% to 8.75%.
Liabilities for future policy benefits under traditional individual life
insurance policies have been computed on the level premium method using
interest, mortality and persistency assumptions based on actual experience
modified to provide for adverse deviation. Interest assumptions range from
8.5% graded to 3.25%.
POLICY AND CONTRACT CLAIMS. The liability for policy and contract claims is
established on the basis of reported losses ("case basis" method).
Provision is also made for claims incurred but not reported, based on
historical experience. The estimates for claims incurred but not reported
are continually reviewed and any necessary adjustments are reflected in
current operations.
SEPARATE ACCOUNTS. The Company administers segregated asset accounts for
variable annuity and variable universal life clients. The assets of these
Separate Accounts, which consist of common stocks, are the property of the
Company. The liabilities of these Separate Accounts represent reserves
established to meet withdrawal and future benefit payment provisions of
contracts with these clients. The assets of the Separate Accounts, equal to
the reserves and other contract liabilities of the Separate Accounts, are
not chargeable with liabilities arising out of any other business the
Company may conduct. Investment risks associated with market value changes
are borne by the clients. Deposits, withdrawals, net investment income and
realized and unrealized capital gains and losses on the assets of the
Separate Account are not reflected in the Statement of Consolidated Income.
Management fees and other charges assessed against the contracts are
included in other revenue.
FEDERAL INCOME TAXES. The Company and its subsidiaries file a consolidated
federal income tax return with SAFECO Corporation. Tax payments (credits)
are made to or received from SAFECO Corporation on a separate tax return
filing basis. The Company provides for federal income taxes based on
financial reporting income and deferred federal income taxes on temporary
differences between financial reporting and taxable income.
NEW ACCOUNTING STANDARDS. The Company adopted Financial Accounting
Standards Board (FASB) Statements 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and 109, "Accounting for
Income Taxes," in the first quarter of 1993. See the Statement of
Consolidated Income for the effect on income of adoption of Statements 106
and 109. For additional disclosure relating to Statements 106 and 109, see
Note 8 and Note 9, respectively.
The Company adopted FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. Adoption had no effect
on net income.
The Company adopted FASB Statement 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," in the first
quarter of 1993. Adoption had no effect on net income. See Note 5 for
disclosures relating to reinsurance.
A-20
<PAGE> 60
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 1 (continued)
In 1993, the FASB adopted Statement 114, "Accounting by Creditors for
Impairment of a Loan," which provides guidance on valuing impaired loans.
The FASB also issued Statement 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures," in 1994, which amends
Statement 114. Both statements are effective for 1995 and were adopted by
the Company on January 1, 1995. Adoption did not affect net income. For
additional disclosure relating to these two statements, see Note 2.
In 1993, the FASB issued Statement 115, "Accounting for Certain Investments
in Debt and Equity Securities," which expands the use of fair value
accounting for debt and equity securities. As of January 1, 1994, the
Company adopted the provisions of this Statement for investments held as
of, or acquired after that date. Statement 115 requires that debt and
equity securities be classified as trading, available-for-sale, or
held-to-maturity. Fixed maturity securities that the Company has the
positive intent and ability to hold to maturity (as narrowly defined by
Statement 115) are classified as held-to-maturity and are reported at
amortized cost. Fixed maturity securities classified as available-for-sale
are carried at market value, with changes in unrealized gains and losses
recorded directly to stockholder's equity, net of applicable income taxes
and any deferred policy acquisition costs valuation allowance. All
marketable equity securities are classified as available-for-sale and
continue to be carried at market value, with changes in unrealized gains
and losses recorded directly to stockholder's equity, net of applicable
income taxes. Under Statement 115, trading securities are carried at market
value with immediate recognition in income of changes in market value.
Since the Company does not have any securities held for trading, the
adoption of this Statement had no effect on net income. As required by
Statement 115, no restatement of prior period amounts has been made. See
Note 2 for details of the effect on stockholder's equity of the adoption of
Statement 115.
The FASB issued an Implementation Guide on Statement 115 in November of
1995. In addition to providing guidance on Statement 115, the Guide allows
for a one-time-only reclassification of securities among the three
categories defined in Statement 115. Such reclassifications will not call
into question the original classifications. As allowed under the Guide, the
Company reclassified certain held-to-maturity securities to the
available-for-sale category on December 31, 1995. While the Company's
investment philosophy has not changed, this reclassification will allow
flexibility in responding to changes in market conditions. See Note 2 for
disclosures relating to this reclassification.
A-21
<PAGE> 61
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. INVESTMENT SUMMARY
A summary of fixed maturities and marketable equity securities classified
as available-for-sale at December 31, 1995 follows:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities.............. $ 737,429 $ 73,770 $ (1,007) $ 72,763 $ 810,192
States, municipalities and political
subdivisions.......................... 141,085 20,879 -- 20,879 161,964
Foreign governments..................... 67,873 7,248 -- 7,248 75,121
Public utilities........................ 1,452,490 137,913 (1,395) 136,518 1,589,008
All other corporate bonds............... 2,475,343 183,117 (7,690) 175,427 2,650,770
Mortgage-backed securities.............. 2,321,112 116,938 (4,997) 111,941 2,433,053
---------- -------- -------- --------- ----------
Total fixed maturities classified as
available-for-sale.................... 7,195,332 539,865 (15,089) 524,776 7,720,108
Marketable equity securities............ 14,904 11,172 (300) 10,872 25,776
---------- -------- -------- --------- ----------
Total investment securities classified
as available-for-sale................. $7,210,236 $551,037 $(15,389) 535,648 $7,745,884
========== ======== ======== ==========
Deferred policy acquisition costs
valuation allowance......................................................... (42,815)
Applicable federal income tax................................................. (172,381)
---------
Unrealized appreciation of investment
securities, net of tax, included in stockholder's equity.................... $ 320,452
=========
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December
31, 1995 follows:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities............... $ 210,894 $ 60,042 $ -- $ 60,042 $ 270,936
States, municipalities and political
subdivisions........................... 52,438 4,689 -- 4,689 57,127
Foreign governments...................... 135,467 31,956 -- 31,956 167,423
Public utilities......................... 456,938 83,571 -- 83,571 540,509
All other corporate bonds................ 896,899 140,673 (4,128) 136,545 1,033,444
Mortgage-backed securities............... 291,881 27,194 -- 27,194 319,075
---------- -------- ------- -------- ----------
Total fixed maturities classified as
held-to-maturity....................... $2,044,517 $348,125 $ (4,128) $343,997 $2,388,514
========== ======== ======= ======== ==========
</TABLE>
The Company reclassified certain fixed maturity securities from the
held-to-maturity category to the available-for-sale category on December
31, 1995, as allowed by the FASB's Implementation Guide discussed in Note
1. The securities reclassified had a net carrying value (amortized cost) of
$331,123,000 and a market value of $358,630,000 at December 31, 1995. This
reclassification had no effect on net income. While the Company's
investment philosophy has not changed, this reclassification will allow
flexibility in responding to changes in market conditions.
