SAFECO SEPARATE ACCOUNT SL, S-6EL24, 1997-06-30

SAFECO SEPARATE ACCOUNT SL
S-6EL24, 1997-06-30

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REGISTRATION NO. 33-10248

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.

POST EFFECTIVE AMENDMENT NO. 15

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

Approximate Date of Proposed Public Offering.
As soon as is practicable after Effective Date.

It is proposed that this filing will become effective (check appropriate box):

[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] on pursuant to paragraph (b) of Rule 485.
[x] 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 28, 1997.

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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2

N-8B-2 Items Caption in Prospectus
- ------------ ---------------------

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
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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INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
- ------------------------------------------------------------------------

This Prospectus describes an individual flexible premium variable life insurance
policy ("Policy"). The Policy is designed for the maximum flexibility in meeting
the insurance needs of individuals. The Policy provides death protection until
the Policy Anniversary following the Primary Insured's 95th birthday, 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, Fidelity's Variable Insurance
Products Fund III, Lexington Natural Resources Trust, Lexington Emerging Markets
Fund, Inc., SAFECO Resource Series Trust, Wanger Advisors Trust and American
Century Variable Portfolios, Inc., collectively, the "Funds." (See "The Separate
Account" on Page 6 for further information.)

Fidelity's Variable Insurance Products Fund ("VIP") is a trust comprised of five
mutual fund 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 ("VIP II") is a trust comprised
of five mutual fund 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.

Fidelity's Variable Insurance Products Fund III ("VIP III") is a trust comprised
of three mutual fund portfolios, each of which is currently available in
connection with the Policies. The three portfolios are: Growth Opportunities,
Growth & Income and Balanced.

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 six
portfolios, five of which are currently available in connection with the
Policies. The five portfolios are: Equity, Growth, Northwest, Bond and Small
Company.

Wanger Advisors Trust ("Wanger") currently consists of 2 portfolios, one of
which is currently available in connection with the Policies. The portfolio is
Wanger U.S. Small Cap.

American Century Variable Portfolios, Inc. ("ACVP") currently consists of five
portfolios, two of which are currently available in connection with the
Policies. The two portfolios are: VP International and VP Balanced.

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, FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND III, LEXINGTON
NATURAL RESOURCES TRUST, LEXINGTON EMERGING MARKETS FUND, INC., SAFECO RESOURCE
SERIES TRUST, WANGER ADVISORS TRUST, AND AMERICAN CENTURY VARIABLE PORTFOLIOS,
INC.

THE DATE OF THIS PROSPECTUS IS OCTOBER 30, 1997.
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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 34690, Seattle, Washington 98124-8991. The
Phone number is 1-800-426-7355.

ATTAINED AGE

Age of Insured 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.

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.

GUARANTEED INTEREST DIVISION

The Guaranteed Interest Division is part of SAFECO's general account and
guarantees the principal and interest rate paid.

INSURED

Primary Insured and Rider Insured(s) identified in the Policy.

INVESTMENT DIVISION

A Division of the Separate Account invested wholly in shares of one of the
portfolios of the Funds.

MATURITY DATE

The Policy Anniversary following the Primary Insured's 95th birthday. On the
Maturity Date, the Net Cash Surrender Value will be paid to the Owner.

MAXIMUM PREMIUM

The annual premium for the Face Amount of Insurance at issue that would be
payable in equal amounts through the Maturity 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%.

MONTHLY ANNIVERSARY

The same day as the Effective Date for each succeeding month.

NET CASH SURRENDER VALUE

The Net Cash Surrender Value is equal to the amount in the Owner's Policy
Account, minus any applicable surrender charge, minus any loan and loan
interest.

NET PREMIUM

The premium paid less the premium tax charge that varies by state or
subdivision.

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.

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POLICY ANNIVERSARY

The same day and month as the Effective Date for each succeeding year.

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 variable life
policies.

UNIT VALUE

The unit of measure used to determine the value of the Investment Divisions in
the Separate Account.

VALUATION DAY

A valuation day is each day that the NYSE is open for trading.

VALUATION PERIOD

The interval of time between a Valuation Day and the next Valuation Day. It is
measured from the closing of the NYSE.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY....................................................................................... 1
SAFECO........................................................................................ 5
Advertising and Performance........................................................... 5

THE SEPARATE ACCOUNT.......................................................................... 5

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
Fidelity's Variable Insurance Products Fund III Investment Objectives and Policies of
the Portfolios......................................................................... 8
Lexington Natural Resources Trust Investment Objectives and Policies of the
Portfolio.............................................................................. 9
Lexington Emerging Markets Fund Investment Objectives and Policies of the Portfolio... 9
SAFECO Resource Series Trust Investment Objectives and Policies of the Portfolios..... 9
Wanger Advisors Trust Investment Objectives and Policies of the Portfolio............. 10
American Century Variable Portfolios, Inc. Investment Objectives and Policies of the
Portfolios ............................................................................ 10
Substitution of Securities............................................................ 10

ALLOCATIONS................................................................................... 11
PREMIUMS...................................................................................... 11
The Initial Premium................................................................... 11
Subsequent Premiums................................................................... 11
Limits................................................................................ 11
Grace Period.......................................................................... 12
Reinstatement......................................................................... 12

POLICY BENEFITS AND RIGHTS.................................................................... 12
Insurance Benefits.................................................................... 12
Death Benefit......................................................................... 12
Guaranteed Death Benefit Endorsement.................................................. 13
Changing Face Amount of Insurance or Death Benefit Option............................. 13
Transfers Among Investment Options.................................................... 14
Policy Loans.......................................................................... 14
Loan Interest......................................................................... 15
Loan Repayment........................................................................ 15
Cash Withdrawal....................................................................... 15
Full Cash Surrender................................................................... 16
Other Services........................................................................ 16
Programs.......................................................................... 16
Dollar Cost Averaging Program..................................................... 16
Automatic Asset Reallocation Program.............................................. 16
SMART Distribution Program........................................................ 17

CHARGES AND DEDUCTIONS........................................................................ 17
Deductions From Premium Payments...................................................... 17
Premium Tax Charge................................................................ 17
Deductions from Policy Account........................................................ 17
First Year Administrative Charge................................................ 17
</TABLE>

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<PAGE>
<TABLE>
<S> <C>
Monthly Charges................................................................. 17
The Monthly Administrative Charge............................................. 17
The Monthly Cost of Insurance for the Primary Insured......................... 17
The Monthly Cost of Any Benefits Provided by Riders........................... 17
Deductions from Separate Account...................................................... 18
Mortality and Expense Risk Charge................................................. 18
Income Tax Charge................................................................. 18
Surrender Charges..................................................................... 18
Full Surrenders................................................................... 18
Decreases in Face Amount of Insurance............................................. 18
Fund Expenses......................................................................... 19
Fidelity's VIP, VIP II and VIP III Funds.......................................... 19
Lexington Natural Resources Trust and Lexington Emerging Markets Fund............. 19
SAFECO Resource Series Trust...................................................... 20
Wanger Advisors Trust............................................................. 20
American Century Variable Portfolios, Inc......................................... 20

VALUATION..................................................................................... 20
OTHER PROVISIONS.............................................................................. 21
Owner................................................................................. 21
Beneficiary........................................................................... 21
Changing Owner or Beneficiary......................................................... 21
Assignment............................................................................ 21

DELAY OF PAYMENTS............................................................................. 22
MANAGEMENT OF THE COMPANY..................................................................... 22
TAX STATUS.................................................................................... 23
Introduction.......................................................................... 23
Diversification....................................................................... 23
Tax Treatment of the Policy........................................................... 24
Policy Proceeds....................................................................... 24
Tax Treatment of Loans and Surrenders................................................. 24
Multiple Policies..................................................................... 25
Tax Treatment of Assignments.......................................................... 25
Qualified Plans....................................................................... 25

SEPARATE ACCOUNT VOTING RIGHTS................................................................ 26
Disregard of Voting Instructions...................................................... 26

DISTRIBUTION OF THE POLICIES.................................................................. 26
REPORTS TO POLICY OWNERS...................................................................... 27
LEGAL PROCEEDINGS............................................................................. 27
EXPERTS....................................................................................... 27
FINANCIAL STATEMENTS.......................................................................... 27

APPENDIX A -- FINANCIAL STATEMENTS............................................................ A-1

APPENDIX B -- HYPOTHETICAL ILLUSTRATIONS
Of Death Benefits, Policy Account and Net Cash Surrender Values, and Accumulated
Premiums............................................................................... B-1

APPENDIX C -- ILLUSTRATIONS
Of Variation in Death Benefit, Policy Account and Cash Surrender Values in Relation to
the Funds' Investment Experience....................................................... C-1

APPENDIX D -- STANDARD & POOR'S 500........................................................... D-1

APPENDIX E -- LONG-TERM MARKET TRENDS......................................................... E-1
</TABLE>

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( vi )
<PAGE>
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

PREMIUM PAYMENTS

- The Owner can vary amount and frequency.
/

DEDUCTIONS FROM PREMIUMS

- Premium tax that varies by state or subdivision.
/

NET PREMIUM

- The Owner directs the net premium to be invested in the Guaranteed
Interest Division (GID) or to the Separate Account which offers twenty three
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, Fidelity's Variable
Insurance Products Fund III, Lexington Natural Resources Trust, Lexington
Emerging Markets Fund, SAFECO Resource Series Trust, Wanger Advisors Trust
or American Century Variable Portfolios, Inc.
/

DEDUCTIONS FROM POLICY ACCOUNT

- Monthly charge for cost of insurance and cost of any riders.

- Monthly charge for administrative expenses of $25.00 per month the first
year, $5.00 per month thereafter.
/

DEDUCTIONS FROM SEPARATE ACCOUNT

- Daily charge, at an annual rate of 0.70% 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.
/

BENEFITS

LIVING BENEFITS:

- Policy Account values in excess of the Owner's paid premiums are available
during the first ten Policy Years through zero net interest rate Policy
loans.

- All Policy loans following the tenth Policy Anniversary are at a zero net
interest rate.

- The Policy may be surrendered at any time for its Net Cash Surrender
Value.

- Withdrawals can be made after the first Policy Anniversary (subject to
certain restrictions). The death benefit will be reduced by the amount of
the withdrawal.

- Accelerated payment of a portion of the lowest scheduled death benefit is
available under certain conditions to Insureds suffering from terminal
illnesses.

RETIREMENT PLANNING:

- Loans or withdrawals of Net 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 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 SAFECO establishes the Owner's Policy Account, 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
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 is in force with 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 13.)

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 24.

THE SEPARATE ACCOUNT

The Separate Account has been established by SAFECO pursuant to the insurance
laws of the State of Washington and is organized as a unit investment trust
under the Investment Company Act of 1940, 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 the Funds. The Owner can choose to allocate
net premiums or cash value in up to seventeen of the available twenty three
Investment Divisions at any one time.

2
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Fidelity's Variable Insurance Products Fund ("VIP") is a trust comprised of five
mutual fund 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.

Wanger Advisors Trust ("Wanger") currently consists of 2 portfolios, one of
which is currently available in connection with the Policies. The portfolio is
Wanger U.S. Small Cap.

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 30th 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.

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 $5.00 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
0.70% of the daily net asset value of the Separate Account.

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.

3
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SURRENDER CHARGES

FOR FULL SURRENDERS. A surrender charge of up to 50% 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 18.)

FOR DECREASES IN FACE AMOUNT OF INSURANCE. A portion of the Surrender Charge
will be deducted from the Policy Account for decreases in the Face Amount of
Insurance. (See "Charges and Deductions -- Surrender Charges" on Page 18.)

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 19.)

For a complete discussion of all the charges and deductions, see "Charges and
Deductions" on Page 17.

POLICY LOANS

The Owner may obtain a Policy loan, using the Policy Net Cash Surrender Value as
security. (See "Policy Benefits and Rights -- Policy Loans" on Page 14.)

TAX STATUS

MODIFIED ENDOWMENT CONTRACTS

The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) 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 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.

TAMRA further provides that multiple contracts that are issued during any
calendar year to the same Owner by one company or its affiliates are treated as
one 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

4
<PAGE>
distributed amounts from such combination of contracts. Owners should consult a
tax adviser prior to purchasing more than one modified endowment contract during
any calendar year.

For more details, see "Tax Status -- Policy Proceeds" on Page 24 and "Tax Status
- -- Tax Treatment of Loans and Surrenders" on Page 24.

SAFECO
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SAFECO Life Insurance Company 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 34690, Seattle, Washington 98124-8991. The phone number is
1-800-426-7355. All requests should be directed to the Administrative Office.
All premium payments should be directed to the address, P.O.Box 34815, Seattle,
WA 98124-1815.

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. R(2) is a
measure of correlation between the portfolio and a benchmark index, such as the
S&P 500 Index, calculated over three years. R(2) is a proportion that ranges
between 0.00 and 1.00. As R(2) decreases, so does the validity of the benchmark
comparison.

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.

5
<PAGE>
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 current income as is consistent with
and foreign issuers, such as preserving capital and providing
certificates of deposit, obligations liquidity.
of governments and their agencies and
commercial paper and notes.

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 primarily
including convertible securities; up in high- yielding, lower-rated,
to 20% in common stocks and other fixed-income securities, while also
equity securities; and up to 15% in considering growth of capital.
securities that are illiquid by virtue High-yielding lower grade corporate
of restrictions on resale and all debt securities are commonly known as
other illiquid securities. "junk bonds" and involve a significant
degree of risk. See "Securities and
Investment Practices" in the
accompanying Variable Insurance
Products Fund Prospectus.
</TABLE>

6
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP EQUITY-INCOME At least 65% in income-producing Seeks reasonable income by investing
common or preferred stock and the primarily in income-producing equity
remainder in debt securities. securities, with the potential for
capital appreciation as a
consideration.

VIP GROWTH Portfolio will normally purchase Seeks to achieve capital appreciation.
common stocks, although investments
are not 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.

Funds focused on international
investing involve additional risks
compared to funds invested in
primarily domestic securities.
International funds have increased
economic and political risks as they
are exposed to events and factors in
various world markets that are beyond
our control.
</TABLE>

FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")

<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP II INVESTMENT The Portfolio will maintain a dollar- Seeks as high a level of current
GRADE BOND weighted average portfolio maturity of income as is consistent with the
ten years or less. Under normal preservation of capital by investing
conditions, at least 65% of the in a broad range of investment-grade,
Portfolio's total assets will be fixed-income securities.
invested in investment-grade
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.