A-22
<PAGE> 62
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 (continued)
A summary of fixed maturities and marketable equity securities classified
as available-for-sale at December 31, 1994 follows:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN (LOSS) VALUE
---------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities............. $ 664,805 $ 704 $ (28,980) $ (28,276) $ 636,529
States, municipalities and political
subdivisions......................... 139,415 4,392 (1,723) 2,669 142,084
Foreign governments.................... 71,599 1,019 (2,522) (1,503) 70,096
Public utilities....................... 1,347,080 21,223 (66,446) (45,223) 1,301,857
All other corporate bonds.............. 2,148,606 26,235 (97,718) (71,483) 2,077,123
Mortgage-backed securities............. 1,745,427 30,508 (87,962) (57,454) 1,687,973
---------- ------- --------- --------- ----------
Total fixed maturities classified as
available-for-sale................... 6,116,932 84,081 (285,351) (201,270) 5,915,662
Marketable equity securities........... 15,846 7,577 (676) 6,901 22,747
---------- ------- --------- --------- ----------
Total investment securities classified
as available-for-sale................ $6,132,778 $ 91,658 $ (286,027) (194,369) $5,938,409
========== ======= ========= ==========
Deferred policy acquisition costs
valuation allowance........................................................ --
Applicable federal income tax................................................ 68,140
---------
Unrealized depreciation of investment
securities, net of tax, included in stockholder's equity................... $(126,229)
=========
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December
31, 1994 follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED ESTIMATED
AMORTIZED UNREALIZED UNREALIZED GAIN MARKET
COST GAINS LOSSES (LOSS) VALUE
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities.............. $ 124,266 $ 649 $ (10,953) $ (10,304) $ 113,962
States, municipalities and political
subdivisions.......................... 36,517 2,260 (527) 1,733 38,250
Foreign governments..................... 139,951 2,651 (2,434) 217 140,168
Public utilities........................ 436,145 14,090 (19,454) (5,364) 430,781
All other corporate bonds............... 794,824 10,401 (56,808) (46,407) 748,417
Mortgage-backed securities.............. 521,429 8,374 (53,072) (44,698) 476,731
---------- ------- --------- --------- ----------
Total fixed maturities classified as
held-to-maturity...................... $2,053,132 $ 38,425 $ (143,248) $ (104,823) $1,948,309
========== ======= ========= ========= ==========
</TABLE>
As discussed in Note 1, the Company adopted the provisions of FASB
Statement 115 as of January 1, 1994. The net effect on stockholder's equity
of the adoption of Statement 115 was an increase of $279,957,000 as of
January 1, 1994. The net increase was comprised of the following amounts:
aggregate market value in excess of amortized cost of fixed maturities
classified as available-for-sale of $458,471,000, less deferred policy
acquisition costs valuation allowance of $27,768,000 and deferred income
taxes at 35% of $150,746,000.
The amortized cost and estimated market value of fixed maturities at
December 31, 1995, by contractual maturity, are presented below. Expected
maturities may differ from contractual maturities because certain borrowers
have the right to call or prepay obligations with or without call or
prepayment penalties.
A-23
<PAGE> 63
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 (continued)
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............................ $ 138,616 $ 138,892 $ -- $ --
Due after one year through five years.............. 1,245,334 1,309,291 5,000 5,250
Due after five years through ten years............. 1,533,974 1,644,618 25,124 29,513
Due after ten years................................ 1,956,296 2,194,254 1,722,512 2,034,676
Mortgage-backed securities......................... 2,321,112 2,433,053 291,881 319,075
---------- ---------- ---------- ----------
Total.............................................. $7,195,332 $7,720,108 $2,044,517 $2,388,514
========== ========== ========== ==========
</TABLE>
At December 31, 1995 and 1994, the Company held below investment grade
fixed maturities of $239 million and $174 million at amortized cost,
respectively. The respective market values of these investments were
approximately $240 million and $156 million. These holdings amounted to
2.4% and 2.0% of the Company's investments in fixed maturities at market
value at December 31, 1995 and 1994, respectively.
The carrying value of investments in fixed maturities and mortgage loans
that did not produce income during the year ended December 31, 1995 is less
than one percent of the total of such investments.
Certain fixed maturity securities with an amortized cost of $4,578,000 and
$4,161,000 at December 31, 1995 and 1994, respectively, were on deposit
with various regulatory authorities to meet requirements of insurance and
financial codes.
At December 31, 1995 and 1994, mortgage loans constituted approximately
4.9% and 5.9% of total assets, respectively, and are secured by first
mortgage liens on income-producing commercial real estate, primarily in the
retail, industrial and office building sectors. The majority of the
properties are located in the western United States, with 43% of the total
in California. Individual loans generally do not exceed $5 million. At
December 31, 1995, less than 1% of the loans were non-performing.
The proceeds from sales of investment securities and related gains and
losses for 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
------------------ ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales............................. $327,160 $ -- $ 2,172
======== === ======
Gross realized gains on sales................... $ 16,366 $ -- $ 1,253
Gross realized losses on sales.................. (4,336) -- (282)
-------- --- ------
Realized gains on sales..................... 12,030 -- 971
Other (Including net gain on calls and
redemptions).................................. 7,833 -- --
Writedowns (Including writedowns on securities
subsequently sold)............................ (13,628) -- --
-------- --- ------
Total realized gain......................... $ 6,235 $ -- $ 971
======== === ======
</TABLE>
A-24
<PAGE> 64
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
------------------ ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales............................. $250,227 $ -- $ 65
======== === =====
Gross realized gains on sales................... $ 12,994 $ -- $ 115
Gross realized losses on sales.................. (1,533) -- (224)
-------- --- -----
Realized gains (losses) on sales................ 11,461 -- (109)
Other (Including net gain on calls and
redemptions).................................. 2,475 -- --
Writedowns (Including writedowns on securities
subsequently sold)............................ (4,804) -- --
-------- --- -----
Total realized gain (loss)...................... $ 9,132 $ -- $(109)
======== === =====
</TABLE>
The proceeds from sales of investments in fixed maturities and related
gains and losses for 1993 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1993
--------------
(IN THOUSANDS)
<S> <C>
Proceeds from sales.................................................................... $675,044
========
Gross realized gains on sales.......................................................... $ 75,895
Gross realized losses on sales......................................................... (20,653)
--------
Realized gains on sales............................................................ 55,242
Other (Including net gain on calls and redemptions).................................... 12,749
Writedowns (Including writedowns on securities subsequently sold)...................... (11,665)
--------
Total realized gain.................................................................... $ 56,326
========
</TABLE>
The following summarizes the realized gains and losses, the changes in
unrealized gains and losses, and applicable income taxes on all
investments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities................................................. $ 6,235 $ 9,132 $56,326
Marketable equity securities..................................... 971 (109) 2,063
First mortgage loans on real estate.............................. (1,600) (3,000) (4,336)
Real estate...................................................... 70 (184) (509)
Short-term investments........................................... -- (200) --
--------- --------- -------
Realized gain before federal income taxes................... $ 5,676 $ 5,639 $53,544
========= ========= =======
</TABLE>
A-25
<PAGE> 65
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale................ $ 726,046 $(201,270) $ --
Marketable equity securities..................................... 3,971 (3,432) 1,291
Deferred policy acquisition costs valuation allowance............ (42,815) -- --
Applicable federal income tax (expense) benefit.................. (240,521) 71,645 (431)
--------- --------- -------
Net change in unrealized appreciation (depreciation)............. $ 446,681 $(133,057) $ 860
========= ========= =======
</TABLE>
The following table summarizes the Company's allowance for credit losses on
non-affiliated mortgage loans:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of year........................................................ $ 9,511 $7,000
Provision for credit losses........................................................... 1,600 3,000
Recoveries............................................................................ 15 --
Loans charged off as uncollectible.................................................... (1,493) (489)
--------
-
---------
Allowance at end of year.............................................................. $ 9,633 $9,511
========= =========
</TABLE>
The 1995 allowance includes amounts determined under FAS 114 and FAS 118
(specific reserves), as well as general reserve amounts. The total
investment in impaired loans, as defined under FAS 114 and 118 and before
any reserve for losses, is $5.7 million at December 31, 1995. A specific
loan loss reserve has been established for each impaired loan, the total of
which is $2.1 and is included in the overall allowance of $9.6 million at
December 31, 1995.
3. COMMITMENTS AND CONTINGENCIES
The Company is obligated under a real estate lease with an affiliate,
General America Corporation, which expires in 2010. The minimum annual
rental commitments under this obligation are $2,274,000. At December 31,
1995, unfunded mortgage loan commitments approximated $19,047,000. The
Company had no other material commitments or contingencies at December 31,
1995.
4. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUES. Fair value amounts have been determined using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in developing the estimates of
fair value. Accordingly, these estimates are not necessarily indicative of
the amount that could be realized in a current market exchange. The use of
different market assumptions and/or estimating methodologies may have a
material effect on the estimated fair value amounts.
Carrying value is a reasonable estimate of fair value for cash, policy
loans, short-term investments, accounts receivable and other liabilities.
Fair value amounts for investments in fixed maturities and marketable
equity securities are the same as market value. Market value generally
represents quoted market prices for securities traded in the public market
place or analytically determined values for securities not publicly traded.
The fair values of mortgage loans have been estimated by discounting the
projected cash flows using the current rate at which loans would be made to
borrowers with similar credit ratings and for the same maturities.
A-26
<PAGE> 66
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 (continued)
The fair value of investment contracts with defined maturities is estimated
by discounting projected cash flows using rates that would be offered for
similar contracts with the same remaining maturities. For investment
contracts with no defined maturity, fair value is estimated to be the
present surrender value. These investment contracts are included in Funds
Held Under Deposit Contracts.
Estimated fair values of financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale............ $7,720,108 $7,720,108 $5,915,662 $5,915,662
Fixed maturities held-to-maturity.............. 2,044,517 2,388,514 2,053,132 1,948,309
Marketable equity securities................... 25,776 25,776 22,747 22,747
Mortgage loans................................. 553,933 584,000 552,597 540,000
Financial liabilities:
Funds held under deposit contracts............. 8,756,384 9,282,000 7,988,456 7,678,000
</TABLE>
Other insurance-related financial instruments are exempt from fair value
disclosure requirements.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company's investments in
mortgage-backed securities of $2.8 billion and $2.2 billion at market at
December 31, 1995 and 1994, respectively, are primarily residential
collateralized mortgage obligations and pass-throughs ("CMOs"). CMOs, while
technically defined as derivative instruments, are exempt from derivative
disclosure requirements. The Company's investment in CMOs comprised of the
riskier, highly-volatile type (e.g., interest only, inverse floaters, etc.)
has been intentionally limited to only a small amount (i.e., less than 1%
of total CMOs at both December 31, 1995 and 1994).
The Company does not enter into financial instruments for trading or
speculative purposes. The Company's involvement in other investment-type
derivatives is also, intentionally, of a very limited nature. Such
derivatives include currency-linked bonds and fixed-rate loan commitments.
Individually, and in the aggregate, these derivatives are not material and
thus no additional disclosures are warranted.
5. POLICY AND CONTRACT LIABILITIES
REINSURANCE. The Company protects itself from excessive losses by ceding
reinsurance to other companies, using automatic and facultative treaties.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. A continuing liability exists in the event a reinsurance
company is unable to meet its obligations to the Company. The financial
condition of its reinsurers is evaluated by the Company to minimize its
exposure to losses from reinsurer insolvencies.
The balance sheet caption "Reinsurance Recoverables" is comprised of the
following amounts:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Unpaid losses and adjustment expense................................................. $ 850 $ 646
Paid claims.......................................................................... 658 506
Life policy liabilities.............................................................. 14,844 14,033
Other reinsurance recoverables....................................................... 304 332
------- -------
Total reinsurance recoverables................................................... $16,656 $15,517
======= =======
</TABLE>
A-27
<PAGE> 67
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 (continued)
The effects of reinsurance on the premium and policy benefit amounts in the
Statement of Consolidated Income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums............................................................. $(10,385) $(9,060) $(9,576)
======== ======= =======
Policy benefits...................................................... $ (6,344) $(5,588) $(7,441)
======== ======= =======
Reinsurance Assumed:
Premiums............................................................. $ (5,456) $ 327 $ 544
======== ======= =======
Policy benefits...................................................... $ (2,503) $ 3,421 $ 3,474
======== ======= =======
</TABLE>
In 1995, the Company sold a reinsurance assumed block of group disabled
lives, involving disability income coverage, back to the ceding reinsurance
pool. The ceding pool acquired the Company's $5.7 million disabled life
claim reserve for a return-of-premium payment of $5.7 million. The
reinsurance assumed premiums and policy benefits shown above reflect this
transaction.
POLICY AND CONTRACT CLAIMS. Accident and health claim reserves, the
majority of which are incurred and paid in full within a one-year period,
amount to less than 1% of total policy and contract liabilities. Therefore,
no additional disclosures are warranted.
6. STATUTORY BASIS INFORMATION
The Company and its subsidiaries are required to file annual statements
with state regulatory authorities prepared on an accounting basis as
prescribed or permitted by such authorities (statutory basis). Prescribed
statutory accounting practices include state laws, regulations, and general
administrative rules, as well as a variety of publications of the National
Association of Insurance Commissioners (NAIC). Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
Statutory net income differs from income reported in accordance with
generally accepted accounting principles primarily because policy
acquisition costs are expensed when incurred, reserves are based on
different assumptions and income tax expense reflects only taxes paid or
currently payable.
Statutory net income and stockholder's equity, by company, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company...................................... $101,456 $ 47,280 $ 17,724
SAFECO National Life Insurance Company............................. 1,187 1,242 1,192
First SAFECO National Life Insurance Company of New York........... 404 108 225
-------- ------- -------
Total......................................................... $103,047 $ 48,630 $ 19,141
======== ======= =======
</TABLE>
A-28
<PAGE> 68
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 (continued)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Stockholder's Equity:
SAFECO Life Insurance Company...................................... $479,152 $391,328 $357,081
SAFECO National Life Insurance Company............................. 15,522 15,849 16,228
First SAFECO National Life Insurance Company of New York........... 10,009 9,644 9,569
-------- ------- -------
Total......................................................... $504,683 $416,821 $382,878
======== ======= =======
</TABLE>
The Company has received written approval from the Washington State
Insurance Department to treat certain loans (all made at market rates) to
related SAFECO Corporation subsidiaries as admitted assets. The allowance
of such loans has not materially enhanced surplus at December 31, 1995.
7. DIVIDEND RESTRICTIONS
Insurance companies are restricted by certain states as to the amount of
dividends they may pay within a given calendar year to their parent without
regulatory consent. That restriction is the greater of statutory net gain
from operations for the previous year or 10% of policyholder surplus at the
close of the previous year, subject to a maximum limit equal to statutory
earned surplus. The amount of retained earnings available for the payment
of dividends to SAFECO Corporation without prior regulatory approval was
$104,480,000 at December 31, 1995.
8. EMPLOYEE BENEFIT PLANS
SAFECO Corporation and subsidiary companies (the Companies) administer
defined contribution, defined benefit and profit sharing bonus plans
covering substantially all employees. The defined contribution plans
include profit sharing retirement plans and a savings plan. Benefits are
earned under the defined benefit plan for each year of service after 1988,
based on the employee's compensation level plus a stipulated rate of return
on the benefit balance. It is SAFECO Corporation's policy to fund the
defined benefit plan on a current basis to the full extent deductible under
federal income tax regulations. The cost of these plans to the Company was
$7,599,000, $6,329,000 and $7,962,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
The Companies also provide certain healthcare and life insurance benefits
("other postretirement benefits") for retired employees. Substantially all
employees may become eligible for these benefits if they reach retirement
age while working for the Companies. The cost of these benefits is shared
with the retiree.
Effective January 1, 1993, the Company adopted FASB Statement 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Under Statement 106, the Company accrues for other postretirement benefits
during the years that employees provide services. Prior to adoption of
Statement 106, other postretirement benefits were accounted for on a
pay-as-you-go (cash) basis. The transition obligation (i.e., the
accumulated postretirement benefit obligation) of $3,777,000 was recorded
as a cumulative effect adjustment in the first quarter of 1993 which, net
of tax, resulted in a reduction of net income of $2,493,000.