VIP II ASSET MANAGER The Portfolio allocates its assets Seeks high total return with reduced
among domestic and foreign stocks, risk over the long-term.
bonds and short-term fixed income
instruments.
</TABLE>

7
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP II INDEX 500 The Portfolio's assets will be Seeks investment results that
invested in equity securities of correspond to the total return (i.e.,
companies which compose the S&P 500*. the combination of capital changes and
income) of common stocks publicly
traded in the United States, as
represented by the Standard & Poor's
Composite Index of 500 Stocks,while
keeping transaction costs and other
expenses low.
</TABLE>

<TABLE>
<S> <C> <C>
VIP II ASSET MANAGER:
GROWTH The Portfolio's assets will be Seeks maximum total return over the
diversified across domestic and long term.
foreign 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.

VIP II CONTRAFUND The Portfolio's assets will be Seeks long-term capital appreciation.
invested mainly in undervalued or
out-of-favor equity securities of
companies and industries. This
strategy can lead to investments in
stocks of small companies which may
not be well-known.
</TABLE>

FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND III ("VIP III")

<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP III GROWTH The Portfolio's assets will be Seeks to provide capital growth
OPPORTUNITIES invested mainly in common stocks and through investing in common stocks and
securities convertible to common securities convertible into common
stocks. stocks.

VIP III GROWTH & The Portfolio's assets will be Seeks high total return through a
INCOME invested mainly in equity securities combination of current income and
of companies that pay current capital appreciation.
dividends and show potential for
growth in earnings. The fund may also
invest in debt securities and equity
securities that are not paying
dividends, but offer potential for
capital appreciation or future income.
Investments may also include preferred
stocks and investment-grade debt
securities.

VIP III BALANCED The Portfolio allocates its assets Seeks high total return through a
among stocks, fixed-income senior combination of current income and
securities and other securities. capital appreciation.
</TABLE>

* "Standard & Poor's-Registered Trademark-", "S&P-Registered Trademark-", "S&P
500-Registered Trademark-", "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>
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 through investing primarily in common
have economic value. The Portfolio stocks of companies that own or
seeks to identify securities of develop natural resources and other
companies that, in its management's basic commodities, or supply goods and
opinion, are undervalued relative to services to such companies.
the value of natural resource holdings
of such 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>

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
equity securities. For purposes of its securities and equivalents of
objective, the Portfolio considers companies domiciled in, or doing
emerging country equity securities to business in emerging countries and
be any country whose economy and emerging markets.
market 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 and
principally in common stocks or 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>

9
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
SAFECO RST SMALL The Portfolio will invest primarily in Seeks long-term growth of capital
COMPANY companies with total market through investing primarily in
capitalization of less than $1 small-sized companies.
billion.
</TABLE>

WANGER ADVISORS TRUST

<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------

<S> <C> <C>
WANGER U.S. SMALL CAP The portfolio invests primarily in Seeks long-term growth of capital.
stocks of small and medium-size U.S.
companies.
</TABLE>

AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. ("ACVP")

<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
AMERICAN CENTURY VP The fund will seek to achieve its Seeks capital growth.
INTERNATIONAL investment objective by investing
primarily in securities of foreign
companies that meet certain
fundamental and technical standards of
selection and have, in the opinion of
the investment manager, potential for
appreciation. The fund tries to stay
fully invested in such securities,
regardless of the movement of stock
prices generally.

AMERICAN CENTURY VP The fund will seek to achieve its Seeks capital growth and current
BALANCED objective by investing approximately income.
60% of its assets in growth stocks and
the remainder in fixed income
securities. With regard to the equity
portion, the fund will invest in
common stocks (including securities
convertible into common stocks and
other equity equivalents) and other
securities that meet certain
fundamental and technical standards of
selection and have, in the opinion of
the fund's investment manager,
better-than-average potential for
appreciation. The fixed income portion
of the fund will be invested in fixed
income securities, with a minimum of
25% of the fund's assets in fixed
income senior securities.
</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

10
<PAGE>
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 changed, such percentages
also apply to subsequent premium and deductions. 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. The
Owner can maintain balances in a maximum of seventeen Investment Divisions, in
addition to the Guaranteed Interest Division, at any one time.

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 SAFECO establishes the Owner's Policy
Account, 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
seventeen 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 two 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 34815, Seattle, WA
98124-1815 while the Policy is in force and before the Maturity 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 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 confirmation to the Owner
which will show the Monthly Guaranteed Death Benefit Premium. (See "Guaranteed
Death Benefit Endorsement" on Page 13.)

LIMITS

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 24.

11
<PAGE>
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 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 34815, Seattle, WA
98124-1815, 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;

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;

4. a payment or reinstatement is made of any indebtedness against the Policy
which existed at the end of the grace period; and

5. a payment is made to cover the monthly deductions for the insurance coverage
during the grace period.

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.

POLICY BENEFITS AND RIGHTS
- ------------------------------------------------------------------------

INSURANCE BENEFITS

SAFECO will pay the insurance benefits of this Policy to the beneficiary when
SAFECO receives at its Administrative Office (1) proof that the Insured died
while the Policy was in force; and (2) all other requirements deemed necessary
before such payment may be made. These insurance benefits include the following
amounts for the Primary Insured, which SAFECO will determine as of the date of
the Primary Insured's death:

1. the death benefit described below; plus

2. any other benefits then due from riders to the Policy; minus

3. any loan and loan interest on the Policy; minus

4. 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.

12
<PAGE>
Under either option, the duration of insurance coverage depends upon the amount
in the Policy Account.

The percentage referred to above is the applicable percentage from the following
table for the Primary Insured's age (last birthday) at the beginning of the
Policy Year of determination.

TABLE OF APPLICABLE PERCENTAGES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRIMARY PRIMARY
INSURED'S AGE PERCENTAGE INSURED'S AGE PERCENTAGE
- -------------- ----------- -------------- -----------
<S> <C> <C> <C>
40 and under 250% 65 120%
45 215% 70 115%
50 185% 75 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 withdrawal; 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 Coverage Description of the Policy. The Monthly Guaranteed Death Benefit
Premium may change due to other changes the Owner has requested in the Policy.

The Guaranteed Death Benefit Endorsement is not available on policies that
include an increasing premium additional term insurance rider either on the
Primary Insured or another person.

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. 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.

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 thirty day period after receiving
confirmation of 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 18.)

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

13
<PAGE>
minimum amount for which SAFECO would then issue the Policy under its then
existing administrative rules. If the change is from Option B to Option A,
the Face Amount of Insurance will be increased by the amount in the Policy
Account on the date of change. Such decreases and increases in the Face
Amount of Insurance are made so that the death benefit remains the same on
the date of change. There is no charge for this change.

Any changes will take effect at the beginning of the Policy Month that coincides
with or next follows the date SAFECO approves the request. SAFECO has reserved
the right to decline to make any change that is determined would cause the
Policy to fail to qualify as life insurance under applicable tax law as
interpreted by SAFECO. An Owner may ask for a change by completing an
application for change and sending it to the Administrative Office.

TRANSFERS AMONG INVESTMENT OPTIONS

At the request of the Owner, SAFECO will transfer amounts from the Owner's value
in any Investment Division to one or more other Investment Divisions or to the
Guaranteed Interest Division (GID). This transfer will take effect on the date
SAFECO receives the request in its Administrative Office. The Owner can maintain
balances in a maximum of seventeen Investment Divisions at any one time.

All such requests must be in writing (or by telephone request, if authorized) to
the Administrative Office.

At the request of the Owner, SAFECO will transfer an amount from the Owner's
unloaned value in the GID to one or more Investment Divisions. In no event will
SAFECO transfer more than such unloaned value. The Owner's unloaned value in the
GID is equal to:

1. the Owner's Policy assets in the GID; minus

2. any loan and loan interest.

However, SAFECO has the right to exercise any of the following limitations when
the Owner requests a transfer from the unloaned value in the GID: (1) postpone
the transfer for 30 days from the date SAFECO receives the Owner's request; (2)
reduce the amount of transfer so it does not exceed 25% of the Owner's unloaned
value in the GID; and (3) limit the total number of transfers to one per Policy
Year with the transfer being effective on the Policy Anniversary following the
date SAFECO receives the Owner's request.

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. Any amount on loan is part of the Policy
Account. The loan value on any date is 90% of the Net 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.

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 portion of the Guaranteed Interest Division.

For the first 10 Policy Years, the loan interest rate will be 2 percent greater
than the rate credited to that part of the GID that is security for the loan.
However, the loan interest rate charged on Preferred Loans, as defined below,
and on any new or existing loans after the 10th Policy Anniversary will be equal
to the rate credited to that part of the GID that is security for the loan.

14
<PAGE>
During the first 10 Policy Years, the amount available as a Preferred Loan is:

1. the amount in the Policy Account; minus

2. the sum of premiums paid; plus

3. withdrawals.

On each of the first 9 Policy Anniversaries, loans will be reallocated as
Preferred or nonpreferred in accordance with the preceding formula.

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 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 will be deducted from the Investment Divisions and the
unloaned value in the Guaranteed Interest Division on the basis of the deduction
allocation percentages then in effect. If the deduction cannot be made on the
basis of these 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. 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. Repayments will be allocated among the
Guaranteed Interest Division and the Investment Divisions on the basis of the
premium allocation percentages then in effect. This does not apply to automatic
bank withdrawal payments, as they will always be considered premium.

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 Anniversary, in which case the grace period provision would
apply. (See "Premiums-Grace Period" on Page 12.)

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.

CASH WITHDRAWAL

After the first Policy Year, an Owner may ask for a withdrawal of the Net Cash
Surrender Value. A withdrawal will result in reductions in the death benefit,
the Net Cash Surrender Value and the Policy Account.

15
<PAGE>
Any request for a withdrawal must be in writing to the Administrative Office.
The Owner may inform SAFECO of the amount of each 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 withdrawal will be made on the basis of the monthly allocation
percentages then in effect. If SAFECO cannot make the withdrawal on the basis of
the direction of the Owner or those percentages, the 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.

SAFECO reserves the right to decline a request for a 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 withdrawal would cause the
Policy to fail to qualify as life insurance under applicable tax law.

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 18.)

OTHER SERVICES

THE PROGRAMS. SAFECO offers several investment related programs: Dollar Cost
Averaging; Automatic Asset Rebalancing; and SMART Systematic Method to Access
Revenue Tax-preferred Distribution. The Dollar Cost Averaging Program may be
combined with the Automatic Asset Rebalancing Program. Each of the programs has
its own requirements, as discussed below.

DOLLAR COST AVERAGING PROGRAM. Dollar Cost Averaging is a method of systematic
investing designed to achieve a lower average cost per unit over time. It does
not assure a profit nor protect against a loss in value in a declining market.
For the method to be effective, investing should continue in both market ups and
downs. Also, financial ability to maintain a consistent level of investment
should be considered.

To initiate a Dollar Cost Averaging Program, an Owner designates the source
division from which the funds will be automatically transferred, the target
divisions to which the funds will be transferred, and the corresponding
percentages or amounts to be transferred. (See "Transfers Among Investment
Options" on Page 14.) The source division can be any one of the Investment
Divisions and/or the Guaranteed Interest Division. The target divisions can be
any one or a combination of Investment Divisions and/or the Guaranteed Interest
Division. The Owner elects the transfers to occur on a monthly, quarterly,
semiannual or annual basis. The initial transfer will occur on the first Monthly
Anniversary following the date SAFECO receives the request. Subsequent transfers
will occur on the Monthly Anniversary corresponding to the interval selected.

The amount to be transferred must be stated as a set dollar amount of the
Owner's value in the source division. The amounts to be received by the target
divisions may be specified as set dollar amounts or percentages.

An Owner may enroll in this program at the time the contract is issued or
anytime thereafter by completing the Dollar Cost Averaging enrollment form and
returning it to the Administrative Office or by contacting the Administrative
Office by telephone.

By completing a new enrollment form and returning it to the Administrative
Office, or by telephoning the Administrative office, an Owner may change the
amount to be transferred from the source division, or the amount or percentage
to be received by the target divisions. Dollar Cost Averaging terminates once
all funds are depleted from the source division.

AUTOMATIC ASSET REBALANCING PROGRAM. Automatic Asset Rebalancing is a
disciplined approach to maintaining a selected investment mix over a long term
by transferring amounts between divisions. (See "Transfers Among Investment
Options" on Page 14.)

To initiate an Automatic Asset Rebalancing Program, an Owner designates which
Investment Divisions and/or Guaranteed Interest Division will participate in
rebalancing and the corresponding rebalancing percentages. The Owner elects the
rebalancing to occur on a monthly, quarterly, semiannual or annual basis. The
initial rebalancing will occur on the Monthly Anniversary following the date
SAFECO receives the request. Subsequent rebalancing will occur on the Monthly
Anniversary corresponding to the interval selected.

16
<PAGE>
The Program may be terminated at any time and the percentages may be changed by
written notice or telephone authorization. The requested change must be received
at the Administrative Office.

SMART DISTRIBUTION PROGRAM. SAFECO offers a program that automatically provides
a level stream of income over a prearranged period of time. Following the second
Policy Year, SAFECO will make monthly, quarterly, semi-annual or annual
distributions of a predetermined dollar amount to an Owner that has enrolled in
the SMART Distribution Program. The distributions will occur on the Monthly
Anniversary corresponding to the interval selected. The Owner elects the
divisions from which the distributions are to be made and specifies the uniform
distributions amounts.

The Owner may elect the distributions to be all withdrawals, all loans, or a
combination of withdrawals and then loans. Distributions will follow the normal
withdrawal and loan processing requirements. (See "Cash Withdrawal" on Page 15
and "Policy Loans" on Page 14.) The distributions will be completed by
electronic funds transfer (EFT).

The distributions will be calculated to maintain the insurance coverage in force
to maturity using an average annual total return determined by the Owner.

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. SAFECO deducts the
applicable tax which it has been charged from each premium payment based on the
Owner's residence.