A-29
<PAGE> 69
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 (continued)
Components of the net periodic other postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the period............................ $114 $153 $151
Interest cost on accumulated postretirement benefit obligation.............. 245 283 318
Actual return on plan assets................................................ (16) 3 (4)
Net amortization and deferral............................................... (61) (7) 4
---- ---- ----
Total.............................................................. $282 $432 $469
==== ==== ====
</TABLE>
The following table summarizes the funded status of the plan:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees......................................................................... $1,761 $1,332
Fully eligible active plan participants.......................................... 620 496
Other active plan participants................................................... 1,929 1,245
------ ------
Total APBO.................................................................. 4,310 3,073
Less: plan assets at fair value...................................................... 133 91
------ ------
Funded status........................................................................ 4,177 2,982
Unrecognized gain.................................................................... 361 1,424
------ ------
Accrued postretirement benefit cost recorded on the balance sheet.................... $4,538 $4,406
====== ======
</TABLE>
Other postretirement benefit cost is determined using actuarial assumptions
at the beginning of the year. The funded status is determined using
assumptions at the end of the year. The discount rate used was 7.5%, 8.5%
and 7.5% at December 31, 1995, 1994 and 1993, respectively. The accumulated
postretirement benefit obligation at December 31, 1995 was determined using
a healthcare cost trend rate of 11% for 1996, declining by 1% per year,
starting in 1997, to 6% and remaining at that level thereafter. The trend
rate for the years 1997 to 2001 is 1% higher than the rate used for the
prior year's valuation. A one percentage point increase in the assumed
healthcare cost trend rate for each year would increase the accumulated
other postretirement benefit obligation as of December 31, 1995 by $540,000
and the annual net periodic other postretirement benefit cost for the year
then ended by $50,000.
9. INCOME TAXES
As of January 1, 1993, the Company adopted the liability method of
accounting for income taxes pursuant to FASB Statement 109, "Accounting for
Income Taxes." This accounting change was implemented through a cumulative
effect adjustment which reduced the net deferred tax liability (and
increased net income in the first quarter of 1993) by $9,092,000. Under the
liability method, deferred tax assets and liabilities are determined based
on the differences between their financial reporting and their tax bases
and are measured using the enacted tax rates.
A-30
<PAGE> 70
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 (continued)
Differences between income tax computed by applying the U.S. federal income
tax rate of 35% to income before income taxes and the provision for federal
income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense........................................... $48,631 $47,040 $61,399
Dividends received deduction.............................................. (44) (64) (52)
Tax exempt interest....................................................... (7) (8) (9)
Provision for settlement of prior years' tax obligation................... -- -- 2,000
Federal tax rate change................................................... -- -- 2,040
Other..................................................................... (550) 243 84
------- ------- -------
Income tax expense.................................................... $48,030 $47,211 $65,462
======= ======= =======
Percent of income tax expense to income before tax........................ 34.6% 35.1% 37.3%
======= ======= =======
</TABLE>
The tax effect of temporary differences which give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Discounted loss and adjustment expense reserves............................. $ 1,990 $ 1,679
Unearned premium reserves................................................... 2,011 2,012
Adjustment to life policy liabilities....................................... 30,209 20,444
Capitalization of policy acquisition costs.................................. 21,860 18,263
Postretirement benefits..................................................... 1,588 1,542
Realized capital gains...................................................... 9,348 5,422
Guarantee fund assessment................................................... 3,680 3,250
Unrealized depreciation of investment securities............................ -- 68,028
Other....................................................................... 1,414 1,343
-------- --------
Total deferred tax assets.............................................. 72,100 121,983
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs........................................... 88,657 86,798
Bond discount accrual....................................................... 5,905 4,133
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1995-$14,985)....................... 172,493 --
Other....................................................................... 1,537 823
-------- --------
Total deferred tax liabilities......................................... 268,592 91,754
-------- --------
Net deferred tax liability (asset)..................................... $196,492 $(30,229)
======== ========
</TABLE>
The deferred federal income tax benefit of $13,800,000 for 1995 represents
the increase in the net deferred tax liability of $226,721,000 excluding
the increase of $240,521,000 related to unrealized appreciation of
investment securities which includes $14,985,000 related to the deferred
policy acquisition costs valuation allowance.
The deferred federal income tax benefit of $10,154,000 for 1994 represents
the decrease in the net deferred tax liability of $81,799,000 excluding a
decrease of $71,645,000 related to unrealized depreciation of investment
securities.
A-31
<PAGE> 71
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 (continued)
The deferred federal income tax benefit of $26,135,000 for 1993 represents
a decrease in the net deferred federal income tax liability of $25,704,000
excluding an increase of $431,000 related to unrealized appreciation of
marketable equity securities. The tax related to the increase in
appreciation of marketable equity securities approximated $543,000 during
1993. Of that amount, $112,000, which related to the 1% increase in the
federal income tax rate, was charged directly to income with the remainder
charged directly to stockholder's equity.
10. SEGMENT DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $29,029 of financial services
revenue received from affiliates)......................... $ 45,284 $ 203,349 $ 248,633
Identifiable Investment Income.............................. 450,655 256,570 707,225
Investment Income Allocated................................. 44,043 26,232 70,275
Identifiable Realized Gain (Loss) from Investments.......... 16,020 (8,586) 7,434
Realized Loss from Investments Allocated.................... (1,112) (646) (1,758)
---------- ---------- -----------
Total Revenue.......................................... $ 554,890 $ 476,919 $ 1,031,809
========== ========== ===========
Income Before Income Taxes...................................... $ 84,956 $ 53,990 $ 138,946
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Cost............................ $ 143,228 $ 67,263 $ 210,491
Policy Loans................................................ 29,109 26,816 55,925
Invested Assets............................................. 6,086,143 3,261,042 9,347,185
Other....................................................... 155,358 327,863 483,221
Invested Assets Allocated....................................... 671,864 400,160 1,072,024
Other Assets Allocated.......................................... 18,179 11,148 29,327
---------- ---------- -----------
Total Assets........................................... $7,103,881 $4,094,292 $11,198,173
========== ========== ===========
Amortization of Deferred Policy Acquisition Cost................ $ 12,222 $ 20,154 $ 32,376
========== ========== ===========
</TABLE>
A major portion of investment income, realized gains or losses and assets
is specifically identifiable with an industry segment. The remainder of
these amounts has been allocated in proportion to the investment income
identified with each segment.
A-32
<PAGE> 72
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $27,955 of financial services
revenue received from affiliates).......................... $ 42,805 $ 219,919 $ 262,724
Identifiable Investment Income............................... 395,127 245,909 641,036
Investment Income Allocated.................................. 39,909 24,725 64,634
Identifiable Realized Gain from Investments.................. 6,744 1,267 8,011
Realized Loss from Investments Allocated..................... (1,463) (909) (2,372)
---------- ---------- ----------
Total Revenue........................................... $ 483,122 $ 490,911 $ 974,033
========== ========== ==========
Income Before Income Taxes....................................... $ 70,200 $ 64,201 $ 134,401
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs............................ $ 151,614 $ 95,576 $ 247,190
Policy Loans................................................. 28,467 24,862 53,329
Invested Assets.............................................. 4,859,921 2,874,141 7,734,062
Other........................................................ 153,120 248,641 401,761
Invested Assets Allocated........................................ 542,890 336,343 879,233
Other Assets Allocated........................................... (880) (569) (1,449)
---------- ---------- ----------
Total Assets............................................ $5,735,132 $3,578,994 $9,314,126
========== ========== ==========
Amortization of Deferred Policy Acquisition Costs................ $ 9,914 $ 19,493 $ 29,407
========== ========== ==========
</TABLE>
A major portion of investment income, realized gains or losses and assets
is specifically identifiable with an industry segment. The remainder of
these amounts has been allocated in proportion to the investment income
identified with each segment.
A-33
<PAGE> 73
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $23,195 of financial services
revenue received from affiliates).......................... $ 40,000 $ 251,478 $ 291,478
Identifiable Investment Income............................... 352,076 251,740 603,816
Investment Income Allocated.................................. 38,408 25,498 63,906
Identifiable Realized Gain (Loss) from Investments........... 64,442 (6,567) 57,875
Realized Loss from Investments Allocated..................... (2,956) (1,375) (4,331)
-------- -------- ----------
Total Revenue........................................... $ 491,970 $ 520,774 $1,012,744
======== ======== ==========
Income Before Income Taxes....................................... $ 117,287 $ 58,140 $ 175,427
======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Cost............................. $ 137,479 $ 96,721 $ 234,200
Policy Loans................................................. 26,181 24,307 50,488
Invested Assets.............................................. 4,253,688 2,906,514 7,160,202
Other........................................................ 98,972 159,396 258,368
Invested Assets Allocated........................................ 513,921 342,861 856,782
Other Assets Allocated........................................... 21,160 13,185 34,345
-------- -------- ----------
Total Assets............................................ $5,051,401 $3,542,984 $8,594,385
======== ======== ==========
Amortization of Deferred Policy Acquisition Costs................ $ 7,395 $ 18,955 $ 26,350
======== ======== ==========
</TABLE>
A major portion of investment income, realized gains or losses and assets
is specifically identifiable with an industry segment. The remainder of
these amounts has been allocated in proportion to the investment income
identified with each segment.
A-34
<PAGE> 74
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 (0.63%, an average of the 1995 actual investment management fees
charged to the various Portfolios of the Funds); and 0.15% 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 -- 1.68%, on 6% it would be 4.32%, and
on 12% it would be 10.32%.
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 table 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> 75
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 CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR 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 1,379 899 100,000 1,477 997 100,000 1,575 1,095
2 4,305 100,000 2,935 2,335 100,000 3,225 2,625 100,000 3,528 2,927
3 6,620 100,000 4,434 3,714 100,000 5,018 4,297 100,000 5,650 4,930
4 9,051 100,000 5,884 5,078 100,000 6,864 6,058 100,000 7,969 7,162
5 11,604 100,000 7,292 6,485 100,000 8,773 7,967 100,000 10,511 9,704
6 14,284 100,000 8,658 8,012 100,000 10,749 10,104 100,000 13,302 12,657
7 17,098 100,000 9,972 9,488 100,000 12,783 12,299 100,000 16,359 15,875
8 20,053 100,000 11,234 10,911 100,000 14,879 14,556 100,000 19,710 19,388
9 23,156 100,000 12,443 12,281 100,000 17,039 16,877 100,000 23,389 23,228
10 26,414 100,000 13,596 13,596 100,000 19,263 19,263 100,000 27,429 27,429
11 29,834 100,000 14,689 14,689 100,000 21,550 21,550 100,000 31,870 31,870
12 33,426 100,000 15,715 15,715 100,000 23,898 23,898 100,000 36,751 36,751
13 37,197 100,000 16,668 16,668 100,000 26,307 26,307 100,000 42,125 42,125
14 41,157 100,000 17,545 17,545 100,000 28,777 28,777 100,000 48,050 48,050
15 45,315 100,000 18,340 18,340 100,000 31,310 31,310 100,000 54,592 54,592
16 49,681 100,000 19,045 19,045 100,000 33,905 33,905 100,000 61,829 61,829
17 54,265 100,000 19,659 19,659 100,000 36,569 36,569 100,000 69,857 69,857
18 59,078 100,000 20,179 20,179 100,000 39,306 39,306 100,000 78,781 78,781
19 64,132 100,000 20,597 20,597 100,000 42,121 42,121 109,943 88,664 88,664
20 69,439 100,000 20,905 20,905 100,000 45,017 45,017 121,424 99,528 99,528
Age 75 139,522 100,000 11,145 11,145 100,000 84,758 84,758 335,412 319,440 319,440
</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> 76
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%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR 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 1,196 715 100,000 1,288 807 100,000 1,380 900
2 4,305 100,000 2,587 1,987 100,000 2,855 2,255 100,000 3,134 2,534
3 6,620 100,000 3,933 3,212 100,000 4,467 3,746 100,000 5,047 4,326
4 9,051 100,000 5,228 4,422 100,000 6,122 5,316 100,000 7,131 6,325
5 11,604 100,000 6,475 5,668 100,000 7,823 7,016 100,000 9,407 8,600
6 14,284 100,000 7,668 7,023 100,000 9,566 8,921 100,000 11,890 11,244
7 17,098 100,000 8,804 8,320 100,000 11,352 10,868 100,000 14,600 14,116
8 20,053 100,000 9,880 9,557 100,000 13,177 12,855 100,000 17,560 17,237
9 23,156 100,000 10,890 10,728 100,000 15,039 14,878 100,000 20,792 20,631
10 26,414 100,000 11,828 11,828 100,000 16,934 16,934 100,000 24,326 24,326
11 29,834 100,000 12,690 12,690 100,000 18,862 18,862 100,000 28,194 28,194
12 33,426 100,000 13,473 13,473 100,000 20,821 20,821 100,000 32,435 32,435
13 37,197 100,000 14,174 14,174 100,000 22,811 22,811 100,000 37,095 37,095
14 41,157 100,000 14,786 14,786 100,000 24,833 24,833 100,000 42,224 42,224
15 45,315 100,000 15,300 15,300 100,000 26,879 26,879 100,000 47,881 47,881
16 49,681 100,000 15,708 15,708 100,000 28,949 28,949 100,000 54,134 54,134
17 54,265 100,000 15,998 15,998 100,000 31,037 31,037 100,000 61,062 61,062
18 59,078 100,000 16,155 16,155 100,000 33,137 33,137 100,000 68,760 68,760
19 64,132 100,000 16,159 16,159 100,000 35,241 35,241 100,000 77,341 77,341
20 69,439 100,000 15,996 15,996 100,000 37,345 37,345 106,030 86,910 86,910
Age 75 139,522 100,000 59,127 59,127 293,263 279,298 279,298
</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> 77
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%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR 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 1,324 844 100,000 1,421 940 100,000 1,517 1,037
2 4,305 100,000 2,828 2,227 100,000 3,111 2,510 100,000 3,406 2,806
3 6,620 100,000 4,275 3,555 100,000 4,843 4,123 100,000 5,460 4,739
4 9,051 100,000 5,675 4,869 100,000 6,628 5,822 100,000 7,703 6,897
5 11,604 100,000 7,034 6,227 100,000 8,474 7,667 100,000 10,164 9,357
6 14,284 100,000 8,352 7,707 100,000 10,384 9,739 100,000 12,866 12,221
7 17,098 100,000 9,620 9,136 100,000 12,350 11,867 100,000 15,825 15,342
8 20,053 100,000 10,837 10,514 100,000 14,376 14,054 100,000 19,071 18,748
9 23,156 100,000 12,002 11,841 100,000 16,464 16,302 100,000 22,634 22,472
10 26,414 100,000 13,112 13,112 100,000 18,612 18,612 100,000 26,547 26,547
11 29,834 100,000 14,163 14,163 100,000 20,821 20,821 100,000 30,849 30,849
12 33,426 100,000 15,140 15,140 100,000 23,082 23,082 100,000 35,573 35,573
13 37,197 100,000 16,039 16,039 100,000 25,394 25,394 100,000 40,769 40,769
14 41,157 100,000 16,857 16,857 100,000 27,759 27,759 100,000 46,495 46,495
15 45,315 100,000 17,587 17,587 100,000 30,176 30,176 100,000 52,815 52,815
16 49,681 100,000 18,221 18,221 100,000 32,645 32,645 100,000 59,807 59,807
17 54,265 100,000 18,759 18,759 100,000 35,171 35,171 100,000 67,562 67,562
18 59,078 100,000 19,196 19,196 100,000 37,759 37,759 100,000 76,186 76,186
19 64,132 100,000 19,524 19,524 100,000 40,412 40,412 106,361 85,775 85,775
20 69,439 100,000 19,736 19,736 100,000 43,135 43,135 117,516 96,325 96,325
Age 75 39,522 100,000 8,243 8,243 100,000 79,541 79,541 325,190 309,705 309,705
</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> 78
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%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR 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 1,196 715 100,000 1,288 807 100,000 1,380 900
2 4,305 100,000 2,587 1,987 100,000 2,855 2,255 100,000 3,134 2,534
3 6,620 100,000 3,933 3,212 100,000 4,467 3,746 100,000 5,047 4,326
4 9,051 100,000 5,228 4,422 100,000 6,122 5,316 100,000 7,131 6,325
5 11,604 100,000 6,475 5,668 100,000 7,823 7,016 100,000 9,407 8,600
6 14,284 100,000 7,668 7,023 100,000 9,566 8,921 100,000 11,890 11,244
7 17,098 100,000 8,804 8,320 100,000 11,352 10,868 100,000 14,600 14,116
8 20,053 100,000 9,880 9,557 100,000 13,177 12,855 100,000 17,560 17,237
9 23,156 100,000 10,890 10,728 100,000 15,039 14,878 100,000 20,792 20,631
10 26,414 100,000 11,828 11,828 100,000 16,934 16,934 100,000 24,326 24,326
11 29,834 100,000 12,690 12,690 100,000 18,862 18,862 100,000 28,194 28,194
12 33,426 100,000 13,473 13,473 100,000 20,821 20,821 100,000 32,435 32,435
13 37,197 100,000 14,174 14,174 100,000 22,811 22,811 100,000 37,095 37,095
14 41,157 100,000 14,786 14,786 100,000 24,833 24,833 100,000 42,224 42,224
15 45,315 100,000 15,300 15,300 100,000 26,879 26,879 100,000 47,881 47,881
16 49,681 100,000 15,708 15,708 100,000 28,949 28,949 100,000 54,134 54,134
17 54,265 100,000 15,998 15,998 100,000 31,037 31,037 100,000 61,062 61,062
18 59,078 100,000 16,155 16,155 100,000 33,137 33,137 100,000 68,760 68,760
19 64,132 100,000 16,159 16,159 100,000 35,241 35,241 100,000 77,341 77,341
20 69,439 100,000 15,996 15,996 100,000 37,345 37,345 106,030 86,910 86,910
Age 75 139,522 100,000 59,127 59,127 293,263 279,298 279,298
</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> 79
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 Funds. 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> 80
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP MONEY MARKET DIVISION
<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
1995 100,000 28,172 28,172 100,000 24,542 24,542
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP HIGH INCOME DIVISION
<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
1995 100,000 29,972 29,972 100,000 26,585 26,585
</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-2
<PAGE> 81
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP EQUITY-INCOME DIVISION
<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
1995 100,000 30,062 29,901 100,000 26,767 26,605