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 $5.00 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 is based
on issue age, coverage duration and rating class of the Primary Insured and
a preferred underwriting category is available to Insureds who are
determined to have better than average nonsmoker mortality (preferred
nonsmoker) and smoker mortality (preferred smoker). As of the date hereof,
the current rates which SAFECO is charging are less than or equal to the
guaranteed rates. SAFECO may change the current rate no more frequently than
once per Policy Year. The Guaranteed Maximum Insurance Cost Rates for
standard risks are based on the 1980 Commissioner's Standard Ordinary
Mortality Table, Age Last Birthday.

3. The monthly cost of any benefits provided by riders to the Policy.

17
<PAGE>
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 20). This risk charge is equal on an annual basis to .70% of the daily
net asset value of the Separate Account. 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.
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.

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:
50% for Policy Years 1 through 6, 40% for Policy Year 7, 30% for Policy Year 8,
20% for Policy Year 9, and 10% for Policy Year 10; or (2) an amount equal to (A)
minus (B), where (A) is 30% of the premium payments received during the first
Policy Year up to the Maximum Premium for the Policy, plus 9% 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 11.) While an Owner can minimize the amount of
Surrender Charge by limiting the amount of premium paid in the first year, this
would adversely effect contract performance in every aspect other than the
contemplation of a total cash surrender.

EXAMPLE
- --------------------------------------------------------------------------------

Assume a $100,000 Policy for a male preferred non-smoker, age 45. For this
Policy the Maximum Premium is $1,716.00. The Table of Surrender Charges that
appears in the Coverage Description would be determined as follows:

TABLE OF SURRENDER CHARGES

<TABLE>
<CAPTION>
POLICY MAXIMUM MAXIMUM SURRENDER
YEAR PERCENTAGE PREMIUM CHARGE
- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1 50.0% x $ 1,716 = $ 858
2 50.0% x $ 1,716 = $ 858
3 50.0% x $ 1,716 = $ 858
4 50.0% x $ 1,716 = $ 858
5 50.0% x $ 1,716 = $ 858
6 50.0% x $ 1,716 = $ 858
7 40.0% x $ 1,716 = $ 686
8 30.0% x $ 1,716 = $ 515
9 20.0% x $ 1,716 = $ 343
10 10.0% x $ 1,716 = $ 172
</TABLE>

The Surrender Charges reimburse SAFECO in part for expenses incurred in the
distribution of the Policy.

DECREASES IN FACE AMOUNT OF INSURANCE. 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 increased
the Face Amount in the past and is now applying for a decrease, the decrease
will be taken

18
<PAGE>
against the coverage increases first, starting with the most recent increase. If
a surrender charge applies at the time of the decrease, SAFECO will deduct a
surrender charge from the Policy Account. The maximum Surrender Charge payable
in the future will be reduced proportionately.

FUND EXPENSES

FIDELITY'S VIP FUND, VIP II FUND AND VIP III FUND

<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER AFTER
FEES EXPENSES REIMBURSEMENT
----------------- ------------- -------------------
<S> <C> <C> <C>
VIP Money Market 0.21 0.09% 0.30%
VIP High Income 0.59 0.12% 0.71%
VIP Equity-Income 0.51 0.07% 0.58%(1)
VIP Growth 0.61 0.08% 0.69%(1)
VIP Overseas 0.76 0.17% 0.93%(1)
VIP II Investment Grade Bond 0.45 0.13% 0.58%
VIP II Asset Manager 0.64 0.10% 0.74%(1)
VIP II Index 500 0.13 0.15% 0.28%(2)
VIP II Contrafund 0.61 0.13% 0.74%(1)
VIP II Asset Manager: Growth 0.65 0.22% 0.87%(1)
VIP III Balanced 0.48 0.24% 0.72%(1)
VIP III Growth Opportunities 0.61 0.16% 0.77%(1)
VIP III Growth & Income 0.50 0.20% 0.70%
</TABLE>

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.

(1)A portion of the brokerage commission that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented
in the table would have been .56% for Equity Income Portfolio, .67% for
Growth Portfolio, .92% for Overseas Portfolio, .73% for Asset Manager
Portfolio, .71% for Contrafund Portfolio, .85% for Asset Manager: Growth
Portfolio, .76% for Growth Opportunities Portfolio, and .71% for Balanced
Portfolio.

(2)FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the fund's management fee, other
expenses and total expenses would have been .28%, .15% and .43% respectively.

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.

19
<PAGE>
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.

<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER AFTER
FEES EXPENSES REIMBURSEMENT
----------------- ------------- -------------------
<S> <C> <C> <C>
Lexington Natural Resources Trust 1.00% 0.42% 1.42%
Lexington Emerging Markets Fund 0.85% 0.79% 1.64%
</TABLE>

SAFECO RESOURCE SERIES TRUST*

<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER AFTER
FEES EXPENSES REIMBURSEMENT
----------------- ------------- -------------------
<S> <C> <C> <C>
SAFECO RST Equity Portfolio 0.70% 0.02% 0.72%
SAFECO RST Growth Portfolio 0.72% 0.07% 0.79%
SAFECO RST Northwest Portfolio 0.70% 0.00%** 0.70%
SAFECO RST Bond Portfolio 0.73% 0.00%** 0.73%
SAFECO RST Small Company Portfolio 0.85% 0.10%*** 0.95%
</TABLE>

* As a percentage of average net assets.

** SAFECO pays all Other Expenses of the Northwest and Bond Portfolios until
the portfolio's assets reach $20 million. Once a portfolio's assets exceed
$20 million, the Other Expenses of the portfolio will be paid by such
portfolio.

During the year ended December 31, 1996, SAFECO paid for or reimbursed 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 Northwest Portfolio 1.11%
SAFECO RST Bond Portfolio 0.87%
</TABLE>

*** The amounts shown for the Small Company Portfolio are estimated expenses
based on the maximum management fee and estimated Other Expenses. SAFECO
Asset Management Company (SAM) will pay all Other Expenses of the Small
Company Portfolio in excess of .10% of the portfolio's average annual net
assets until such time as the portfolio's net assets exceed $20 million.
Once the portfolio's net assets exceed $20 million, all of the Other
Expenses will be paid by the portfolio. For the fiscal year ending December
31, 1997, the estimated Other Expenses for the Small Company Portfolio are
expected to total .35%.

WANGER ADVISORS TRUST:

<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
----------------- ------------- -------------------
<S> <C> <C> <C>
Wanger U.S. Small Cap 0.99% 0.22% 1.21%
</TABLE>

As required by the SEC rules, "Other Expenses" reflects gross custodian fees.
Net of custodian fees paid indirectly, Other Expenses would have been 0.20% and
Total Expenses would have been 1.19%.

AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:

<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
----------------- ------------- -------------------
<S> <C> <C> <C>
American Century VP International 1.50% 0.00% 1.50%
American Century VP Balanced 1.00% 0.00% 1.00%
</TABLE>

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,

20
<PAGE>
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.

The Division Unit Value in the current Valuation Period is equal to (1)
multiplied by (2) where:

(1) is the Division Unit Value for the preceding Valuation Period; and

(2) is the net investment factor for the Investment Division for the current
Valuation Period.

The net investment factor for an Investment Division for a Valuation Period is
(a) divided by (b), minus (c), where:

(a) is the net asset value of the shares owned by that Investment Division
before any Policy transactions are made plus the per share amount of any
dividend or capital gain distribution paid by the investment companies at
the end of the current Valuation Period;

(b) is the net asset value of the shares owned by that Investment Division after
all Policy transactions were made at the end of the immediately preceding
Valuation Period;

(c) is a charge not exceeding .70% per year for mortality and expense risks,
plus any charge for taxes or amounts set aside as a reserve for taxes, for
the current Valuation Period.

The net asset value of an investment company's shares held in each Investment
Division shall be the value reported to SAFECO by that investment company.

OTHER PROVISIONS
- ------------------------------------------------------------------------

OWNER

If the Primary Insured is living on the Maturity Date, the Owner will receive
the amount in the Policy Account on that date minus any outstanding loan and
loan interest. The Policy will then end.

The Owner is entitled to exercise all the rights of the Policy while the Primary
Insured is living. To exercise a right the Owner does not need the consent of
anyone who has only a conditional or future ownership interest in the Policy.

BENEFICIARY

If two or more persons are named as Beneficiary, those who survive the Insured
will share the insurance benefits equally, unless other arrangements have been
made. If there is no designated Beneficiary living at the death of the Insured,
the benefits will be paid to the Owner or Owner's estate.

If any Beneficiary dies within 60 days after the Insured, and before payment of
any proceeds, payment will be made as though the Beneficiary had died before the
Insured. The Beneficiary designation may include provisions that replace the
ones described here.

CHANGING OWNER OR BENEFICIARY

While the Insured is living, the Owner or Beneficiary may be changed by
providing written notice from the Policy Owner to the Administrative Office.
Such a change will be effective when written notice is received and recorded and
will control payment of proceeds made after that time.

ASSIGNMENT

The Policy may be assigned, but SAFECO will not be bound by an assignment unless
it has received such assignment in writing at its Administrative Office. 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.

21
<PAGE>
DELAY OF PAYMENTS
- ------------------------------------------------------------------------

SAFECO will generally pay Policy proceeds within seven business days of receipt
of a completed request for such payment. However, SAFECO reserves the right to
postpone surrender payments and loans from the Guaranteed Interest Division for
up to six months. SAFECO reserves the right to postpone any type of payment from
the Separate Account for any period when:

1. the New York Stock Exchange is closed other than customary weekend and
holiday closings;

2. trading on the Exchange is restricted;

3. an emergency exists as a result of which it is not reasonably practicable to
dispose of securities held in the Separate Account or determine their value;
or

4. the Securities and Exchange Commission so permits delay for the protection
of security holders.

The applicable rules of the Securities and Exchange Commission shall govern as
to whether the conditions in 2 and 3 exist.

MANAGEMENT OF THE COMPANY
- ------------------------------------------------------------------------

The following are the Officers and Directors of SAFECO:

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
John P. Fenlason Senior Vice President
James T. Flynn Vice President, Controller and Assistant Secretary
Patrick B. McCormick 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, McCormick, 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.

22
<PAGE>
TAX STATUS
- ------------------------------------------------------------------------

NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON SAFECO'S UNDERSTANDING OF CURRENT
FEDERAL INCOME TAX LAW APPLICABLE TO LIFE INSURANCE IN GENERAL. SAFECO CANNOT
PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE. PURCHASERS
ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY OF SUCH
CHANGES. SECTION 7702 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), DEFINES THE TERM "LIFE INSURANCE CONTRACT" FOR PURPOSES OF THE CODE.
SAFECO BELIEVES THAT THE POLICIES TO BE ISSUED WILL QUALIFY AS "LIFE INSURANCE
CONTRACTS" UNDER SECTION 7702. SAFECO DOES NOT GUARANTEE THE TAX STATUS OF THE
POLICIES. PURCHASERS BEAR THE COMPLETE RISK THAT THE POLICIES MAY NOT BE TREATED
AS "LIFE INSURANCE" UNDER FEDERAL INCOME TAX LAWS. PURCHASERS SHOULD CONSULT
THEIR OWN TAX ADVISERS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING
DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED IN THIS
PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.

INTRODUCTION

The discussion contained herein is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any applicable state or other tax laws. Moreover, the
discussion herein is based upon SAFECO's understanding of current federal income
tax laws as they are currently interpreted. No representation is made regarding
the likelihood of continuation of those current federal income tax laws or of
the current interpretations by the Internal Revenue Service.

SAFECO is taxed as a life insurance company under the Code. For federal income
tax purposes, the Separate Account is not a separate entity from SAFECO and its
operations form a part of SAFECO.

DIVERSIFICATION

Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable life insurance policies. The Code provides that a
variable life insurance policy will not be treated as life insurance for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the Policy
as a life insurance contract would result in imposition of federal income tax on
the Owner with respect to earnings allocable to the Policy prior to the receipt
of payments under the Policy. The Code contains a safe harbor provision which
provides that life insurance policies such as the Policies meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five (55%) percent of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies. There is an exception for securities issued by the U.S. Treasury in
connection with variable life insurance policies.

On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
Section 1.817-5), which establish diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the 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 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 & Research Company, Lexington Management
Corporation, SAFECO Asset Management Company, Wanger Asset Management, L.P. and
American Century Investment Management, Inc. in such a manner as to comply with
these diversification requirements.

23
<PAGE>
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.

The amount of Owner control which may be exercised under the Policy is different
in some respects from the situations addressed in published rulings issued by
the Internal Revenue Service in which it was held that the Policy Owner was not
the owner of the assets of the separate account. It is unknown whether these
differences, such as the Owner's ability to transfer among investment choices or
the number and type of investment choices available, would cause the Owner to be
considered as the owner of the assets of the Separate Account.

In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owner being
retroactively determined to be the owner of the assets of the Separate Account.

Due to the uncertainty in this area, SAFECO reserves the right to modify the
Policy in an attempt to maintain favorable tax treatment.

TAX TREATMENT OF THE POLICY

The Policy has been designed to comply with the definition of life insurance
contained in Section 7702 of the Code. Although some interim guidance has been
provided and proposed regulations have been issued, final regulations have not
been adopted. Section 7702 of the Code requires the use of reasonable mortality
and other expense charges. In establishing these charges, SAFECO has relied on
the interim guidance provided in IRS Notice 88-128 and proposed regulations
issued on July 5, 1991. Currently, there is even less guidance as to a Policy
issued on a substandard risk basis and thus it is even less clear whether a
Policy issued on such basis would meet the requirements of Section 7702 of the
Code.

While SAFECO has attempted to comply with Section 7702, the law in this area is
very complex and unclear. There is a risk, therefore, that the Internal Revenue
Service will not concur with SAFECO's interpretations of Section 7702 that were
made in determining such compliance. In the event the Policy is determined not
to so comply, it would not qualify for the favorable tax treatment usually
accorded 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 24.)
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 Net 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

24
<PAGE>
the first seven Policy years; or (2) the crediting of interest or other earnings
(including policyholder dividends) with respect to such premiums.

Furthermore, any Policy received in exchange for a Policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. The status of an exchange of a
contract issued before June 21, 1988 is unclear; however, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988 will be considered as entered
into as of the date of the exchange and therefore subject to Section 7702A.

Due to the flexible premium nature of the Policy, the determination of whether
it qualifies for treatment as a modified endowment contract depends on the
individual circumstances of each Policy.

If the Policy is classified as a modified endowment contract, then surrenders
and/or loan proceeds are taxable to the extent of income in the Policy. Such
distributions are deemed to be on a last-in, first-out basis, which means the
taxable income is distributed first. Loan proceeds and/or surrender payments may
also be subject to an additional 10% federal income tax penalty applied to the
income portion of such distribution. The penalty shall not apply, however, to
any distributions: (1) made on or after the date on which the taxpayer reaches
age 59 1/2; (2) which is attributable to the taxpayer becoming disabled (within
the meaning of Section 72(m)(7) of the Code); or (3) which is part of a series
of substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of such taxpayer and his beneficiary.

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 contracts that are issued within a calendar
year period to the same owner by one company or its affiliates are treated as
one 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.

25
<PAGE>
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.

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.

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 2%
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.

26
<PAGE>
REPORTS TO POLICY OWNERS
- ------------------------------------------------------------------------

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 Net 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, to the extent indicated in their reports thereon appearing
elsewhere herein and in the Registration Statement. Such financial statements
have been included herein in reliance on their reports given on 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.

27
<PAGE>
SEPARATE ACCOUNT SL
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 1996

A-1
<PAGE>
SEPARATE ACCOUNT SL

DECEMBER 31, 1996

TABLE OF CONTENTS

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

A-2
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Board of Directors of SAFECO Life Insurance Company and
Unitholders of SAFECO Life Separate Account SL

We have audited the accompanying statement of assets and liabilities of the
Investment Divisions of SAFECO Life Separate Account SL (comprising,
respectively, the Fidelity VIP Growth, Fidelity VIP Money Market, Fidelity VIP
Equity Income, Fidelity VIP Overseas, Fidelity VIP High Income, Fidelity VIP II
Investment Grade Bond, Fidelity VIP II Asset Manager, Fidelity VIP II Index 500,
Fidelity VIP II Contrafund, Fidelity VIP II Asset Manager: Growth, SAFECO RST
Equity, SAFECO RST Growth, SAFECO RST Northwest, SAFECO RST Bond, Lexington
Natural Resources, and Lexington Emerging Markets Divisions) as of December 31,
1996, and the related statements of operations and changes in net assets, and
the unit values for each of the periods indicated therein. These financial
statements and unit values are the responsibility of SAFECO Life Separate
Account SL's management. Our responsibility is to express an opinion on these
financial statements and unit values based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and unit values are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
the unit values. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with Fidelity Management and Research
Company, SAFECO Resource Series Trust, Lexington Natural Resources Trust, and
Lexington Emerging Markets Fund, Inc. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and unit values referred to above
present fairly, in all material respects, the financial position of each of the
respective Investment Divisions of SAFECO Life Separate Account SL as listed
above at December 31, 1996, the results of their operations, the changes in
their net assets, and their unit values for each of the periods indicated
therein, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Seattle, Washington
January 31, 1997

A-3
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1996

<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY VIP VIP FIDELITY
VIP MONEY EQUITY VIP
GROWTH MARKET INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
Variable Insurance Products Fund ("VIP")
Cost:
Growth Portfolio - $12,041,755 $13,828,604
Money Market Portfolio - 1,947,891 $ 1,947,891
Equity Income Portfolio - 5,878,562 $ 6,905,843
Overseas Portfolio - 3,756,282 $ 4,224,947

Due (To) From SAFECO LIFE....................... (15,850) 432 (668) (386)
----------- ----------- ----------- -----------

Net Assets...................................... $13,812,754 $ 1,948,323 $ 6,905,175 $ 4,224,561
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Units Outstanding............................... 65,318.146 16,323.151 29,568.961 28,044.526
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Unit Value and Redemption Price Per Unit........ $ 211.469 $ 119.360 $ 233.528 $ 150.638
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

See Notes to Financial Statements

A-4
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

DECEMBER 31, 1996

<TABLE>
<CAPTION>
FIDELITY FIDELITY VIP FIDELITY VIP
VIP II II FIDELITY VIP
HIGH INVESTMENT ASSET II
INCOME GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION DIVISION
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
Variable Insurance Products Fund ("VIP")
Cost:
High Income Portfolio - $1,365,314 $ 1,445,332
Variable Insurance Products Fund ("VIP II")
Cost:
Investment Grade Bond Portfolio - 692,913 $ 717,688
Asset Manager Portfolio - 6,971,437 $ 8,084,845
Index 500 Portfolio - 2,741,349 $ 3,131,806

Due (To) From SAFECO LIFE.................. (160) 1,834 (1,700) (346)
----------- ------------- ------------- -------------

Net Assets................................. $ 1,445,172 $ 719,522 $ 8,083,145 $ 3,131,460
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------

Units Outstanding.......................... 10,146.110 5,462.481 47,774.983 17,980.394
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------

Unit Value and Redemption Price Per Unit... $ 142.436 $ 131.721 $ 169.192 $ 174.160
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>

See Notes to Financial Statements

A-4a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

DECEMBER 31, 1996

<TABLE>
<CAPTION>
FIDELITY VIP
II
FIDELITY VIP ASSET SAFECO SAFECO
II MANAGER: RST RST
CONTRAFUND GROWTH EQUITY GROWTH
DIVISION DIVISION DIVISION DIVISION
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
Variable Insurance Products Fund II ("VIP
II")
Cost:
Contrafund Portfolio - $2,804,794 $ 3,193,743
Asset Manager:
Growth Portfolio - 768,244 $ 809,009
SAFECO Resource Series Trust ("RST")
Cost:
Equity Portfolio - 332,030 $ 320,208
Growth Portfolio - 1,391,837 $ 1,415,833

Due (To) From SAFECO LIFE................... (152) (129) (5) 6,489
------------- ------------- ----------- -----------

Net Assets.................................. $ 3,193,591 $ 808,880 $ 320,203 $ 1,422,322
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------

Units Outstanding........................... 22,242.421 5,894.118 2,718.335 12,343.273
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------

Unit Value and Redemption Price Per Unit.... $ 143.581 $ 137.235 $ 117.794 $ 115.231
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>

See Notes to Financial Statements

A-4b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

DECEMBER 31, 1996

<TABLE>
<CAPTION>
SAFECO SAFECO LEXINGTON LEXINGTON
RST RST NATURAL EMERGING
NORTHWEST BOND RESOURCES MARKETS
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
SAFECO Resource Series Trust ("RST")
Cost:
Northwest Portfolio - $ 9,069 $ 9,216
Bond Portfolio - 8,391 $ 8,038
Lexington Natural Resources Trust
Cost:
Natural Resources Portfolio - 624,550 $ 683,427
Lexington Emerging Markets Fund, Inc.
Cost:
Emerging Markets Portfolio - 516,116 $ 512,750

Due (To) From SAFECO LIFE....................... (400) 0 (14) 0
----------- ----------- ----------- -----------

Net Assets...................................... $ 8,816 $ 8,038 $ 683,413 $ 512,750
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Units Outstanding............................... 88.842 79.865 5,936.067 5,424.580
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Unit Value and Redemption Price Per Unit........ $ 99.237 $ 100.648 $ 115.129 $ 94.523
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

See Notes to Financial Statements

A-4c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
FIDELITY FIDELITY
FIDELITY VIP VIP FIDELITY
VIP MONEY EQUITY VIP
GROWTH MARKET INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):

Dividends....................................... $ 652,496 $ 106,904 $ 220,067 $ 73,902

Expenses (Note 3):
Mortality and Expense Risk Charge............. (106,992) (18,880) (52,471) (33,173)
----------- ----------- ----------- -----------

Net Investment Income (Loss).................... 545,504 88,024 167,596 40,729
----------- ----------- ----------- -----------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:

Net Realized Gain (Loss) on Investments......... 666,095 0 261,564 84,017

Net Change in Unrealized Appreciation
(Depreciation) of Investments................. 189,972 0 308,534 292,888
----------- ----------- ----------- -----------

Net Realized and Unrealized Gain (Loss) on
Investments................................... 856,067 0 570,098 376,905
----------- ----------- ----------- -----------

NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $1,401,571 $ 88,024 $ 737,694 $ 417,634
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

See Notes to Financial Statements

A-5
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
FIDELITY FIDELITY VIP FIDELITY VIP
VIP II II FIDELITY VIP
HIGH INVESTMENT ASSET II
INCOME GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION DIVISION
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):

Dividends.................................. $ 62,691 $ 50,447 $ 440,128 $ 54,385

Expenses (Note 3):
Mortality and Expense Risk Charge........ (9,849) (7,083) (66,690) (17,435)
----------- ------------- ------------- -------------

Net Investment Income (Loss)............... 52,842 43,364 373,438 36,950
----------- ------------- ------------- -------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:

Net Realized Gain (Loss) on Investments.... 14,163 7,591 67,740 68,068

Net Change in Unrealized Appreciation
(Depreciation) of Investments............ 61,598 (36,058) 502,688 290,744
----------- ------------- ------------- -------------

Net Realized and Unrealized Gain (Loss) on
Investments.............................. 75,761 (28,467) 570,428 358,812
----------- ------------- ------------- -------------

NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $ 128,603 $ 14,897 $ 943,866 $ 395,762
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>

See Notes to Financial Statements

A-5a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
FIDELITY VIP
II
FIDELITY VIP ASSET SAFECO SAFECO
II MANAGER: RST RST
CONTRAFUND GROWTH EQUITY GROWTH
DIVISION DIVISION DIVISION* DIVISION*
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):

Dividends.................................... $ 11,263 $ 41,438 $ 30,039 $ 115,216

Expenses (Note 3):
Mortality and Expense Risk Charge.......... (18,320) (4,651) (675) (3,614)
------------- ------------- ----------- -----------

Net Investment Income (Loss)................. (7,057) 36,787 29,364 111,602
------------- ------------- ----------- -----------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:

Net Realized Gain (Loss) on Investments...... 36,577 12,549 2,283 (3,530)

Net Change in Unrealized Appreciation
(Depreciation) of Investments.............. 383,171 43,534 (11,822) 23,996
------------- ------------- ----------- -----------

Net Realized and Unrealized Gain (Loss) on
Investments................................ 419,748 56,083 (9,539) 20,466
------------- ------------- ----------- -----------

NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 412,691 $ 92,870 $ 19,825 $ 132,068
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>

- ------------

* For the period from April 30, 1996 (date of inception) through December 31,
1996.

See Notes to Financial Statements

A-5b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL

STATEMENT OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
SAFECO SAFECO LEXINGTON LEXINGTON
RST RST NATURAL EMERGING
NORTHWEST BOND RESOURCES MARKETS
DIVISION* DIVISION* DIVISION* DIVISION*
----------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):

Dividends.................................... $ 60 $ 439 $ 2,151 $ 0

Expenses (Note 3):
Mortality and Expense Risk Charge.......... (18) (17) (1,331) (1,451)
----- ------ ----------- -------------

Net Investment Income (Loss)................. 42 422 820 (1,451)
----- ------ ----------- -------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:

Net Realized Gain (Loss) on Investments...... (13) 0 5,839 (3,540)

Net Change in Unrealized Appreciation
(Depreciation) of Investments.............. 147 (353) 58,877 (3,366)
----- ------ ----------- -------------

Net Realized and Unrealized Gain (Loss) on
Investments................................ 134 (353) 64,716 (6,906)
----- ------ ----------- -------------

NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 176 $ 69 $ 65,536 $ (8,357)
----- ------ ----------- -------------
----- ------ ----------- -------------
</TABLE>

- ------------

* For the period from April 30, 1996 (date of inception) through December 31,
1996.

See Notes to Financial Statements

A-5c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
GROWTH DIVISION MONEY MARKET DIVISION
------------------------ ------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------

<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)..................... $ 545,504 $ (36,557) $ 88,024 $ 63,118

Net Realized Gain (Loss) on Investments.......... 666,095 188,204 0 0

Net Change in Unrealized Appreciation
(Depreciation) of Investments.................. 189,972 1,533,152 0 0
----------- ----------- ----------- -----------

Net Change in Net Assets from Operations......... 1,401,571 1,684,799 88,024 63,118

CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums................... 4,124,943 2,788,510 3,446,186 2,556,160
Transfers out for Policy Related Transactions.... (1,568,735) (1,047,233) (130,228) (262,728)
Transfers between Separate Account SL's Divisions
and (to) from Guaranteed Interest Division,
Net............................................ 1,043,497 1,455,022 (2,712,658) (3,011,769)
Gain (Loss) Attributable to SAFECO Life.......... (3,620) (1,542) (10,424) 1,967
----------- ----------- ----------- -----------

Net Change in Net Assets from Policy
Transactions................................... 3,596,085 3,194,757 592,876 (716,370)
----------- ----------- ----------- -----------

Net Change in Net Assets......................... 4,997,656 4,879,556 680,900 (653,252)

Net Assets, Beginning of Period.................. 8,815,098 3,935,542 1,267,423 1,920,675
----------- ----------- ----------- -----------

Net Assets, End of Period........................ $13,812,754 $ 8,815,098 $ 1,948,323 $ 1,267,423
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

See Notes to Financial Statements

A-6
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY INCOME DIVISION OVERSEAS DIVISION
---------------------- ----------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------

<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)........................ $ 167,596 $ 155,355 $ 40,729 $ (6,143)

Net Realized Gain (Loss) on Investments............. 261,564 40,434 84,017 20,370

Net Change in Unrealized Appreciation (Depreciation)
of Investments.................................... 308,534 707,446 292,888 204,791
---------- ---------- ---------- ----------

Net Change in Net Assets from Operations............ 737,694 903,235 417,634 219,018

CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums...................... 2,357,488 1,581,131 1,166,002 1,213,891
Transfers out for Policy Related Transactions....... (902,544) (503,402) (538,631) (334,256)
Transfers between Separate Account SL's Divisions
and (to) from Guaranteed Interest Division, Net... 20,519 813,922 269,996 (217,295)
Gain (Loss) Attributable to SAFECO Life............. (1,691) (278) (673) (570)
---------- ---------- ---------- ----------