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP GROWTH DIVISION
<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
1995 100,000 30,986 30,825 100,000 27,650 27,489
</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> 82
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP OVERSEAS DIVISION
<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>
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
1995 100,000 17,510 17,188 100,000 15,563 15,240
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INVESTMENT GRADE BOND DIVISION
<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>
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
1995 100,000 14,767 14,283 100,000 13,154 12,670
</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-4
<PAGE> 83
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP II ASSET MANAGER DIVISION
<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>
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
1995 100,000 13,307 12,662 100,000 11,898 11,252
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INDEX 500 DIVISION
<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>
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
1995 100,000 6,523 5,803 100,000 5,838 5,117
</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-5
<PAGE> 84
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP II ASSET MANAGER: GROWTH DIVISION
<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>
1995 100,000 1,771 1,291 100,000 1,565 1,085
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II CONTRAFUND DIVISION
<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>
1995 100,000 2,044 1,564 100,000 1,823 1,342
</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-6
<PAGE> 85
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEXINGTON NATURAL RESOURCES DIVISION
<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>
1992 100,000 1,444 964 100,000 1,257 777
1993 100,000 3,373 2,772 100,000 2,989 2,388
1994 100,000 4,631 3,910 100,000 4,115 3,395
1995 100,000 7,200 6,393 100,000 6,425 5,618
</TABLE>
- --------------------------------------------------------------------------------
LEXINGTON EMERGING MARKETS DIVISION
<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>
1995 100,000 1,328 847 100,000 1,147 667
</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-7
<PAGE> 86
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO RST BOND DIVISION
<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>
1988 100,000 1,507 1,026 100,000 1,316 835
1989 100,000 3,454 2,854 100,000 3,065 2,465
1990 100,000 5,327 4,607 100,000 4,751 4,030
1991 100,000 7,806 7,000 100,000 6,980 6,173
1992 100,000 9,912 9,105 100,000 8,860 8,053
1993 100,000 12,561 11,916 100,000 11,213 10,567
1994 100,000 13,518 13,034 100,000 12,034 11,550
1995 100,000 17,575 17,253 100,000 15,618 15,296
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST EQUITY DIVISION
<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>
1988 100,000 1,818 1,338 100,000 1,609 1,129
1989 100,000 4,364 3,764 100,000 3,909 3,309
1990 100,000 5,573 4,853 100,000 4,991 4,271
1991 100,000 9,026 8,219 100,000 8,108 7,302
1992 100,000 11,341 10,535 100,000 10,181 9,375
1993 100,000 16,405 15,759 100,000 14,723 14,078
1994 100,000 19,382 18,898 100,000 17,371 16,887
1995 100,000 26,737 26,415 100,000 23,946 23,624
</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-8
<PAGE> 87
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO RST GROWTH DIVISION
<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>
1994 100,000 1,587 1,107 100,000 1,391 911
1995 100,000 4,536 3,936 100,000 4,059 3,458
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST NORTHWEST DIVISION
<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>
1994 100,000 1,451 971 100,000 1,264 783
1995 100,000 3,269 2,669 100,000 2,894 2,294
</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-9
<PAGE> 88
RATES OF RETURN
The previous VIP and VIP II Division tables are based on the investment
performance, after actual expenses, of the corresponding VIP and VIP II
Portfolios. The average annual total return used in calculating the death
benefit, policy account value and cash surrender value for the respective
Portfolios are listed below. These annual total returns do not account for
insurance and administrative charges, or the mortality and expense risk charge
of 0.90%; and, they are not an estimate or a guarantee of future investment
performance.
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE VIP PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VIP VIP VIP
MONEY HIGH EQUITY- VIP VIP
YEAR MARKET INCOME INCOME GROWTH OVERSEAS
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
1983 9.16
- ----------------------------------------------------------------------------------------------------------
1984 10.43
- ----------------------------------------------------------------------------------------------------------
1985 8.11
- ----------------------------------------------------------------------------------------------------------
1986 6.70 17.68
- ----------------------------------------------------------------------------------------------------------
1987 6.44 1.22 -1.13 3.66
- ----------------------------------------------------------------------------------------------------------
1988 7.39 11.64 22.71 15.58 8.13
- ----------------------------------------------------------------------------------------------------------
1989 9.12 -4.17 17.34 31.51 26.28
- ----------------------------------------------------------------------------------------------------------
1990 8.04 -2.23 -15.29 -11.73 -1.67
- ----------------------------------------------------------------------------------------------------------
1991 6.09 35.08 31.44 45.51 8.00
- ----------------------------------------------------------------------------------------------------------
1992 3.90 23.17 16.89 9.32 -10.72
- ----------------------------------------------------------------------------------------------------------
1993 3.23 20.40 18.29 19.37 37.35
- ----------------------------------------------------------------------------------------------------------
1994 4.25 -1.64 7.07 -0.02 1.72
- ----------------------------------------------------------------------------------------------------------
1995 5.87 20.72 35.09 35.36 9.68
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE VIP II PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VIP II VIP II VIP II VIP II VIP II
INVESTMENT ASSET INDEX ASSET MGR: CONTRA-
YEAR GRADE BOND MANAGER 500 GROWTH FUND
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
1989 10.26
- ----------------------------------------------------------------------------------------------------------
1990 6.21 6.72
- ----------------------------------------------------------------------------------------------------------
1991 16.38 22.56
- ----------------------------------------------------------------------------------------------------------
1992 6.65 11.71
- ----------------------------------------------------------------------------------------------------------
1993 10.96 21.23 9.74
- ----------------------------------------------------------------------------------------------------------
1994 -3.76 -6.09 1.04
- ----------------------------------------------------------------------------------------------------------
1995 17.32 16.96 37.19 23.13 39.62
- ----------------------------------------------------------------------------------------------------------
</TABLE>
C-10
<PAGE> 89
The previous Lexington Natural Resources Trust and Lexington Emerging Markets
Fund ("Lexington") Division tables are based on the investment performance,
after actual expenses, of the corresponding Lexington Portfolios. The average
annual total return used in calculating the death benefit, policy account value
and cash surrender value for the respective Portfolios are listed below. These
annual total returns do not account for insurance and administrative charges, or
the mortality and expense risk charge of 0.90%; and, they are not an estimate or
a guarantee of future investment performance.
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE LEXINGTON PORTFOLIOS
---------------------------------------------------------------
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
NATURAL EMERGING
YEAR RESOURCES MARKETS
<S> <C> <C>
----------------------------------------------------
1992 3.22
----------------------------------------------------
1993 10.90
----------------------------------------------------
1994 -5.38
----------------------------------------------------
1995 16.87 -3.93
----------------------------------------------------
</TABLE>
The previous SAFECO RST Division tables are based on the investment performance,
after actual expenses, of the corresponding SAFECO RST Portfolios. The average
annual total return used in calculating the death benefit, policy account value
and cash surrender value for the respective Portfolios are listed below. These
annual total returns do not account for insurance and administrative charges, or
the mortality and expense risk charge of 0.90%; and, they are not an estimate or
a guarantee of future investment performance.
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE SAFECO RST PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
RST RST SAFECO RST RST
YEAR BOND EQUITY GROWTH NORTHWEST
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
1988 7.03 25.98
---------------------------------------------------------------------------------------------
1989 11.30 27.11
---------------------------------------------------------------------------------------------
1990 6.57 -5.21
---------------------------------------------------------------------------------------------
1991 13.98 26.85
---------------------------------------------------------------------------------------------
1992 6.82 8.06
---------------------------------------------------------------------------------------------
1993 10.55 27.92
---------------------------------------------------------------------------------------------
1994 -2.93 8.94 11.92 3.65
---------------------------------------------------------------------------------------------
1995 17.87 28.63 41.00 7.42
---------------------------------------------------------------------------------------------
</TABLE>
C-11
<PAGE> 90
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 1981 through 1995]
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 1981 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>
1981 -4.91% 1,312 831 100,000
1982 21.58% 3,553 2,953 100,000
1983 22.43% 6,272 5,551 100,000
1984 6.10% 8,247 7,440 100,000
1985 31.57% 12,850 12,043 100,000
1986 18.21% 16,912 16,266 100,000
1987 5.17% 19,229 18,745 100,000
1988 16.50% 23,998 23,675 100,000
1989 31.43% 33,345 33,184 100,000
1990 -3.19% 33,412 33,412 100,000
1991 30.55% 45,310 45,310 100,000
1992 7.68% 50,008 50,008 100,000
1993 10.00% 56,225 56,225 100,000
1994 1.32% 57,976 57,976 100,000
1995 37.51% 81,389 81,389 109,062
</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 value.
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> 91
LONG TERM MARKET TRENDS
- --------------------------------------------------------------------------------
The information below covering the period of 1926-1995 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 1995. 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. 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 less.
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 1926-1995 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
1995.]
Year End 1925 = $1.00
Source: Stocks, Bonds, Bills and Inflation 1996 Yearbook(TM)
Ibbotson Associates, Chicago (annually updates work by
Roger G. Ibbotson and Rex A. Sinquefield). Used with permission.
All rights reserved.
E-1
<PAGE> 92
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15 (d) of the Securities Exchange
Act of 1934. The undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission theretofore or hereafter duly adopted pursuant to authority conferred
in that section.
INDEMNIFICATION
Under its Bylaws, SAFECO, to the full extent permitted by the Washington
Business Corporation Act, shall indemnify any person who was or is a party to
any proceeding (whether brought by or in the right of SAFECO or otherwise) by
reason of the fact that he or she is or was a director of SAFECO, or, while a
director of SAFECO, is or was serving at the request of SAFECO as a director,
officer, partner, trustee, employee, or agent or another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with such proceeding.
SAFECO shall extend such indemnification as if provided to directors above to
any person, not a director of SAFECO, who is or was an officer of SAFECO or is
or was serving at the request of SAFECO as a director, officer, partner,
trustee, or agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan. In addition, the
Board of Directors of SAFECO may, by resolution, extend such further
indemnification to an officer or such other person as may to it seem fair and
reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of SAFECO
pursuant to such provisions of the bylaws or statutes or otherwise, SAFECO has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by SAFECO of expenses incurred or paid
by a director, officer or controlling person of SAFECO in the successful defense
of any such action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the Policies issued by the Separate
Account, SAFECO will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in said Act and will be governed by the final adjudication of such
issue.
<PAGE> 93
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises:
I. The following papers and documents:
The facing sheet.
The Prospectus consisting of __ pages.
The undertaking to file reports.
The signatures.
Written consents of the following persons:
(1) Ernst & Young LLP, Independent Auditors
(2) James Mankin, Actuary
II. The following exhibits:
<TABLE>
<CAPTION>
Page
----
<S> <C>
A. Copies of all exhibits required by paragraph A of
instructions for Exhibits in Form N-8B-2.
(1) Resolution of Board of Directors of the Company *
authorizing the Separate Account
(2) None
(3) (a) Principal Underwriter's Agreement
(b) Agents' Agreement - Revised as of 5/90 ***
(c) Broker-Dealer Selling Agreement #
(4) None
(5) Individual Flexible Premium Variable Life
Insurance Policy **
(6) (a) Articles of Incorporation of the Company ***
Revised as of 11/90
(b) Bylaws of the Company ###
Revised as of 11/91
(7) Not Applicable
(8) Not Applicable
(9) (a) Reinsurance Agreement #
(b) Servicing Agreement #
(c) Sales Agreement #
(d) Form of Participation Agreement (Fidelity) ##
Form of Sub-Licensing Agreement ##
(e) Participation Agreement by and among SAFECO ****
Life Insurance Company, Lexington Natural Resources
Trust, and Lexington Management Corporation
(10) (a) Application Form (revised 4/91)
(b) Part IV of Application Form (revised 4/93)
(12) Memorandum on Exchange Right *
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
Page
----
<S> <C>
(13) Power Of Attorney ####
99.C1 Consent of Independent Auditors
99.2 Opinion and Consent of Counsel (SAFECO Life Ins. Co.)
99.C6 Consent of Actuary (James Mankin)
* Incorporated by reference to Registrant's Form N-8B-2
** Incorporated by reference to Registrant's Pre-Effective
Amendment No. 1
*** Incorporated by reference to Registrant's Post-Effective
Amendment No. 5 filed with the SEC April 22, 1991
**** Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account C filed with the SEC on
April 29, 1996 (File No. 33-69712)
# Incorporated by reference to Registrant's Post-Effective Amendment No. 1
(filed confidentially)
## Incorporated by reference to Registrant's Post-Effective
Amendment No. 6 filed with the SEC on July 31, 1991
### Incorporated by reference to Registrant's Post-Effective Amendment No. 8
filed with the SEC on April 17, 1992
#### Incorporated by reference to Post-Effective Amendment
of SAFECO Resource Variable Account B filed with the
SEC on December 29, 1995 (File No. 33-69600)
</TABLE>
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
486(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf thereto duly authorized, in the City of
Seattle and State of Washington on the 29th day of April, 1996.
SAFECO Separate Account SL
By: SAFECO Life Insurance Company
-----------------------------
(Depositor)
By: /s/ Richard E. Zunker
-----------------------------
Richard E. Zunker, President
ATTEST: /s/ Rod Pierson
-----------------------
Rod Pierson, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment No. 13 to the Registration Statement on Form S-6 has been signed by
the following persons in the capacities and on the dates indicated. Those
signatures with an asterisk indicate the signature was supplied by a duly
appointed attorney-in-fact under a valid Power of Attorney.