Net Change in Net Assets from Policy Transactions... 1,473,772 1,891,373 896,694 661,770
---------- ---------- ---------- ----------

Net Change in Net Assets............................ 2,211,466 2,794,608 1,314,328 880,788

Net Assets, Beginning of Period..................... 4,693,709 1,899,101 2,910,233 2,029,445
---------- ---------- ---------- ----------

Net Assets, End of Period........................... $6,905,175 $4,693,709 $4,224,561 $2,910,233
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

See Notes to Financial Statements

A-6a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP INVESTMENT GRADE
HIGH INCOME DIVISION BOND DIVISION
--------------------- --------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
--------------------- --------------------
1996 1995 1996 1995
---------- --------- --------- ---------

<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)............................ $ 52,842 $ 17,317 $ 43,364 $ 19,947

Net Realized Gain (Loss) on Investments................. 14,163 59,151 7,591 21,080

Net Change in Unrealized Appreciation (Depreciation) of
Investments........................................... 61,598 19,704 (36,058) 76,923
---------- --------- --------- ---------

Net Change in Net Assets from Operations................ 128,603 96,172 14,897 117,950

CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums.......................... 489,342 300,343 271,528 269,765
Transfers out for Policy Related Transactions........... (192,518) (78,496) (144,121) (185,044)
Transfers between Separate Account SL's Divisions and
(to) from Guaranteed Interest Division, Net........... 326,333 101,072 (412,302) 39,576
Gain (Loss) Attributable to SAFECO Life................. (37) (72) 64 192
---------- --------- --------- ---------

Net Change in Net Assets from Policy Transactions....... 623,120 322,847 (284,831) 124,489
---------- --------- --------- ---------

Net Change in Net Assets................................ 751,723 419,019 (269,934) 242,439

Net Assets, Beginning of Period......................... 693,449 274,430 989,456 747,017
---------- --------- --------- ---------

Net Assets, End of Period............................... $1,445,172 $ 693,449 $ 719,522 $ 989,456
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>

See Notes to Financial Statements

A-6b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
ASSET MANAGER DIVISION INDEX 500 DIVISION
------------------------ ----------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
------------------------ ----------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------

<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)....................... $ 373,438 $ 58,189 $ 36,950 $ 1,833

Net Realized Gain (Loss) on Investments............ 67,740 83,052 68,068 86,079

Net Change in Unrealized Appreciation
(Depreciation) of Investments.................... 502,688 780,414 290,744 97,988
----------- ----------- ---------- ----------

Net Change in Net Assets from Operations........... 943,866 921,655 395,762 185,900

CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums..................... 2,044,200 2,403,059 1,192,914 512,837
Transfers out for Policy Related Transactions...... (1,211,057) (1,114,423) (284,721) (123,725)
Transfers between Separate Account SL's Divisions
and (to) from Guaranteed Interest Division,
Net.............................................. (422,044) (733,021) 670,973 403,638
Gain (Loss) Attributable to SAFECO Life............ (2,344) (322) (159) (182)
----------- ----------- ---------- ----------

Net Change in Net Assets from Policy
Transactions..................................... 408,755 555,293 1,579,007 792,568
----------- ----------- ---------- ----------

Net Change in Net Assets........................... 1,352,621 1,476,948 1,974,769 978,468

Net Assets, Beginning of Period.................... 6,730,524 5,253,576 1,156,691 178,223
----------- ----------- ---------- ----------

Net Assets, End of Period.......................... $ 8,083,145 $ 6,730,524 $3,131,460 $1,156,691
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>

See Notes to Financial Statements

A-6c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (continued)

<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
CONTRAFUND DIVISION ASSET MANAGER: GROWTH DIVISION
--------------------------------- ---------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1996 1995* 1996 1995*
--------------- ---------------- --------------- ----------------

<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)......... $ (7,057) $ 11,419 $ 36,787 $ 7,571

Net Realized Gain (Loss) on
Investments........................ 36,577 5,064 12,549 766

Net Change in Unrealized Appreciation
(Depreciation) of Investments...... 383,171 5,779 43,534 (2,769)
--------------- ---------------- --------------- ----------------

Net Change in Net Assets from
Operations......................... 412,691 22,262 92,870 5,568

CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:

Transfers in from Net Premiums....... 1,223,954 352,947 247,373 52,359

Transfers out for Policy Related
Transactions....................... (250,013) (34,578) (47,071) (5,450)

Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net................................ 744,280 727,253 315,334 142,922

Gain (Loss) Attributable to SAFECO
Life............................... (4,087) (1,118) 3,877 1,098
--------------- ---------------- --------------- ----------------

Net Change in Net Assets from Policy
Transactions....................... 1,714,134 1,044,504 519,513 190,929
--------------- ---------------- --------------- ----------------

Net Change in Net Assets............. 2,126,825 1,066,766 612,383 196,497

Net Assets, Beginning of Period...... 1,066,766 0 196,497 0
--------------- ---------------- --------------- ----------------

Net Assets, End of Period............ $ 3,193,591 $ 1,066,766 $ 808,880 $ 196,497
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>

- ------------

* For the period from April 30, 1995 (date of inception) through December 31,
1995.

See Notes to Financial Statements

A-6d
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
SAFECO RST SAFECO RST SAFECO RST
EQUITY DIVISION GROWTH DIVISION NORTHWEST DIVISION
----------------- ----------------- ---------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED DECEMBER
DECEMBER 31** DECEMBER 31** 31**
1996 1996 1996
----------------- ----------------- ---------------------

<S> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)................... $ 29,364 $ 111,602 $ 42

Net Realized Gain (Loss) on Investments........ 2,283 (3,530) (13)

Net Change in Unrealized Appreciation
(Depreciation) of Investments................ (11,822) 23,996 147
----------------- ----------------- -------

Net Change in Net Assets from Operations....... 19,825 132,068 176

CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:

Transfers in from Net Premiums................. 56,058 265,857 3,602

Transfers out for Policy Related
Transactions................................. (7,234) (36,206) (371)

Transfers between Separate Account SL's
Divisions and (to) from Guaranteed Interest
Division, Net................................ 251,559 1,054,115 5,808

Gain (Loss) Attributable to SAFECO Life........ (5) 6,488 (399)
----------------- ----------------- -------

Net Change in Net Assets from Policy
Transactions................................. 300,378 1,290,254 8,640
----------------- ----------------- -------

Net Change in Net Assets....................... 320,203 1,422,322 8,816

Net Assets, Beginning of Period................ 0 0 0
----------------- ----------------- -------

Net Assets, End of Period...................... $ 320,203 $ 1,422,322 $ 8,816
----------------- ----------------- -------
----------------- ----------------- -------
</TABLE>

- ------------

** For the period from April 30, 1996 (date of inception) through December 31,
1996.

See Notes to Financial Statements

A-6e
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
SAFECO RST LEXINGTON NATURAL LEXINGTON EMERGING
BOND DIVISION RESOURCES DIVISION MARKETS DIVISION
------------------- ------------------- --------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31** DECEMBER 31** DECEMBER 31**
1996 1996 1996
------------------- ------------------- --------------------

<S> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)................ $ 422 $ 820 $ (1,451)

Net Realized Gain (Loss) on Investments..... 0 5,839 (3,540)

Net Change in Unrealized Appreciation
(Depreciation) of Investments............. (353) 58,877 (3,366)
------- ---------- ----------

Net Change in Net Assets from Operations.... 69 65,536 (8,357)

CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:

Transfers in from Net Premiums.............. 7,138 136,380 132,526

Transfers out for Policy Related
Transactions.............................. (41) (9,309) (14,320)

Transfers between Separate Account SL's
Divisions and (to) from Guaranteed
Interest Division, Net.................... 870 480,695 402,781

Gain (Loss) Attributable to SAFECO Life..... 2 10,111 120
------- ---------- ----------

Net Change in Net Assets from Policy
Transactions.............................. 7,969 617,877 521,107
------- ---------- ----------

Net Change in Net Assets.................... 8,038 683,413 512,750

Net Assets, Beginning of Period............. 0 0 0
------- ---------- ----------

Net Assets, End of Period................... $ 8,038 $ 683,413 $ 512,750
------- ---------- ----------
------- ---------- ----------
</TABLE>

- ------------

** For the period from April 30, 1996 (date of inception) through December 31,
1996.

See Notes to Financial Statements

A-6f
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

SAFECO Life 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.

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 Hudson River Trust to certain Investment Divisions invested in
portfolios of Variable Insurance Products (VIP) and Variable Insurance
Product II (VIPII). On February 20, 1996, SAFECO transferred the Policy
Account Values specified in the order. From February 20, 1996 to April 29,
1996, Account SL consisted solely of ten Investment Divisions invested in
portfolios of VIP and VIPII.

On April 30, 1996, Account SL introduced six new Investment Divisions to
policyholders. These divisions invest in the Equity, Growth, Northwest, and
Bond Portfolios of SAFECO Resource Series Trust, the Lexington Natural
Resources Portfolio of Lexington Natural Resources Trust, and the Lexington
Emerging Markets Portfolio of the Lexington Emerging Markets Fund, Inc.

Policyowners are permitted to transfer their funds to other investment
divisions of Account SL and to the Guaranteed Interest Division, which is
not part of Account SL.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial statements of Account SL are prepared in conformity with
generally accepted accounting principles, which permits management to make
certain estimates and assumptions at the date of the financial statements.
Descriptions of the significant accounting policies used in preparing the
financial statements are set forth below.

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. 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>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. UNIT ACTIVITY

<TABLE>
<CAPTION>
FIDELITY VIP
FIDELITY VIP MONEY MARKET
GROWTH DIVISION(1) DIVISION
-------------------- --------------------
YEAR ENDED DECEMBER YEAR ENDED DECEMBER
31 31
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Units:
Units Sold...................................................... 25,612 25,127 30,477 22,743

Units Redeemed.................................................. (7,677) (6,124) (25,245) (29,287)
--------- --------- --------- ---------

Net Increase (Decrease)......................................... 17,935 19,003 5,232 (6,544)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY INCOME(1) OVERSEAS DIVISION(1)
-------------------- --------------------
YEAR ENDED DECEMBER YEAR ENDED DECEMBER
31 31
1996 1995 1996 1995
--------- --------- --------- ---------

<S> <C> <C> <C> <C>
Units:

Units Sold................................................... 10,927 13,207 10,117 9,562

Units Redeemed............................................... (4,121) (2,775) (3,747) (4,317)
--------- --------- --------- ---------

Net Increase (Decrease)...................................... 6,806 10,432 6,370 5,245
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP II
HIGH INCOME INVESTMENT GRADE
DIVISION(1) BOND DIVISION
-------------------- --------------------
YEAR ENDED DECEMBER YEAR ENDED DECEMBER
31 31
1996 1995 1996 1995
--------- --------- --------- ---------

<S> <C> <C> <C> <C>
Units:

Units Sold..................................................... 6,059 3,566 2,123 2,446

Units Redeemed................................................. (1,414) (667) (4,342) (1,508)
--------- --------- --------- ---------

Net Increase (Decrease)........................................ 4,645 2,899 (2,219) 938
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
ASSET MANAGER INDEX 500
DIVISION(1) DIVISION(1)
-------------------- --------------------
YEAR ENDED DECEMBER YEAR ENDED DECEMBER
31 31
1996 1995 1996 1995
--------- --------- --------- ---------

<S> <C> <C> <C> <C>
Units:

Units Sold................................................... 13,029 17,674 11,713 7,326

Units Redeemed............................................... (10,432) (13,371) (1,817) (936)
--------- --------- --------- ---------

Net Increase (Decrease)...................................... 2,597 4,303 9,896 6,390
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

- ------------

(1) Officers of SAFECO have minor investments in this division at December 31,
1996

A-8
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP II ASSET MANAGER:
CONTRAFUND DIVISION GROWTH DIVISION
------------------------------------ --------------------------------------
YEAR ENDED 1996 PERIOD ENDED 1995* YEAR ENDED 1996 PERIOD ENDED 1995*
--------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Units:
Units Sold....................... 15,208 9,226 4,590 1,750

Units Redeemed................... (1,897) (295) (397) (48)
------- ----- ----- -----

Net Increase (Decrease).......... 13,311 8,931 4,193 1,702
------- ----- ----- -----
------- ----- ----- -----
</TABLE>

<TABLE>
<CAPTION>
SAFECO RST
GROWTH
SAFECO RST DIVISION(1)
EQUITY DIVISION -----------------
------------------- PERIOD ENDED
PERIOD ENDED DECEMBER 31
DECEMBER 31 1996** 1996**
------------------- -----------------
<S> <C> <C>
Units:

Units Sold...................................................... 2,782 12,683

Units Redeemed.................................................. (63) (340)
----- -------

Net Increase (Decrease)......................................... 2,719 12,343
----- -------
----- -------
</TABLE>

<TABLE>
<CAPTION>
SAFECO RST SAFECO RST
NORTHWEST DIVISION BOND DIVISION
--------------------- ---------------------
PERIOD ENDED DECEMBER PERIOD ENDED DECEMBER
31 1996** 31 1996**
--------------------- ---------------------
<S> <C> <C>
Units:

Units Sold...................................................... 93 80

Units Redeemed.................................................. (4) (0)
-- --

Net Increase (Decrease)......................................... 89 80
-- --
-- --
</TABLE>

<TABLE>
<CAPTION>
LEXINGTON NATURAL LEXINGTON EMERGING
RESOURCES DIVISION MARKETS DIVISION(1)
------------------- -------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31 1996** DECEMBER 31 1996**
------------------- -------------------
<S> <C> <C>
Units:

Units Sold...................................................... 6,044 5,577

Units Redeemed.................................................. (108) (153)
----- -----

Net Increase (Decrease)......................................... 5,936 5,424
----- -----
----- -----
</TABLE>

- ------------

(1) Officers of SAFECO have minor investments in this investment division at
December 31, 1996

* For the period from April 30, 1995 (date of inception) through December 31,
1995.