<TABLE>
<CAPTION>
Name Title Title Date
- ---- ----- ----------
<S> <C> <C>
Donald S. Chapman* Director ---------------
- ----------------------
Donald S. Chapman
/s/ Boh A. Dickey
- ---------------------- Director and Executive ---------------
Boh A. Dickey Vice President
R.H. Eigsti* Director and Chairman ---------------
- ----------------------
R.H. Eigsti
</TABLE>
<PAGE> 96
SIGNATURES (continued)
<TABLE>
<S> <C> <C>
James T. Flynn* Vice President and ---------------
- ---------------------- Controller (Principal
James T. Flynn Accounting Officer)
Dan D. McLean* Director ---------------
- ----------------------
Dan D. McLean
Rod Pierson* Director, Senior Vice ---------------
- ---------------------- President and Secretary
Rod Pierson
James W. Ruddy* Director ---------------
- ----------------------
James W. Ruddy
Robert Swegle* Director --------------
- ----------------------
Robert Swegle
/s/ Richard E. Zunker
- ---------------------- Director and President --------------
Richard E. Zunker (Principal Executive
Officer)
*By /s/ Boh A. Dickey
------------------------
Boh A. Dickey
Attorney-in-Fact
*By /s/ Richard E. Zunker
------------------------
Richard E. Zunker
Attorney-in-Fact
</TABLE>
<PAGE> 97
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 13
TO
FORM S-6
FOR
SEPARATE ACCOUNT SL
<PAGE> 98
Exhibits
<TABLE>
<CAPTION>
Page
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99.C1 Consent of Independent Auditors
99.2 Opinion and Consent of Counsel
99.C6 Consent of Actuary
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EXHIBIT 99.C1
CONSENT OF INDEPENDENT AUDITORS
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CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and to the
use of our reports on the financial statements of SAFECO Separate Account SL,
dated February 9, 1996, and on the consolidated financial statements of SAFECO
Life Insurance Company and Subsidiaries, dated February 9, 1996, in
Post-Effective Amendment No. 13 to the Registration Statement (Form S-6, No.
33-10248) and related Prospectus of SAFECO Separate Account SL dated April 30,
1996.
/s/ ERNST & YOUNG LLP
Seattle, Washington
April 25, 1996
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EXHIBIT 99.2
OPINION AND CONSENT OF COUNSEL
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April 29, 1996
Board of Directors
SAFECO Life Insurance Company
SAFECO Plaza
Seattle, WA 98185
Gentlemen:
I have acted as counsel in connection with the filing with the Securities and
Exchange Commission of Post-Effective Amendment No. 13 to a Registration
Statement on Form S-6 for the Individual Flexible Premium Life Insurance Policy
(the "Policy") to be issued by SAFECO Life Insurance Company and its separate
account, Separate Account SL.
I have made such examination of the law and have examined such records and
documents as in my opinion are necessary or appropriate to enable me to render
the following opinion:
1. SAFECO Life Insurance Company is a valid and existing stock life insurance
company of the state of Washington.
2. Separate Account SL is a separate investment account of SAFECO Life
Insurance Company created and validly existing pursuant to the insurance
laws and regulations of the state of Washington.
3. All of the prescribed corporate procedures for the issuance of the Policies
have been followed, and, when such Policies are issued in accordance with
the Prospectus contained in the Registration Statement, all state
requirements relating to such Policies will have been complied with.
4. Upon the acceptance of Premium Payments made by a Policyowner pursuant to a
Policy issued in accordance with the prospectus contained in the
Registration Statement and upon compliance with acceptable law, such a
Policyowner will have legally-issued, fully paid, non-assessable
contractual interest under such Policy.
You may use this opinion letter, or a copy hereof, as an exhibit to the
Registration Statement.
Very truly yours,
William E. Crawford
Counsel
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EXHIBIT 99.C6
CONSENT OF ACTUARY
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April 16, 1996
Board of Directors
SAFECO Life Insurance Company
SAFECO Plaza
Seattle, WA 98185
The "Illustrations of Death Benefits, Policy Account, Cash Surrender Values and
Accumulated Premiums" ("Hypothetical Illustrations") and the "Illustrations of
Variation in Death Benefit, Policy Account and Cash Surrender Values in Relation
to the Funds' Investment Experience" ("Illustrations") contained in
Post-Effective Amendment No. 13 to the Registration Statement on Form S-6 of
Separate Account SL, which issues flexible premium variable life insurance
policies, have been prepared in accordance with standard actuarial principles.
Both the Hypothetical Illustrations and Illustrations reflect the operation of
the Policy by taking into account all charges under the Policy and in the
underlying Fund. The Hypothetical Illustrations are shown for males in two
underwriting classifications. The Illustrations are shown for a male preferred
non-smoker.
I hereby consent to the inclusion and use of the Hypothetical Illustrations and
Illustrations in Post-Effective Amendment No. 13.
Sincerely,
James A. Mankin, F.S.A., M.A.A.A.
Actuary
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ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
SAFECO Life Insurance Company ("SAFECO") established SAFECO Resource Variable
Account B ("Registrant") by resolution of its Board of Directors pursuant to
Washington law. SAFECO is a wholly-owned subsidiary of SAFECO Corporation, which
is a publicly-owned company. Both companies were organized under Washington law.
SAFECO Corporation, a Washington corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company of America, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, and SAFECO Insurance Company of Illinois, an Illinois corporation.
SAFECO Corporation owns 20% of Agena, Inc., a Washington corporation. SAFECO
Insurance Company of America owns 100% of SAFECO Management Corp., a New York
corporation, and SAFECO Surplus Lines Insurance Company, a Washington
corporation. SAFECO Life Insurance Company owns 100% of SAFECO National Life
Insurance Company, a Washington corporation, and First SAFECO National Life
Insurance Company of New York, a New York corporation. SAFECO Administrative
Services, Inc. owns 100% of Employee Benefit Claims of Wisconsin, Inc. and
Wisconsin Pension and Group Services, Inc., each a Wisconsin corporation.
General America Corporation owns 100% of COMAV Managers, Inc., an Illinois
corporation, F.B. Beattie & Co., Inc., a Washington corporation, General America
Corp. of Texas, a Texas corporation, Talbot Financial Corporation, a Washington
corporation and SAFECO Select Insurance Services, Inc., a California
corporation. F.B. Beattie & Co., Inc. owns 100% of F.B. Beattie Insurance
Services, Inc., a California corporation. General America Corp. of Texas is
Attorney-in-fact for SAFECO Lloyds Insurance Company, a Texas corporation.
Talbot Financial Corporation owns 100% of Talbot Agency, Inc., a New Mexico
corporation. Talbot Agency , Inc. owns 100% of PNMR Securities, Inc., a
Washington corporation. SAFECO Properties Inc. owns 100% of the following, each
a Washington corporation: RIA Development, Inc., SAFECARE Company, Inc. and
Winmar Company, Inc. SAFECARE Company, Inc. owns 100% of the following, each a
Washington corporation: S.C. Bellevue, Inc., S.C. Everett, Inc., S.C.
Marysville, Inc., S.C. Simi Valley, Inc. and S.C. Vancouver, Inc. SAFECARE
Company, Inc. owns 50% of Lifeguard Ventures, Inc., a California corporation.
S.C. Simi Valley, Inc. owns 100% of Simi Valley Hospital, Inc., a Washington
corporation. Winmar Company, Inc. owns 50% of C-W Properties, Inc., a Washington
corporation. Winmar Company, Inc. owns 100% of the following: Barton Street
Corp., Gem State Investors, Inc., Kitsap Mall, Inc. WNY Development, Inc.,
Winmar Cascade, Inc., Winmar Metro, Inc., Winmar Northwest, Inc., Winmar
Redmond, Inc. and Winmar of Kitsap, Inc., each a Washington corporation, and
Capitol Court Corp., a Wisconsin corporation, SAFECO Properties of Boise, Inc.,
an Idaho corporation, SCIT, Inc., a Massachusetts corporation, Valley Fair
Shopping Centers, Inc., a Delaware corporation, WDI Golf Club, Inc., a
California corporation, Winmar Oregon, Inc., an Oregon corporation, Winmar of
Texas, Inc., a Texas corporation, Winmar of Wisconsin, Inc., a Wisconsin
corporation, and Winmar of
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the Desert, Inc., a California corporation. Winmar Oregon, Inc. owns 100% of the
following, each an Oregon corporation: North Coast Management, Inc., Pacific
Surfside Corp., Winmar of Jantzen Beach, Inc. and W-P Development, Inc., and
100% of the following, each a Washington corporation: Washington Square, Inc.
and Winmar Pacific, Inc.
No person is directly or indirectly controlled by Registrant.