** For the period from April 30, 1996 (date of inception) through December 31,
1996.

A-9
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
GROWTH MONEY MARKET EQUITY INCOME
DIVISION DIVISION DIVISION
------------- ------------- -------------

<S> <C> <C> <C>
Purchases............................................... $ 6,750,699 $ 5,490,861 $ 2,728,393
------------- ------------- -------------
------------- ------------- -------------

Sales................................................... ($2,607,222) ($4,809,783 ) ($1,086,546 )
------------- ------------- -------------
------------- ------------- -------------

Number of Shares Owned at December 31, 1996............. 444,078 1,947,891 328,381
------------- ------------- -------------
------------- ------------- -------------

YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
FIDELITY VIP
FIDELITY VIP FIDELITY VIP II INVESTMENT
OVERSEAS HIGH INCOME GRADE BOND
DIVISION DIVISION DIVISION
------------- ------------- -------------
<S> <C> <C> <C>

Purchases............................................... $ 1,905,974 $ 1,705,017 $ 662,797
------------- ------------- -------------
------------- ------------- -------------

Sales................................................... ($968,365 ) ($1,028,883 ) ($903,820 )
------------- ------------- -------------
------------- ------------- -------------
Number of Shares Owned at December 31, 1996............. 224,254 115,442 58,635
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II
ASSET MANAGER INDEX 500 CONTRAFUND ASSET MANAGER:
DIVISION DIVISION DIVISION GROWTH DIVISION
--------------- --------------- --------------- ---------------

<S> <C> <C> <C> <C>
Purchases........................ $ 2,252,200 $ 1,983,120 $ 2,139,301 $ 820,145
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

Sales............................ ($1,469,149) ($367,239 ) ($432,126 ) ($263,615 )
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

Number of Shares Owned at
December 31, 1996............... 477,545 35,138 192,859 61,756
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>

A-10
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996*
-----------------------------------------
SAFECO RST SAFECO RST SAFECO RST
EQUITY GROWTH NORTHWEST
DIVISION DIVISION DIVISION
------------- ----------- -------------

<S> <C> <C> <C>
Purchases................................................. $ 389,981 $ 1,540,974 $ 10,151
------------- ----------- -------------
------------- ----------- -------------

Sales..................................................... ($60,234) ($145,606) ($1,069 )
------------- ----------- -------------
------------- ----------- -------------

Number of Shares Owned at December 31, 1996............... 14,722 73,512 760
------------- ----------- -------------
------------- ----------- -------------

PERIOD ENDED DECEMBER 31, 1996*
-----------------------------------------
LEXINGTON LEXINGTON
NATURAL EMERGING
SAFECO RST RESOURCES MARKETS
BOND DIVISION DIVISION DIVISION
------------- ----------- -------------
<S> <C> <C> <C>

Purchases................................................. $ 8,440 $ 817,617 $ 582,683
------------- ----------- -------------
------------- ----------- -------------

Sales..................................................... ($50 ) ($198,906) ($71,684 )
------------- ----------- -------------
------------- ----------- -------------
Number of Shares Owned at December 31, 1996............... 748 47,826 50,868
------------- ----------- -------------
------------- ----------- -------------
</TABLE>

- ------------

* For the period from April 30, 1996 (date of inception) through December 31,
1996.

A-11
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. UNIT VALUES

The following are unit values attributable to unitholders as of the date
indicated:
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
FIDELITY VIP MONEY MARKET EQUITY INCOME FIDELITY VIP
GROWTH DIVISION DIVISION DIVISION OVERSEAS DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... $ 118.301 $ 103.032 $ 123.900 $ 90.087
December 31, 1993.................... 139.950 105.409 145.146 122.522
December 31, 1994.................... 138.673 108.907 154.013 123.521
December 31, 1995.................... 186.039 114.270 206.203 134.264
December 31, 1996.................... 211.469 119.360 233.528 150.638

FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II
HIGH INCOME INVESTMENT GRADE ASSET MANAGER INDEX 500
DIVISION BOND DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... N/A $ 105.619 $ 115.113 N/A
December 31, 1993.................... $ 108.076 116.148 138.097 $ 105.094
December 31, 1994.................... 105.455 110.786 128.527 105.239
December 31, 1995.................... 126.046 128.816 148.977 143.089
December 31, 1996.................... 142.436 131.721 169.192 174.160
<CAPTION>

FIDELITY VIP II FIDELITY VIP II
CONTRAFUND ASSET MANAGER: SAFECO RST EQUITY SAFECO RST GROWTH
DIVISION GROWTH DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... N/A N/A N/A N/A
December 31, 1993.................... N/A N/A N/A N/A
December 31, 1994.................... N/A N/A N/A N/A
December 31, 1995.................... $ 119.439 $ 115.467 N/A N/A
December 31, 1996.................... 143.581 137.235 $ 117.794 $ 115.231
<CAPTION>

SAFECO RST LEXINGTON NATURAL LEXINGTON
NORTHWEST SAFECO RST BOND RESOURCES EMERGING MARKETS
DIVISION DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... N/A N/A N/A N/A
December 31, 1993.................... N/A N/A N/A N/A
December 31, 1994.................... N/A N/A N/A N/A
December 31, 1995.................... N/A N/A N/A N/A
December 31, 1996.................... $99.237 $ 100.648 $ 115.129 $94.523
</TABLE>

N/A Unit Values are shown beginning the first year end after inception for the
respective division.

A-12
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS

SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

A-13
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----

<S> <C>
Report of Independent Auditors................................................................ A-15

Consolidated Financial Statements

Consolidated Balance Sheet................................................................ A-16

Statement of Consolidated Income.......................................................... A-17

Statement of Changes in Stockholder's Equity.............................................. A-18

Statement of Consolidated Cash Flows...................................................... A-19

Notes to Consolidated Financial Statements................................................ A-21
</TABLE>

A-14
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
SAFECO Life Insurance Company

We have audited the accompanying consolidated balance sheet of SAFECO Life
Insurance Company and subsidiaries as of December 31, 1996 and 1995, 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, 1996.
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.

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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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 and 1994 as required by the Financial Accounting Standards Board.

[SIGNATURE]

Seattle, Washington
February 14, 1997

A-15
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)

<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Investments (Note 2):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1996-$7,597,733; 1995-$7,195,332)...................... $ 7,853,553 $ 7,720,108
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1996-$2,670,004; 1995-$2,388,514)........................ 2,488,324 2,044,517
Marketable Equity Securities, at Market Value
(Cost: 1996-$9,629; 1995-$14,904)....................................... 18,902 25,776
First Mortgage Loans on Real Estate:
Nonaffiliates (At cost, less allowance for losses:
1996-$10,943; 1995-$9,633)............................................ 447,596 416,110
Affiliates.............................................................. 140,743 137,823
Real Estate (At cost, less accumulated depreciation: 1996-$180;
1995-$398).............................................................. 4,134 4,972
Policy Loans.............................................................. 58,153 55,925
Short-Term Investments (At cost which approximates market)................ 69,878 68,614
Investment in Limited Partnerships........................................ 250 1,289
----------- -----------
Total Investments....................................................... 11,081,533 10,475,134
Cash........................................................................ 19,136 34,886
Accrued Investment Income................................................... 159,790 150,897
Accounts and Notes Receivable (At cost, less allowance for doubtful
accounts: 1996-$85; 1995-$72)............................................. 23,582 27,971
Reinsurance Recoverables (Note 5)........................................... 25,204 16,656
Deferred Policy Acquisition Costs (Net of valuation allowance:
1996-$19,040; 1995-$42,815)............................................... 240,464 210,491
Other Assets................................................................ 5,497 5,739
Current Income Taxes Recoverable (Note 9)................................... 792 --
Assets Held in Separate Accounts............................................ 491,212 276,399
----------- -----------
Total Assets........................................................ $12,047,210 $11,198,173
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and Contract Liabilities (Note 5):
Future Policy Benefits.................................................. $ 149,624 $ 154,090
Policy and Contract Claims.............................................. 29,155 26,407
Premiums Paid in Advance................................................ 8,846 8,209
Funds Held Under Deposit Contracts...................................... 9,792,730 8,756,384
Other Policyholders' Funds.............................................. 134,422 323,302
----------- -----------
Total Policy and Contract Liabilities................................... 10,114,777 9,268,392
Other Liabilities......................................................... 76,089 112,008
Federal Income Taxes (Note 9):
Current................................................................. -- 13,047
Deferred (Includes tax on unrealized appreciation of investment
securities: 1996-$86,120; 1995-$172,493)............................... 103,648 196,492
Liabilities Related to Separate Accounts.................................. 491,212 276,399
----------- -----------
Total Liabilities..................................................... 10,785,726 9,866,338
----------- -----------
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)................................................ 1,011,439 921,383
Unrealized Appreciation of Investment Securities, Net of Tax (Note 2)..... 160,045 320,452
----------- -----------
Total Stockholder's Equity............................................ 1,261,484 1,331,835
----------- -----------
Total Liabilities and Stockholder's Equity.......................... $12,047,210 $11,198,173
----------- -----------
----------- -----------
</TABLE>

See Notes to Consolidated Financial Statements

A-16
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums........................................................ $ 240,100 $ 237,025 $ 252,929
Investment Income:
Interest on Fixed Maturities.................................. 767,309 716,510 648,296
Interest on Mortgage Loans.................................... 52,127 51,912 51,135
Interest on Short-Term Investments............................ 2,935 4,017 3,351
Dividends from Marketable Equity Securities................... 843 1,387 1,446
Dividends from Redeemable Preferred Stock..................... 12,654 3,065 618
Other Investment Income....................................... 3,879 4,155 4,375
---------- ---------- ---------

Total..................................................... 839,747 781,046 709,221
Less Investment Expenses........................................ 3,709 3,546 3,551
---------- ---------- ---------

Net Investment Income........................................... 836,038 777,500 705,670
---------- ---------- ---------

Other Revenue................................................... 12,933 11,608 9,795
Realized Investment Gain........................................ 10,439 5,676 5,639
---------- ---------- ---------

Total..................................................... 1,099,510 1,031,809 974,033
---------- ---------- ---------

Benefits and Expenses:
Policy Benefits................................................. 782,213 723,466 674,215
Commissions..................................................... 74,724 79,163 84,760
Personnel Costs................................................. 43,609 42,314 42,439
Taxes Other Than Payroll and Income Taxes....................... 15,512 7,913 7,652
Other Operating Expenses........................................ 45,224 42,978 44,519
Amortization of Deferred Policy Acquisition Costs............... 35,652 32,376 29,407
Deferral of Policy Acquisition Costs............................ (42,426) (35,347) (43,360)
---------- ---------- ---------

Total..................................................... 954,508 892,863 839,632
---------- ---------- ---------

Income before Federal Income Taxes................................ 145,002 138,946 134,401
---------- ---------- ---------

Provision (Benefit) for Federal Income Taxes (Note 9):
Current......................................................... 57,417 61,830 57,365
Deferred........................................................ (6,471) (13,800) (10,154)
---------- ---------- ---------

Total..................................................... 50,946 48,030 47,211
---------- ---------- ---------

Net Income........................................................ $ 94,056 $ 90,916 $ 87,190
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

See Notes to Consolidated Financial Statements

A-17
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- ---------- ---------
(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........................... 921,383 834,467 751,277
Net Income................................................. 94,056 90,916 87,190
Dividends to Parent........................................ (4,000) (4,000) (4,000)
---------- ---------- ---------
Balance at the End of Year................................. 1,011,439 921,383 834,467
---------- ---------- ---------
Unrealized Appreciation (Depreciation) of Investment Securities,
Net of Tax (Note 1 and 2):
Balance at the Beginning of Year........................... 320,452 (126,229) 6,828
Net Effect of Adoption of FASB Statement 115............... -- -- 279,957
Change in Unrealized Appreciation or Depreciation.......... (175,861) 474,511 (413,014)
Change in Deferred Policy Acquisition Costs Valuation
Allowance................................................ 15,454 (27,830) --
---------- ---------- ---------
Balance at the End of Year................................. 160,045 320,452 (126,229)
---------- ---------- ---------
Stockholder's Equity......................................... $1,261,484 $1,331,835 $ 798,238
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

See Notes to Consolidated Financial Statements

A-18
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received................................. $ 216,801 $ 216,269 $ 233,129
Dividends and Interest Received............................. 754,878 703,053 641,234
Other Operating Receipts.................................... 12,948 10,607 11,419
Insurance Claims and Policy Benefits Paid................... (302,955) (272,206) (242,523)
Underwriting, Acquisition and Insurance Operating Costs
Paid...................................................... (172,251) (169,904) (177,188)
Income Taxes Paid........................................... (71,255) (61,247) (60,566)
----------- ----------- -----------
Net Cash Provided by Operating Activities............. 438,166 426,572 405,505
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale....................... (1,544,998) (1,424,510) (1,110,154)
Fixed Maturities Held-to-Maturity......................... (473,206) (291,965) (358,297)
Marketable Equity Securities.............................. (272) (260) (407)
Other Investments......................................... (15) (14) (24,381)
Policy and Nonaffiliated Mortgage Loans................... (85,485) (55,302) (68,710)
Affiliated Mortgage Loans................................. (34,650) (12,643) (54,000)
Maturities of Fixed Maturities Available-for-Sale........... 466,509 375,291 476,410
Maturities of Fixed Maturities Held-to-Maturity............. 21,694 17,878 54,564
Sales of:
Fixed Maturities Available-for-Sale....................... 721,229 327,160 250,227
Fixed Maturities Held-to-Maturity......................... 13,316 -- --
Marketable Equity Securities.............................. 10,394 2,172 65
Other Investments......................................... 1,100 180 23,992
Real Estate............................................... 1,086 876 1,885
Policy and Nonaffiliated Mortgage Loans................... 48,341 50,734 42,038
Affiliated Mortgage Loans................................. 31,730 8,977 6,714
Net (Increase) Decrease in Short-Term Investments........... (1,250) (5,811) 11,793
Other....................................................... (747) (122) 947
----------- ----------- -----------
Net Cash Used in Investing Activities................. (825,224) (1,007,359) (747,314)
----------- ----------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts...................... 1,148,590 1,304,665 1,012,164
Return of Funds Held Under Deposit Contracts................ (765,480) (720,845) (659,697)
Dividends to Parent......................................... (4,000) (4,000) (4,000)
Net Proceeds from (Repayment of) Short-Term Borrowings...... (7,802) 9,143 842
----------- ----------- -----------
Net Cash Provided by Financing Activities............. 371,308 588,963 349,309
----------- ----------- -----------
Net Increase (Decrease) in Cash............................... (15,750) 8,176 7,500
Cash at Beginning of Year..................................... 34,886 26,710 19,210
----------- ----------- -----------
Cash at End of Year........................................... $ 19,136 $ 34,886 $ 26,710
----------- ----------- -----------
----------- ----------- -----------
</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-19
<PAGE>
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
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Income........................................................... $ 94,056 $ 90,916 $ 87,190
--------- --------- ---------

Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Realized Investment Gain......................................... (10,439) (5,676) (5,639)
Amortization of Fixed Maturity Investments....................... (26,811) (26,050) (12,247)
Deferred Federal Income Tax Benefit.............................. (6,471) (13,800) (10,154)
Interest Expense on Deposit Contracts............................ 460,594 432,327 405,536
Other............................................................ 574 3,140 (440)

Changes in:
Future Policy Benefits......................................... (4,466) (1,232) 3,834
Policy and Contract Claims..................................... 2,748 (2,643) (4,136)
Premiums Paid in Advance....................................... 637 (574) (1,174)
Deferred Policy Acquisition Costs.............................. (6,198) (6,116) (12,990)
Accrued Investment Income...................................... (8,893) (8,990) (13,695)
Accrued Interest on Accrual Bonds.............................. (44,015) (36,908) (41,285)
Other Receivables.............................................. (8,639) (2,353) 5,064
Current Federal Income Taxes................................... (13,839) 583 (3,201)
Other Assets and Liabilities................................... 4,668 449 1,820
Other Policyholders' Funds..................................... 4,660 3,499 7,022
--------- --------- ---------

Total Adjustments............................................ 344,110 335,656 318,315
--------- --------- ---------

Net Cash Provided by Operating Activities............................ $ 438,166 $ 426,572 $ 405,505
--------- --------- ---------
--------- --------- ---------
</TABLE>

See Notes to Consolidated Financial Statements

A-20
<PAGE>
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 engage primarily in insurance and
financial service businesses.

BASIS OF REPORTING. The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles appropriate in
the circumstances and include amounts based on the best estimates and
judgments of management. The financial statements include SAFECO Life
Insurance Company and its subsidiaries.

All significant intercompany transactions have been eliminated in the
consolidated financial statements. Certain reclassifications have been made
to prior year financial information to conform to the 1996 classifications.

ACCOUNTING FOR PREMIUMS. Life and health insurance premiums are reported as
income when collected for traditional individual life policies and when
earned for group life and health policies. Funds received under pension
deposit contracts, annuity contracts and universal life policies are recorded
as liabilities rather than premium income when received. Revenues for
universal life products consist of front-end loads, mortality charges and
expense charges assessed against individual policyholder account balances.
These loads and charges are recognized as income when earned.

INVESTMENTS. 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.

A-21
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 (continued)
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. Life and health acquisition costs,
consisting of commissions and certain other underwriting expenses, which vary
with and are primarily related to the production of new business, are
deferred.

Acquisition costs for pension deposit contracts, deferred annuity contracts
and universal life policies are amortized over the lives of the contracts or
policies in proportion to the present value of estimated future gross
profits. To the extent actual experience differs from assumptions, and to the
extent estimates of future gross profits require revision, the unamortized
balance of deferred policy acquisition costs is adjusted accordingly; such
adjustments would be included in current operations. There were no
significant revisions made in 1996, 1995 or 1994.

Acquisition costs for traditional individual life insurance policies are
amortized over the premium payment period of the related policies using
assumptions consistent with those used in computing policy benefit
liabilities. Acquisition costs for group life and health policies are
amortized over the lives of the policies in proportion to premium received.

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 are included in a
consolidated federal income tax return filed by SAFECO Corporation. Tax
payments (credits) are made to or received from SAFECO Corporation on a
separate tax return filing basis. The Company provides for federal income
taxes based on financial reporting income and deferred federal income taxes
on temporary differences between financial reporting and taxable income.

NEW ACCOUNTING STANDARDS. The Company adopted FASB Statement 112,
"Employers' Accounting for Postemployment Benefits," effective January 1,
1994. Adoption had no effect on net income.

A-22
<PAGE>
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 were effective for 1995 and adopted by the Company on
January 1, 1995. Adoption did not affect net income. For additional
disclosure relating to these two statements, see Note 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.

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 FASB issued an Implementation Guide on Statement 115 in November 1995. In
addition to providing guidance on Statement 115, the Guide allowed for a
one-time-only reclassification of securities among the three categories
defined in Statement 115. 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 Guide. 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.

A-23
<PAGE>
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, 1996 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................. $ 746,401 $ 38,689 $ (1,915) $ 36,774 $ 783,175
States, municipalities and political
subdivisions............................. 131,538 11,192 (1,009) 10,183 141,721
Foreign governments........................ 74,427 4,575 (7) 4,568 78,995
Public utilities........................... 1,428,912 72,384 (7,220) 65,164 1,494,076
All other corporate bonds.................. 2,707,297 100,673 (15,464) 85,209 2,792,506
Mortgage-backed securities................. 2,509,158 72,485 (18,563) 53,922 2,563,080
----------- ----------- ----------- ----------- -----------
Total fixed maturities classified as
available-for-sale....................... 7,597,733 299,998 (44,178) 255,820 7,853,553
Marketable equity securities............... 9,629 9,518 (245) 9,273 18,902
----------- ----------- ----------- ----------- -----------
Total investment securities classified as
available-for-sale....................... $ 7,607,362 $ 309,516 $ (44,423) 265,093 $ 7,872,455
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Deferred policy acquisition costs
valuation allowance............................................................. (19,040)
Applicable federal income tax..................................................... (86,008 )
-----------
Unrealized appreciation of investment
securities, net of tax, included in
stockholder's equity............................................................ $ 160,045
-----------
-----------
</TABLE>

A summary of fixed maturities classified as held-to-maturity at December 31,
1996 follows:

A-24
<PAGE>
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, 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:

A-25
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 (continued)
The amortized cost and estimated market value of fixed maturities at December
31, 1996, by contractual maturity, are presented below. Expected maturities
may differ from contractual maturities because certain borrowers have the
right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------ ------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............................... $ 193,009 $ 199,669 $ 5,000 $ 5,100
Due after one year through five years................. 1,582,958 1,639,786 -- --
Due after five years through ten years................ 1,233,599 1,264,009 28,570 32,934
Due after ten years................................... 2,079,009 2,187,009 2,162,886 2,332,399
Mortgage-backed securities............................ 2,509,158 2,563,080 291,868 299,571
----------- ----------- ----------- -----------
Total............................................. $ 7,597,733 $ 7,853,553 $ 2,488,324 $ 2,670,004
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

At December 31, 1996 and 1995, the Company held below investment grade fixed
maturities of $242 million and $239 million at amortized cost, respectively.
The respective market values of these investments were approximately $239
million and $240 million. These holdings amounted to 2.3% and 2.4% of the
Company's investments in fixed maturities at market value at December 31,
1996 and 1995, respectively.

The carrying value of investments in fixed maturities and mortgage loans that
did not produce income during the year ended December 31, 1996 is less than
one percent of the total of such investments.

Certain fixed maturity securities with an amortized cost of $4,648,000 and
$4,578,000 at December 31, 1996 and 1995, respectively, were on deposit with
various regulatory authorities to meet requirements of insurance and
financial codes.

At both December 31, 1996 and 1995, mortgage loans constituted approximately
4.9% of total assets 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 42% of the total in California. Individual
loans generally do not exceed $5 million. At December 31, 1996, less than 1%
of the loans were non-performing.

The proceeds from sales of investment securities and related gains and losses
for 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
----------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales................................. $ 721,229 $ 13,316 $ 10,394
----------------- -------- --------
----------------- -------- --------
Gross realized gains on sales....................... $ 19,779 $ -- $ 4,847
Gross realized losses on sales...................... (18,837) (1,328) --
----------------- -------- --------
Realized gains (losses) on sales................ 942 (1,328) 4,847
Other (Including net gain or loss on calls and
redemptions)....................................... 13,687 (141) --
Writedowns (Including writedowns on securities
subsequently sold)................................. (5,465) -- --
----------------- -------- --------
Total realized gain (loss).......................... $ 9,164 $ (1,469) $ 4,847
----------------- -------- --------
----------------- -------- --------
</TABLE>

A-26
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 (continued)
Two fixed maturities classified as held-to-maturity were sold during 1996 due
to evidence of a significant deterioration in credit quality. The amortized
cost of these securities was $14,644,000, and the losses realized on these
sales were $1,328,000.

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>

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>

A-27
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 (continued)
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
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities..................................................... $ 7,695 $ 6,235 $ 9,132
Marketable equity securities......................................... 4,847 971 (109)
First mortgage loans on real estate.................................. (2,050) (1,600) (3,000)
Real estate.......................................................... (114) 70 (184)
Short-term investments............................................... -- -- (200)
Investment in limited partnerships................................... 61 -- --
---------- ---------- ----------
Realized gain before federal income taxes.......................... $ 10,439 $ 5,676 $ 5,639
---------- ---------- ----------
---------- ---------- ----------

YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale.................... $ (268,956) $ 726,046 $ (201,270)
Marketable equity securities......................................... (1,599) 3,971 (3,432)
Deferred policy acquisition costs valuation allowance................ 23,775 (42,815) --
Applicable federal income tax........................................ 86,373 (240,521) 71,645
---------- ---------- ----------
Net change in unrealized appreciation or depreciation................ $ (160,407) $ 446,681 $ (133,057)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The following table summarizes the Company's allowance for credit losses on
non-affiliated mortgage loans:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of year.......................................................... $ 9,633 $ 9,511

Provision for credit losses............................................................. 2,050 1,600

Recoveries.............................................................................. -- 15

Loans charged off as uncollectible...................................................... (740) (1,493)
--------- ---------

Allowance at end of year................................................................ $ 10,943 $ 9,633
--------- ---------
--------- ---------
</TABLE>

The allowance includes amounts determined under FAS 114 and FAS 118 (specific
reserves), as well as general reserve amounts. The total investment in
impaired loans, as defined under FAS 114 and 118 and before any reserve for
losses, is $3.2 and $5.7 million at December 31, 1996 and 1995, respectively.
A specific loan loss reserve has been established for each impaired loan, the
total of which is $835,000 and $2.1 million and is included in the overall
allowance of $10.9 and $9.6 million at December 31, 1996 and 1995,
respectively.

A-28
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $2,336,000. At December 31, 1996,
unfunded mortgage loan commitments approximated $9,375,000. The Company had
no other material commitments or contingencies at December 31, 1996.

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.

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>
1996 1995
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)

<S> <C> <C> <C> <C>
Financial assets:

Fixed maturities available-for-sale................. $ 7,853,553 $ 7,853,553 $ 7,720,108 $ 7,720,108

Fixed maturities held-to-maturity................... 2,488,324 2,670,004 2,044,517 2,388,514

Marketable equity securities........................ 18,902 18,902 25,776 25,776

Mortgage loans...................................... 588,339 596,000 553,933 584,000

Financial liabilities:

Funds held under deposit contracts.................. 9,792,730 9,935,000 8,756,384 9,282,000
</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 $2.9 billion and $2.8 billion at market at
December 31, 1996 and 1995, respectively, are primarily residential
collateralized mortgage obligations and pass-throughs ("CMOs"). CMOs, while
technically defined as derivative instruments, are exempt from derivative
disclosure requirements. The Company's investment in CMOs comprised of the
riskier, more volatile type (e.g., interest only, inverse floaters, etc.) has
been intentionally limited to only a small amount (i.e., less than 1% of
total CMOs at both December 31, 1996 and 1995).

A-29
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4 (continued)
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
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Unpaid losses and adjustment expense................................................... $ 136 $ 850

Paid claims............................................................................ 957 658

Life policy liabilities................................................................ 23,784 14,844

Other reinsurance recoverables......................................................... 327 304
--------- ---------

Total reinsurance recoverables................................................. $ 25,204 $ 16,656
--------- ---------
--------- ---------
</TABLE>

The effects of reinsurance on the premium and policy benefit amounts in the
Statement of Consolidated Income are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)

<S> <C> <C> <C>
Reinsurance Ceded:

Premiums.................................................................. $ (13,679) $ (10,385) $ (9,060)
--------- --------- ---------
--------- --------- ---------

Policy benefits........................................................... $ (4,039) $ (6,344) $ (5,588)
--------- --------- ---------
--------- --------- ---------

Reinsurance Assumed:

Premiums.................................................................. $ 175 $ (5,456) $ 327
--------- --------- ---------
--------- --------- ---------

Policy benefits........................................................... $ 2,500 $ (2,503) $ 3,421
--------- --------- ---------
--------- --------- ---------
</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.

A-30
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)

<S> <C> <C> <C>
Statutory Net Income:

SAFECO Life Insurance Company.......................................... $ 95,676 $ 101,456 $ 47,280

SAFECO National Life Insurance Company................................. 1,249 1,187 1,242

First SAFECO National Life Insurance Company of New York............... 318 404 108
---------- ---------- ----------

Total............................................................ $ 97,243 $ 103,047 $ 48,630
---------- ---------- ----------
---------- ---------- ----------

DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>

Statutory Stockholder's Equity:

SAFECO Life Insurance Company.......................................... $ 562,100 $ 479,152 $ 391,328

SAFECO National Life Insurance Company................................. 15,263 15,522 15,849

First SAFECO National Life Insurance Company of New York............... 10,295 10,009 9,644
---------- ---------- ----------

Total............................................................ $ 587,658 $ 504,683 $ 416,821
---------- ---------- ----------
---------- ---------- ----------
</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, 1996.

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
$99,198,000 at December 31, 1996.

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

A-31
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 (continued)
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
$7,901,000, $7,599,000 and $6,329,000 for the years ended December 31, 1996,
1995 and 1994, 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. The Company accrues for these costs during the years that
employees provide services, under FASB Statement 106. Net periodic other
postretirement benefit costs for the Company were $474,000, $282,000 and
$432,000 in 1996, 1995 and 1994, respectively.

The following table summarizes the Company's funded status of the plan:

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total accumulated postretirement benefit obligation (APBO).............................. $ 3,765 $ 4,310

Less: plan assets at fair value......................................................... 133 133
--------- ---------

APBO in excess of plan assets........................................................... 3,632 4,177

Unrecognized gain....................................................................... 1,283 361
--------- ---------

Accrued postretirement benefit cost recorded on the balance sheet....................... $ 4,915 $ 4,538
--------- ---------
--------- ---------
</TABLE>

Discount rate assumptions of 7.75%, 7.5% and 8.5% were used at December 31,
1996, 1995 and 1994, respectively. The accumulated postretirement benefit
obligation at December 31, 1996 was determined using a healthcare cost trend
rate of 11% for 1997, declining by 1% per year, starting in 1998, to 6% and
remaining at that level thereafter. A one percentage point increase in the
assumed healthcare cost trend rate for each year would increase the
accumulated other postretirement benefit obligation as of December 31, 1996
by $451,000 and the annual net periodic other postretirement benefit cost for
the year then ended by $76,000.

9. INCOME TAXES

The Company uses the liability method of accounting for income taxes pursuant
to FASB Statement 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are determined based on the
differences between their financial reporting and their tax bases and are
measured using the enacted tax rates.

Differences between income tax computed by applying the U.S. federal income
tax rate of 35% to income before income taxes and the provision for federal
income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense.............................................. $ 50,751 $ 48,631 $ 47,040

Dividends received deduction................................................. (24) (44) (64)

Tax exempt interest.......................................................... (6) (7) (8)

Other........................................................................ 225 (550) 243
--------- --------- ---------

Income tax expense................................................... $ 50,946 $ 48,030 $ 47,211
--------- --------- ---------
--------- --------- ---------

Percent of income tax expense to income before tax........................... 35.1% 34.6% 35.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>

A-32
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9 (continued)
The tax effect of temporary differences which give rise to the deferred tax
assets and deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)

<S> <C> <C>
Deferred tax assets:

Discounted loss and adjustment expense reserves.................................... $ 1,359 $ 1,990

Uncollected premium adjustment..................................................... 2,270 2,011

Adjustment to life policy liabilities.............................................. 34,773 30,209

Capitalization of policy acquisition costs......................................... 33,393 21,860

Postretirement benefits............................................................ 1,720 1,588

Realized capital losses............................................................ 5,887 9,348

Guarantee fund assessments......................................................... 3,518 3,680

Other.............................................................................. 1,630 1,414
---------- ----------

Total deferred tax assets.................................................... 84,550 72,100
---------- ----------
---------- ----------

Deferred tax liabilities:

Deferred policy acquisition costs.................................................. 90,826 88,657

Bond discount accrual.............................................................. 9,525 5,905

Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1996-$6,664; 1995-$14,985)................ 86,120 172,493

Other.............................................................................. 1,727 1,537
---------- ----------

Total deferred tax liabilities............................................... 188,198 268,592
---------- ----------

Net deferred tax liability................................................... $ 103,648 $ 196,492
---------- ----------
---------- ----------
</TABLE>

The following table reconciles the deferred tax benefit in the Statement of
Income to the change in the deferred tax liability in the balance sheet at
December 31:

<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax benefit...................................................... $ (6,471) $ (13,800) $ (10,154)

Deferred tax changes reported in stockholder's equity:

Increase (decrease) in liability related to unrealized appreciation or
depreciation of investment securities................................. (94,694) 255,506 (71,645)

Increase (decrease) in liability related to deferred policy acquisition
costs valuation allowance............................................. 8,321 (14,985) --
--------- ---------- ---------
Increase (decrease) in net deferred tax liability......................... $ (92,844) $ 226,721 $ (81,799)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>

A-33
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SEGMENT DATA

A major portion of investment income, realized gains or losses and assets is
specifically identifiable with an industry segment. The remainder of these
amounts has been allocated in proportion to the investment income identified
with each segment.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)

<S> <C> <C> <C>
Revenue:

Premiums and Other (Including $35,477 of financial services
revenue received from affiliates)............................. $ 48,964 $ 204,069 $ 253,033

Identifiable Investment Income.................................. 506,628 256,939 763,567

Investment Income Allocated..................................... 48,157 24,314 72,471

Identifiable Realized Gain from Investments..................... 2,636 2,884 5,520

Realized Gain from Investments Allocated........................ 3,271 1,648 4,919
----------- ----------- -------------
Total Revenue............................................. $ 609,656 $ 489,854 $ 1,099,510
----------- ----------- -------------
----------- ----------- -------------

Income Before Income Taxes........................................ $ 81,849 $ 63,153 $ 145,002
----------- ----------- -------------
----------- ----------- -------------

DECEMBER 31, 1996
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>

Identifiable Assets:

Deferred Policy Acquisition Costs............................... $ 163,802 $ 76,662 $ 240,464

Policy Loans.................................................... 30,774 27,379 58,153

Invested Assets................................................. 6,660,938 3,298,105 9,959,043

Other........................................................... 163,855 533,823 697,678

Invested Assets Allocated......................................... 707,269 357,068 1,064,337

Other Assets Allocated............................................ 18,288 9,247 27,535
----------- ----------- -------------
Total Assets.............................................. $ 7,744,926 $ 4,302,284 $ 12,047,210
----------- ----------- -------------
----------- ----------- -------------

Amortization of Deferred Policy Acquisition Costs................. $ 13,756 $ 21,896 $ 35,652
----------- ----------- -------------
----------- ----------- -------------
</TABLE>

A-34
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 (continued)
<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
----------- ----------- -------------
----------- ----------- -------------
<CAPTION>

DECEMBER 31, 1995
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>

Identifiable Assets:

Deferred Policy Acquisition Costs............................... $ 143,228 $ 67,263 $ 210,491

Policy Loans.................................................... 29,109 26,816 55,925

Invested Assets................................................. 6,086,143 3,261,042 9,347,185

Other........................................................... 155,358 327,863 483,221

Invested Assets Allocated......................................... 671,864 400,160 1,072,024

Other Assets Allocated............................................ 18,179 11,148 29,327
----------- ----------- -------------
Total Assets.............................................. $ 7,103,881 $ 4,094,292 $ 11,198,173
----------- ----------- -------------
----------- ----------- -------------

Amortization of Deferred Policy Acquisition Costs................. $ 12,222 $ 20,154 $ 32,376
----------- ----------- -------------
----------- ----------- -------------
<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>

A-35
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 (continued)
<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-36
<PAGE>
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 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 .70% 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 (0.69%, an average of the 1996 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 -1.54%, on 6% it would be 4.46%, and
on 12% it would be 10.46%.

The tables assume deduction of an applicable premium tax rate based on 2.1% of
premiums. 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 $5.00. 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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

MALE
PREFERRED NON-SMOKER

<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

RESULTS ASSUMING CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
----------------------------------------- --------------------------------------- ------------------------
END OF ACCUM POLICY POLICY CASH POLICY
POLICY PREMIUM (5% DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,900 1,700 250,000 3,105 1,905 250,000 3,309

2 8,610 250,000 5,901 4,341 250,000 6,498 4,938 250,000 7,120

3 13,241 250,000 8,790 6,870 250,000 9,977 8,057 250,000 11,265

4 18,103 250,000 11,597 9,452 250,000 13,575 11,430 250,000 15,809

5 23,208 250,000 14,343 12,198 250,000 17,319 15,174 250,000 20,817

6 28,568 250,000 17,034 15,318 250,000 21,221 19,505 250,000 26,347

7 34,196 250,000 19,650 18,363 250,000 25,269 23,982 250,000 32,434

8 40,106 250,000 22,195 21,337 250,000 29,474 28,616 250,000 39,145

9 46,312 250,000 24,674 24,245 250,000 33,847 33,418 250,000 46,552

10 52,827 250,000 27,091 27,091 250,000 38,401 38,401 250,000 54,736

11 59,669 250,000 29,376 29,376 250,000 43,077 43,077 250,000 63,721

12 66,852 250,000 31,514 31,514 250,000 47,867 47,867 250,000 73,588

13 74,395 250,000 33,496 33,496 250,000 52,772 52,772 250,000 84,434

14 82,314 250,000 35,311 35,311 250,000 57,788 57,788 250,000 96,373

15 90,630 250,000 36,941 36,941 250,000 62,910 62,910 250,000 109,529

16 99,361 250,000 38,377 38,377 250,000 68,139 68,139 250,000 124,052

17 108,530 250,000 39,610 39,610 250,000 73,479 73,479 250,000 140,117

18 118,156 250,000 40,632 40,632 250,000 78,937 78,937 250,000 157,929

19 128,264 250,000 41,427 41,427 250,000 84,514 84,514 250,000 177,719

20 138,877 250,000 41,976 41,976 250,000 90,212 90,212 250,000 199,757

Age 75 297,195 250,000 18,676 18,676 250,000 160,412 160,412 789,014 751,442

END OF CASH
POLICY SURRENDER
YEAR VALUE
<S> <C>
1 2,109
2 5,560
3 9,345
4 13,664
5 18,672
6 24,631
7 31,147
8 38,287
9 46,123
10 54,736
11 63,721
12 73,588
13 84,434
14 96,373
15 109,529
16 124,052
17 140,117
18 157,929
19 177,719
20 199,757
Age 75 751,442
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

MALE
PREFERRED NON-SMOKER

<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

RESULTS ASSUMING GUARANTEED CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
--------------------------------------- --------------------------------------- ------------------------
END OF ACCUM POLICY CASH POLICY CASH POLICY
POLICY PREMIUM (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,676 1,476 250,000 2,873 1,673 250,000 3,070

2 8,610 250,000 5,493 3,933 250,000 6,063 4,503 250,000 6,658

3 13,241 250,000 8,205 6,285 250,000 9,334 7,414 250,000 10,560

4 18,103 250,000 10,806 8,661 250,000 12,682 10,537 250,000 14,803

5 23,208 250,000 13,293 11,148 250,000 16,109 13,964 250,000 19,422

6 28,568 250,000 15,657 13,941 250,000 19,606 17,890 250,000 24,448

7 34,196 250,000 17,887 16,600 250,000 23,168 21,881 250,000 29,919

8 40,106 250,000 19,973 19,115 250,000 26,787 25,929 250,000 35,872

9 46,312 250,000 21,900 21,471 250,000 30,450 30,021 250,000 42,352

10 52,827 250,000 23,653 23,653 250,000 34,148 34,148 250,000 49,408

11 59,669 250,000 25,218 25,218 250,000 37,870 37,870 250,000 57,100

12 66,852 250,000 26,587 26,587 250,000 41,611 41,611 250,000 65,500

13 74,395 250,000 27,748 27,748 250,000 45,364 45,364 250,000 74,693

14 82,314 250,000 28,687 28,687 250,000 49,120 49,120 250,000 84,773

15 90,630 250,000 29,375 29,375 250,000 52,858 52,858 250,000 95,841

16 99,361 250,000 29,789 29,789 250,000 56,561 56,561 250,000 108,021

17 108,530 250,000 29,897 29,897 250,000 60,207 60,207 250,000 121,456

18 118,156 250,000 29,654 29,654 250,000 63,764 63,764 250,000 136,313

19 128,264 250,000 29,009 29,009 250,000 67,195 67,195 250,000 152,790

20 138,877 250,000 27,920 27,920 250,000 70,470 70,470 250,000 171,138

Age 75 297,195 250,000 80,276 80,276 700,356 667,006

END OF CASH
POLICY SURRENDER
YEAR VALUE
<S> <C>
1 1,870
2 5,098
3 8,640
4 12,658
5 17,277
6 22,732
7 28,632
8 35,014
9 41,923
10 49,408
11 57,100
12 65,500
13 74,693
14 84,773
15 95,841
16 108,021
17 121,456
18 136,313
19 152,790
20 171,138
Age 75 667,006
</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.

B-3
<PAGE>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

MALE
STANDARD NON-SMOKER

<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,724 1,524 250,000 2,923 1,723 250,000 3,122

2 8,610 250,000 5,579 4,019 250,000 6,155 4,595 250,000 6,756

3 13,241 250,000 8,328 6,408 250,000 9,470 7,550 250,000 10,709

4 18,103 250,000 10,987 8,842 250,000 12,885 10,740 250,000 15,031

5 23,208 250,000 13,595 11,450 250,000 16,448 14,303 250,000 19,803

6 28,568 250,000 16,158 14,442 250,000 20,168 18,452 250,000 25,082

7 34,196 250,000 18,653 17,366 250,000 24,033 22,746 250,000 30,898

8 40,106 250,000 21,090 20,232 250,000 28,056 27,198 250,000 37,321

9 46,312 250,000 23,469 23,040 250,000 32,248 31,819 250,000 44,418

10 52,827 250,000 25,790 25,790 250,000 36,615 36,615 250,000 52,265

11 59,669 250,000 27,983 27,983 250,000 41,099 41,099 250,000 60,881

12 66,852 250,000 30,017 30,017 250,000 45,676 45,676 250,000 70,328

13 74,395 250,000 31,881 31,881 250,000 50,343 50,343 250,000 80,700

14 82,314 250,000 33,564 33,564 250,000 55,097 55,097 250,000 92,103

15 90,630 250,000 35,053 35,053 250,000 59,935 59,935 250,000 104,660

16 99,361 250,000 36,331 36,331 250,000 64,849 64,849 250,000 118,509

17 108,530 250,000 37,398 37,398 250,000 69,852 69,852 250,000 133,826

18 118,156 250,000 38,234 38,234 250,000 74,938 74,938 250,000 150,800

19 128,264 250,000 38,830 38,830 250,000 80,112 80,112 250,000 169,657

20 138,877 250,000 39,167 39,167 250,000 85,375 85,375 250,000 190,661

Age 75 297,195 250,000 12,138 12,138 250,000 147,146 147,146 754,664 718,728

END OF CASH
POLICY SURRENDER
YEAR VALUE
<S> <C>
1 1,922
2 5,196
3 8,789
4 12,886
5 17,658
6 23,366
7 29,611
8 36,463
9 43,989
10 52,265
11 60,881
12 70,328
13 80,700
14 92,103
15 104,660
16 118,509
17 133,826
18 150,800
19 169,657
20 190,661
Age 75 718,728
</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.

B-4
<PAGE>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE