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REGISTRATION NO. 33-10248
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
POST EFFECTIVE AMENDMENT NO. 14
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUST
REGISTERED ON FORM N-8B-2
A. Exact name of Trust: Separate Account SL
B. Name of depositor: SAFECO Life Insurance Company
C. Complete address of depositor's principal executive offices:
15411 N.E. 51st St., Redmond, Washington 98052
D. Name and address of agent for service:
William E. Crawford, Esq.
SAFECO Life Insurance Company
15411 N.E. 51st Street
Redmond, Washington 98052
Copies to:
Leslie A. Harrison
SAFECO Corporation
SAFECO Plaza
Seattle, WA 98185
E. Title and amount of securities being registered:
Individual Flexible Premium Variable Life Insurance Policies
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.
[X] on April 30, 1997 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485.
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. Registrant filed the Rule 24f-2
Notice for the most recent fiscal year on or about February 28, 1997.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
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N-8B-2 ITEMS CAPTION IN PROSPECTUS
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1. SAFECO, The Separate Account
2. SAFECO
3. Not Applicable
4. Distribution of the Policies
5. The Separate Account
6.(a) Not Applicable
6.(b) Not Applicable
9. Legal Proceedings
10. The Policy
11. Variable Insurance Products Funds
12. Variable Insurance Products Funds
13. Charges and Deductions
14. The Policy
15. The Separate Account
16. Variable Insurance Products Funds
17. Policy Benefits and Rights
18. The Policy
19. Not Applicable
20. Not Applicable
21. Not Applicable
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. SAFECO
26. SAFECO
27. SAFECO
28. SAFECO
29. SAFECO
30. SAFECO
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Not Applicable
36. SAFECO
37. Not Applicable
38. Distribution of the Policies
39. Distribution of the Policies
40. Not Applicable
41.(a) Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. The Policy
45. Not Applicable
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
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This Prospectus describes an individual flexible premium variable life insurance
policy ("Policy"). The Policy is designed for the maximum flexibility in meeting
the insurance needs of individuals. The Policy provides death protection until
the Policy Anniversary following the Primary Insured's 95th birthday, at which
time SAFECO will pay the value of the Policy Account, less any outstanding
indebtedness.
Net premiums will be placed in the Owner's Policy Account, which are then
allocated to one or more Investment Divisions of SAFECO Life Insurance Company's
("SAFECO") Separate Account SL ("Separate Account") and/or to SAFECO's
Guaranteed Interest Division.
The Separate Account has Investment Divisions, each of which invests in shares
of a corresponding portfolio of Fidelity's Variable Insurance Products Fund,
Fidelity's Variable Insurance Products Fund II, Lexington Natural Resources
Trust, Lexington Emerging Markets Fund, Inc., and SAFECO Resource Series Trust,
collectively, the "Funds." The shares of Fidelity's Variable Insurance Products
Fund III are not available in connection with the policies described in this
prospectus.( See "The Separate Account" on Page 6 for further information.)
Fidelity's Variable Insurance Products Fund ("VIP") is a mutual fund comprised
of five portfolios, each of which is currently available in connection with the
Policies. The five portfolios are: Money Market, High Income, Equity-Income,
Growth and Overseas.
Fidelity's Variable Insurance Products Fund II ("VIPII") is a mutual fund
comprised of five portfolios, each of which is currently available in connection
with the Policies. The five portfolios are: Investment Grade Bond, Asset
Manager, Index 500, Asset Manager: Growth, and Contrafund.
Lexington Natural Resources Trust and the Lexington Emerging Markets Fund, Inc.
("Lexington Emerging Markets Fund") each consist of only one portfolio which are
offered hereunder; the Lexington Natural Resources Portfolio and the Lexington
Emerging Markets Portfolio, respectively.
SAFECO Resource Series Trust ("SAFECO RST") currently consists of six
portfolios, four of which are currently available in connection with the
Policies. The four portfolios are: Equity, Growth, Northwest and Bond.
The Guaranteed Interest Division is part of SAFECO's general account.
The portion of the Policy Account that is in an Investment Division of the
Separate Account will vary depending on the value of such Investment Division,
which in turn depends on the investment performance of the corresponding
portfolio of the Funds. There are no minimum guarantees as to the value of such
portion of the Policy Account. The portion of the Policy Account that is in the
Guaranteed Interest Division will accumulate, after deductions, at a rate of
interest determined by SAFECO. Such rate will not be less than 4% per year.
It may not be advantageous to purchase the Policy as a replacement for another
type of life insurance. It also may not be advantageous to purchase flexible
premium variable life insurance to obtain additional insurance protection if the
purchaser already owns another flexible premium life insurance policy.
The amount of death benefit, or the duration of insurance coverage, or both, may
be variable or fixed as elected by the Owner.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY CURRENT PROSPECTUSES FOR
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND, FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II, LEXINGTON NATURAL RESOURCES TRUST, LEXINGTON EMERGING MARKETS
FUND, INC., AND SAFECO RESOURCE SERIES TRUST.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 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 290752, Wethersfield, Connecticut 06129-0752.
The phone number is 1-800-982-3656.
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.
CASH SURRENDER VALUE
The Cash Surrender Value on any date is equal to the amount in the Policy
Account on that date minus any applicable surrender charge.
EFFECTIVE DATE
The Effective Date is the date when insurance coverage begins under the Policy.
FACE AMOUNT OF INSURANCE
The amount chosen by the Owner used to determine the death benefit.
FINAL POLICY DATE
The date on which SAFECO will pay the value of the Policy Account less any
outstanding indebtedness if the Policy is in effect on such date.
GUARANTEED INTEREST DIVISION
The Guaranteed Interest Division is part of SAFECO's general account and
guarantees the principal and interest rate paid.
INVESTMENT DIVISION
A Division of the Separate Account invested wholly in shares of one of the
portfolios of the Funds.
MAXIMUM PREMIUM
The annual premium for the Face Amount of Insurance at issue that would be
payable in equal amounts through the Final Policy Date and which is based on:
the guaranteed cost of insurance using the 1980 Commissioner's Standard Ordinary
Mortality Table, the other charges made in accordance with the Policy, and the
net investment earnings at an effective annual rate of 5%.
NET CASH SURRENDER VALUE
The Net Cash Surrender Value is equal to the Cash Surrender Value minus any loan
and loan interest.
OWNER
The Owner is the Primary Insured unless named otherwise in the application or
later changed.
POLICY ACCOUNT
The sum of the value of Policy assets both in the Guaranteed Interest Division
and the Separate Account.
POLICY ANNIVERSARY
The same day and month as the Effective Date, day and month, for each year the
Policy remains in effect.
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.
(ii)
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POLICY YEAR
The first Policy Year starts on the Effective Date. Future Policy Years start on
the same day and month in each subsequent year, i.e., the Policy Anniversary.
PRIMARY INSURED
The insured person whose death benefit includes the Policy Account.
SEPARATE ACCOUNT
A segregated asset account named SAFECO Separate Account SL, maintained by
SAFECO into which a portion of its assets has been allocated for the
Accumulation Life Policies and certain other policies.
UNIT VALUE
The unit of measure used to determine the value of the Investment Divisions in
the Separate Account.
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TABLE OF CONTENTS
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PAGE
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SUMMARY.................................................................................... 1
SAFECO..................................................................................... 5
Advertising and Performance....................................................... 5
THE SEPARATE ACCOUNT....................................................................... 6
SEPARATE ACCOUNT INVESTMENT DIVISIONS...................................................... 6
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS....................................... 6
Fidelity's Variable Insurance Products Fund Investment Objectives and Policies of
the Portfolios.................................................................... 6
Fidelity's Variable Insurance Products Fund II Investment Objectives and Policies
of the Porolios................................................................... 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
Substitution of Securities........................................................ 10
ALLOCATIONS................................................................................ 10
PREMIUMS................................................................................... 10
The Initial Premium............................................................... 10
Subsequent Premiums............................................................... 11
Limits............................................................................ 11
Grace Period...................................................................... 11
Reinstatement..................................................................... 11
CHARGES AND DEDUCTIONS..................................................................... 11
Deductions From Premium Payments.................................................. 11
Premium Tax Charge.......................................................... 11
Sales Loads................................................................. 12
Deductions from Policy Account.................................................... 12
First Year Administrative Charge......................................... 12
Monthly Charges.......................................................... 12
The Monthly Administrative Charge..................................... 12
The Monthly Cost of Insurance for Primary Insured..................... 12
The Monthly Cost of Any Benefits Provided by Riders................... 12
Deductions from Separate Account.................................................. 12
Mortality and Expense Risk Charge........................................... 12
Income Tax Charge........................................................... 12
Deductions for Other Transactions................................................. 13
Transfers Among Investment Options.......................................... 13
Increases in Face Amount of Insurance....................................... 13
Partial Withdrawals......................................................... 13
Surrender Charges................................................................. 13
Full Surrenders............................................................. 13
Decreases in Face Amount of Insurance....................................... 13
Fund Expenses..................................................................... 14
Fidelity's VIP Fund and VIPII Fund.......................................... 14
Lexington Natural Resources Trust and Lexington Emerging Markets Fund....... 14
SAFECO Resource Series Trust................................................ 15
</TABLE>
(iv)
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<TABLE>
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PAGE
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POLICY BENEFITS AND RIGHTS................................................................. 15
Insurance Benefits................................................................ 15
Death Benefit..................................................................... 15
Guaranteed Death Benefit Endorsement.............................................. 16
Changing Face Amount of Insurance or Death Benefit Option......................... 16
Transfers Among Investment Options................................................ 17
Policy Loans...................................................................... 17
Loan Interest..................................................................... 18
Loan Repayment.................................................................... 18
Full Cash Surrender............................................................... 18
Partial Cash Withdrawal........................................................... 19
VALUATION.................................................................................. 19
OTHER PROVISIONS........................................................................... 19
Owner............................................................................. 19
Beneficiary....................................................................... 20
Changing Owner or Beneficiary..................................................... 20
Assignment........................................................................ 20
ADMINISTRATION OF THE POLICIES............................................................. 20
DELAY OF PAYMENTS.......................................................................... 20
MANAGEMENT OF THE COMPANY.................................................................. 21
TAX STATUS................................................................................. 21
Introduction...................................................................... 21
Diversification................................................................... 22
Tax Treatment of the Policy....................................................... 23
Policy Proceeds................................................................... 23
Tax Treatment of Loans and Surrenders............................................. 23
Multiple Policies................................................................. 24
Tax Treatment of Assignments...................................................... 24
Qualified Plans................................................................... 24
SEPARATE ACCOUNT VOTING RIGHTS............................................................. 24
Disregard of Voting Instructions.................................................. 25
DISTRIBUTION OF THE POLICIES............................................................... 25
REPORTS TO POLICY OWNERS................................................................... 25
LEGAL PROCEEDINGS.......................................................................... 25
EXPERTS.................................................................................... 25
FINANCIAL STATEMENTS....................................................................... 26
APPENDIX A -- FINANCIAL STATEMENTS......................................................... A-1
APPENDIX B -- HYPOTHETICAL ILLUSTRATIONS
Of Death Benefits, Policy Account and Net Cash Surrender Values, and Accumulated
Premiums............................................................................ B-1
APPENDIX C -- ILLUSTRATIONS
Of Variation in Death Benefit, Policy Account and Cash Surrender Values in
Relation to the Funds' Investment Experience........................................ C-1
APPENDIX D -- STANDARD AND POOR'S 500...................................................... D-1
APPENDIX E -- LONG TERM MARKET TRENDS...................................................... E-1
</TABLE>
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[This page intentionally left blank]
(vi)
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SUMMARY
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The following summary of Prospectus information and diagram of the Policy should
be read in conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy contained
in this Prospectus assumes that the Policy is in force and that there is no
outstanding indebtedness.
DIAGRAM OF POLICY
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PREMIUM PAYMENTS
- You can vary amount and frequency.
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DEDUCTIONS FROM PREMIUMS
- Sales load and distribution expense is 3%.
- Premium tax that varies by state or subdivision.
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NET PREMIUM
- You direct the net premium to be invested in the Guaranteed Interest
Division (GID) or to the Separate Account which offers sixteen different
Investment Divisions. Each Investment Division invests in a separate
portfolio of Fidelity's Variable Insurance Products Fund, Fidelity's
Variable Insurance Products Fund II, Lexington Natural Resources Trust,
Lexington Emerging Markets Fund or SAFECO Resource Series Trust.
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DEDUCTIONS FROM POLICY ACCOUNT
- Monthly charge for cost of insurance and cost of any riders.
- Monthly charge for administrative expenses of $24.00 per month the
first year, $4.00 per month thereafter.
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DEDUCTIONS FROM SEPARATE ACCOUNT
- Daily charge, at an annual rate of 0.90% from the Investment Divisions
for mortality and expense risks. This charge is not deducted from the
GID.
- Investment advisory fees and fund expenses are deducted from each
portfolio.
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BENEFITS
LIVING BENEFITS:
- Loans may be taken at a zero net interest rate after twelve years.
- The Policy may be surrendered at any time for its Net Cash Surrender
Value.
- Partial withdrawals can be made after the first Policy Year (subject
to certain restrictions). The death benefit will be reduced by the
amount of the partial withdrawal.
- Accelerated payment of a portion of the lowest scheduled death benefit
is available under certain conditions to insureds suffering from
terminal illnesses.
RETIREMENT BENEFITS:
- Loans may be taken at a zero net interest rate after twelve years.
- Partial withdrawals of Cash Surrender Values may be taken.
DEATH BENEFITS:
- Death benefits are income tax free to the Beneficiary.
- Lifetime income to the Beneficiary is available in a variety of
settlement options.
- For certain Policies issued on or after April 29, 1994, a Guaranteed
Death Benefit Endorsement may be added to the Policy.
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1
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THE POLICY
The Policy described in this Prospectus is a flexible premium variable life
insurance policy. The Policy is "flexible" because unlike the fixed premium and
benefits of an ordinary whole life insurance policy, the frequency and amount of
premium payments can vary, the Owner can choose between death benefit options
and increase or decrease the amount of insurance coverage, all within the same
policy of insurance.
After SAFECO accepts the Primary Insured, receives at least the minimum initial
premium and deducts certain charges, the Policy Account is established. For the
first 25 days after the Effective Date, the Policy Account will be allocated to
the Money Market Investment Division of the Separate Account. At the end of this
25 day period, the Policy Account will be allocated to the Investment Divisions
of the Separate Account and to the unloaned portion of the Guaranteed Interest
Division in accordance with the Owner's instructions. The Policy Account
reflects the amount and frequency of premium payments, deductions for the cost
of insurance and expenses, the investment experience of amounts allocated to the
Separate Account, interest earned on amounts allocated to the Guaranteed
Interest Division, loans and partial withdrawals. There is no minimum guaranteed
value with respect to any amounts allocated to the Separate Account.
The Guaranteed Interest Division guarantees the principal and interest credited
and paid. The declared interest rate will vary and is guaranteed to never be
less than 4% per year.
The Policy is "variable" because the Policy Account, and under certain
circumstances the death benefit under the Policy, may increase or decrease
depending upon the investment results of the selected Investment Divisions of
the Separate Account.
There are two death benefit options: Option A and Option B. If death benefit
Option A is in effect, the death benefit is the greater of the Face Amount of
Insurance or a percentage of the amount in the Policy Account. Under this
option, the amount of the death benefit is fixed, except when it is determined
by such a percentage. If death benefit Option B is in effect, the death benefit
is the greater of the Face Amount of Insurance plus the amount in the Policy
Account, or a percentage of the amount in the Policy Account. Under this option,
the amount of the death benefit is variable. The Owner can change the selection
of death benefit option.
SAFECO makes monthly deductions from the Policy Account (i) to cover the cost of
the benefits provided by the Policy, (ii) to cover the cost of any benefits
provided by riders to the Policy and (iii) for the cost of administering the
Policy. If the Net Cash Surrender Value of the Policy is not sufficient to cover
the monthly deduction when due, a grace period of 61 days will be allowed for
the payment of a premium or a loan repayment. If a premium or a loan repayment
sufficient to cover three monthly deductions of cost of insurance plus other
charges made in accordance with the Policy is still unpaid at the end of the
grace period, the Policy will lapse and all coverage under the Policy will
terminate. If the Guaranteed Death Benefit Endorsement has been added to the
Policy, then as long as required premiums are paid, the Policy will not
terminate prior to the Primary Insured's 80th birthday and a death benefit will
be payable upon the death of the Primary Insured regardless of the investment
performance of the Investment Divisions selected. (See "Guaranteed Death Benefit
Endorsement" on page 16.)
The Policy has been designed to comply with the definition of life insurance
contained in Section 7702 of the Internal Revenue Code of 1986, as amended.
However, the law in this regard is very complex and unclear. While every attempt
has been made to comply, there is the risk that the Internal Revenue Service
will not concur with SAFECO's interpretations of Section 7702 that were made in
determining such compliance. For a further discussion, see "Tax Status -- Tax
Treatment of the Policy" on Page 23.
THE SEPARATE ACCOUNT
The Separate Account has been established by SAFECO pursuant to the insurance
laws of the State of Washington and is organized as a unit investment trust
under the Investment Company Act of 1940, as amended. Net premiums are placed in
the Owner's Policy Account, which are then allocated to one or more Investment
Divisions of the Separate Account and/or to the Guaranteed Interest Division.
The Separate Account is divided into Investment Divisions. Each Investment
Division invests in portfolio(s) of
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the Funds. The owner can choose to allocate net premiums or cash value in up to
nine of the available sixteen Investment Divisions at any one time.
Fidelity's Variable Insurance Products Fund ("VIP") is a mutual fund comprised
of five portfolios, each of which is currently available in connection with the
Policies. The five portfolios are: Money Market, High Income, Equity-Income,
Growth and Overseas.
Fidelity's Variable Insurance Products Fund II ("VIPII") is a mutual fund
comprised of five portfolios, each of which is currently available in connection
with the Policies. The five portfolios are: Investment Grade Bond, Asset
Manager, Index 500, Asset Manager: Growth and Contrafund.
Lexington Natural Resources Trust and the Lexington Emerging Markets Fund, Inc.
("Lexington Emerging Markets Fund") each consist of only one portfolio which are
offered hereunder; the Lexington Natural Resources Portfolio and the Lexington
Emerging Markets Portfolio, respectively.
SAFECO Resource Series Trust ("SAFECO RST") currently consists of six
portfolios, four of which are currently available in connection with the
Policies. The four portfolios are: Equity, Growth, Northwest and Bond.
RIGHT TO EXAMINE THE POLICY
The Owner may examine the Policy and if for any reason is not satisfied, may
cancel the Policy by returning it with a written request for cancellation to
SAFECO's Administrative Office by the later of: (a) the 10th day after receipt;
or (b) the 45th day after Part I of the application was signed. If the Owner
cancels the Policy, SAFECO will refund an amount equal to the premium payments
made under the Policy.
CHARGES AND DEDUCTIONS
FROM THE PREMIUM PAYMENTS
PREMIUM TAX CHARGE. State and/or local premium taxes are assessed based on the
Owner's residence. Premium taxes currently range up to 4%.
SALES LOADS. There is a sales charge equal to 3% of each premium payment. There
is also a surrender charge of up to 47% of the Maximum Premium assessed in the
event the Policy Account is surrendered for its Net Cash Surrender Value. (See
"Surrender Charges" on Page 13.)
FROM THE POLICY ACCOUNT
FIRST YEAR ADMINISTRATIVE CHARGE. During the first Policy Year, a charge of
$20.00 is deducted from the Policy Account at the beginning of each Policy
Month.
MONTHLY DEDUCTION. Deductions from the Policy Account at the beginning of each
Policy Month consist of:
1. The monthly administrative charge is currently $4.00 per Policy Month. SAFECO
has reserved the right to change this charge, but it will never be more than
$8.00 per Policy Month;
2. The monthly cost of insurance for the Primary Insured; and
3. The monthly cost of any benefits provided by riders to the Policy.
FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. This charge is equal on an annual basis to
0.90% of the daily net asset value of the Separate Account. SAFECO estimates
that, of the Mortality and Expense Risk Charge, approximately 0.55% is for the
assumption of mortality risks and approximately 0.35% is for the assumption of
expense risks.
INCOME TAX CHARGE. SAFECO has reserved the right to make a provision for
federal, state and local income taxes which have resulted from the operation of
any Investment Division of the Separate Account.
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FOR OTHER TRANSACTIONS
FOR TRANSFERS AMONG INVESTMENT OPTIONS. The first twelve transfers of amounts in
a Policy Year will be made without charge. A charge of up to $25.00 may be
deducted from the Policy Account for each additional transfer in that Policy
Year. However, under certain systematic investing programs this charge will not
be applicable.
FOR INCREASES IN FACE AMOUNT OF INSURANCE. $2.00 for each $1,000 of increase is
deducted from the Policy Account up to a maximum charge of $300.00 per increase.
FOR PARTIAL WITHDRAWALS. A charge equal to $25.00 or 2% of the amount withdrawn,
if less, is deducted from the Policy Account whenever there is a partial
withdrawal of Net Cash Surrender Value.
SURRENDER CHARGES
FOR FULL SURRENDERS. A surrender charge of up to 47% of the Maximum Premium will
be deducted from the Policy Account if the Policy is surrendered in the first
ten Policy Years. An Owner can minimize the amount of Surrender Charge by
limiting the amount of premiums paid in the first year. (See "Charges and
Deductions-Surrender Charges" on Page 13.)
FOR DECREASES IN FACE AMOUNT OF INSURANCE. A decrease in the Face Amount of
Insurance is a partial surrender, for which a portion of the Surrender Charge
will be deducted from the Policy Account. (See "Charges and
Deductions -- Surrender Charges" on Page 13.)
There are no Surrender Charges after the tenth Policy Year.
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 14.)
For a complete discussion of all the charges and deductions, see "Charges and
Deductions" on Page 11.
POLICY LOANS
The Owner may obtain a Policy loan, using the Policy Cash Surrender Value as
security. (See "Policy Benefits and Rights -- Policy Loans" on Page 17.)
TAX STATUS
MODIFIED ENDOWMENT CONTRACTS
The Technical and Miscellaneous Revenue Act of 1988 (the "1988 Act") alters the
tax treatment accorded to loans and certain distributions from life insurance
policies which are deemed to be "modified endowment contracts."
A Policy will be a modified endowment contract if it is issued or materially
changed on or after June 21, 1988, and if the cumulative amount paid under it at
any time during the first seven Policy Years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums (the "7-pay test"). A material change to the Policy at any time results
in the commencement of a new 7-pay test period. An increase in a death benefit
not as a result of investment performance is a material change. A Policy that
was entered into prior to June 21, 1988, may be deemed to be a modified
endowment contract if it is materially changed and fails to meet the 7-pay test.
If the Policy is acquired through an exchange of another life insurance policy,
the 7-pay test is applicable even though the original policy was entered into
prior to June 21, 1988. Due to the flexible premium nature of the Policy, the
determination of whether it qualifies for treatment as a modified endowment
contract depends on the individual circumstances of each Policy. SAFECO will
make every effort to provide Owners with information necessary to determine the
applicability of the 7-pay test. However, Owners should consult with a tax
advisor as to its applicability to their own circumstances.
If a Policy is a modified endowment contract, partial or full surrenders and/or
loan proceeds are taxable to the extent of income in the Policy and will also be
subject to an additional 10% federal income tax penalty
4
<PAGE> 13
applied to the income. However, the penalty does not apply to any distribution:
(1) made on or after the date on which the taxpayer reaches age 59 1/2; (2)
which is attributable to the taxpayer becoming disabled (within the meaning of
Section 72(m)(7) of the Internal Revenue Code); or (3) which is part of a series
of substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the taxpayer or the joint lives (or
joint life expectancies) of such taxpayer and his or her beneficiary. These
distributions are taxed using an "income-first" method rather than a
"basis-first" method. Owners should consult a tax adviser regarding the possible
tax consequences of loans from and/or surrenders of the Policy.
The 1988 Act further provides that multiple 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 distributed amounts from such combination of
contracts. Owners should consult a tax adviser prior to purchasing more than one
modified endowment contract during any calendar year.
For more details, see "Tax Status-Policy Proceeds" on Page 23 and "Tax
Status-Tax Treatment of Loans and Surrenders on Page 23.
SAFECO
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SAFECO Life Insurance Company ("SAFECO") is a stock life insurance company which
was organized under the laws of the State of Washington on January 23, 1957.
SAFECO writes individual and group life, accident and health insurance and
annuities. SAFECO is licensed to do business in the District of Columbia and all
states except New York. SAFECO is a wholly-owned subsidiary of SAFECO
Corporation, which is a holding company whose subsidiaries are engaged primarily
in insurance and financial service businesses. The home office address of SAFECO
is P.O. Box 34690, Seattle, Washington 98124-1690. The address of the
Administrative Office is P.O. Box 290752, Wethersfield, Connecticut 06129-0752.
The phone number is 1-800-982-3656. All requests should be directed to the
Administrative Office. All premium payments should be directed to the Address,
P.O. Box 30349, Hartford, CT 06150.
SAFECO is rated A++ (Superior), the highest ranking available, by A.M. Best, an
independent firm that analyzes insurance carriers. SAFECO is also rated Aa2
(Excellent) for financial strength by Moody, and AA (Excellent) for claims
paying ability by Standard & Poor ("S&P"), both of which are the third highest
ranking out of 21 classifications. The financial strength of SAFECO may be
relevant with respect to SAFECO's ability to satisfy its general account
obligations under the Policies.
ADVERTISING AND PERFORMANCE
Total returns for the Funds may be quoted in advertising and marketing materials
when accompanied by policy performance at the Separate Account level.
Comparative performance information may also be used from time to time,
including Lipper Analytical Services, Inc., Morningstar, Inc. and The VARDS
Report by Financial Planning Resources, Inc., or major market indices such as
the Dow Jones Industrial Average Index, Standard & Poor's 500 Composite Stock
Price Index, Morgan Stanley Capital International World Index, Morgan Stanley
Emerging Markets Free Index, Morgan Stanley Capital International, Europe,
Australiasia, Far East (EAFE) Index and other circular services and
publications. Such comparative performance information will be stated in the
same terms in which the comparative data and indices are stated. The services
utilize industry standard measurements some of which are described below:
Relative volatility measures the variability of a return from its mean, in terms
of a standard measurement. Beta is a measure of a portfolio's market risk. The
beta of the market is 1.00 as measured with the S&P 500 Index. Accordingly, a
portfolio with a beta of 1.10 is expected to perform 10% better than the market
in up markets and 10% worse than the market in down markets. Conversely, a beta
of .85 indicates that the portfolio is expected to perform 15% worse than the
market in up markets and 15% better than the market in down markets. 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.
5
<PAGE> 14
THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
The Board of Directors of SAFECO adopted a resolution to establish a segregated
asset account pursuant to Washington insurance law on November 6, 1986. This
segregated asset account has been designated Separate Account SL. SAFECO has
caused the Separate Account to be registered with the Securities and Exchange
Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Separate
Account meets the definition of a "separate account" under the federal
securities laws.
The assets of the Separate Account are the property of SAFECO. However, the
assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business SAFECO may conduct. Income, gains
and losses, whether or not realized, are, in accordance with the Policies,
credited to or charged against the Separate Account without regard to other
income, gains or losses of SAFECO. SAFECO's obligations arising under the
Policies are general corporate obligations.
The Separate Account is divided into Investment Divisions. Each Investment
Division invests in shares of a corresponding portfolio of the Funds. This
Prospectus describes Policies under which net premiums are allocable to
portfolios of the Funds through Investment Divisions of the Separate Account.
SEPARATE ACCOUNT INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
Each Investment Division of the Separate Account is invested solely in the
shares of one portfolio of the Funds. Each of the Funds, except Lexington
Natural Resources Trust, is an open-end, diversified management investment
company registered under the 1940 Act. Lexington Natural Resources Trust is an
open-ended, non-diversified management investment company registered under the
1940 Act. While a brief summary of the investment objectives and policies of the
portfolios of the Funds is set forth below, more comprehensive information,
including a discussion of potential risks, is found in the Prospectuses for the
Funds which are included with this Prospectus. Each of the Funds is intended for
use in connection with variable annuity contracts and variable life insurance
policies offered by various life insurance companies. For a further discussion,
see the Funds' Prospectuses. Each of the Funds has entered into an investment
advisory agreement with the respective Funds' investment advisor.
Shares of the Funds are issued and redeemed in connection with variable life
policies issued through the Separate Account, other SAFECO Separate Accounts
issuing variable contracts and variable annuity and/or variable life insurance
policies issued through separate accounts of life insurance companies not
affiliated with SAFECO. Shares of the SAFECO RST may also be made directly
available to qualified plans. The Funds do not foresee any disadvantage to
Owners arising out of the fact that the Funds have been made available to
separate accounts of companies not affiliated with SAFECO. Nevertheless, the
Funds intend to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in the Fund(s). This might force
the Fund(s) to sell portfolio securities at disadvantageous prices.
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND ("VIP")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------- ------------------------------------- ----------------------------------
<S> <C> <C>
VIP MONEY MARKET High-quality, U.S. dollar denominated Seeks to obtain as high a level of
money market securities of domestic current income as is consistent
and foreign issuers, such as with preserving capital and
certificates of deposit, obligations providing liquidity.
of governments and their agencies and
commercial paper and notes.
</TABLE>
6
<PAGE> 15
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------- ------------------------------------- ----------------------------------
<S> <C> <C>
VIP HIGH INCOME At least 65% in income-producing debt Seeks to obtain a high level of
securities and preferred stocks, current income by investing
including convertible securities; up primarily in high-yielding, lower-
to 20% in common stocks and other rated, fixed-income securities,
equity securities; and up to 15% in while also considering growth of
securities that are illiquid by capital. High-yielding lower grade
virtue of restrictions on resale and corporate debt securities are
all other illiquid securities. commonly known as "junk bonds" and
involve a significant degree of
risk. See "Securities and
Investment Practices" in the
accompanying Variable Insurance
Products Fund Prospectus.
VIP EQUITY-INCOME At least 65% in income-producing Seeks reasonable income by
common or preferred stock and the investing primarily in income-
remainder in debt securities. producing equity securities, with
the potential for capital
appreciation as a consideration.
VIP GROWTH Portfolio will normally purchase Seeks to achieve capital
common stocks, although investments appreciation.
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 primarily through investments in
from at least three countries outside foreign securities.
of 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>
7
<PAGE> 16
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II ("VIPII")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------- ------------------------------------- ----------------------------------
<S> <C> <C>
VIPII INVESTMENT The Portfolio will maintain a dollar- Seeks as high a level of current
GRADE BOND weighted average portfolio maturity income as is consistent with the
of ten years or less. Under normal preservation of capital by
conditions, at least 65% of the investing in a broad range of
Portfolio's total assets will be investment- grade, fixed-income
invested in investment-grade fixed- securities.
income securities such as bonds,
notes and debentures. Investment-
grade securities are those rated Baa
or better by Moody's Investors
Service, Inc. or BBB or better by
Standard & Poor's Corporation, and
unrated securities judged by Fidelity
Management to be of equivalent
quality.
VIPII ASSET MANAGER The Portfolio allocates its assets Seeks high total return with
among domestic and foreign stocks, reduced risk over the long-term.
bonds and short-term fixed income
instruments.
VIPII INDEX 500 The Portfolio's assets will be Seeks investment results that
invested in equity securities of correspond to the total return
companies which compose the S&P 500*. (i.e., the combination of capital
changes and income) of common
stocks publicly traded in the
United States, as represented by
the Standard & Poor's Composite
Index of 500 Stocks, while keeping
transaction costs and other
expenses low.
VIPII ASSET MANAGER: The Portfolio's assets will be Seeks maximum total return over
GROWTH diversified across domestic and the 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.
VIPII CONTRAFUND The Portfolio's assets will be Seeks long-term capital
invested mainly in undervalued or appreciation.
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>
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500" and
"500" are trademarks of Standard & Poor's Corporation ("S&P") and have been
licensed for use by SAFECO. The Index 500 Portfolio is not sponsored,
endorsed, sold or promoted by S&P and S&P makes no representation regarding
the advisability of investing in the Index 500 Portfolio.
8
<PAGE> 17
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
have economic value. The Portfolio common stocks of companies that
seeks to identify securities of own or develop natural resources
companies that, in its management's and other basic commodities, or
opinion, are undervalued relative to supply goods and services to such
the value of natural resource companies.
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 securities. For purposes of equity securities and equivalents
its objective, the Portfolio of companies domiciled in, or
considers emerging country equity doing business in emerging
securities to be any country whose countries and emerging markets.
economy and 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
principally in common stocks or and reasonable current income.
securities convertible into common
stocks.
SAFECO RST The Portfolio ordinarily invests a Seeks growth of capital and the
GROWTH preponderance of its assets in common increased income that ordinarily
stock selected for potential follows from such growth.
appreciation.
</TABLE>
9
<PAGE> 18
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ------------------------- ------------------------------------- ----------------------------------
<S> <C> <C>
SAFECO RST NORTHWEST The Portfolio invests at least 65% of Seeks long-term growth of capital
its total assets in securities issued through investing primarily in
by companies with their principal Northwest companies.
executive offices located in, Alaska,
Idaho, Montana, Oregon or Washington.
SAFECO RST BOND The Portfolio invests primarily in Seeks as high a level of current
medium-term debt securities. income as is consistent with the
relative stability of capital.
</TABLE>
There is no assurance that the investment objective of any of the portfolios
will be met. Owners bear the complete investment risk for Policy Account values
allocated to an Investment Division.
Additional portfolios and/or additional funds may from time to time be made
available as investments to underlie the Policy. However, the right to make such
selections will be limited by the terms and conditions imposed on such
transactions by SAFECO.
SUBSTITUTION OF SECURITIES
If the shares of the Funds or any portfolio within the Funds become unavailable
for investment by the Separate Account or, if in the judgment of SAFECO, further
investment in such shares becomes inappropriate in view of the purposes of the
Policy, SAFECO may substitute shares of another mutual fund (or portfolio within
the Fund(s)). No substitution of securities may take place without prior
approval of the Securities and Exchange Commission and under the requirements it
may impose.
ALLOCATIONS
- --------------------------------------------------------------------------------
The Policy provides investment options for the amount in the Policy Account. The
Owner specifies the original premium allocation and deduction allocation
percentages in the application for the Policy. Unless changed, such percentages
also apply to subsequent premium and deduction allocations. The Owner can
maintain balances in a maximum of nine Investment Divisions at any one time.
Allocation percentages must be zero or a whole number not greater than 100. The
sum of the premium allocation percentages and of the deduction allocation
percentages must each equal 100. After SAFECO accepts the Primary Insured,
receives at least the minimum initial premium and deducts certain charges, the
Policy Account is established for the Owner. For the first 25 days after the
Effective Date, the Policy Account will be allocated to the Money Market
Investment Division of the Separate Account. At the end of this 25 day period,
the Policy Account may be allocated to one or more Investment Divisions up to a
maximum of nine and to the unloaned portion of the Guaranteed Interest Division
in accordance with the Owner's instructions. Additional premiums and deductions
will be allocated to the Investment Divisions of the Separate Account and to the
unloaned portion of the Guaranteed Interest Division as specified by the Owner.
If SAFECO cannot make a monthly deduction on the basis of the allocation
percentages, the deduction will be based on the proportion that the unloaned
value in the Guaranteed Interest Division and the values in the Investment
Divisions bear to the total unloaned value in the Policy Account.
PREMIUMS
- --------------------------------------------------------------------------------
THE INITIAL PREMIUM
The initial premium payment is due on or before delivery of the Policy. The
minimum initial premium required is that premium sufficient to cover three
monthly deductions for cost of insurance plus other charges made in accordance
with the Policy. The agent selling the Policy will provide a prospective
purchaser with this information. No insurance will take effect before the
initial premium payment is paid.
10
<PAGE> 19
SUBSEQUENT PREMIUMS
Additional premiums may be paid at any time at P.O. Box 30349, Hartford,
Connecticut, 06150, while the Policy is in force and before the Final Policy
Date. These premiums must be in the form of a check or money order payable to
SAFECO Life. Such premiums may be in any amount subject to the limits described
below.
If the Owner elects to pay premiums on a planned periodic premium basis, SAFECO
will send premium reminder notices. Instead of receiving premium reminder
notices, an Owner can elect to have premiums automatically deducted from the
Owner's bank account. The Owner may skip planned premium payments or change
their frequency and amount.
For certain Policies issued on or after April 29, 1994, a Guaranteed Death
Benefit Endorsement may be added to the Policy. In order to maintain this
Endorsement in force, the Monthly Guaranteed Death Benefit Premium must be paid.
When the Endorsement is issued or other changes in the Policy are requested,
SAFECO will send the Owner a new Policy Information section which will show the
Monthly Guaranteed Death Benefit Premium. (See "Guaranteed Death Benefit
Endorsement" on Page 16.)
LIMITS
Each premium payment must be at least $50.00. SAFECO may increase this minimum
limit 90 days after sending the Owner a written notice of such increase.
SAFECO reserves the right not to accept premium payments in any Policy Year that
it determines would cause the Policy to fail to qualify as life insurance under
applicable tax law as currently interpreted by SAFECO. For a further
explanation, see "Tax Status -- Policy Proceeds" on Page 23.
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 30349, Hartford, Connecticut,
06150, before the end of the grace period, SAFECO will send a written notice to
the Owner and any assignee of record stating that the Policy has ended without
value. If the insured dies during the grace period, SAFECO will pay the
insurance benefits. The grace period provisions are not applicable while the
Guaranteed Death Benefit Endorsement is in effect.
REINSTATEMENT
If the Policy has ended without value, it may be reinstated while the Primary
Insured is alive if:
1. a request for reinstatement is made within five years after the end of the
grace period;
2. evidence of insurability satisfactory to SAFECO is provided; and
3. a premium payment is made in an amount sufficient, after the date of
reinstatement, to cover three monthly deductions of cost of insurance plus
other charges made in accordance with the Policy.
The coverage will become effective on the beginning of the Policy Month which
coincides with or next follows the date the reinstatement application is
approved.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUM PAYMENTS
PREMIUM TAX CHARGE. All states and certain jurisdictions, such as cities and
counties, tax premium payments and some levy other charges. Taxes currently
range up to 4%. SAFECO deducts the applicable tax which it has been charged from
each premium payment based on the Owner's residence.
11
<PAGE> 20
SALES LOADS. SAFECO deducts a Sales Charge (Sales Load) of 3% of each premium
payment. The sales charge reimburses SAFECO, in part, for expenses incurred in
the distribution of the Policy. There is also a Surrender Charge assessed in the
event the Policy is surrendered for its Net Cash Surrender Value. (See "Charges
and Deductions -- Surrender Charges" on Page 13.)
DEDUCTIONS FROM POLICY ACCOUNT
FIRST YEAR ADMINISTRATIVE CHARGE. At the beginning of each Policy Month during
the first Policy Year, a deduction of $20.00 is made from the Policy Account. It
covers the cost of application processing, establishing Policy records and
underwriting costs. Underwriting is the process of assigning the insured to an
appropriate risk class. SAFECO does not make a profit from this charge.
MONTHLY CHARGES. At the beginning of each Policy Month, a deduction is made from
the Policy Account to cover monthly administrative charges and to provide
insurance coverage, subject to the Grace Period provision described above. Such
deduction for any Policy Month is the sum of the following amounts determined as
of the beginning of that month:
1. The monthly administrative charge is currently $4.00 per Policy Month.
However, SAFECO reserves the right to change this charge, but it will never
be more than $8.00 per Policy Month. This charge compensates SAFECO for the
ongoing administration of the Policy and the Separate Account. Such
administration includes the costs associated with maintenance of Policy
records, Policy Owner service, reports to Owners and all accounting, reserve
calculation, regulatory and reporting requirements and auditing of the
Separate Account. SAFECO does not expect to profit from this charge.
2. The monthly cost of insurance for the Primary Insured. The monthly cost of
insurance is the current monthly "cost of insurance rate" times the "net
amount at risk" (current death benefit minus the amount in the Policy
Account) at the beginning of the Policy Month, plus any flat extra-rated
charge times the Face Amount of Insurance at the beginning of the Policy
Month. For this purpose the amount in the Policy Account is determined before
the monthly cost of insurance deduction, but after all other deductions due
on that date have been made. The cost of insurance rate is based on the
Attained Age and rating class of the Primary Insured. For certain Policies
issued on or after April 29, 1994, the cost of insurance is based on issue
age, coverage duration and rating class of the Primary Insured and a
preferred underwriting category is available to insureds who are determined
to have better than average nonsmoker mortality (preferred nonsmoker) and
smoker mortality (preferred smoker). As of the date hereof, the current rates
which SAFECO is charging are less than or equal to the guaranteed rates.
SAFECO may change the current rate no more frequently than once per Policy
Year. The Guaranteed Maximum Insurance Cost Rates for standard risks are
based on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday.
3. The monthly cost of any benefits provided by riders to the Policy.
DEDUCTIONS FROM SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. SAFECO deducts a risk charge from the
Separate Account as part of the calculation of the Unit Value (see "Valuation"
on Page 19). This risk charge is equal on an annual basis to .90% of the daily
net asset value of the Separate Account. SAFECO estimates that, of the Mortality
and Expense Risk Charge, approximately 0.55% is for the assumption of mortality
risks and approximately 0.35% is for the assumption of expense risks. This risk
charge compensates SAFECO for assuming the mortality and expense risks under the
Policy. The mortality risk assumed by SAFECO is that the Primary Insureds, as a
group, may not live as long as expected. The expense risk assumed by SAFECO is
that actual expenses may be greater than those assumed. SAFECO is responsible
for all administration of the Policy and the Separate Account. If this charge is
not needed to cover mortality and expenses under the Policy, any excess may be
used for distribution costs not covered by the sales load. SAFECO will realize a
gain from this charge to the extent that it is not needed to provide benefits
and pay expenses under the Policy.
INCOME TAX CHARGE. SAFECO does not currently assess any charge for income taxes
incurred by SAFECO as a result of the operations of the Investment Divisions of
the Separate Account. SAFECO reserves the right to assess a charge for such
taxes against the Investment Divisions if SAFECO determines that such taxes will
be incurred.
12
<PAGE> 21
DEDUCTIONS FOR OTHER TRANSACTIONS
TRANSFERS AMONG INVESTMENT OPTIONS. The first twelve transfers of amounts in a
Policy Year will be made without charge. Transfers can be made from one
Investment Division to another, or to or from the Guaranteed Interest Division.
(See "Transfers Among Investment Options" on page 17.) SAFECO may charge up to
$25.00 for each additional transfer in the Policy Year. The current charge is
$25.00. However, under certain systematic investing programs this charge will
not be applicable.
INCREASES IN FACE AMOUNT OF INSURANCE. There is a $2.00 charge for each $1,000
of increase in Face Amount of Insurance up to a maximum charge of $300.00 per
increase. This charge is deducted from the Policy Account and reimburses SAFECO
for its costs in implementing the increase.
PARTIAL WITHDRAWALS. When the Owner makes a partial withdrawal of Net Cash
Surrender Value, a charge of $25.00, or 2% of the amount withdrawn if less, is
deducted from the Policy Account. This charge reimburses SAFECO for the expenses
incurred in processing the transaction.
SURRENDER CHARGES
FULL SURRENDERS. The Policy provides that a Surrender Charge, which is graded
down 20% per year starting in the seventh year, is deducted from the Policy
Account if the Policy is given up for its Net Cash Surrender Value in the first
ten Policy Years. The Surrender Charge at any time in a Policy Year is equal to
the lesser of (1) a percentage of the Maximum Premium for the Policy as follows:
47% for Policy Years 1 through 6, 37.6% for Policy Year 7, 28.2% for Policy Year
8, 18.8% for Policy Year 9, and 9.4% for Policy Year 10; or (2) an amount equal
to (A) minus (B), where (A) is 27% of the premium payments received during the
first Policy Year up to the Maximum Premium for the Policy, plus 6% of all other
premium payments received to the time of surrender; and (B) is the amount of any
pro rata Surrender Charge previously made under the Policy.
The Maximum Premium is used solely to calculate the Surrender Charge; it does
not impose a limit on the amount of premium that an Owner can pay. There is a
limitation imposed by the Internal Revenue Code and the regulations thereunder.
(See "Premiums -- Limits" on Page 11.) While an Owner can minimize the amount of
Surrender Charge by limiting the amount of premium paid in the first year, this
would adversely effect contract performance in every aspect other than the
contemplation of a total cash surrender.
EXAMPLE
- --------------------------------------------------------------------------------
Assume a $100,000 Policy for a male preferred non-smoker, age 45. For this
Policy the Maximum Premium is $1,716.00. The Table of Surrender Charges that
appears in the Policy Information section would be determined as follows:
<TABLE>
<CAPTION>
TABLE OF SURRENDER CHARGES
POLICY MAXIMUM MAXIMUM SURRENDER
YEAR PERCENTAGE PREMIUM CHARGE
- ------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
1 47.0% x $1,716 = $ 807
2 47.0% x $1,716 = $ 807
3 47.0% x $1,716 = $ 807
4 47.0% x $1,716 = $ 807
5 47.0% x $1,716 = $ 807
6 47.0% x $1,716 = $ 807
7 37.6% x $1,716 = $ 645
8 28.2% x $1,716 = $ 484
9 18.8% x $1,716 = $ 323
10 9.4% x $1,716 = $ 161
</TABLE>
The Surrender Charges reimburse SAFECO in part for expenses incurred in the
distribution of the Policy.
DECREASES IN FACE AMOUNT OF INSURANCE. A request for a decrease in the Face
Amount of Insurance is treated as a partial surrender. If there is a requested
decrease in the Face Amount of Insurance during the first ten Policy Years,
SAFECO will deduct a portion of the Surrender Charge from the Policy Account. If
13
<PAGE> 22
the Owner increases the Face Amount of Insurance and later asks for a decrease,
a Surrender Charge will apply only to a decrease below the original Face Amount
of Insurance. A decrease in the Face Amount of Insurance that follows a prior
increase will be applied against the most recent increase. The pro rata
Surrender Charge for a partial surrender will be determined by dividing the
amount of decrease in the Face Amount of Insurance (below the initial Face
Amount of Insurance) by the initial Face Amount of Insurance and multiplying
that fraction by the Surrender Charge which would apply if the Policy were fully
surrendered.
The pro rata Surrender Charge will be deducted from the Policy Account for a
requested decrease in the Face Amount of Insurance of this Policy. The maximum
Surrender Charge payable in the future will be reduced proportionately. SAFECO
will send a new Policy Information section that shows the new maximum Surrender
Charges.
FUND EXPENSES
FIDELITY'S VIP FUND AND VIPII FUND
<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)
VIPII Investment Grade Bond 0.45 0.13% 0.58%
VIPII Asset Manager 0.64 0.10% 0.74%(1)
VIPII Index 500 0.13 0.15% 0.28%(2)
VIPII Contrafund 0.61 0.13% 0.74%(1)
VIPII Asset Manager: Growth 0.65 0.22% 0.87%(1)
</TABLE>
(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 and .85% for Asset Manager: Growth
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
on an annualized basis.
Each portfolio of the Funds pays all its expenses, without limitation, that are
not assumed by the investment advisor or its affiliates. Each portfolio pays for
the typesetting and printing of its Prospectuses, Statements of Additional
Information, reports and proxy material to existing shareholders, legal expenses
and the fees of the custodian, auditor and non-interested Trustees. Other
charges paid by each portfolio include interest, taxes, brokerage commissions,
each portfolio's proportionate share of insurance premiums and Investment
Company Institute dues, and the costs of registering shares under federal and
state securities laws. Each portfolio is also liable for such nonrecurring
expenses as may arise, including costs of litigation to which each portfolio is
a party and any obligation they may have to indemnify the officers and Trustees
of the Fund(s) with respect to litigation.
LEXINGTON NATURAL RESOURCES TRUST AND LEXINGTON EMERGING MARKETS FUND
Lexington Management Corporation ("LMC") is the investment advisor for Lexington
Natural Resources Trust and Lexington Emerging Markets Fund. For its investment
management services to the Funds, under its investment advisory agreement, LMC
will receive a monthly fee at the annual rate of 1.00% for Lexington Natural
Resources Trust and 0.85% for Lexington Emerging Markets Fund of the respective
Fund's average daily net assets.
14
<PAGE> 23
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>
PORTFOLIO ADVISORY FEE
-------------------------------------------------------------------- ------------
<S> <C>
Lexington Natural Resources Trust 1.00%
Lexington Emerging Markets Fund 0.85%
</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%
</TABLE>
* As a percentage of average net assets.
** SAFECO pays all Other Expenses of each portfolio until a portfolio's assets
reach $20 million. Once a portfolio's assets exceed $20 million, the Other
Expenses of the portfolio will be paid by such portfolio.
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>
POLICY BENEFITS AND RIGHTS
- --------------------------------------------------------------------------------
INSURANCE BENEFITS
SAFECO will pay the insurance benefits of the Policy to the Beneficiary when it
receives at its Administrative Office (1) proof that the insured died before the
Final Policy Date; and (2) all other requirements deemed necessary before such
payment may be made. The insurance benefits of the Policy include the following
amounts for the Primary Insured, which are determined as of the date of the
Primary Insured's death:
(a) the death benefit described below;
(b) plus any other benefits then due from riders to the Policy;
(c) minus any loan (and loan interest) on the Policy; and
(d) minus any overdue deductions if the Primary Insured dies during the Grace
Period.
DEATH BENEFIT
The death benefit will be determined at any time under either Option A or Option
B (as described below), whichever the Owner has chosen and is in effect at such
time.
Under Option A, the death benefit is the greater of the Face Amount of
Insurance, or a percentage (see the following table) of the amount in the Policy
Account. Under this option, the amount of the death benefit is fixed, except
when it is determined by such a percentage.
Under Option B, the death benefit is the greater of the Face Amount of Insurance
plus the amount in the Policy Account, or a percentage (see the following table)
of the amount in the Policy Account. Under this option, the amount of death
benefit is variable.
Under either option, the duration of insurance coverage depends upon the amount
in the Policy Account.
15
<PAGE> 24
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 partial surrender; minus (3)
any loans and loan interest. The Accumulated Monthly Death Benefit Premium is an
amount equal to the sum of the Monthly Guaranteed Death Benefit Premiums for
each month since issue. The Monthly Guaranteed Death Benefit Premium is shown in
the Policy Information section of the Policy.
The Guaranteed Death Benefit Endorsement is not available on policies that
include an additional term 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. The minimum
Face Amount of Insurance is $50,000. At any time after the first Policy Year
while the Policy is in force, the Owner may change the death benefit option or
the Face Amount of Insurance by written request to SAFECO at its Administrative
Office, subject to the following:
1. The Owner may ask SAFECO to increase the Face Amount of Insurance if the
Owner provides satisfactory evidence of the insurability of the Primary
Insured. Any increase must be at least $10,000. There is a charge for such
increase. (See "Charges and Deductions-Increases in Face Amount of Insurance"
on Page 13.) The charge is deducted from the Policy Account as of the date
the increase takes effect.
The Owner may reconsider this Face Amount of Insurance increase after
requesting it. The Owner must mail a notice to SAFECO at its Administrative
Office canceling the increase within a ten day period after receipt of new
Policy Information pages. At such time the Policy Account will be credited
with the amount charged for the increase.
2. The Owner may ask SAFECO to reduce the Face Amount of Insurance, but not to
less than the minimum amount for which SAFECO would then issue the Policy
under its then existing administrative rules. If such a reduction occurs in
the first ten Policy Years, SAFECO will deduct from the Policy Account a pro
rata share of the applicable Surrender Charge. (See "Charges and Deductions-
Decreases in Face Amount of Insurance" on Page 13.)
3. The Owner may change the death benefit option. If the change is from Option A
to Option B, the Face Amount of Insurance will be decreased by the amount in
the Policy Account on the date of change.
16
<PAGE> 25
SAFECO has reserved the right to decline to make such change if it would
reduce the Face Amount of Insurance below the minimum amount for which
SAFECO would then issue the Policy under its then existing administrative
rules. If the change is from Option B to Option A, the Face Amount of
Insurance will be increased by the amount in the Policy Account on the date
of change. Such decreases and increases in the Face Amount of Insurance are
made so that the death benefit remains the same on the date of change. There
is no charge for this change.
Any changes will take effect at the beginning of the Policy Month that coincides
with or next follows the date SAFECO approves the request. SAFECO has reserved
the right to decline to make any change that is determined would cause the
Policy to fail to qualify as life insurance under applicable tax law as
interpreted by SAFECO. An Owner may ask for a change by completing an
application for change and sending it to the Administrative Office.
TRANSFERS AMONG INVESTMENT OPTIONS
At the request of the Owner and subject to allocation limits and any conditions
or requirements that SAFECO may impose, SAFECO will transfer amounts from the
Policy Account value in any Investment Division to one or more other Investment
Divisions of the Separate Account or to the Guaranteed Interest Division. The
owner can maintain balances in a maximum of nine investment divisions at any one
time. The minimum amount that SAFECO will transfer from the Policy Account value
in an Investment Division on any date is the lesser of $200.00 or the Policy
Account value in that Investment Division on that date.
The Owner is permitted to transfer, on any Policy Anniversary, the Policy
Account value from the unloaned value in the Guaranteed Interest Division to one
or more Investment Divisions of the Separate Account. However, SAFECO will make
such a transfer only if (1) SAFECO receives the request for transfer at least 30
days before that Policy Anniversary; and (2) the amount requested is not more
than the greater of 25% of the unloaned value in the Guaranteed Interest
Division on that Anniversary or $200.00. In no event will more than such
unloaned value be transferred. The minimum amount that SAFECO will transfer from
the Policy Account value in the Guaranteed Interest Division on any Policy
Anniversary is the lesser of $200.00 or the unloaned value in the Guaranteed
Interest Division on that date.
Twelve transfers may be made in a Policy Year without charge. After the first
twelve transfers in a Policy Year, SAFECO may charge up to $25.00 for each
additional transfer in that Policy Year. The current transfer fee is $25.00. The
transfer charge will be allocated equally between the investment options from
which the requested amounts were transferred. However, under certain systematic
investing programs this charge will not be applicable.
All such requests must be in writing (or by telephone request, if authorized) to
the Administrative Office. A transfer will take effect on the date SAFECO
receives it at its Administrative Office, except that a transfer requested from
the Guaranteed Interest Division will be made as of the Policy Anniversary
following the date the request is received by SAFECO.
POLICY LOANS
The Owner may obtain a loan on the Policy while it has a loan value. The Policy
will be the only security for the loan. The initial loan and each subsequent
addition to the loan must be for at least $200.00. Any amount on loan is part of
the Policy Account. The loan value on any date is the Cash Surrender Value on
that date, less interest at the loan interest rate to the next Policy
Anniversary. The amount of the loan may not be more than the loan value.
A request for a Policy loan must be in writing to the Administrative Office. The
Owner can elect how much of the loan is to be allocated to the unloaned value in
the Guaranteed Interest Division and to the value in each Investment Division.
Such values will be determined on the date the request is received.
If a portion of the loan is allocated to an Investment Division of the Separate
Account, SAFECO will redeem Units sufficient to cover that part of the loan and
transfer the amount to the loaned portion of the Guaranteed Interest Division.
SAFECO will credit interest on amounts securing loans at a rate 2% below the
rate charged as loan interest during the first 12 Policy Years and at a rate
equal to the rate charged thereafter. This results in a 2% net loan cost for
Policy Years 1-12 and a zero net loan cost thereafter.
If the Owner does not elect an allocation, the loan will be allocated on the
basis of the monthly deduction allocation percentages then in effect. If the
loan cannot be allocated on the basis of the Owner's direction
17
<PAGE> 26
or those percentages, the loan will be based on the proportion that the unloaned
value in the Guaranteed Interest Division and the values in the Investment
Divisions of the Separate Account bear to the total unloaned value in the Policy
Account.
Any amount that secures a loan remains part of the Policy Account, but is
maintained in the loaned portions of the Guaranteed Interest Division.
LOAN INTEREST
Interest, payable in advance, will be charged on any Policy loan from the date
of the loan and shall be due and payable on each Policy Anniversary. The rate is
determined at the beginning of each Policy Year and applies to any new or
existing loan under the Policy during the Policy Year next following the date of
determination.
The maximum loan interest rate for a Policy Year is the greater of: (1) the
"Published Monthly Average," as defined below, for the calendar month that ends
two months before the date of determination; or (2) 5%. "Published Monthly
Average" means the Monthly Average Corporate Yield shown in Moody's Corporate
Bond Yield Averages published by Moody's Investors Service, Inc., or any
successor thereto. If such averages are no longer published, SAFECO will use
such other averages as may be established by regulation by the insurance
supervisory official of the jurisdiction in which the Policy is delivered. In no
event will the loan interest rate for a Policy Year be greater than the maximum
rate permitted by applicable law.
No change in the rate shall be less than 1/2 of 1% a year. SAFECO may increase
the rate whenever the maximum rate as determined by clause (1) of the preceding
paragraph increases by 1/2 of 1% or more. SAFECO will reduce the rate to or
below the maximum rate as determined by clause (1) if such maximum is lower than
the rate to be charged by 1/2 of 1% or more.
SAFECO will notify the Owner of the initial loan interest rate when a loan is
made. SAFECO will also give the Owner advance written notice of any increase in
the interest rate of any outstanding loan. Loan interest is due on each Policy
Anniversary. If the interest is not paid when due, it will be added to the
outstanding loan and allocated on the basis of the deduction allocation
percentages then in effect. If the allocation cannot be made on the basis of
these percentages, the allocation will be based on the proportion that the
unloaned value in the Guaranteed Interest Division and the values in the
Investment Divisions bear to the total unloaned value in the Policy Account. The
unpaid interest will then be treated as part of the loaned amount and will bear
interest at the loan rate.
LOAN REPAYMENT
All or part of a Policy loan may be repaid at any time while the Primary Insured
is alive and the Policy is in force. SAFECO will assume that any payment made,
while a loan is outstanding, is a loan repayment, unless SAFECO is notified in
writing that it is a premium payment. 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. Each loan
repayment must be at least $50.00 with an exception for the final loan repayment
which may be less.
Failure to repay a Policy loan or to pay loan interest will not terminate the
Policy unless the Net Cash Surrender Value is less than the monthly deduction
due on a Monthly Policy Anniversary, in which case the Grace Period Provision
would apply. (See "Premiums-Grace Period" on Page 11.)
A Policy loan will have a permanent effect on the benefits under the Policy even
if it is repaid, because the investment results of the Investment Divisions will
apply only to the amount remaining in such Investment Divisions. The longer the
loan is outstanding, the greater the effect is likely to be. Depending on the
investment results of the Investment Divisions while the loan is outstanding,
the effect could be favorable or unfavorable.
FULL CASH SURRENDER
The Owner may give up the Policy for its Net Cash Surrender Value at any time
while the Primary Insured is living. All insurance coverage will then cease.
Upon a full cash surrender of the Policy, Surrender Charges may be incurred.
(See "Charges and Deductions-Full Surrenders" on Page 13.)
18
<PAGE> 27
PARTIAL CASH WITHDRAWAL
After the first Policy Year, an Owner may ask for a partial withdrawal of the
Net Cash Surrender Value. Such partial withdrawal must be at least $400.00. A
partial withdrawal will result in reductions in the death benefit, the Net Cash
Surrender Value and the Policy Account. Such reductions are equal to the amount
requested plus the partial withdrawal charge. (See "Charges and
Deductions-Partial Withdrawals" on Page 13.)
Any request for a partial withdrawal must be in writing to the Administrative
Office. The Owner may inform SAFECO of the amount of each partial withdrawal
that is to come from the unloaned value in the Guaranteed Division and the
amount that is to come from values in each Investment Division. If the Owner
does not so inform SAFECO, the partial withdrawal will be made on the basis of
the monthly allocation percentages then in effect. If SAFECO cannot make the
partial withdrawal on the basis of the direction of the Owner or those
percentages, the partial withdrawal will be based on the proportion that the
unloaned value in the Guaranteed Interest Division and the values in the
Investment Division bear to the total unloaned value in the Policy Account. The
partial withdrawal charges will be allocated equally between the investment
options from which the requested amounts were withdrawn.
SAFECO reserves the right to decline a request for a partial withdrawal if (a)
the death benefit would be reduced below the minimum amount for which SAFECO
would then issue a Policy; or (b) SAFECO determines that the partial withdrawal
would cause the Policy to fail to qualify as life insurance under applicable tax
law.
VALUATION
- --------------------------------------------------------------------------------
The amount in the Policy Account in an Investment Division at any time is equal
to the number of units attributable to the Policy Account in that Investment
Division multiplied by the Division Unit Value at that time. Amounts allocated,
transferred or added to an Investment Division are used to purchase units of
that Division. Units are redeemed when amounts are deducted, transferred or
withdrawn.
Unit Values for the Investment Divisions will be determined at the close of
business on each day in which the degree of trading in the portfolio of the
Fund(s) might materially affect the net asset value of such portfolio. Normally,
this would be each day that the New York Stock Exchange is open. The Unit Value
of an Investment Division on any business day is equal to the Unit Value for
that Division on the immediately preceding business day multiplied by the net
investment factor for that Division on that business day.
The net investment factor for an Investment Division on any business day is (a)
divided by (b), minus (c), where:
(a) is the net asset value of the shares of the designated portfolio at the
close of business on each business day before any Policy transactions are
made on that day, plus the per share amount of any dividend or capital gain
distribution paid by the portfolio;
(b) is the value of the assets in that Investment Division at the close of
business on the immediately preceding business day after all Policy
transactions were made for that day; and
(c) is a charge for the mortality and expense risks, plus any charge for that
day for taxes or amounts set aside as a reserve for taxes.
A Unit Value may increase or decrease in value from business day to business
day.
OTHER PROVISIONS
- --------------------------------------------------------------------------------
OWNER
If the Primary Insured is living on the Final Policy Date, the Owner will
receive the amount in the Policy Account on that date minus any outstanding loan
and loan interest. The Policy will then end.
The Owner is entitled to exercise all the rights of the Policy while the Primary
Insured is living. To exercise a right the Owner does not need the consent of
anyone who has only a conditional or future ownership interest in the Policy.
19
<PAGE> 28
BENEFICIARY
If two or more persons are named as Beneficiary, those who survive the insured
will share the insurance benefits equally, unless other arrangements have been
made. If there is no designated Beneficiary living at the death of the insured,
the benefits will be paid to the Owner or Owner's estate.
If any Beneficiary dies within 60 days after the insured, and before payment of
any proceeds, payment will be made as though the Beneficiary had died before the
insured. The Beneficiary designation may include provisions that replace the
ones described here.
CHANGING OWNER OR BENEFICIARY
While the insured is living, the Owner or Beneficiary may be changed by
providing written notice from the Policy Owner to the Administrative Office.
Such a change will be effective when written notice is received and recorded and
will control payment of proceeds made after that time.
ASSIGNMENT
The Policy may be assigned, but SAFECO will not be bound by an assignment unless
it has received such assignment in writing. The Owner's rights and those of any
other person under the Policy will be subject to the assignment. SAFECO assumes
no responsibility for the validity of an assignment. A collateral assignment
will not change ownership. An absolute assignment will be considered as a change
of ownership to the assignee.
ADMINISTRATION OF THE POLICIES
- --------------------------------------------------------------------------------
SAFECO has primary responsibility for all administration of the Policies and the
Separate Account. SAFECO has, however, retained Financial Administrative
Services, Inc. ("FAS") pursuant to a servicing agreement to provide certain
administrative services to SAFECO and its policyholders. On December 31, 1993,
PM Holdings, Inc., a holding company owned by Phoenix Home Life Mutual Insurance
Company, bought Fleet Administrative Services, Inc., and renamed the company
Financial Administrative Services, Inc., Prior to December 31, 1993, FAS was
owned by Fleet Financial Group. The address of the Administrative Office
referenced in this Prospectus is P.O. Box 290752, Wethersfield, Connecticut
06129-0752. This office has been established and is managed by FAS on behalf of
SAFECO and other life insurance companies which enter into similar servicing
agreements with FAS.
FAS provides to SAFECO administration, electronic data processing and
policyholder services that are normally required for the Policies. All such
services are performed in accordance with the guidelines and standards
established by SAFECO.
DELAY OF PAYMENTS
- --------------------------------------------------------------------------------
SAFECO will generally pay Policy proceeds within seven business days of receipt
of a completed request for such payment. However, SAFECO reserves the right to
postpone surrender payments and loans from the Guaranteed Interest Division for
up to six months. SAFECO reserves the right to postpone any type of payment from
the Separate Account for any period when:
1. the New York Stock Exchange is closed other than customary weekend and
holiday closings;
2. trading on the Exchange is restricted;
3. an emergency exists as a result of which it is not reasonably practicable to
dispose of securities held in the Separate Account or determine their value;
or
4. the Securities and Exchange Commission so permits delay for the protection of
security holders.
The applicable rules of the Securities and Exchange Commission shall govern as
to whether the conditions in 2 and 3 exist.
20
<PAGE> 29
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
I. Richard Green Vice President
Roger F. Harbin Senior Vice President and Actuary
Michael J. Kinzer Vice President and Chief Actuary
Rod A. Pierson Senior Vice President and Secretary
</TABLE>
DIRECTORS
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH SAFECO
- ----------------------------------------------------------------------------------------------------
<S> <C>
Donald S. Chapman Director
Dan D. McLean Director
Boh A. Dickey Director
Roger H. Eigsti Director
Rod A. Pierson Director
James W. Ruddy Director
Robert L. Spaulding Director
Robert W. Swegle Director
Richard E. Zunker Director
</TABLE>
* The business address for Messrs. Zunker, Fenlason, Flynn, Green, Harbin, and
Kinzer is 15411 N.E. 51st Street, Redmond, Washington 98052. The business
address for all other individuals listed is SAFECO Plaza, Seattle, Washington
98185.
TAX STATUS
- --------------------------------------------------------------------------------
NOTE: The following description is based upon SAFECO's understanding of current
federal income tax law applicable to life insurance in general. SAFECO cannot
predict the probability that any changes in such laws will be made. Purchasers
are cautioned to seek competent tax advice regarding the possibility of such
changes. Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"), defines the term "life insurance contract" for purposes of the Code.
SAFECO believes that the Policies to be issued will qualify as "life insurance
contracts" under Section 7702. SAFECO does not guarantee the tax status of the
Policies. Purchasers bear the complete risk that the Policies may not be treated
as "life insurance" under federal income tax laws. Purchasers should consult
their own tax advisers. It should be further understood that the following
discussion is not exhaustive and that special rules not described in this
Prospectus may be applicable in certain situations.
INTRODUCTION
The discussion contained herein is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any applicable state or other tax laws. Moreover, the
discussion herein is based upon SAFECO's understanding of current federal income
tax laws as they are currently interpreted. No representation is made regarding
the likelihood of continuation of those current federal income tax laws or of
the current interpretations by the Internal Revenue Service.
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.
21
<PAGE> 30
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable life insurance policies. The Code provides that a
variable life insurance policy will not be treated as life insurance for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the Policy
as a life insurance contract would result in imposition of federal income tax on
the Owner with respect to earnings allocable to the Policy prior to the receipt
of payments under the Policy. The Code contains a safe harbor provision which
provides that life insurance policies such as the Policies meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five (55%) percent of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies. There is an exception for securities issued by the U.S. Treasury in
connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
Section 1.817-5), which establish diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (i) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (ii) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (iii) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these Regulations, all securities of the same
issuer are treated as a single investment.
The Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") provides that, for
purposes of determining whether or not the diversification standards imposed on
the underlying assets of variable contracts by Section 817(h) of the Code have
been met, "each United States government agency or instrumentality shall be
treated as a separate issuer."
SAFECO intends that each portfolio of the Funds underlying the Policies will be
managed by Fidelity Management, Lexington Management Corporation and SAFECO
Asset Management Company in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Policy is different
in some respects from the situations addressed in published rulings issued by
the Internal Revenue Service in which it was held that the policy owner was not
the owner of the assets of the separate account. It is unknown whether these
differences, such as the Owner's ability to transfer among investment choices or
the number and type of investment choices available, would cause the Owner to be
considered as the owner of the assets of the Separate Account.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, SAFECO reserves the right to modify the
Policy in an attempt to maintain favorable tax treatment.
22
<PAGE> 31
TAX TREATMENT OF THE POLICY
The Policy has been designed to comply with the definition of life insurance
contained in Section 7702 of the Code. Although some interim guidance has been
provided and proposed regulations have been issued, final regulations have not
been adopted. Section 7702 of the Code requires the use of reasonable mortality
and other expense charges. In establishing these charges, SAFECO has relied on
the interim guidance provided in IRS Notice 88-128 and proposed regulations
issued on July 5, 1991. Currently, there is even less guidance as to a Policy
issued on a substandard risk basis and thus it is even less clear whether a
Policy issued on such basis would meet the requirements of Section 7702 of the
Code.
While SAFECO has attempted to comply with Section 7702, the law in this area is
very complex and unclear. There is a risk, therefore, that the Internal Revenue
Service will not concur with SAFECO's interpretations of Section 7702 that were
made in determining such compliance. In the event the Policy is determined not
to so comply, it would not qualify for the favorable tax treatment usually
accorded life insurance policies. Owners should consult their tax advisers with
respect to the tax consequences of purchasing the Policy.
POLICY PROCEEDS
The tax treatment accorded to loan proceeds and/or surrender payments from the
Policies will depend on whether the Policy is considered to be a modified
endowment contract. (See "Tax Treatment of Loans and Surrenders" on Page 23.)
Otherwise, SAFECO believes that the Policy should receive the same federal
income tax treatment as any other type of life insurance. As such, the death
benefit thereunder is excludable from the gross income of the Beneficiary under
Section 101(a) of the Code. Also, the Owner is not deemed to be in constructive
receipt of the Policy Account or Cash Surrender Value, including increments
thereon, under a Policy until there is a distribution of such amounts.
Federal, state and local estate, inheritance and other tax consequences of
ownership, or receipt of Policy proceeds, depend on the circumstances of each
Owner or Beneficiary.
TAX TREATMENT OF LOANS AND SURRENDERS
Section 7702A of the Code sets forth the rules for determining when a life
insurance policy will be deemed to be a modified endowment contract. A modified
endowment contract is a contract which is entered into or materially changed on
or after June 21, 1988 and fails to meet the 7-pay test. A Policy fails to meet
the 7-pay test when the cumulative amount paid under the Policy at any time
during the first seven Policy Years exceeds the sum of the net level premiums
which would have been paid on or before such time if the Policy provided for
paid-up future benefits after the payment of seven level annual premiums. A
material change would include any increase in the future benefits or addition of
qualified additional benefits provided under a Policy unless the increase is
attributable to: (1) the payment of premiums necessary to fund the lowest death
benefit and qualified additional benefits payable in the first seven Policy
years; or (2) the crediting of interest or other earnings (including
policyholder dividends) with respect to such premiums.
Furthermore, any Policy received in exchange for a Policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. The status of an exchange of a
contract issued before June 21, 1988 is unclear; however, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988 will be considered as entered
into as of the date of the exchange and therefore subject to Section 7702A.
Due to the flexible premium nature of the Policy, the determination of whether
it qualifies for treatment as a modified endowment contract depends on the
individual circumstances of each Policy.
If the Policy is classified as a modified endowment contract, then surrenders
and/or loan proceeds are taxable to the extent of income in the Policy. Such
distributions are deemed to be on a last-in, first-out basis, which means the
taxable income is distributed first. Loan proceeds and/or surrender payments may
also be subject to an additional 10% federal income tax penalty applied to the
income portion of such distribution. The penalty shall not apply, however, to
any distributions: (1) made on or after the date on which the taxpayer reaches
age 59 1/2; (2) which is attributable to the taxpayer becoming disabled (within
the meaning of Section 72(m)(7) of the Code); or (3) which is part of a series
of substantially equal
23
<PAGE> 32
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.
SEPARATE ACCOUNT VOTING RIGHTS
- --------------------------------------------------------------------------------
In accordance with its view of present applicable law, SAFECO will vote the
shares with respect to each Fund portfolio held in the Separate Account at
regular and special meetings of the shareholders of the Fund in accordance with
instructions received from persons having the voting interest in the Separate
Account. SAFECO will vote shares with respect to each Fund portfolio, for which
it has not received instructions, in the same proportion as it votes shares for
which it has received instructions. SAFECO will vote shares of the Fund
portfolios which it owns in the same proportion as it votes shares for which it
has received instructions.
However, if the 1940 Act or any regulation thereunder should be amended or if
the present interpretation thereof should change, and as a result SAFECO
determines that it is permitted to vote the shares of the Funds in its own
right, it may elect to do so.
The voting interests of the Owner (or the Beneficiary) in the Funds will be one
vote for each share. The number of shares will be determined as follows: The
Policy Account allocated to the Investment Division will be divided by the net
asset value of one share of the corresponding Fund portfolio as of the record
date for the shareholder meeting of the Fund. Fractional votes are counted.
Policy Account values in the Guaranteed Interest Division will not be considered
in determining the voting interests of the Owner.
The number of shares which a person has a right to vote will be determined as of
the record date set by the Fund's Board which must be at least 14 days and not
more than 90 days prior to the meeting of the Fund.
24
<PAGE> 33
Each person having the voting interest in the Separate Account will receive
periodic reports relating to the Fund(s) in which he or she has an interest,
proxy material and a form with which to give such voting instructions with
respect to the proportion of the shares held in the Separate Account
corresponding to his or her interest in the Separate Account.
DISREGARD OF VOTING INSTRUCTIONS
SAFECO may, when required to do so by state insurance authorities, vote shares
of the Fund without regard to instructions from Owners if voting in accordance
with such instructions would require such shares to be voted to cause any
portfolio of the Funds to make (or refrain from making) investments which would
result in changes in the sub-classification or investment objectives of the
Funds or a portfolio. SAFECO may also disapprove changes in the investment
policy initiated by the Owners or Trustees of the Funds, if such disapproval is
reasonable and is based on a good faith determination by SAFECO that the change
would violate state law or the change would not be consistent with the
investment objective of the Funds or portfolio or which varies from the general
quality and nature of investments and investment techniques used by other funds
with similar investment objectives underlying other separate accounts of SAFECO
or of an affiliated life insurance company. In the event that SAFECO does
disregard voting instructions, a summary of that action and the reasons for such
action will be included in the next semi-annual report to Owners.
DISTRIBUTION OF THE POLICIES
- --------------------------------------------------------------------------------
The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for the
Separate Account, SAFECO Securities, Inc., P.O. Box 34890, Seattle, Washington
98124-1890, a wholly-owned subsidiary of SAFECO Corporation. Prior to April 29,
1994, PNMR Securities, Inc., an affiliate of SAFECO Securities, acted as
principal underwriter for the Separate Account. SAFECO pays commissions to the
selling broker-dealers which may vary.
The commissions paid to registered representatives on the sale of the Policies
are not more than 60% of the premiums paid in the first year nor more than 3%
during renewal years. In addition, commissions, overrides and bonuses may be
paid to the distributors of the Policies. There are no separate deductions,
other than previously described, to pay sales commissions or sales expenses.
REPORTS TO POLICY OWNERS
- --------------------------------------------------------------------------------
SAFECO will send to each Owner unaudited semi-annual and audited annual reports
of the Separate Account. Within 30 days after every third Policy Month, a
quarterly statement will be sent to each Owner. Taken together every four
Quarterly Statements make up an annual statement providing a complete year to
date policy history for the proceeding Policy Year. These statements will show
the current amount of death benefits payable under the Policy, the current value
of the Policy Account, the current Cash Surrender Value and any loan, including
loan interest. These statements will also show premiums paid, investment returns
and all charges deducted during the Policy Year.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Separate Account or the Principal
Underwriter is a party. SAFECO is engaged in various kinds of routine litigation
which, in the opinion of SAFECO, is not of material importance in relation to
the total capital and surplus of SAFECO.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Separate Account and SAFECO appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their reports thereon appearing
elsewhere herein and in the Registration Statement. Such
25
<PAGE> 34
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.
26
<PAGE> 35
SEPARATE ACCOUNT SL
AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 1996
A-1
<PAGE> 36
SEPARATE ACCOUNT SL
DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
Statement of Assets and Liabilities............................................... A-4
Statement of Operations........................................................... A-5
Statement of Changes in Net Assets................................................ A-6
Notes to Financial Statement...................................................... A-7
</TABLE>
A-2
<PAGE> 37
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.
Ernst and Young Signature
Seattle, Washington
January 31, 1997
A-3
<PAGE> 38
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
FIDELITY VIP MONEY EQUITY FIDELITY 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
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> 39
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY VIP
FIDELITY VIP II II FIDELITY VIP
FIDELITY VIP INVESTMENT ASSET II
HIGH 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> 40
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY
VIP II
FIDELITY ASSET SAFECO SAFECO
VIP 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> 41
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
SAFECO RST SAFECO 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> 42
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP MONEY EQUITY FIDELITY 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> 43
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
FIDELITY FIDELITY VIP II FIDELITY VIP II
VIP INVESTMENT ASSET FIDELITY VIP II
HIGH 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> 44
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
FIDELITY VIP II
FIDELITY VIP II ASSET MANAGER: SAFECO RST SAFECO 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> 45
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
LEXINGTON LEXINGTON
SAFECO RST SAFECO 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> 46
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> 47
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 DECEMBER 31 YEAR ENDED 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> 48
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> 49
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> 50
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP II ASSET MANAGER: GROWTH
CONTRAFUND DIVISION 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> 51
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SAFECO RST SAFECO RST
EQUITY GROWTH SAFECO RST
DIVISION DIVISION NORTHWEST 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)................................... $ 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> 52
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> 53
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> 54
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 YEAR ENDED
DECEMBER 31 DECEMBER 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 OVERSEAS
EQUITY INCOME(1) DIVISION(1)
------------------- -------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 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
HIGH INCOME INVESTMENT GRADE
DIVISION(1) BOND DIVISION
------------------- -------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 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 YEAR ENDED
DECEMBER 31 DECEMBER 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> 55
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 PERIOD ENDED YEAR ENDED PERIOD ENDED
1996 1995* 1996 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 SAFECO RST
EQUITY GROWTH
DIVISION DIVISION(1)
------------ ------------
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 BOND
DIVISION DIVISION
------------ ------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
1996** 1996**
------------ ------------
<S> <C> <C>
Units:
Units Sold....................................................... 93 80
Units Redeemed................................................... (4) (0)
----- ------
Net Increase (Decrease).......................................... 89 80
===== ======
</TABLE>
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
NATURAL EMERGING
RESOURCES MARKETS
DIVISION DIVISION(1)
------------ ------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
1996** 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> 56
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
FIDELITY FIDELITY
FIDELITY VIP VIP
VIP MONEY EQUITY
GROWTH MARKET 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
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
FIDELITY
VIP II
FIDELITY FIDELITY INVESTMENT
VIP VIP GRADE
OVERSEAS HIGH INCOME 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
FIDELITY VIP II
VIP II FIDELITY FIDELITY ASSET
ASSET VIP II VIP II MANAGER:
MANAGER INDEX 500 CONTRAFUND GROWTH
DIVISION DIVISION DIVISION 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> 57
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
======== ========== =======
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996*
-----------------------------------------
LEXINGTON LEXINGTON
SAFECO RST NATURAL EMERGING
BOND RESOURCES MARKETS
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> 58
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 FIDELITY VIP
GROWTH MONEY MARKET EQUITY INCOME OVERSEAS
DIVISION DIVISION DIVISION 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
</TABLE>
<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
FIDELITY VIP INVESTMENT ASSET FIDELITY VIP II
HIGH INCOME GRADE BOND MANAGER INDEX 500
DIVISION 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
</TABLE>
<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP II ASSET MANAGER: SAFECO RST SAFECO RST
CONTRAFUND GROWTH EQUITY GROWTH
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...................... $ 119.439 $ 115.467 N/A N/A
December 31, 1996...................... 143.581 137.235 $ 117.794 $ 115.231
</TABLE>
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
SAFECO RST SAFECO RST NATURAL EMERGING
NORTHWEST BOND RESOURCES 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> 59
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
A-13
<PAGE> 60
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> 61
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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SAFECO Life
Insurance Company and subsidiaries at December 31, 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.
Ernst and Young Signature
Seattle, Washington
February 14, 1997
A-15
<PAGE> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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 A-22.
Fixed maturity investments (i.e., bonds and redeemable preferred stocks)
which the Company has the positive intent and ability to hold to maturity
are classified as held-to-maturity and carried at amortized cost in the
balance sheet. Fixed maturities classified as available-for-sale are carried
at market value, with changes in unrealized gains and losses recorded
directly to stockholder's equity, net of applicable income taxes and
deferred policy acquisition costs valuation allowance. The Company has no
fixed maturities classified as trading.
All marketable equity securities are classified as available-for-sale and
carried at market value, with changes in unrealized gains and losses
recorded directly to stockholder's equity, net of applicable income taxes.
When the collectibility of income on certain investments is considered
doubtful, they are placed on non-accrual status and thereafter interest
income is recognized only when payment is received. Investments that have
declined in market value below cost and for which the decline is judged to
be other than temporary are written down to fair value. Writedowns are made
directly on an individual security basis and reduce realized investment
gains in the Statement of Consolidated Income.
The cost of security investments sold is determined by the "identified cost"
method.
Mortgage loans are carried at outstanding principal balances, less an
allowance for loan losses.
REAL ESTATE AND DEPRECIATION. Income-producing real estate is classified as
an investment. The Company provides straight-line depreciation on its
buildings based upon their estimated useful lives.
Investment real estate that has declined in market value below cost and for
which the decline is judged to be other than temporary is written down to
estimated realizable value. Writedowns reduce realized investment gains in
the Statement of Consolidated Income.
A-21
<PAGE> 68
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1 (continued)
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.
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
A-22
<PAGE> 69
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1 (continued)
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> 70
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:
<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............... $ 244,686 $ 29,559 $ (396) $ 29,163 $ 273,849
States, municipalities and political
subdivisions........................... 103,075 3,797 (664) 3,133 106,208
Foreign governments...................... 148,300 24,403 -- 24,403 172,703
Public utilities......................... 545,249 48,130 (4,279) 43,851 589,100
All other corporate bonds................ 1,155,146 82,922 (9,495) 73,427 1,228,573
Mortgage-backed securities............... 291,868 13,110 (5,407) 7,703 299,571
---------- -------- -------- -------- ----------
Total fixed maturities classified as
held-to-maturity....................... 2,488,324 $201,921 $(20,241) $181,680 $2,670,004
========== ======== ======== ======== ==========
</TABLE>
A-24
<PAGE> 71
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:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities.................. $ 210,894 $ 60,042 $ -- $ 60,042 $ 270,936
States, municipalities and political
subdivisions.............................. 52,438 4,689 -- 4,689 57,127
Foreign governments......................... 135,467 31,956 -- 31,956 167,423
Public utilities............................ 456,938 83,571 -- 83,571 540,509
All other corporate bonds................... 896,899 140,673 (4,128) 136,545 1,033,444
Mortgage-backed securities.................. 291,881 27,194 -- 27,194 319,075
---------- -------- -------- -------- ----------
Total fixed maturities classified as
held-to-maturity.......................... $2,044,517 $ 348,125 $ (4,128) $ 343,997 $2,388,514
========== ======== ======== ======== ==========
</TABLE>
A-25
<PAGE> 72
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.
A-26
<PAGE> 73
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 (continued)
The proceeds from sales of investment securities and related gains and
losses for 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>
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>
A-27
<PAGE> 74
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
------------------ ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales............................. $250,227 $ -- $ 65
======== ======= =======
Gross realized gains on sales................... $ 12,994 $ -- $ 115
Gross realized losses on sales.................. (1,533) -- (224)
-------- ------- -------
Realized gains (losses) on sales.............. 11,461 -- (109)
Other (Including net gain on calls and
redemptions).................................. 2,475 -- --
Writedowns (Including writedowns on securities
subsequently sold)............................ (4,804) -- --
-------- ------- -------
Total realized gain (loss)...................... $ 9,132 $ -- $(109)
======== ======= =======
</TABLE>
The 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
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified 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>
A-28
<PAGE> 75
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 (continued)
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.
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.
A-29
<PAGE> 76
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4 (continued)
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).
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>
A-30
<PAGE> 77
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5 (continued)
The effects of reinsurance on the premium and policy benefit amounts in the
Statement of Consolidated Income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
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.
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
======== ======== ========
</TABLE>
A-31
<PAGE> 78
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6 (continued)
<TABLE>
<CAPTION>
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
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>
A-32
<PAGE> 79
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8 (continued)
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-33
<PAGE> 80
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-34
<PAGE> 81
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
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
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>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $29,029 of financial services
revenue received from affiliates)........................ $ 45,284 $ 203,349 $ 248,633
Identifiable Investment Income............................. 450,655 256,570 707,225
Investment Income Allocated................................ 44,043 26,232 70,275
Identifiable Realized Gain (Loss) from Investments......... 16,020 (8,586) 7,434
Realized Loss from Investments Allocated................... (1,112) (646) (1,758)
-------- -------- ----------
Total Revenue....................................... $ 554,890 $ 476,919 $1,031,809
======== ======== ==========
Income Before Income Taxes................................... $ 84,956 $ 53,990 $ 138,946
======== ======== ==========
</TABLE>
A-35
<PAGE> 82
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>
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
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $27,955 of financial services
revenue received from affiliates)........................ $ 42,805 $ 219,919 $ 262,724
Identifiable Investment Income............................. 395,127 245,909 641,036
Investment Income Allocated................................ 39,909 24,725 64,634
Identifiable Realized Gain from Investments................ 6,744 1,267 8,011
Realized Loss from Investments Allocated................... (1,463) (909) (2,372)
-------- -------- --------
Total Revenue....................................... $ 483,122 $ 490,911 $ 974,033
======== ======== ========
Income Before Income Taxes................................... $ 70,200 $ 64,201 $ 134,401
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 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> 83
HYPOTHETICAL ILLUSTRATIONS
- --------------------------------------------------------------------------------
OF DEATH BENEFITS, POLICY ACCOUNT, CASH SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
The following tables have been prepared to show how the key financial elements
of the Policy work. The tables show how death benefits, Policy Account and Cash
Surrender Values (policy benefits) could vary over an extended period of time if
the Investment Division of the Separate Account had constant hypothetical gross
annual investment returns of 0%, 6% or 12% over the years covered by each table.
The policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0%, 6% or 12% over a period of years, but went
above or below those figures in individual Policy Years. The Policy benefits
will also differ, depending on the premium allocations to each Investment
Division, if the overall actual rates of return averaged 0%, 6% or 12%, but went
above or below those figures for the individual Investment Divisions. The tables
are for preferred and standard risk male non-smokers. Planned premium payments
are assumed to be paid at the beginning of each Policy Year. The difference
between the Policy Account and the Cash Surrender Value in the first ten years
is the surrender charge. The Policy Account amounts reflect the front-end
charges.
The tables illustrates cost of insurance and expense charges (Policy cost
factors) at both the current rates and the maximum rates guaranteed in the
Policies. The amounts shown at the end of each Policy Year reflect a daily
charge against the Investment Divisions. This charge includes a .90% charge
against the Separate Account for mortality and expense risks; the effect on each
Division's investment experience of the charge to Funds' assets for investment
management (0.62%, an average of the 1995 actual investment management fees
charged to the various Portfolios of the Funds); and 0.16% direct Funds'
operating expenses. The effect of these adjustments is that on a 0% gross rate
of return the net rate of return would be -1.68%, on 6% it would be 4.32%, and
on 12% it would be 10.32%.
The tables assume deduction of an applicable premium tax rate based on 2.1% of
premiums and 3% of premium sales load. There are tables for both male preferred
non-smoker age 45 and male standard non-smoker age 45 and each class is
illustrated using CURRENT and GUARANTEED Policy cost factors. The current tables
assume that the monthly charge remains constant at $4.00. The guaranteed tables
assume that the monthly charge remains constant at $8.00. The tables reflect the
fact that SAFECO does not currently make any charge for federal taxes.
If SAFECO charged for those taxes in the future, it will take a higher rate of
return to produce after-tax returns of 0%, 6% or 12%.
The second column of each table shows what would happen if an amount equal to
the premiums was invested to earn interest, after taxes, of 5% compounded
annually. These tables show that if a policy is returned in its very early years
for payment of its Cash Surrender Value, that Cash Surrender Value will be low
in comparison to the amount of the premiums accumulated with interest. Thus, the
cost of holding a Policy for a relatively short time will be high.
INDIVIDUAL ILLUSTRATIONS. If requested, SAFECO will furnish a comparable
illustration based on the age, sex and underwriting classification of the
proposed Primary Insured, and an initial Face Amount of Insurance and planned
premiums as selected. If a Policy is purchased, SAFECO will deliver an
individualized illustration reflecting the planned premium chosen and the
Primary Insured's actual risk class.
B-1
<PAGE> 84
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
RESULTS ASSUMING CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,379 899 100,000 1,477 997 100,000 1,575 1,095
2 4,305 100,000 2,935 2,335 100,000 3,225 2,625 100,000 3,528 2,927
3 6,620 100,000 4,434 3,714 100,000 5,018 4,297 100,000 5,650 4,930
4 9,051 100,000 5,884 5,078 100,000 6,864 6,058 100,000 7,969 7,162
5 11,604 100,000 7,292 6,485 100,000 8,773 7,967 100,000 10,511 9,704
6 14,284 100,000 8,658 8,012 100,000 10,749 10,104 100,000 13,302 12,657
7 17,098 100,000 9,972 9,488 100,000 12,783 12,299 100,000 16,359 15,875
8 20,053 100,000 11,234 10,911 100,000 14,879 14,556 100,000 19,710 19,388
9 23,156 100,000 12,443 12,281 100,000 17,039 16,877 100,000 23,389 23,228
10 26,414 100,000 13,596 13,596 100,000 19,263 19,263 100,000 27,429 27,429
11 29,834 100,000 14,689 14,689 100,000 21,550 21,550 100,000 31,870 31,870
12 33,426 100,000 15,715 15,715 100,000 23,898 23,898 100,000 36,751 36,751
13 37,197 100,000 16,668 16,668 100,000 26,307 26,307 100,000 42,125 42,125
14 41,157 100,000 17,545 17,545 100,000 28,777 28,777 100,000 48,050 48,050
15 45,315 100,000 18,340 18,340 100,000 31,310 31,310 100,000 54,592 54,592
16 49,681 100,000 19,045 19,045 100,000 33,905 33,905 100,000 61,829 61,829
17 54,265 100,000 19,659 19,659 100,000 36,569 36,569 100,000 69,857 69,857
18 59,078 100,000 20,179 20,179 100,000 39,306 39,306 100,000 78,781 78,781
19 64,132 100,000 20,597 20,597 100,000 42,121 42,121 109,943 88,664 88,664
20 69,439 100,000 20,905 20,905 100,000 45,017 45,017 121,424 99,528 99,528
Age 75 139,522 100,000 11,145 11,145 100,000 84,758 84,758 335,412 319,440 319,440
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT RATES
OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN
BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-2
<PAGE> 85
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
RESULTS ASSUMING GUARANTEED CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,196 715 100,000 1,288 807 100,000 1,380 900
2 4,305 100,000 2,587 1,987 100,000 2,855 2,255 100,000 3,134 2,534
3 6,620 100,000 3,933 3,212 100,000 4,467 3,746 100,000 5,047 4,326
4 9,051 100,000 5,228 4,422 100,000 6,122 5,316 100,000 7,131 6,325
5 11,604 100,000 6,475 5,668 100,000 7,823 7,016 100,000 9,407 8,600
6 14,284 100,000 7,668 7,023 100,000 9,566 8,921 100,000 11,890 11,244
7 17,098 100,000 8,804 8,320 100,000 11,352 10,868 100,000 14,600 14,116
8 20,053 100,000 9,880 9,557 100,000 13,177 12,855 100,000 17,560 17,237
9 23,156 100,000 10,890 10,728 100,000 15,039 14,878 100,000 20,792 20,631
10 26,414 100,000 11,828 11,828 100,000 16,934 16,934 100,000 24,326 24,326
11 29,834 100,000 12,690 12,690 100,000 18,862 18,862 100,000 28,194 28,194
12 33,426 100,000 13,473 13,473 100,000 20,821 20,821 100,000 32,435 32,435
13 37,197 100,000 14,174 14,174 100,000 22,811 22,811 100,000 37,095 37,095
14 41,157 100,000 14,786 14,786 100,000 24,833 24,833 100,000 42,224 42,224
15 45,315 100,000 15,300 15,300 100,000 26,879 26,879 100,000 47,881 47,881
16 49,681 100,000 15,708 15,708 100,000 28,949 28,949 100,000 54,134 54,134
17 54,265 100,000 15,998 15,998 100,000 31,037 31,037 100,000 61,062 61,062
18 59,078 100,000 16,155 16,155 100,000 33,137 33,137 100,000 68,760 68,760
19 64,132 100,000 16,159 16,159 100,000 35,241 35,241 100,000 77,341 77,341
20 69,439 100,000 15,996 15,996 100,000 37,345 37,345 106,030 86,910 86,910
Age 75 139,522 100,000 59,127 59,127 293,263 279,298 279,298
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT RATES
OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN
BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-3
<PAGE> 86
VARIABLE UNIVERSAL LIFE
Flexible Premium Variable Life Insurance
MALE
STANDARD NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
RESULTS ASSUMING CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,324 844 100,000 1,421 940 100,000 1,517 1,037
2 4,305 100,000 2,828 2,227 100,000 3,111 2,510 100,000 3,406 2,806
3 6,620 100,000 4,275 3,555 100,000 4,843 4,123 100,000 5,460 4,739
4 9,051 100,000 5,675 4,869 100,000 6,628 5,822 100,000 7,703 6,897
5 11,604 100,000 7,034 6,227 100,000 8,474 7,667 100,000 10,164 9,357
6 14,284 100,000 8,352 7,707 100,000 10,384 9,739 100,000 12,866 12,221
7 17,098 100,000 9,620 9,136 100,000 12,350 11,867 100,000 15,825 15,342
8 20,053 100,000 10,837 10,514 100,000 14,376 14,054 100,000 19,071 18,748
9 23,156 100,000 12,002 11,841 100,000 16,464 16,302 100,000 22,634 22,472
10 26,414 100,000 13,112 13,112 100,000 18,612 18,612 100,000 26,547 26,547
11 29,834 100,000 14,163 14,163 100,000 20,821 20,821 100,000 30,849 30,849
12 33,426 100,000 15,140 15,140 100,000 23,082 23,082 100,000 35,573 35,573
13 37,197 100,000 16,039 16,039 100,000 25,394 25,394 100,000 40,769 40,769
14 41,157 100,000 16,857 16,857 100,000 27,759 27,759 100,000 46,495 46,495
15 45,315 100,000 17,587 17,587 100,000 30,176 30,176 100,000 52,815 52,815
16 49,681 100,000 18,221 18,221 100,000 32,645 32,645 100,000 59,807 59,807
17 54,265 100,000 18,759 18,759 100,000 35,171 35,171 100,000 67,562 67,562
18 59,078 100,000 19,196 19,196 100,000 37,759 37,759 100,000 76,186 76,186
19 64,132 100,000 19,524 19,524 100,000 40,412 40,412 106,361 85,775 85,775
20 69,439 100,000 19,736 19,736 100,000 43,135 43,135 117,516 96,325 96,325
Age 75 39,522 100,000 8,243 8,243 100,000 79,541 79,541 325,190 309,705 309,705
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT RATES
OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN
BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-4
<PAGE> 87
VARIABLE UNIVERSAL LIFE
Flexible Premium Variable Life Insurance
MALE
STANDARD NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
RESULTS ASSUMING GUARANTEED CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00% 12.00%
ACCUM ------------------------------- ------------------------------- -------------------------------
END OF PREMIUM POLICY CASH POLICY CASH POLICY CASH
POLICY (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 100,000 1,196 715 100,000 1,288 807 100,000 1,380 900
2 4,305 100,000 2,587 1,987 100,000 2,855 2,255 100,000 3,134 2,534
3 6,620 100,000 3,933 3,212 100,000 4,467 3,746 100,000 5,047 4,326
4 9,051 100,000 5,228 4,422 100,000 6,122 5,316 100,000 7,131 6,325
5 11,604 100,000 6,475 5,668 100,000 7,823 7,016 100,000 9,407 8,600
6 14,284 100,000 7,668 7,023 100,000 9,566 8,921 100,000 11,890 11,244
7 17,098 100,000 8,804 8,320 100,000 11,352 10,868 100,000 14,600 14,116
8 20,053 100,000 9,880 9,557 100,000 13,177 12,855 100,000 17,560 17,237
9 23,156 100,000 10,890 10,728 100,000 15,039 14,878 100,000 20,792 20,631
10 26,414 100,000 11,828 11,828 100,000 16,934 16,934 100,000 24,326 24,326
11 29,834 100,000 12,690 12,690 100,000 18,862 18,862 100,000 28,194 28,194
12 33,426 100,000 13,473 13,473 100,000 20,821 20,821 100,000 32,435 32,435
13 37,197 100,000 14,174 14,174 100,000 22,811 22,811 100,000 37,095 37,095
14 41,157 100,000 14,786 14,786 100,000 24,833 24,833 100,000 42,224 42,224
15 45,315 100,000 15,300 15,300 100,000 26,879 26,879 100,000 47,881 47,881
16 49,681 100,000 15,708 15,708 100,000 28,949 28,949 100,000 54,134 54,134
17 54,265 100,000 15,998 15,998 100,000 31,037 31,037 100,000 61,062 61,062
18 59,078 100,000 16,155 16,155 100,000 33,137 33,137 100,000 68,760 68,760
19 64,132 100,000 16,159 16,159 100,000 35,241 35,241 100,000 77,341 77,341
20 69,439 100,000 15,996 15,996 100,000 37,345 37,345 106,030 86,910 86,910
Age 75 139,522 100,000 59,127 59,127 293,263 279,298 279,298
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT RATES
OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN
BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-5
<PAGE> 88
[This page intentionally left blank]
<PAGE> 89
ILLUSTRATIONS
- --------------------------------------------------------------------------------
OF VARIATION IN DEATH BENEFIT, POLICY ACCOUNT AND CASH SURRENDER VALUES IN
RELATION TO THE FUNDS' INVESTMENT EXPERIENCE
In order to demonstrate how actual investment experience of the Funds affected
the Death Benefits, Policy Account and Cash Surrender Values (policy benefits)
of a Policy, the following hypothetical illustrations were developed and are
based upon the actual experience of the Portfolios of the Funds. These
illustrations assume that the Separate Account acquired an interest in the
Portfolios at their inception.
These tables illustrate cost of insurance and expense charges (Policy cost
factors) at both the current rates and the maximum rates guaranteed in the
Policies. The amounts shown at the end of each Policy Year reflect a daily
charge against the Investment Divisions. This charge includes a .90% charge
against the Separate Account for mortality and expense risks, the effect on each
Division's actual investment experience of the investment management fees and
direct operating expenses. These tables also assume deduction of a premium tax
rate based on 2.1% of premiums and 3% of premium sales load. The tables are for
preferred risk male non-smoker age 45. Planned premium payments are assumed to
be paid at the beginning of each Policy Year.
C-1
<PAGE> 90
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
FIDELITY'S VIP MONEY MARKET DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1983 100,000 1,542 1,061 100,000 1,349 868
1984 100,000 3,464 2,864 100,000 3,075 2,475
1985 100,000 5,418 4,698 100,000 4,834 4,114
1986 100,000 7,389 6,582 100,000 6,603 5,797
1987 100,000 9,434 8,627 100,000 8,427 7,621
1988 100,000 11,682 11,037 100,000 10,418 9,773
1989 100,000 14,283 13,799 100,000 12,715 12,231
1990 100,000 16,902 16,579 100,000 15,012 14,689
1991 100,000 19,321 19,159 100,000 17,110 16,949
1992 100,000 21,379 21,379 100,000 18,865 18,865
1993 100,000 23,311 23,311 100,000 20,486 20,486
1994 100,000 25,505 25,505 100,000 22,316 22,316
1995 100,000 28,172 28,172 100,000 24,542 24,542
1996 100,000 30,796 30,796 100,000 26,708 26,708
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP HIGH INCOME DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1986 100,000 1,682 1,201 100,000 1,480 1,000
1987 100,000 3,302 2,702 100,000 2,931 2,331
1988 100,000 5,421 4,701 100,000 4,841 4,120
1989 100,000 6,616 5,809 100,000 5,906 5,099
1990 100,000 7,893 7,086 100,000 7,035 6,228
1991 100,000 12,697 12,052 100,000 11,327 10,682
1992 100,000 17,412 16,928 100,000 15,525 15,041
1993 100,000 22,634 22,312 100,000 20,161 19,838
1994 100,000 23,497 23,336 100,000 20,879 20,718
1995 100,000 29,946 29,946 100,000 26,561 26,561
1996 100,000 35,553 35,553 100,000 31,472 31,472
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-2
<PAGE> 91
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
FIDELITY'S VIP EQUITY-INCOME DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1987 100,000 1,373 893 100,000 1,190 710
1988 100,000 3,663 3,063 100,000 3,252 2,652
1989 100,000 6,130 5,410 100,000 5,478 4,757
1990 100,000 6,418 5,612 100,000 5,723 4,916
1991 100,000 10,442 9,635 100,000 9,334 8,528
1992 100,000 13,915 13,270 100,000 12,431 11,786
1993 100,000 18,144 17,660 100,000 16,195 15,711
1994 100,000 20,864 20,541 100,000 18,591 18,268
1995 100,000 30,062 29,901 100,000 26,767 26,605
1996 100,000 35,805 35,805 100,000 31,837 31,837
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP GROWTH DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1987 100,000 1,452 971 100,000 1,264 783
1988 100,000 3,530 2,930 100,000 3,133 2,533
1989 100,000 6,723 6,002 100,000 6,018 5,298
1990 100,000 7,217 6,410 100,000 6,450 5,643
1991 100,000 12,747 11,940 100,000 11,428 10,622
1992 100,000 15,503 14,858 100,000 13,883 13,238
1993 100,000 20,201 19,717 100,000 18,077 17,593
1994 100,000 21,503 21,180 100,000 19,203 18,880
1995 100,000 30,986 30,825 100,000 27,650 27,489
1996 100,000 36,999 36,999 100,000 32,972 32,972
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-3
<PAGE> 92
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
FIDELITY'S VIP OVERSEAS DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1988 100,000 1,525 1,044 100,000 1,333 852
1989 100,000 3,965 3,365 100,000 3,533 2,933
1990 100,000 5,399 4,679 100,000 4,820 4,100
1991 100,000 7,462 6,655 100,000 6,672 5,866
1992 100,000 7,936 7,129 100,000 7,077 6,270
1993 100,000 12,974 12,329 100,000 11,581 10,936
1994 100,000 14,600 14,116 100,000 13,004 12,520
1995 100,000 17,510 17,188 100,000 15,563 15,240
1996 100,000 21,321 21,160 100,000 18,906 18,745
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INVESTMENT GRADE BOND DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1989 100,000 1,560 1,079 100,000 1,365 885
1990 100,000 3,344 2,744 100,000 2,966 2,366
1991 100,000 5,709 4,989 100,000 5,099 4,379
1992 100,000 7,695 6,888 100,000 6,881 6,075
1993 100,000 10,183 9,377 100,000 9,107 8,301
1994 100,000 11,156 10,511 100,000 9,950 9,304
1995 100,000 14,767 14,283 100,000 13,154 12,670
1996 100,000 16,623 16,301 100,000 14,769 14,446
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-4
<PAGE> 93
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
FIDELITY'S VIP II ASSET MANAGER DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1990 100,000 1,502 1,021 100,000 1,311 831
1991 100,000 3,815 3,215 100,000 3,395 2,795
1992 100,000 5,995 5,275 100,000 5,360 4,640
1993 100,000 9,124 8,318 100,000 8,181 7,374
1994 100,000 9,912 9,106 100,000 8,870 8,064
1995 100,000 13,307 12,662 100,000 11,898 11,252
1996 100,000 16,872 16,388 100,000 15,066 14,582
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INDEX 500 DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1993 100,000 1,551 1,071 100,000 1,357 877
1994 100,000 3,165 2,565 100,000 2,802 2,202
1995 100,000 6,523 5,803 100,000 5,838 5,117
1996 100,000 9,884 9,077 100,000 8,869 8,062
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-5
<PAGE> 94
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
FIDELITY'S VIP II ASSET MANAGER: GROWTH DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 100,000 1,771 1,291 100,000 1,565 1,085
1996 100,000 4,055 3,455 100,000 3,624 3,024
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II CONTRAFUND DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 100,000 2,044 1,564 100,000 1,823 1,342
1996 100,000 4,426 3,825 100,000 3,973 3,373
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-6
<PAGE> 95
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
LEXINGTON NATURAL RESOURCES DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1992 100,000 1,444 964 100,000 1,257 777
1993 100,000 3,373 2,772 100,000 2,989 2,388
1994 100,000 4,631 3,910 100,000 4,115 3,395
1995 100,000 7,200 6,393 100,000 6,425 5,618
1996 100,000 11,059 10,253 100,000 9,888 9,082
</TABLE>
- --------------------------------------------------------------------------------
LEXINGTON EMERGING MARKETS DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 100,000 1,328 847 100,000 1,147 667
1996 100,000 3,138 2,538 100,000 2,771 2,171
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-7
<PAGE> 96
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
SAFECO RST BOND DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1988 100,000 1,507 1,026 100,000 1,316 835
1989 100,000 3,454 2,854 100,000 3,065 2,465
1990 100,000 5,327 4,607 100,000 4,751 4,030
1991 100,000 7,806 7,000 100,000 6,980 6,173
1992 100,000 9,912 9,105 100,000 8,860 8,053
1993 100,000 12,561 11,916 100,000 11,213 10,567
1994 100,000 13,518 13,034 100,000 12,034 11,550
1995 100,000 17,575 17,253 100,000 15,618 15,296
1996 100,000 18,963 18,801 100,000 16,797 16,636
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST EQUITY DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1988 100,000 1,818 1,338 100,000 1,609 1,129
1989 100,000 4,364 3,764 100,000 3,909 3,309
1990 100,000 5,573 4,853 100,000 4,991 4,271
1991 100,000 9,026 8,219 100,000 8,108 7,302
1992 100,000 11,341 10,535 100,000 10,181 9,375
1993 100,000 16,405 15,759 100,000 14,723 14,078
1994 100,000 19,382 18,898 100,000 17,371 16,887
1995 100,000 26,737 26,415 100,000 23,946 23,624
1996 100,000 35,046 34,885 100,000 31,363 31,201
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-8
<PAGE> 97
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $ 100,000 Annual Planned Premium(1): $ 2,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
================================================================================
SAFECO RST GROWTH DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1994 100,000 1,587 1,107 100,000 1,391 911
1995 100,000 4,536 3,936 100,000 4,059 3,458
1996 100,000 8,074 7,354 100,000 7,263 6,543
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST NORTHWEST DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
--------------------------------- ---------------------------------
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1994 100,000 1,451 971 100,000 1,264 783
1995 100,000 3,269 2,669 100,000 2,894 2,294
1996 100,000 5,425 4,704 100,000 4,836 4,116
</TABLE>
================================================================================
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-9
<PAGE> 98
RATES OF RETURN
The previous VIP and VIP II Division tables are based on the investment
performance, after actual expenses, of the corresponding VIP and VIP II
Portfolios. The average annual total return used in calculating the death
benefit, policy account value and cash surrender value for the respective
Portfolios are listed below. These annual total returns do not account for
insurance and administrative charges, or the mortality and expense risk charge
of 0.90%; and, they are not an estimate or a guarantee of future investment
performance.
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE VIP PORTFOLIOS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
VIP VIP VIP
MONEY HIGH EQUITY- VIP VIP
YEAR MARKET INCOME INCOME GROWTH OVERSEAS
- ----------------------------------------------------------------------------------
1983 9.16
- ----------------------------------------------------------------------------------
1984 10.43
- ----------------------------------------------------------------------------------
1985 8.11
- ----------------------------------------------------------------------------------
1986 6.70 17.68
- ----------------------------------------------------------------------------------
1987 6.44 1.22 -1.13 3.66
- ----------------------------------------------------------------------------------
1988 7.39 11.64 22.71 15.58 8.13
- ----------------------------------------------------------------------------------
1989 9.12 -4.17 17.34 31.51 26.28
- ----------------------------------------------------------------------------------
1990 8.04 -2.23 -15.29 -11.73 -1.67
- ----------------------------------------------------------------------------------
1991 6.09 35.08 31.44 45.51 8.00
- ----------------------------------------------------------------------------------
1992 3.90 23.17 16.89 9.32 -10.72
- ----------------------------------------------------------------------------------
1993 3.23 20.40 18.29 19.37 37.35
- ----------------------------------------------------------------------------------
1994 4.25 -1.64 7.07 -0.02 1.72
- ----------------------------------------------------------------------------------
1995 5.87 20.72 35.09 35.36 9.68
- ----------------------------------------------------------------------------------
1996 5.41 14.03 14.28 14.71 13.15
- ----------------------------------------------------------------------------------
</TABLE>
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE VIP II PORTFOLIOS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
VIP II VIP II VIP II VIP II VIP II
INVESTMENT ASSET INDEX ASSET MGR: CONTRA-
YEAR GRADE BOND MANAGER 500 GROWTH FUND
- -------------------------------------------------------------------------------------------
1989 10.26
- -------------------------------------------------------------------------------------------
1990 6.21 6.72
- -------------------------------------------------------------------------------------------
1991 16.38 22.56
- -------------------------------------------------------------------------------------------
1992 6.65 11.71
- -------------------------------------------------------------------------------------------
1993 10.96 21.23 9.74
- -------------------------------------------------------------------------------------------
1994 -3.76 -6.09 1.04
- -------------------------------------------------------------------------------------------
1995 17.32 16.96 37.19 23.13 39.62
- -------------------------------------------------------------------------------------------
1996 3.19 14.60 22.71 20.04 21.22
- -------------------------------------------------------------------------------------------
</TABLE>
C-10
<PAGE> 99
The previous Lexington Natural Resources Trust and Lexington Emerging Markets
Fund ("Lexington") Division tables are based on the investment performance,
after actual expenses, of the corresponding Lexington Portfolios. The average
annual total return used in calculating the death benefit, policy account value
and cash surrender value for the respective Portfolios are listed below. These
annual total returns do not account for insurance and administrative charges, or
the mortality and expense risk charge of 0.90%; and, they are not an estimate or
a guarantee of future investment performance.
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE LEXINGTON PORTFOLIOS
---------------------------------------------------------------
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
NATURAL EMERGING
YEAR RESOURCES MARKETS
----------------------------------------------------
<S> <C> <C>
1992 3.22
----------------------------------------------------
1993 10.90
----------------------------------------------------
1994 -5.38
----------------------------------------------------
1995 16.87 -3.93
----------------------------------------------------
1996 26.89 7.46
----------------------------------------------------
</TABLE>
The previous SAFECO RST Division tables are based on the investment performance,
after actual expenses, of the corresponding SAFECO RST Portfolios. The average
annual total return used in calculating the death benefit, policy account value
and cash surrender value for the respective Portfolios are listed below. These
annual total returns do not account for insurance and administrative charges, or
the mortality and expense risk charge of 0.90%; and, they are not an estimate or
a guarantee of future investment performance.
CALENDAR YEAR AVERAGE ANNUAL TOTAL RETURN (%) FOR THE SAFECO RST PORTFOLIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
RST RST SAFECO RST RST
YEAR BOND EQUITY GROWTH NORTHWEST
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1988 7.03 25.98
---------------------------------------------------------------------------------------------
1989 11.30 27.11
---------------------------------------------------------------------------------------------
1990 6.57 -5.21
---------------------------------------------------------------------------------------------
1991 13.98 26.85
---------------------------------------------------------------------------------------------
1992 6.82 8.06
---------------------------------------------------------------------------------------------
1993 10.55 27.92
---------------------------------------------------------------------------------------------
1994 -2.93 8.94 11.92 3.65
---------------------------------------------------------------------------------------------
1995 17.87 28.63 41.00 7.42
---------------------------------------------------------------------------------------------
1996 0.54 24.79 32.06 12.44
---------------------------------------------------------------------------------------------
</TABLE>
C-11
<PAGE> 100
STANDARD AND POOR'S 500
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Standard and Poor's (S&P 500) is a weighted
index of 500 widely held stocks: 400
Industrials, 40 Financial Company Stocks, 40
Public Utilities, and 20 Transportation stocks,
most of which are traded on the New York Stock
Exchange. The S&P 500 is generally regarded as
an accurate composite of the overall stock
market.
Measurement Period
(Fiscal Year Covered) S&P 500 Value
<S> <C>
1982 140.64
1983 164.93
1984 167.24
1985 211.28
1986 242.17
1987 247.08
1988 277.72
1989 353.40
1990 330.22
1991 417.09
1992 435.71
1993 466.45
1994 459.27
1995 615.93
1996 740.74
</TABLE>
ILLUSTRATION OF POLICY VALUES-
VARIABLE UNIVERSAL LIFE
Policy accumulation values are calculated assuming the Standard and Poor's 500
Index annual rates of return on a $100,000 policy, death benefit option A, which
was purchased in 1982 by a 45 year old, male, preferred non-smoker. The current
schedule of cost of insurance rates were used.
<TABLE>
<CAPTION>
S&P 500 POLICY CASH
ANNUAL ACCOUNT SURRENDER DEATH
YEAR RETURN VALUE VALUE BENEFIT
---- -------- ------- --------- -------
<S> <C> <C> <C> <C>
1982 21.58% 1,746 1,265 100,000
1983 22.43% 4,108 3,508 100,000
1984 6.10% 5,993 5,273 100,000
1985 31.57% 9,921 9,115 100,000
1986 18.21% 13,487 12,681 100,000
1987 5.17% 15,677 15,031 100,000
1988 16.50% 19,908 19,424 100,000
1989 31.43% 28,019 27,696 100,000
1990 -3.19% 28,309 28,148 100,000
1991 30.55% 38,699 38,699 100,000
1992 7.68% 42,942 42,942 100,000
1993 10.00% 48,501 48,501 100,000
1994 1.32% 50,198 50,198 100,000
1995 37.51% 70,720 70,720 100,000
1996 23.25% 88,517 88,517 118,613
</TABLE>
1) Assumes an annual $2000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
2) Assumes that no policy loan has been made. Excessive loans or withdrawals may
cause this policy to lapse because of insufficient cash value.
THE STANDARD AND POOR'S INDEX RATES SHOWN ABOVE FOR THE LAST 15 YEARS IS A
DEMONSTRATION OF A WEIGHTED AVERAGE OF 500 WIDELY HELD STOCKS. IT SHOULD NOT BE
DEEMED A REPRESENTATION OF FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS
MADE BY THE OWNER, THE SIZE OF THE POLICY, ACTUAL PREMIUMS PAID, AND COST OF
INSURANCE. THE INFORMATION IN THE CHART IS NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
D-1
<PAGE> 101
LONG TERM MARKET TRENDS
- --------------------------------------------------------------------------------
The information below covering the period of 1926-1996 an examination of the
basic relationship between risk and return among the different asset classes,
and between nominal and real (inflation-adjusted) returns. The information is
provided because the policyowners have varied investment portfolios available
which have different investment objectives and policies. The chart generally
demonstrates how different classes of investments have performed during the
period. The study of asset returns provides a period long enough to include most
of the major types of events that investors have experienced in the past and may
experience in the future. This is a historical record and is not intended as a
projection of future performance.
The graph depicts the growth of a dollar invested in large company stocks, small
company stocks, long-term government bonds, Treasury bills, and a hypothetical
asset returning the inflation rate over the period from the end of 1925 to the
end of 1996. All results assume reinvestment of dividends on stocks or coupons
on bonds and no taxes. Transaction costs are not included, except in the small
company stock index starting in 1982. Charges associated with a variable
insurance policy are not reflected in the chart.
Each of the cumulative index values is initiated at $1.00 at year-end 1925. The
graph illustrates that large company stocks and small company stocks gained the
most over the entire period. This growth, however, was earned by taking
substantial risk. In contrast, long-term government bonds (with approximately
20-year maturity), which exposed the holder to less risk, grew less.
The lowest risk strategy over the entire period was to buy U.S. Treasury bills.
Since Treasury bills tended to track inflation, the resulting real
(inflation-adjusted) returns were near zero for the entire 1926-1996 period.
[Graph appears here showing the growth of a dollar invested in large company
stocks, long-term government bonds, Treasury bills, and a hypothetical asset
returning the inflation rate over the period from the end of 1925 to the end of
1996.]
Year End 1925 = $1.00
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook(TM)
Ibbotson Associates, Chicago (annually updates work by
Roger G. Ibbotson and Rex A. Sinquefield). Used with permission.
All rights reserved.
E-1
<PAGE> 102
REPRESENTATIONS
1. Registrant represents that Section (b)(13)(iii)(F) of Rule 6e-3(T) is
being relied on.
2. Registrant represents that the level of the risk charge is reasonable
in relation to the risks assumed by the life insurer under the
Policies.
3. Registrant represents that it has analyzed the risk charge taking into
consideration such facts as current charge levels, potential adverse
mortality, the manner in which charges are imposed, the markets in
which the Policy will be offered and anticipated sales and lapse
rates.
Registrant also represents that a memorandum has been prepared in
connection with the analysis of the risk charge as set forth above.
Registrant undertakes to keep and make available to the Commission on
request the memorandum.
4. Registrant represents that the Company has concluded that there is a
reasonable likelihood that the distribution financing arrangement of
the Separate Account will benefit the Separate Account and
policyholders and will keep and make available to the Commission on
request a memorandum setting forth the basis for this representation.
5. Registrant represents that the Separate Account will invest only in
management investment companies which have undertaken to have a Board
of Directors, a majority of whom are not interested persons of the
Company, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
62
<PAGE> 103
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15 (d) of the Securities
Exchange Act of 1934. The undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission theretofore or hereafter duly adopted pursuant to
authority conferred in that section.
INDEMNIFICATION
Under its Bylaws, SAFECO, to the full extent permitted by the Washington
Business Corporation Act, shall indemnify any person who was or is a party to
any proceeding (whether brought by or in the right of SAFECO or otherwise) by
reason of the fact that he or she is or was a director of SAFECO, or, while a
director of SAFECO, is or was serving at the request of SAFECO as a director,
officer, partner, trustee, employee, or agent or another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with such proceeding.
SAFECO shall extend such indemnification as if provided to directors above to
any person, not a director of SAFECO, who is or was an officer of SAFECO or is
or was serving at the request of SAFECO as a director, officer, partner,
trustee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, other enterprise, or employee benefit plan. In addition,
the Board of Directors of SAFECO may, by resolution, extend such further
indemnification to an officer or such other person as may to it seem fair and
reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of SAFECO
pursuant to such provisions of the bylaws or statutes or otherwise, SAFECO has
been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by SAFECO of expenses incurred or paid
by a director, officer or controlling person of SAFECO in the successful
defense of any such action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the Policies issued by the
Separate Account, SAFECO will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in said Act and will be governed by the final adjudication
of such issue.
63
<PAGE> 104
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
SAFECO Life Insurance Company ("SAFECO") established the Registrant by
resolution of its Board of Directors pursuant to Washington law. SAFECO is a
wholly-owned subsidiary of SAFECO Corporation, which is a publicly-owned
company. Both companies were organized under Washington law. SAFECO
Corporation, a Washington corporation, owns 100% of SAFECO Asset Management
Company (SAM), SAFECO Services Corporation (SAFECO Services) and SAFECO
Securities, Inc. (SAFECO Securities), each a Washington corporation. SAM is
the investment advisor, SAFECO Services is the transfer agent and SAFECO
Securities is the principal underwriter for each of the SAFECO Mutual Funds.
The SAFECO Mutual Funds consist of six Delaware business trusts: SAFECO Common
Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond Trust, SAFECO
Money Market Trust, SAFECO Managed Bond Trust (formerly SAFECO Institutional
Series Trust) and SAFECO Resource Series Trust. The SAFECO Common Stock Trust
consists of seven mutual funds: SAFECO Growth Fund, SAFECO Equity Fund, SAFECO
Income Fund, SAFECO Northwest Fund, SAFECO International Stock Fund, SAFECO
Balanced Fund, SAFECO Small Company Stock Fund and SAFECO U.S. Value Fund. The
SAFECO Taxable Bond Trust consists of three mutual funds: SAFECO
Intermediate-Term U.S. Treasury Fund, SAFECO GNMA Fund and SAFECO High-Yield
Bond Fund. The SAFECO Tax-Exempt Bond Trust consists of five mutual funds:
SAFECO Intermediate-Term Municipal Bond Fund, SAFECO Insured Municipal Bond
Fund, SAFECO Municipal Bond Fund, SAFECO California Tax-Free Income Fund and
SAFECO Washington State Municipal Bond Fund. The SAFECO Money Market Fund
consists of two mutual funds: SAFECO Money Market Fund and SAFECO Tax-Free
Money Market Fund. The SAFECO Managed Bond Trust consists of one mutual fund:
Managed Bond Fund (formerly Fixed-Income Portfolio). The SAFECO Resource
Series Trust consists of six mutual funds: Equity Portfolio, Growth Portfolio,
Northwest Portfolio, Bond Portfolio, Money Market Portfolio and Small Company
Portfolio.
SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company of America, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, and SAFECO Insurance Company of Illinois, an Illinois corporation.
SAFECO Corporation owns 20% of Agena, Inc., a Washington corporation. SAFECO
Insurance Company of America owns 100% of SAFECO Surplus Lines Insurance
Company, a Washington corporation, and Market Square Holding, Inc., a Minnesota
corporation. SAFECO Life Insurance Company owns 100% of SAFECO National Life
Insurance Company, a Washington corporation, and First SAFECO National Life
Insurance Company of New York, a New York corporation. SAFECO Administrative
Services, Inc. owns 100% of Employee Benefit Claims of Wisconsin, Inc. and
Wisconsin Pension and Group Services, Inc., each a Wisconsin corporation.
General America Corporation owns 100% of COMAV Managers, Inc., an Illinois
corporation, F.B. Beattie & Co., Inc., a Washington corporation, General
America Corp. of Texas, a Texas corporation, Talbot Financial Corporation, a
Washington corporation and SAFECO Select Insurance Services, Inc., a California
corporation. F.B. Beattie & Co., Inc. owns 100% of F.B. Beattie Insurance
Services, Inc., a California corporation. General America Corp. of Texas is
Attorney-in-fact for SAFECO Lloyds Insurance Company, a Texas corporation.
Talbot Financial Corporation
64
<PAGE> 105
owns 100% of Talbot Agency, Inc., a New Mexico corporation. Talbot Agency,
Inc. owns 100% of PNMR Securities, Inc., a Washington corporation. SAFECO
Properties Inc. owns 100% of the following, each a Washington corporation: RIA
Development, Inc., SAFECARE Company, Inc. and Winmar Company, Inc. SAFECARE
Company, Inc. owns 100% of the following, each a Washington corporation: S.C.
Bellevue, Inc., S.C. Everett, Inc., S.C. Marysville, Inc., S.C. Simi Valley,
Inc. and S.C. Vancouver, Inc. SAFECARE Company, Inc. owns 50% of Lifeguard
Ventures, Inc., a California corporation, 50% of Mission Oaks Hospital, Inc., a
California corporation, S.C. River Oaks, Inc., a Washington corporation,
Mississippi Health Services, Inc., a Louisiana corporation, and Safecare Texas,
Inc., a Texas corporation. S.C. Simi Valley, Inc. owns 100% of Simi Valley
Hospital, Inc., a Washington corporation. Winmar Company, Inc. owns 100% of
the following: Barton Street Corp., C-W Properties, Inc., Gem State Investors,
Inc., Kitsap Mall, Inc., WNY Development, Inc., Winmar Cascade, Inc., Winmar
Metro, Inc., Winmar Northwest, Inc., Winmar Redmond, Inc. and Winmar of Kitsap,
Inc., each a Washington corporation, and Capitol Court Corp., a Wisconsin
corporation, SAFECO Properties of Boise, Inc., an Idaho corporation, SCIT,
Inc., a Massachusetts corporation, Valley Fair Shopping Centers, Inc., a
Delaware corporation, WDI Golf Club, Inc., a California corporation, Winmar
Oregon, Inc., an Oregon corporation, Winmar of Texas, Inc., a Texas
corporation, Winmar of Wisconsin, Inc., a Wisconsin corporation, and Winmar of
the Desert, Inc., a California corporation. Winmar Oregon, Inc. owns 100% of
the following, each an Oregon corporation: North Coast Management, Inc.,
Pacific Surfside Corp., Winmar of Jantzen Beach, Inc. and W-P Development,
Inc., and 100% of the following, each a Washington corporation: Washington
Square, Inc. and Winmar Pacific, Inc.
No person is directly or indirectly controlled by Registrant.
65
<PAGE> 106
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises:
I. The following papers and documents:
The facing sheet.
The Prospectus consisting of __ pages.
The undertaking to file reports.
The signatures. Written consents of the following persons:
(1) Ernst & Young LLP, Independent Auditors
(2) James Mankin, Actuary
II. The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions
for Exhibits in Form N-8B-2.
(1) Resolution of Board of Directors of the Company
authorizing the Separate Account
(2) Not Applicable
(3) (a) Principal Underwriter's Agreement
(b) Broker-Dealer Selling Agreement
(c) Commission Schedule
(4) Not Applicable
(5) Individual Flexible Premium Variable
Life Insurance Policy
(6) (a) Articles of Incorporation of the Company
Revised as of 11/90
(b) Bylaws of the Company
Revised as of 11/91
(7) Not Applicable
(8) Not Applicable
(9) (a) Reinsurance Agreement
(b) Servicing Agreement
(c) Form of Participation Agreement (Fidelity)
Form of Sub-Licensing Agreement
(d) Participation Agreement by and among
SAFECO Life Insurance Company, Lexington
Natural Resources Trust, and Lexington
Management Corporation ****
(10) (a) Application Form (revised 4/91)
(b) Part IV of Application Form (revised 6/96)
(13) Power Of Attorney ####
99.C1 Consent of Independent Auditors
99.2 Opinion and Consent of Counsel
(SAFECO Life Ins. Co.)
99.C6 Consent of Actuary (James Mankin)
66
<PAGE> 107
**** Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account C filed with the SEC on April 29, 1996
(File No. 33-69712)
#### Incorporated by reference to Post-Effective Amendment of
SAFECO Resource Variable Account B filed with the SEC on
December 29, 1995 (File No. 33-69600)
67
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
486(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf thereto duly authorized, in the City of
Seattle and State of Washington on the 29th day of April, 1997.
SAFECO Separate Account SL
By: SAFECO Life Insurance Company
(Depositor)
By: /s/ Richard E. Zunker
Richard E. Zunker, President
ATTEST: /s/ Rod Pierson
Rod Pierson, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment No. 14 to the Registration Statement on Form S-6 has been
signed by the following persons in the capacities and on the dates indicated.
Those signatures with an asterisk indicate the signature was supplied by a duly
appointed attorney-in-fact under a valid Power of Attorney.
<TABLE>
<CAPTION>
NAME TITLE TITLE DATE
- ---- ----- ----------
<S> <C>
Donald S. Chapman* Director
Donald S. Chapman
/s/ Boh A. Dickey Director
Boh A. Dickey
R.H. Eigsti* Director and Chairman
R.H. Eigsti
James T. Flynn* Vice President and
Controller (Principal
James T. Flynn Accounting Officer)
Dan D. McLean* Director
Dan D. McLean
Rod Pierson* Director, Senior Vice
Rod Pierson President and Secretary
James W. Ruddy* Director
James W. Ruddy
Robert L. Spaulding* Director
Robert L. Spaulding
Robert Swegle* Director
Robert Swegle
/s/ Richard E. Zunker Director and President
Richard E. Zunker (Principal Executive Officer)
</TABLE>
68
<PAGE> 109
*By /s/ Boh A. Dickey
Boh A. Dickey
Attorney-in-Fact
*By /s/ Richard E. Zunker
Richard E. Zunker
Attorney-in-Fact
69
<PAGE> 110
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 14
TO
FORM S-6
FOR
SEPARATE ACCOUNT SL
70
<PAGE> 111
EXHIBITS
A (1) Resolution of Board of Directors of the Company
authorizing the Separate Account
A (3) (a) Principal Underwriter's Agreement
(b) Broker-Dealer Selling Agreement
(c) Commission Schedule
A (5) Individual Flexible Premium Variable Life Insurance
Policy
A (6) (a) Articles of Incorporation of the Company
Revised as of 11/90
(b) Bylaws of the Company Revised as of 11/91
A (9) (a) Reinsurance Agreement
(b) Servicing Agreement
(c) Form of Participation Agreement (Fidelity)
Form of Sub-Licensing Agreement
A (10) (a) Application Form (revised 4/91)
(b) Part IV of Application Form (revised 6/96)
99.C1 Consent of Independent Auditors
99.2 Opinion and Consent of Counsel
99.C6 Consent of Actuary
71
<PAGE> 1
EXHIBIT A(l)
RESOLUTION OF BOARD OF DIRECTORS OF THE COMPANY
AUTHORIZING THE SEPARATE ACCOUNT
<PAGE> 2
WHEREAS, the proper officers of the Company were authorized to establish
one or more separate accounts to provide life insurance or annuities payable in
fixed or variable amounts pursuant to a resolution adopted November 7, 1979;
WHEREAS, the Company plans to develop and market certain types of variable
and fixed life insurance contracts which may be required to be registered with
the Securities and Exchange Commission pursuant to the federal securities laws;
NOW, THEREFORE, BE IT RESOLVED, That the Company is authorized to develop a
program to issue and to sell such variable and fixed life insurance contracts;
and
RESOLVED FURTHER, That the Company is authorized to establish and to
designate one or more separate accounts of the Company to provide for life
insurance (and other benefits incidental thereto), payable in fixed or variable
amounts or both;
RESOLVED FURTHER, That the purpose of any such separate account shall be to
provide an investment medium for such variable and fixed life insurance
contracts issued by the Company as may be designated as participating therein.
RESOLVED FURTHER, That any such separate account shall receive, hold,
invest and reinvest only the monies arising from (i) premiums, contributions or
payments made pursuant to the variable and fixed life insurance contracts
participating therein; (ii) such assets of the Company as shall be deemed
appropriate to be invested in the same manner as the assets applicable to the
Company's reserve liability under the variable and fixed life insurance
contracts participating in such separate accounts, or as may be necessary for
the establishment of such separate accounts; and (iii) the dividends, interest
and gains produced by the foregoing;
RESOLVED FURTHER, That the proper officers of the Company are hereby
authorized:
(i) to register the variable and fixed life insurance contracts
participating in any such separate accounts under the provisions
of the Securities Act of 1933 to the extent that it shall be
determined that such registration is necessary;
(ii) to register any such separate accounts with the Securities and
Exchange Commission under the provisions of the Investment
Company Act of 1940 to the extent that it shall be determined
that such registration is necessary;
<PAGE> 3
(iii) to prepare, execute and file such amendments to any registration
statements filed under the aforementioned Acts (including
post-effective amendments), supplements and exhibits thereto as
they may be deemed necessary or desirable;
(iv) to apply for exemption from those provisions of the
aforementioned Acts as shall be deemed necessary and to take any
and all other actions which shall be deemed necessary, desirable,
or appropriate in connection with such Acts, including to
prepare, execute and file amendments to any such application;
(v) to file the variable and fixed life insurance contracts
participating in any such separate accounts with the appropriate
state insurance departments and to prepare and execute all
necessary documents to obtain approval of the insurance
departments;
(vi) to prepare or have prepared and to execute all necessary
documents to obtain approval of, or clearance with, or other
appropriate actions required of, any other regulatory authority
that may be necessary;
RESOLVED FURTHER, That to facilitate the execution and filing of any
registration statement and remedy any deficiencies therein by appropriate
amendments (including post-effective amendments) or supplements thereto, the
President, Secretary and any Vice President of the Company, and each of them,
are hereby designated as attorneys and agents of the Company; and the
appropriate officers of the Company be, and they hereby are, authorized and
directed to grant the power of attorney of the Company to the President of the
Company and the Secretary of the Company by executing and delivering to such
individuals, on behalf of the Company, a power of attorney;
RESOLVED FURTHER, That in connection with the offering and sale of the
fixed and variable life insurance contracts in the various States of the United
States, as and to the extent necessary, the appropriate officers of the Company
be, and they hereby are, authorized to take any and all such action, including
but not limited to the preparation, execution and filing with proper State
authorities, on behalf of and in the name of the Company, of such applications,
notices, certificates, affidavits, powers of attorney, consents to service of
process, issuers covenants, certified copies of minutes of shareholders' and
directors' meetings, bonds, escrow and impounding agreements and other writings
and instruments, as may be required in order to render permissible the offering
and sale of the fixed and variable life insurance contracts in such
jurisdictions;
<PAGE> 4
RESOLVED FURTHER, That the forms of any resolutions required by any State
authority to be filed in connection with any of the documents or instruments
referred to in any of the preceding resolutions be, and the same hereby are,
adopted as if fully set forth herein if (1) in the opinion of the appropriate
officers of the Company, the adoption of the resolutions is advisable and (2)
the Secretary or any Assistant Secretary of the Company evidences such adoption
by inserting into these minutes copies of such resolutions; and
RESOLVED FURTHER, That the officers of the Company, and each of them, are
hereby authorized to prepare and to execute the necessary documents and to take
such further actions as may be deemed necessary or appropriate, in their
discretion, to implement the purpose of these resolutions.
RESOLVED FURTHER, That the forms of any resolutions required by any State
authority to be filed in connection with any of the documents or instruments
referred to in any of the preceding resolutions be, and the same hereby are,
adopted.
<PAGE> 1
EXHIBIT A (3) (a)
Principal Underwriter's Agreement
<PAGE> 2
Principal Underwriters Agreement
April 29, 1994
Page 1
PRINCIPAL UNDERWRITER'S AGREEMENT
SAFECO LIFE INSURANCE COMPANY SEPARATE ACCOUNT SL
This Agreement is made and entered into as of the 29th day of April,
1994 between SAFECO Life Insurance Company ("SAFECO Life") on behalf of Separate
Account SL ("Separate Account") and SAFECO Securities, Inc., a corporation
registered as a broker-dealer with the Securities and Exchange Commission and
National Association of Securities Dealers, Inc. ("PRINCIPAL UNDERWRITER").
WHEREAS, SAFECO Life is a life insurance company licensed to sell
various life insurance and annuity contracts (the "Policies"); and
WHEREAS, SAFECO Life proposes to issue and sell the Policies to the
public through PRINCIPAL UNDERWRITER:
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. SAFECO Life is a life insurance company licensed to offer and sell
the Policies. SAFECO Life proposes to issue and sell the Policies to the public
through PRINCIPAL UNDERWRITER. The PRINCIPAL UNDERWRITER agrees to provide sales
service subject to the terms and conditions hereof. The Policies to be sold are
more fully described in the registration statements and the prospectuses
hereinafter mentioned. Such Policies will be issued by SAFECO Life through the
Separate Account.
2. SAFECO Life grants PRINCIPAL UNDERWRITER, the exclusive right,
during the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the provisions
of the Securities Exchange Act of 1934, to be the principal underwriter of the
Policies issued through the Separate Accounts. PRINCIPAL UNDERWRITER will offer
and sell the Policies under such terms as set by SAFECO Life and will make such
sale to purchasers permitted to buy such Policies as specified in the
prospectuses.
3. PRINCIPAL UNDERWRITER agrees that it shall undertake to perform all
duties and functions which are necessary and proper for the distribution of the
Policies.
4. (a) All sales literature and advertisements relating to SAFECO Life
and the Separate Account used by PRINCIPAL UNDERWRITER shall be subject to
approval by SAFECO Life. SAFECO Life authorizes PRINCIPAL UNDERWRITER, in
connection with the sale or arranging for the sale of the Policies, to provide
only such information and to make only such statements or representations as are
contained in the then-current Prospectus and Statement of Additional Information
for the Separate Account or in sales literature or advertisements approved by
SAFECO Life or in such financial and other statements which are furnished to the
PRINCIPAL UNDERWRITER pursuant to the next paragraph. SAFECO Life shall not be
<PAGE> 3
Principal Underwriters Agreement
April 29, 1994
Page 2
responsible in any way for any information provided or statements or
representations made by PRINCIPAL UNDERWRITER or its representatives or agents
other than the information, statements and representations described in the
preceding sentence. PRINCIPAL UNDERWRITER shall review all materials submitted
to it that describes SAFECO Life or the Policies. PRINCIPAL UNDERWRITER shall
not be responsible for any information provided or statements or representations
made by persons or entities other than PRINCIPAL UNDERWRITER's representatives
or agents.
(b) SAFECO Life shall keep PRINCIPAL UNDERWRITER fully
informed with regard to its affairs, shall furnish PRINCIPAL UNDERWRITER with a
copy of all financial statements and a signed copy of each report prepared by
its independent certified public accountants, and shall cooperate fully in the
efforts of PRINCIPAL UNDERWRITER to sell the Policies and in the performance by
PRINCIPAL UNDERWRITER of all its duties under this Agreement.
5. (a) SAFECO Life will pay or cause to be paid:
(1) registration fees for
registering its Separate Accounts under the
Securities Act of 1933 (the "1933 Act");
(2) the expenses, including
counsel fees, of preparing registration
statements and such other documents as
SAFECO Life believes are necessary for
registering the Separate Account with the
Securities and Exchange Commission (the
"SEC") and such states as are deemed
necessary or appropriate;
(3) expenses incident to
preparing amendments to the 1933 Act and
Investment Company Act of 1940, as amended
(the "1940 Act") registration statements;
(4) expenses for preparing
and setting in type all prospectuses and the
expense of supplying them to the applicants
for the Policies.
(5) expenses incident to
the issuance of its Policies; and
(6) expenses incident to
the preparation and mailing of notices,
reports and proxy solicitation material to
its Policyholders.
(b) PRINCIPAL UNDERWRITER shall be compensated for its
distribution service in such amount as to meet all of its obligations to selling
broker-dealers with respect to
<PAGE> 4
Principal Underwriters Agreement
April 29, 1994
Page 3
all payments for the Policies accepted by SAFECO Life on the Policies covered by
this Agreement.
6. (a) SAFECO Life shall maintain a currently effective Registration
Statement with respect to the Separate Account and the Policies of the Separate
Account on the appropriate SEC form and shall file with the SEC such reports and
other documents as may be required under the 1933 Act and the 1940 Act or by the
rules and regulations of the SEC thereunder.
(b) SAFECO Life represents and warrants that its Registration
Statements, post-effective amendments, Prospectuses and Statements of Additional
Information (excluding statements based upon written information furnished by
PRINCIPAL UNDERWRITER expressly for inclusion therein) shall not contain any
untrue statement of material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and that all statements or information furnished to PRINCIPAL UNDERWRITER,
pursuant to Section 4 (b) hereof, shall be true and correct in all material
respects.
7. It is understood that officers, agents and shareholders of SAFECO
Life are or may be interested in PRINCIPAL UNDERWRITER as directors, officers,
shareholders, or otherwise; that directors, officers, agents and shareholders of
PRINCIPAL UNDERWRITER are or may be interested in SAFECO Life as officers,
shareholders or otherwise; that PRINCIPAL UNDERWRITER may be interested in
SAFECO Life as a shareholder or otherwise; and that the existence of any such
dual interest shall not affect the validity this Agreement or of any
transactions hereunder except as otherwise provided by specific provisions or
applicable law.
8. The parties contemplate PRINCIPAL UNDERWRITER will enter into dealer
agreements with registered and qualified securities dealers for the sale of the
Policies. The form of any such dealer agreement shall be mutually agreed upon
and approved by SAFECO Life and the PRINCIPAL UNDERWRITER.
9. PRINCIPAL UNDERWRITER is an independent contractor and shall be
agent for SAFECO Life only in respect to the sale and redemption of the
Policies.
10. The services of PRINCIPAL UNDERWRITER to SAFECO Life under this
Agreement are not to be deemed exclusive, and the PRINCIPAL UNDERWRITER shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
11. This Agreement is terminable on not less than 60 days' notice to
the other party and will be terminated upon the mutual written consent of
PRINCIPAL UNDERWRITER and SAFECO Life. This Agreement will also automatically
and immediately terminate in the event of its assignment.
<PAGE> 5
Principal Underwriters Agreement
April 29, 1994
Page 4
12. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties ("disabling conduct") hereunder
on the part of PRINCIPAL UNDERWRITER (and its officers, directors, agents,
employees, controlling persons and any other person or entity affiliated with
PRINCIPAL UNDERWRITER or retained by it to perform or assist in the performance
of its obligations under this Agreement), PRINCIPAL UNDERWRITER shall not be
subject to liability to SAFECO Life or for any act or omission in the course of,
or connected with, rendering services hereunder, including without limitation,
any error of judgment or mistake of law or for any loss suffered by any of them
in connection with the matters to which this Agreement relates.
13. Any notice, request, instruction or other document to be given
hereunder by either party hereto to the other shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, as set
forth below:
If to SAFECO Life: President
SAFECO Life Insurance Company
15411 NE 51st Street
Redmond, WA 98052
If to PRINCIPAL UNDERWRITER: President
SAFECO Securities, Inc.
SAFECO Plaza
Seattle, WA 98115
14. This Agreement embodies the entire Agreement between PRINCIPAL
UNDERWRITER and SAFECO Life with respect to the principal underwriting services
to be provided by PRINCIPAL UNDERWRITER to SAFECO Life and the Separate Account
and supersedes any prior written or oral agreement between the parties. The
parties acknowledge that certain administrative responsibilities and obligations
in connection with the offer and sale of the Policies are stated in the
Administrative Services Agreement by and among SAFECO Life, PRINCIPAL
UNDERWRITER, and PNMR Securities, Inc. dated April 29, 1994. In the event that
either party should be required to take legal action in order to enforce its
rights under this Agreement, the prevailing party in any such action or
proceeding shall be entitled to recover from the other party costs and
reasonable attorneys' fees.
15. This Agreement may be executed in counterparts, each of which taken
together shall constitute one and the same instrument. PRINCIPAL UNDERWRITER
acknowledges that the rights and obligations of the Separate Account are
separate and distinct from those of any and all other Separate Accounts.
16. This Agreement shall be construed in accordance with and governed
by the laws of the State of Washington.
<PAGE> 6
Principal Underwriters Agreement
April 29, 1994
Page 5
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed by their duly authorized officers and under their duly
authorized officers and under their respective seals as of the day and year
first above written.
SAFECO LIFE INSURANCE COMPANY
SAFECO SECURITIES, INC.
By___________________________
By_____________________
--
Its__________________________
Its____________________
<PAGE> 1
EXHIBIT A (3) (b)
Broker-Dealer Selling Agreement
<PAGE> 2
REGULATORY SUPPORT FEE ADDENDUM
This Addendum is attached to and forms part of the Registered Representative
Agreement between PNMR Securities, Inc. ("PNMR") and the undersigned Registered
Representative ("Representative").
Representative agrees to pay PNMR an annual fee of $250 to cover regulatory,
compliance and administrative services provided by PNMR in connection with
Representative's activities on behalf of PNMR. PNMR shall provide an annual
invoice to Representative by February 1 of each year. Such invoice shall be
payable by Representative to PNMR by March 31 of each year. If payment of the
fee is not received by PNMR by March 31, Representative's registration and
Registered Representative Agreement with PNMR will be terminated effective April
1 of such year.
Notwithstanding the foregoing, the fee will be waived following any calendar
year in which the Representative achieves either of the following production
standards with respect to products issued by SAFECO Life Insurance Company
("SAFECO Life") or First SAFECO Life Insurance Company of New York ("First
SAFECO"):
1. Retirement Services Department Annuity Deposits of $50,000; or
2. Individual Department Life Insurance Products first-year VPC or
IPC of $3,000
For the purposes of this Addendum, "VPC" and "IPC" shall have the meanings set
forth in Representative's Agency Agreement with SAFECO Life or First SAFECO.
This addendum is effective as of the date set forth below by PNMR.
PNMR SECURITIES, INC. REGISTERED REPRESENTATIVE
By________________________________ _____________________________________
Signature
Title_____________________________ _____________________________________
Print Name
Effective Date____________________
14
<PAGE> 3
SALES AGREEMENT
Agreement dated as of ________ 199_ ("Agreement"), by and among SAFECO LIFE
INSURANCE COMPANY, a Washington insurance company ("SAFECO Life"), SAFECO
SECURITIES, INC., a Washington corporation ("SSI"), (together with SSI,
"SAFECO"), and ______________________________________________________________, a
____________ corporation ("Broker-Dealer") and ______________________________, a
____________ corporation ("Insurance Agency").
RECITALS:
A. SAFECO Life pursuant to distribution agreements with SSI (the
"Distribution Agreements") has appointed SSI as the principal underwriter of the
class or classes of group and individual variable life insurance and annuity
contracts identified in Schedule 1 to this Agreement at the time that this
Agreement is executed, and such other class or classes of variable insurance
products that may be added to Schedule 1 from time to time in accordance with
Section 2(f) of this Agreement (each, a "class of Contracts"; all such classes,
the "Contracts"). For the purposes of this Agreement (including the schedules),
a group life insurance or annuity "enrollment form" shall mean the same as the
individual "application," "certificate" shall mean the same as "contract" and
all other group insurance terms shall have the same meaning as their individual
insurance contract counterpart. Each class of Contracts will be issued by SAFECO
Life through one or more separate accounts of SAFECO Life ("Separate Accounts")
and each class of Contracts will be funded by shares of certain registered
investment companies (each, a "Fund"; together, the "Funds") and/or by a fixed
account option(s). SAFECO Life has authorized SSI to enter into separate written
agreements with broker-dealers pursuant to which such broker-dealers would be
authorized to participate in the sale of the Contracts.
B. Broker-Dealer is a broker-dealer and Insurance Agency is a life
insurance agency. Insurance Agency is (__) an Affiliate of Broker-Dealer;
Insurance Agency is (__) the same person as Broker-Dealer; or (__) Broker-Dealer
controls Insurance Agency's securities-related activity by contract.
C. The parties to this Agreement desire that Broker-Dealer and Insurance
Agency be authorized to solicit applications for the sale of the Contracts
subject to the terms and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. ADDITIONAL DEFINITIONS
(a) Registration Statement - With respect to each class of Contracts, the most
recent effective registration statement(s) filed with the SEC or the most
recent effective post-effective
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<PAGE> 4
amendment(s) thereto, including financial statements included therein and
all exhibits thereto.
(b) Prospectus - With respect to each class of Contracts, the current
prospectus for such class of Contracts.
(c) 1933 Act -The Securities Act of 1933, as amended.
(d) 1934 Act - The Securities Exchange Act of 1934, as amended.
(e) 1940 Act - The Investment Company Act of 1940, as amended.
(f) Agent - An individual associated with Broker-Dealer and Insurance Agency
who (i) is registered with Broker-Dealer and who possesses the requisite
NASD and state securities registrations to offer and sell the Contracts;
(ii) possesses a variable product insurance agent license; and (iii) is
appointed with SAFECO Life.
(g) Premium - A payment made under a Contract to purchase benefits under such
Contract.
(h) Service Center - SAFECO Life Insurance Company, P.O. Box 34690, Seattle, WA
98124-1690 or such other address as may be designated from time to time
by SAFECO Life and provided to Insurance Agency and Broker-Dealer.
(i) SEC - The Securities and Exchange Commission.
(j) NASD - The National Association of Securities Dealers, Inc.
(k) Affiliate - With respect to a person, any other person controlling,
controlled by, or under common control with, such person.
(1) Broker-of-Record - Generally, the person designated in SAFECO Life records
as the person, with respect to a Contract, who is entitled to receive
compensation payable with respect to such Contract and who is able to
contact directly the owner of such Contract. In the case of compensation
payable with respect to a Premium, the Broker-of-Record shall be the party
designated as such in the SAFECO Life records at the time such Premium is
accepted by SAFECO Life. In the case of any payment of compensation payable
with respect to Contract value, the Broker-of-Record shall be the party
designated as such in SAFECO Life records in accordance with SAFECO Life's
policies and procedures in effect at the time any such payment is payable.
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<PAGE> 5
2. AUTHORIZATION OF BROKER-DEALER AND INSURANCE AGENCY
(a) Pursuant to the authority granted to it in the Distribution Agreements, SSI
hereby authorizes Broker-Dealer under the securities laws, and SAFECO Life
hereby authorizes Insurance Agency under the insurance laws, each in a
non-exclusive capacity, to sell the Contracts. Broker-Dealer and Insurance
Agency accept such authorization.
(b) Broker-Dealer and Insurance Agency acknowledge that no territory is
exclusively assigned hereunder, and SAFECO reserves the right in its sole
discretion to establish or appoint one or more agencies in any jurisdiction
in which Insurance Agency transacts business hereunder.
(c) Insurance Agency is vested under this Agreement with power and authority to
select and recommend individuals associated with Insurance Agency for
appointment as Agents of SAFECO Life, and only individuals so recommended
by Insurance Agency shall become Agents, provided that SAFECO Life reserves
the right in its sole discretion to refuse to appoint any proposed agent
or, once appointed, to terminate the same at any time with or without
cause.
(d) Neither Broker-Dealer nor Insurance Agency shall expend or contract for the
expenditure of the funds of SSI or SAFECO Life. Broker-Dealer and Insurance
Agency each shall pay all expenses incurred by each of them in the
performance of this Agreement, unless otherwise specifically provided for
in this Agreement or unless SAFECO shall have agreed in advance in writing
to share the cost of any such expenses. Initial and renewal state
appointment fees for Insurance Agency and appointees of Insurance Agency as
Agents of SAFECO Life will be paid by SAFECO Life or Insurance Agency in
accordance with SAFECO Life's policies and procedures, which may be changed
by SAFECO Life in its sole discretion at any time without notice. Neither
Broker-Dealer nor Insurance Agency shall possess or exercise any authority
on behalf of SAFECO Life other than that expressly conferred on
Broker-Dealer or Insurance Agency by this Agreement. In particular, and
without limiting the foregoing, neither Broker-Dealer nor Insurance Agency
shall have any authority, nor shall either grant such authority to any
Agent, on behalf of SAFECO Life: to make, alter or discharge any Contract
or other contract entered into pursuant to a Contract; to waive any
Contract provision; to extend the time of paying any Premiums; to endorse
checks or money orders payable to SAFECO Life; or to receive any monies or
Premiums from applicants for or purchasers of the Contracts (except for the
sole purpose of forwarding monies or Premiums to SAFECO Life).
(e) Broker-Dealer and Insurance Agency acknowledge that, to the extent
permitted by law, SAFECO Life has the right in its sole discretion to
reject any applications or Premiums received by it and to return or refund
to an applicant such applicant's Premium.
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<PAGE> 6
(f) Schedule 1 to this Agreement may be amended upon notice by SAFECO Life in
its sole discretion from time to time to include other classes of variable
annuity contracts or variable life insurance contracts. The provisions of
this Agreement shall be equally applicable to each such class of Contracts
unless the context otherwise requires. Schedule 1 to this Agreement may be
amended by SAFECO at its sole discretion from time to time to delete
classes of variable annuity contracts or variable life insurance contracts.
(g) SAFECO acknowledges that Broker-Dealer and Insurance Agency are each an
independent contractor. Accordingly, Broker-Dealer and Insurance Agency are
not obliged or expected to give full time and energies to the performance
of their obligations hereunder, nor are Broker-Dealer and Insurance Agency
obliged or expected to represent SSI or SAFECO Life exclusively. Nothing
herein contained shall constitute Broker-Dealer, Insurance Agency, the
Agents or any agents or representatives of Broker-Dealer or Insurance
Agency as employees of SSI or SAFECO Life in connection with the
solicitation of applications for the Contracts.
3. LICENSING AND REGISTRATION OF BROKER-DEALER, INSURANCE AGENCY AND AGENTS
(a) Broker-Dealer represents that it is a broker-dealer registered with the SEC
under the 1934 Act, and is a member of the NASD. Broker-Dealer must, at all
times when performing its functions and fulfilling its obligations under
this Agreement, be duly registered as a broker-dealer under the 1934 Act
and in each state or other jurisdiction in which Broker-Dealer intends to
perform its functions and fulfill its obligations hereunder, and be a
member in good standing of the NASD.
(b) Insurance Agency represents that it is a licensed life insurance agent
where required to solicit applications, except that if Insurance Agency
cannot be qualified to be a licensed life insurance agent until
appointed by an insurer, Insurance Agency represents that it is qualified
to be a licensed insurance agent but for the appointment by an insurer.
Insurance Agency must, at all times when performing its functions and
fulfilling its obligations under this Agreement, be duly licensed to sell
the Contracts in each state or other jurisdiction in which Insurance Agency
intends to perform its functions and fulfill its obligations hereunder.
(c) Broker-Dealer shall ensure that no individual shall offer or sell the
Contracts on behalf of Broker-Dealer in any state or other jurisdiction in
which the Contracts may lawfully be sold unless such individual is an
associated person of Broker-Dealer (as that term is defined in section
3(a)(18) of the 1934 Act) and duly registered with the NASD and any
applicable state securities regulatory authority as a registered person of
Broker-Dealer qualified to sell the Contracts in such state or
jurisdiction.
(d) Insurance Agency shall ensure that no individual shall offer or sell the
Contracts on behalf of Insurance Agency in any state or other jurisdiction
unless such individual is duly licensed
-4-
<PAGE> 7
and appointed as an agent of SAFECO Life, and appropriately licensed,
registered or otherwise qualified to offer and sell the Contracts to be
offered and sold by such individual under the insurance laws of such state
or jurisdiction. Insurance Agency shall furnish SAFECO Life with proof of
proper licensing of Agents or other proof, reasonably acceptable to SAFECO,
of satisfaction by Agents of licensing requirements prior to SAFECO Life
appointing any such individual as an Agent of SAFECO Life.
(e) If Insurance Agency is an Affiliate of Broker-Dealer or if Broker-Dealer
controls Insurance Agency's securities-related activities by contract as
reflected in Recital B to this Agreement, then by engaging in the
distribution activities contemplated by the Agreement, Broker-Dealer and
Insurance Agency represent and warrant either that:
(i) Broker-Dealer and Insurance Agency:
(A) have obtained a letter from the Staff of the SEC advising
Broker-Dealer and Insurance Agency that the Staff will not
recommend enforcement action if Insurance Agency is not
registered as a broker-dealer with the Commission; and
(B) are complying and will continue to comply with the conditions set
forth in such letter at all times while the Agreement is in
effect; or
(ii) Broker-Dealer and Insurance Agency are relying on certain no action
letters issued by the SEC with respect to the securities-related
activities of licensed insurance agencies involved in the distribution
of variable insurance products and agree that during the term of the
Agreement Broker-Dealer and Insurance Agency shall operate in
compliance with applicable provisions of such no action letters and
specifically agree that:
(A) (1) Broker-Dealer will control Insurance Agency's
securities-related activities by contract; or (2) Insurance
Agency is either wholly-owned by Broker-Dealer or an affiliated
person of Broker-Dealer or is wholly-owned by one or more
associated persons of Broker-Dealer;
(B) Insurance Agency and its personnel will be "associated persons"
of Broker-Dealer within the meaning of Section 3(a)(18) of the
1934 Act;
(C) Insurance Agency will engage in the offer or sale of the
Contracts only through persons who are registered persons of
Broker-Dealer;
(D) Insurance Agency will not receive or handle customer funds or
securities except through Agents who are registered persons of
Broker-Dealer;
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<PAGE> 8
(E) Broker-Dealer will be responsible for the training, supervision
and control of registered persons engaging in the offer or sale
of the Contracts on behalf of Insurance Agency, as required under
the 1934 Act, NASD rules and other applicable statutes or
regulations, and will also be responsible for the supervision and
control of any of its associated persons who are owners,
directors or executive officers of Insurance Agency;
(F) Broker-Dealer will comply with all applicable requirements of the
1934 Act and the NASD, including the requirement to maintain and
preserve books and records under Section 17(a) of the 1934 Act
and the rules thereunder; and
(G) Commissions and fees relating to the Contracts will be reflected
in the quarterly FOCUS reports and the fee assessment reports
filed by Broker-Dealer with the NASD.
Broker-Dealer and Insurance Agency shall notify SAFECO immediately in
writing if Broker-Dealer and/or Insurance Agency fail to comply with any
of the applicable provisions set forth above.
4. BROKER-DEALER AND INSURANCE AGENCY COMPLIANCE
(a) Insurance Agency shall train, supervise, and be solely responsible for the
conduct of the Agents in their solicitation activities in connection with
the Contracts, and shall supervise Agents' compliance with applicable rules
and regulations of any insurance regulatory agencies that have jurisdiction
over variable contracts activities, as well as the rules and procedures of
SAFECO Life pertaining to the solicitation, sale and submission of
applications for the Contracts, as provided in writing to Insurance Agency
by SAFECO Life from time to time. Broker-Dealer shall be responsible for
background investigations of the Agents to determine their qualifications,
good character, and moral fitness to sell the Contracts.
(b) Broker-Dealer shall be responsible for securities training, supervision and
control of the Agents in connection with their solicitation activities with
respect to the Contracts and shall supervise Agents' strict compliance with
applicable federal and state securities law and NASD requirements in
connection with such solicitation activities.
(c) Broker-Dealer and Insurance Agency hereby represent and warrant that they
are duly in compliance with all applicable federal and state securities
laws and regulations, including without limitation state insurance laws and
regulations imposing insurance licensing requirements.
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<PAGE> 9
(d) Broker-Dealer and Insurance Agency each shall carry out their respective
sales and administrative obligations under this Agreement in continued
compliance with the rules and procedures of SAFECO Life as provided to
them in writing from time to time, and with federal and state laws and
regulations, including those governing securities and/or insurance related
activities or transactions, as applicable.
(e) Broker-Dealer, Insurance Agency and Agents shall not offer or attempt
to offer the Contracts, nor solicit applications for the Contracts, nor
deliver Contracts, in any state or jurisdiction in which the Contracts
may not be lawfully sold or offered for sale. For purposes of
determining where the Contracts may be offered and applications
solicited, Broker-Dealer and Insurance Agency may rely on written
notification, as revised from time to time, that they receive from
SAFECO Life.
(f) In addition to any other provisions of this Agreement applicable to
Agents, Broker-Dealer and Insurance Agency shall ensure that each Agent
shall comply with a standard of conduct applicable to licensed insurance
agents including, but not limited to, the following:
(i) An Agent shall recommend the purchase of a Contract to an applicant
only if he or she has reasonable grounds to believe that such
purchase is suitable for the applicant in accordance with, among
other things, applicable regulations of any state insurance
regulatory authority, the SEC and the NASD.
(ii) An Agent shall accept initial Premiums in the form of a check or
money order only if made payable to "SAFECO Life Insurance Company"
and signed by the applicant for the Contract. An Agent shall not
accept third-party checks or cash for Premiums.
(iii) All checks and money orders and applications for the Contracts
received by an Agent shall be remitted promptly, and in any event
not later than 2 business days after receipt, to the Service Center.
(iv) An Agent shall not encourage a prospective purchaser to surrender or
exchange an insurance policy or contract in order to purchase a
Contract, or conversely, to surrender or exchange a Contract in
order to purchase another insurance policy or contract unless proper
state required replacement procedures are adhered to.
(g) Upon issuance of a Contract, SAFECO Life shall, in accordance with its
procedures with respect to each class of Contracts, either deliver such
Contract directly to the purchaser or deliver such Contract to Insurance
Agency or the Agent for delivery to the purchaser. Upon issuance of a
Contract by SAFECO Life and delivery of such Contract to Insurance Agency
or the Agent, Insurance Agency shall promptly deliver such Contract, or
ensure prompt delivery by Agent of such Contract, to its purchaser.
Insurance Agency or the Agent shall return promptly to SAFECO Life all
receipts for delivered Contracts, all undelivered
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<PAGE> 10
Contracts and all receipts for cancellation, in accordance with the
instructions provided by SAFECO Life.
(h) In the event that Premiums are sent to Insurance Agency or
Broker-Dealer, rather than to the Service Center, Insurance Agency and
Broker-Dealer shall promptly (and in any event, not later than 2
business days) remit such Premiums to SAFECO Life at the Service
Center. Insurance Agency and Broker-Dealer acknowledge that if any
Premium is held at any time by either of them, such Premium shall be
held on behalf of the customer, and Insurance Agency or Broker-Dealer
shall segregate such Premium from their own funds and promptly (and in
any event, within 2 business days) remit such Premium to SAFECO Life.
All such Premiums, whether by check, money order or wire, shall at all
times be the property of SAFECO Life.
(i) Neither Broker-Dealer, Insurance Agency nor any Agent, in connection
with the offer or sale of the Contracts, shall give any information or
make any representations or statements, written or oral, concerning the
Contracts, a Fund or Fund Shares, other than information or
representations which are in accordance with the Prospectuses,
statements of additional information and Registration Statements for
the Contracts, or a Fund, or in reports or proxy statements therefore,
or in promotional, sales or advertising material or other information
supplied and approved in writing by SAFECO.
(i) Neither Broker-Dealer, Insurance Agency nor any Agent shall use or
implement any promotional, sales or advertising material relating to the
Contracts without the prior written approval of SAFECO.
(k) Broker-Dealer and Insurance Agency shall be solely responsible under
applicable tax laws for the reporting of compensation paid to Agents.
(l) Insurance Agency represents that it maintains and shall maintain such
books and records concerning the activities of the Agents as may be
required by the appropriate insurance regulatory agencies that have
jurisdiction and that may be reasonably required by SAFECO to adequately
reflect the Contracts business processed through Insurance Agency.
Insurance Agency shall make such books and records available to SAFECO at
any reasonable time upon written request by SAFECO.
(m) Broker-Dealer represents that it maintains and shall maintain appropriate
books and records concerning the activities of the Agents as are required
by the SEC, the NASD and other agencies having jurisdiction and that may
be reasonably required by SAFECO to reflect adequately the Contracts
business processed through Insurance Agency. Broker-Dealer shall make such
books and records available to SAFECO at any reasonable time upon written
request by SAFECO.
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<PAGE> 11
(n) Each party shall promptly furnish to any other party, or its authorized
agent any reports and information that the requesting party may reasonably
request for the purpose of meeting such party's reporting and
recordkeeping requirements under the insurance laws of any state, under
any applicable federal and state securities laws, rules and regulations,
and the rules of the NASD.
5. SALES MATERIALS
(a) During the term of this Agreement, SAFECO will provide Broker-Dealer,
Insurance Agency, and Agents without charge, with as many copies of
current Prospectuses, current Fund prospectus(es), and applications for
the Contracts, as Broker-Dealer, Insurance Agency or Agents may reasonably
request. Upon termination of this Agreement, Broker-Dealer and Insurance
Agency will promptly return to SAFECO any Prospectuses, applications, Fund
prospectuses, and other materials and supplies furnished by SSI or SAFECO
Life to Broker-Dealer or Insurance Agency or to the Agents.
(b) During the term of this Agreement SSI will be responsible for providing
and approving all promotional, sales and advertising material to be used
by Broker-Dealer and Insurance Agency. SSI will file such materials or
will cause such materials to be filed with the SEC, the NASD, and/or with
any state securities regulatory authorities, as appropriate.
6. COMMISSIONS AND EXPENSES
(a) During the term of this Agreement, SAFECO Life, on behalf of SSI shall pay
to Insurance Agency as compensation for Contracts for which it is the
Broker-of-Record, the commissions and fees set forth in Schedules 2 and/or
3 to this Agreement, as such Schedule may be amended or modified at any
time, in any manner by SAFECO, and subject to other provisions of this
Agreement. Any amendment to Schedules 2 and/or 3 will be applicable to any
Contract for which an application or premium is received by the Service
Center on or after the effective date of such amendment or which is in
effect after the effective date of such amendment. Compensation with
respect to any Contract shall be paid to Insurance Agency only for so long
as Insurance Agency is the Broker-of-Record for such Contract. When the
balance due to Insurance Agency is less than a reasonable minimum
established by SAFECO, payments to Insurance Agency may be paid only when
such minimum is reached.
(b) Broker-Dealer and Insurance Agency recognize that all compensation payable
to Insurance Agency hereunder will be disbursed by SAFECO after Premiums
are received and accepted by SAFECO Life and that no compensation of any
kind other than that described in this Agreement is payable to Insurance
Agency.
(c) Chargebacks: The commissions payable pursuant to Schedules 2 and/or 3 may
be adjusted, and any commission already paid, returned to SAFECO by
Insurance Agency on request as
-9-
<PAGE> 12
provided therein. If repayment and/or payment under any of the provisions
of Schedules 2 and/or 3 is not promptly made following receipt of a notice
of request for repayment, Insurance Agency authorizes SAFECO, at its sole
option and to the extent permitted by applicable law, to deduct any such
unrepaid compensation or unpaid payment from any future compensation owed
by SAFECO or any affiliate of SAFECO to Insurance Agency as it becomes
due; provided, however, that this option on the part of SAFECO shall not
prevent it from pursuing any other means or remedies available to it to
recover such compensation and/or payment.
(d) Broker-Dealer or Insurance Agency shall immediately remit to SAFECO Life
any premium retained in error by Broker-Dealer or Insurance Agency.
7. INTEREST IN AGREEMENT. Agents shall have no interest in this Agreement or
right to any commissions to be paid by SAFECO to Insurance Agency. Insurance
Agency shall be solely responsible for the payment of any commission or
consideration of any kind to Agents. Insurance Agency shall have no right to
withhold or deduct any commission from any Premiums in respect of the Contracts
which it may collect. Insurance Agency shall have no interest in any
compensation paid by SAFECO Life to SSI, now or hereafter, in connection with
the sale of any Contracts hereunder.
8. TERM OF AGREEMENT
(a) This Agreement relates solely to the classes of Contracts identified in
Schedule 1 to this Agreement.
(b) This Agreement:
(i) may be terminated by any party hereto by giving thirty (30) days'
prior written notice to the other parties; or
(ii) shall automatically terminate upon termination of one or more of the
Distribution Agreements referenced in Recital A of this Agreement;
or
(iii) if Broker-Dealer or Insurance Agency, on the one side, or SSI or
SAFECO Life, on the other side, should default in a material
respect, in their respective obligations under this Agreement, or
breach in a material respect, any of their respective
representations or warranties made in this Agreement, any
non-defaulting or non-breaching party may, at their option, cancel
and terminate this Agreement without notice.
-10-
<PAGE> 13
(c) Upon termination of this Agreement, all authorizations, rights, and
obligations hereunder shall cease except:
(i) the obligation to settle accounts hereunder, including the
payment of compensation with respect to Contracts in effect at
the time of termination or issued pursuant to applications
received by SAFECO Life prior to termination or Premiums received
on such Contracts subsequent to termination of this Agreement
provided, however, that if this Agreement is terminated by SAFECO
Life or SSI pursuant to Section 8(b)(iii), SAFECO's obligations
under this subparagraph (i) shall cease upon such termination;
(ii) the provisions with respect to indemnification set forth in
Section 13 hereof;
(iii) the provisions of Sections 4(l) and 4(m) hereof that require
Insurance Agency and Broker-Dealer to maintain certain books and
records;
(iv) the confidentiality provisions contained in Section 11 hereof;
(v) the audit provisions contained in Section 21; and
(vi) the provisions with respect to complaints and investigations set
forth in Section 9 hereof
9. COMPLAINTS AND INVESTIGATIONS
(a) SSI, SAFECO Life, Broker-Dealer and Insurance Agency each shall
cooperate fully in any insurance regulatory investigation or proceeding
or judicial proceeding arising in connection with the Contracts
marketed under this Agreement. In addition, SSI, SAFECO Life,
Broker-Dealer and Insurance Agency shall cooperate fully in any
securities regulatory investigation or proceeding or judicial
proceeding with respect to SSI, Broker-Dealer, their Affiliates and
their agents, to the extent that such investigation or proceeding is in
connection with the Contracts marketed under this Agreement. Without
limiting the foregoing, each party shall promptly notify the other
parties of any written customer complaint or notice of any regulatory
investigation or proceeding or judicial proceeding received by such
party with respect to any other party, any Agent, or in connection with
any Contract marketed under this Agreement or any activity in
connection with any such Contract.
(b) In the case of a customer complaint, SSI, SAFECO Life, Broker-Dealer and
Insurance Agency will cooperate in investigating such complaint and any
response by Broker-Dealer or Insurance Agency to such complaint will be
sent to SAFECO for approval not less than five business days prior to its
being sent to the customer or regulatory authority, except that
-11-
<PAGE> 14
if a more prompt response is required, the proposed response shall be
communicated by telephone or facsimile.
10. ASSIGNMENT. This Agreement shall be nonassignable by the parties hereto
unless an authorized officer of the non-assigning parties agrees to the proposed
assignment in writing prior to its effective date.
11. CONFIDENTIALITY. Each party shall maintain the confidentiality of any other
party's customer list or any other proprietary information that it may acquire
in the performance of this Agreement.
12. MODIFICATION OF AGREEMENT. This Agreement supersedes all prior agreements,
either oral or written, between the parties relating to the Contracts or among
Broker-Dealer and/or Insurance Agency, SAFECO Life and PNMR Securities, Inc.,
and, except for any amendment of Schedule 1 pursuant to the terms of Section 2
hereof or Schedules 2 and/or 3 pursuant to the terms of Section 6 hereof, may
not be modified in any way unless by written agreement signed by all of the
parties.
13. INDEMNIFICATION
(a) Broker-Dealer and Insurance Agency, jointly and severally, shall indemnify
and hold harmless SAFECO and each person who controls or is associated
with SAFECO within the meaning of such terms under the federal securities
laws, and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they or any of
them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon:
(i) violation(s) by Broker-Dealer, Insurance Agency, or an Agent of
federal or state securities law or regulation(s), insurance law or
regulation(s), or any rule or requirement of the NASD;
(ii) any unauthorized use of sales or advertising material, any oral or
written misrepresentations, or any unlawful sales practices
concerning the Contracts, by Broker-Dealer, Insurance Agency or an
Agent;
(iii) claims by the Agents or other agents or representatives of Insurance
Agency or Broker-Dealer for commissions or other compensation or
remuneration of any type;
(iv) any action or inaction by a clearing broker through whom
Broker-Dealer or Insurance Agency processes any transaction pursuant
to this Agreement;
-12-
<PAGE> 15
(v) any failure on the part of Broker-Dealer, Insurance Agency, or an Agent to
submit Premiums or applications to SAFECO Life, or to submit the correct
amount of a Premium, on a timely basis and in accordance with Section 4 of
this Agreement; or
(vi) a breach by Broker-Dealer or Insurance Agency of any provision of this
Agreement.
This indemnification will be in addition to any liability which Broker-Dealer
and Insurance Agency may otherwise have.
(b) SAFECO shall indemnify and hold harmless Broker-Dealer and Insurance
Agency and each person who controls or is associated with Broker-Dealer or
Insurance Agency within the meaning of such terms under the federal
securities laws, and any officer, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in settlement
of, any action, suit or proceeding or any claim asserted), to which they
or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon:
(i) any breach by SSI or SAFECO Life of any provision of this Agreement;
(ii) any untrue statement of a material fact contained in the
Registration Statement or Prospectus relating to any Contract;
(iii) the omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(iv) violation(s) by SAFECO of federal or state securities law or
regulation(s), insurance law or regulation(s), or any rule or
requirement of the NASD; or
(v) any breach of a fiduciary duty owed by SAFECO Life to a
contractholder with respect to a Contract.
This indemnification will be in addition to any liability which SAFECO may
otherwise have.
(c) After receipt by a party entitled to indemnification ("indemnified party")
under this Section 13 of notice of the commencement of any action, if a
claim in respect thereof is to be made against any person obligated to
provide indemnification under this Section 13 ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable
-13-
<PAGE> 16
thereafter, provided that the omission to so notify the indemnifying
party will not relieve it from any liability under this Section 13,
except to the extent that the omission results in a failure of
actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice.
The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay
the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests
between them. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent,
but if such proceeding is settled with such consent or if final
judgment is entered in such proceeding for the plaintiff, the
indemnifying party shall indemnify the indemnified party from and
against any loss or liability by reason of such settlement or
judgment.
14. RIGHTS, REMEDIES, ETC., ARE CUMULATIVE. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws. Failure of a party to insist upon
strict compliance with any of the conditions of this Agreement shall not be
construed as a waiver of any of the conditions, but the same shall remain in
full force and effect. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provisions, whether
or not similar, nor shall any waiver constitute a continuing waiver.
15. NOTICES. All notices hereunder are to be made in writing and shall be given:
if to SSI, to: SAFECO Securities, Inc.
Attention: David F. Hill, President
SAFECO Plaza
Seattle, WA 98185
if to SAFECO Life Insurance Company, to:
SAFECO Life Insurance Company
Attention: Richard E. Zunker, President
15411 N.E. 51st Street
Redmond, WA 98052
-14-
<PAGE> 17
if to Broker-Dealer, to:
___________________________________
___________________________________
___________________________________
___________________________________
if to Insurance Agency, to:
___________________________________
___________________________________
___________________________________
___________________________________
or such other address as such party may hereafter specify in writing. Each
such notice to a party shall be either hand delivered or transmitted by
registered or certified United States mail with return receipt requested,
and shall be effective upon delivery.
16. INTERPRETATION, JURISDICTION. ETC. This Agreement constitutes the whole
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior oral or written understandings, agreements or
negotiations between the parties with respect to the subject matter hereof No
prior writings by or between the parties here to with respect to the subject
matter hereof shall be used by a party in connection with the interpretation of
any provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the internal laws of the
state of Washington without giving effect to principles of conflict of laws.
17. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in a forum
selected by SAFECO in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
-15-
<PAGE> 18
18. HEADINGS. The headings in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
19. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
20. SEVERABILITY. This is a severable Agreement. In the event that any provision
of this Agreement would require a party to take action prohibited by applicable
federal or state law or prohibit a party from taking action required by
applicable federal or state law, then it is the intention of the parties hereto
that such provision shall be enforced to the extent permitted under the law,
and, in any event, that all other provisions of this Agreement shall remain
valid and duly enforceable as if the provision at issue had never been a part
hereof.
21. AUDIT OF RECORDS. To the extent not otherwise provided herein, each party
hereto (the "Requesting Party") shall have the right at its expense, upon
reasonable notice to any other party hereto (the "Other Party"), during regular
business hours, to audit all the records and practices of the Other Party
relating to the business contemplated hereunder in order to determine whether
such Other Party is complying with the terms of this Agreement, including the
payment of commissions and fees. The Requesting Party shall have the right to
copy any of such records at its expense. At its option, such audit may be
conducted by the Requesting Party's own personnel or by a qualified independent
auditor selected by it. The Requesting Party shall make reasonable efforts to
conduct each such audit in a manner that avoids any material disruption of the
Other Party's business.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SAFECO SECURITIES, INC. BROKER-DEALER
By:_________________________________ By:_________________________________
Name:_______________________________ Name:_______________________________
Title:______________________________ Title:______________________________
SAFECO LIFE INSURANCE COMPANY INSURANCE AGENCY
By:_________________________________ By:_________________________________
Name:_______________________________ Name:_______________________________
Title:______________________________ Title:______________________________
-16-
<PAGE> 1
EXHIBIT A (3) (c)
Commission Schedule
<PAGE> 2
SCHEDULE 3A
VARIABLE UNIVERSAL LIFE COMPENSATION
SAFECO LIFE INSURANCE COMPANY
INDIVIDUAL DEPARTMENT
A. DEFINITIONS
1. SERVICING AGENT: The servicing agent is the agent designated by the
policyholder to service the policy. If a policyholder requests a change of
servicing agent, such request will be granted by SAFECO Life and
commissions will be paid to the insurance agency with whom the servicing
agent is associated.
2. VARIABLE PRODUCTION CREDIT (VPC): Variable Product Credit is the
annualized production credit awarded to Insurance Agency when a Flexible
Premium Variable Universal Life policy is issued and paid. VPC represents
an amount equal to the annualized basic first-year commissions and will be
reduced by the amount of any first-year lapses.
3. COMMISSIONABLE TARGET PREMIUM (CTP): Commissionable Target Premium is the
premium on which SAFECO will pay the basic first-year commission
percentage set forth below. SAFECO Life, at its discretion, may change by
policy form either the amount of CTP or the percentage of commissions paid
on CTP. Insurance Agency will receive prior notification from SAFECO Life
of any changes in the amount of the CTP or the percentage of commissions
payable thereon.
B. COMPENSATION TERMS
1. Insurance Agency will be deemed to be the Broker-of-Record and will
receive commissions and fees as provided in this Schedule 3A so long as
the servicing agent of any policy is or remains an Agent of Insurance
Agency as defined in Section 1(f) of the Sales Agreement. Status as
servicing agent shall be determined in accordance with SAFECO Life's
policies and procedures and as provided herein.
2. SAFECO reserves the right to charge Insurance Agency a fee in amounts to
be announced from time to time by SAFECO for applications which have been
submitted by Insurance Agency and are subsequently "Withdrawn" or "Filed
Incomplete" and for policies which have been issued on a standard basis
pursuant to applications submitted by Insurance Agency and which are
returned to SAFECO Life as "Not Taken."
3. If, in the judgment of SAFECO Life, a policy replaces a policy previously
issued by SAFECO Life on the same policyholder, other than a term
conversion, the commission payable for the first year of insurance with
respect to the new policy will be adjusted in accordance with the rules of
SAFECO Life in effect at the time of such replacement and, if applicable,
repaid to SAFECO by Insurance Agency.
4. If the face amount of life insurance to be issued, when combined with
other SAFECO Life contracts, exceeds the sum of SAFECO Life's retention
plus SAFECO Life's automatic reinsurance coverage, the commission payable
to Insurance Agency and Variable Production Credit will be reduced.
5. When a policy has additional insurance riders, commissions and fees will
be paid as follows:
1
<PAGE> 3
a. For new policies, commissions will be paid at the rate
specified in this Schedule for the plan issued.
b. For face amount increases on an existing policy, a fee will be
paid one time at the rate of $2.00/$1,000 of face amount
increase to a maximum of $300.
6. If the Sales Agreement or this Schedule is terminated, the commissions
payable hereunder shall be limited to those payable through the sixth
policy year. SAFECO may, at its option, elect to pay Insurance Agency the
total present value of all such vested renewal commissions in a lump sum
instead of paying them as premiums are received.
7. In the event of a policy lapse during the first twelve months after issue,
a repayment to SAFECO of the commission previously paid to Insurance
Agency on such policy will be required, calculated as follows: commissions
previously paid times the number of months remaining in the first policy
year, divided by twelve.
8. When a conversion privilege is exercised, and the new policy is dated as
of a current date, commissions will be paid at the rate specified in this
Schedule under the new policy.
9. Insurance Agency has no authority to deliver any life insurance policy
unless such delivery takes place during the lifetime, and with no change
in health since the date of the application of, all the persons proposed
for insurance under such policy.
C. COMMISSION SCHEDULE
1. BASIC FIRST-YEAR COMMISSIONS
Flexible Premium Variable Life
<TABLE>
<S> <C>
Premium up to "Commissionable Target Premium": (CTP)
Received in first 12 months .................................... 60%
</TABLE>
2. BASIC RENEWAL COMMISSIONS
Flexible Premium Variable Life
<TABLE>
<S> <C>
Premium in excess of CTP
Received in first 12 months .................................... 3%
Premium received in 2nd through
6th policy years ............................................... 3%
</TABLE>
3. SERVICE FEES
Flexible Premium Variable Life
<TABLE>
<S> <C>
Premium received in 7th and subsequent policy years ............ 2%
</TABLE>
The provisions of this Schedule 3A supersede any prior schedule pertaining to
basic first-year and renewal commissions and service fees on variable universal
life policies.
2
<PAGE> 4
SCHEDULE 3B
VARIABLE UNIVERSAL LIFE COMPENSATION
SAFECO LIFE INSURANCE COMPANY
INDIVIDUAL DEPARTMENT
LIFE EXPENSE ALLOWANCE ENDORSEMENT
PAYMENT
SAFECO agrees to pay the Insurance Agency a Life Expense Allowance (LEA) on
basic first-year commissions of all Flexible Premium Variable Life policies.
CALCULATION
LEA shall equal 50% of the basic first-year commission paid.
The provisions of this Schedule 3B supersede any prior LEA Endorsement(s).
<PAGE> 5
SCHEDULE 3C
VARIABLE UNIVERSAL LIFE COMPENSATION
SAFECO LIFE INSURANCE COMPANY
INDIVIDUAL DEPARTMENT
PRODUCTION BONUS ENDORSEMENT
QUALIFICATIONS
Insurance Agency will receive a production bonus on the business of each Agent
associated with the Insurance Agency who:
1. produces 15,000 or more Net VPC during the calendar year and
2. has 85% persistency or greater for the calendar year
Insurance Agency and each Agent meeting the qualifications above must represent
SAFECO Life on the last day of the calendar year for which a bonus will be
calculated.
PAYMENT
The bonus will be paid within two months of December 31 of the year in which it
is earned, and payment will be based on the basic first-year commissions on
Flexible Premium Variable Life policies actually recorded in the year in which
the bonus is earned.
CALCULATION
The bonus calculations for each Agent are based on calendar year VPC, from
January 1 through December 31, and on a percentage of paid, basic first-year
commission on Flexible Premium Variable Life policies as follows:
<TABLE>
<CAPTION>
Current Year Percent of Paid Basic
Net VPC First-Year Commissions
------------- ----------------------
<S> <C>
15,000-29,999 7.5%
30,000-49,000 12.5%
50,000 or more 15.0%
</TABLE>
DEFINITIONS
1 . Net VPC for each Agent is the production credit issued by SAFECO Life
on Flexible Premium Variable Life business and which is issue and paid
during the calendar year minus the production credited to policies
which have lapsed during such year prior to their first renewal.
Issued and paid VPC means the new production produced in the previous
12 months. Lapsed VPC means business for which, in the first 13
months, a monthly deduction was due and not paid.
2. Persistency is 100% minus the result of dividing the first-year lapsed
VPC by the first-year issued and paid VPC.
3. For purposes of this Schedule 3C Insurance Agency production is production
for which Insurance Agency is Broker-of-Reoord.
The provisions of this Schedule 3C supersede any prior Product Bonus
Endorsement(s).
<PAGE> 1
EXHIBIT A (5)
Individual Flexible Premium Variable Life Insurance Policy
<PAGE> 2
Primary Insured
Policy Number
[SAFECO LOGO]
Face Amount
Effective Date
VARIABLE LIFE INSURANCE POLICY
SAFECO Life Insurance Company will pay the insurance benefits and provide the
other rights and benefits of this policy in accordance with its provisions.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE PLAN
This is a flexible premium variable life insurance policy. You can:
- increase or decrease the face amount of insurance;
- make premium payments at any time and, within limits, in any amount;
- change the allocation of net premiums and deductions among your investment
options;
- transfer amounts, within limits, among your investment options.
These rights and benefits are subject to the terms and conditions of this
policy. Policy changes are subject to approval and may require evidence of
insurability.
Your net premiums will be put in your Policy Account. You may then allocate
them to one or more investment divisions of our Separate Account (SA) and to
our Guaranteed Interest Division (GID).
The portion of your Policy Account that is in our GID will accumulate, after
deductions, at rates of interest we determine. Such rates will not be less than
4% a year.
THE PORTION OF YOUR POLICY ACCOUNT THAT IS IN AN INVESTMENT DIVISION OF OUR SA
WILL VARY UP OR DOWN DEPENDING ON THE UNIT VALUE OF SUCH INVESTMENT DIVISION,
WHICH IN TURN DEPENDS ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING
PORTFOLIO OF A DESIGNATED INVESTMENT COMPANY. THERE ARE NO MINIMUM GUARANTEES
AS TO SUCH PORTION OF YOUR POLICY ACCOUNT.
THE AMOUNT OF DEATH BENEFIT, OR THE DURATION OF INSURANCE COVERAGE, OR BOTH,
MAY BE VARIABLE OR FIXED AS DESCRIBED IN THIS POLICY UNDER "INSURANCE COVERAGE
PROVISIONS -- DEATH BENEFIT" AND "PREMIUM PROVISIONS -- GRACE PERIOD"
RESPECTIVELY.
This is a nonparticipating policy.
/s/ R.E. Zunker /s/ R.A. Pierson
- -------------------------------- --------------------------------
R.E. Zunker R.A. Pierson
President Sr. Vice President and Secretary
RIGHT TO EXAMINE POLICY: You may examine this policy and if for any reason you
are not satisfied with it, you may cancel it by returning the policy with a
written request for cancellation to our Administrative Office by the later of:
(a) the 10th day after you receive it; or (b) the 45th day after Part 1 of the
application was signed. If you do this, we will refund an amount equal to the
premium payments made under this policy. THIS IS A LEGAL CONTRACT. PLEASE READ
IT CAREFULLY.
<PAGE> 3
POLICY INFORMATION
PRIMARY INSURED HERB T. JONES
POLICY NUMBER SAFCOTEST 1
FACE AMOUNT $100,000
EFFECTIVE DATE SEPTEMBER 23, 1995
POLICY OWNER HERB T. JONES ISSUE AGE 35
BENEFICIARY SHARA T. JONES, SPOUSE SEX MALE
DEATH BENEFIT OPTION A
PREMIUM CLASS NON-SMOKER
PARTIAL WITHDRAWAL
OF THE NET CASH
SURRENDER VALUE MINIMUM WITHDRAWAL IS $400.
TRANSFER MINIMUM TRANSFER AMOUNT IS $200.
STATE OF RESIDENCE ARIZONA
AN INITIAL PREMIUM PAYMENT OF $500.00 IS DUE ON OR BEFORE DELIVERY OF
THE POLICY. THE PLANNED PERIODIC PREMIUM OF $500.00 IS PAYABLE
ANNUALLY. THE GUIDELINE SINGLE PREMIUM FOR THIS POLICY IS $160,444.64.
THE GUIDELINE ANNUAL PREMIUM FOR THIS POLICY IS $10,833.78.
PREMIUM PAYMENTS ARE FOR THE INSURANCE BENEFITS AND ANY ADDITIONAL
BENEFITS AND RIDERS LISTED BELOW.
FINAL POLICY DATE: THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE
PRIMARY INSURED UNTIL THE FINAL POLICY DATE, WHICH IS THE POLICY
ANNIVERSARY FOLLOWING THE PRIMARY INSURED'S 95TH BIRTHDAY, PROVIDED THE
POLICY ACCOUNT IS SUFFICIENT TO COVER THE DEDUCTIONS FOR THE COST TO
THAT DATE OF THE BENEFITS OF THIS POLICY AND OF ANY RIDERS TO THIS
POLICY. YOU HAVE TO PAY MORE THAN THE PREMIUMS SHOWN TO KEEP THIS
POLICY AND COVERAGE IN FORCE TO THAT DATE, AND TO KEEP ANY ADDITIONAL
BENEFITS AND RIDERS IN FORCE.
PAGE 2
<PAGE> 4
POLICY INFORMATION CONTINUED - POLICY NUMBER SAFCOTEST1
--------------- TABLE OF EXPENSE CHARGES ---------------
PREMIUM TAX CHARGE:
2.10% OF EACH PREMIUM PAYMENT. THIS AMOUNT IS SUBTRACTED FROM
EACH PREMIUM PAYMENT. WE RESERVE THE RIGHT TO CHANGE THIS
PERCENTAGE TO CONFORM TO CHANGES IN THE LAW OR IF YOU CHANGE
RESIDENCE.
SALES CHARGE:
3% OF EACH PREMIUM PAYMENT. THIS AMOUNT IS SUBTRACTED FROM
EACH PREMIUM PAYMENT.
FIRST YEAR ADMINISTRATIVE CHARGE:
$20.00 DEDUCTED MONTHLY FROM YOUR POLICY ACCOUNT DURING FIRST
POLICY YEAR.
MONTHLY ADMINISTRATIVE CHARGE:
$4.00 DEDUCTED MONTHLY FROM YOUR POLICY ACCOUNT. WE RESERVE
THE RIGHT TO CHANGE THIS CHARGE, BUT IT WILL NEVER BE MORE
THAN $8.00 A MONTH. CHANGES WILL BE AS DESCRIBED IN "OTHER
PROVISIONS-POLICY COST FACTORS."
FOR PARTIAL WITHDRAWALS:
$25.00, OR 2% OF THE AMOUNT WITHDRAWN IF LESS, IS DEDUCTED
FROM YOUR POLICY ACCOUNT WHENEVER THERE IS A PARTIAL
WITHDRAWAL OF NET CASH SURRENDER VALUE.
FOR REQUESTED INCREASES IN THE FACE AMOUNT OF INSURANCE:
$2.00 FOR EACH $1,000 OF INCREASE (BUT NOT MORE THAN $300) IS
DEDUCTED FROM YOUR POLICY ACCOUNT.
FOR TRANSFERS AMONG INVESTMENT OPTIONS:
AFTER THE FIRST 12 TRANSFERS IN A POLICY YEAR OF AMOUNTS AMONG
YOUR INVESTMENT OPTIONS, A CHARGE OF $25.00 IS DEDUCTED FROM
YOUR POLICY ACCOUNT FOR EACH ADDITIONAL TRANSFER IN THAT
POLICY YEAR.
PAGE 2 - CONTINUED
<PAGE> 5
POLICY INFORMATION CONTINUED - POLICY NUMBER SAFCOTEST1
---------------------- TABLE OF SURRENDER CHARGES -----------------------
<TABLE>
<CAPTION>
POLICY POLICY
YEAR CHARGE YEAR CHARGE
---- ------ ------ ------
<S> <C> <C> <C>
1 $485 6 $485
2 485 7 388
3 485 8 291
4 485 9 194
5 485 10 97
</TABLE>
A SURRENDER CHARGE WILL BE SUBTRACTED FROM YOUR 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) THE CHARGE SHOWN IN THE TABLE ABOVE FOR THAT
YEAR; OR (2) AN AMOUNT EQUAL TO (A) MINUS (B), WHERE (A) IS 27% OF THE
FIRST $1,031 IN PREMIUM PAYMENTS RECEIVED DURING THE FIRST POLICY YEAR,
PLUS 6% OF ALL OTHER PREMIUM PAYMENTS RECEIVED TO SUCH TIME; AND (B) IS
THE AMOUNT OF ANY PRO RATA SURRENDER CHARGE PREVIOUSLY MADE UNDER THIS
POLICY.
IF THE FACE AMOUNT OF INSURANCE IS REDUCED AT ANY TIME IN THE FIRST TEN
POLICY YEARS, A PRO RATA SHARE OF THE APPLICABLE SURRENDER CHARGE AT
THAT TIME MAY BE DEDUCTED FROM THE POLICY ACCOUNT. SEE "POLICY VALUES
PROVISIONS-SURRENDER CHARGES" FOR A DESCRIPTION.
THERE ARE NO SURRENDER CHARGES AFTER THE TENTH POLICY YEAR.
ADMINISTRATIVE OFFICE: SAFECO LIFE INSURANCE COMPANY
PO BOX 290752
WETHERSFIELD, CT 06129-0752
PAGE 2 - CONTINUED
<PAGE> 6
POLICY INFORMATION CONTINUED - POLICY NUMBER SAFCOTEST1
------ TABLE OF GUARANTEED MAXIMUM INSURANCE COST RATES -------
GUARANTEED MAXIMUM MONTHLY RATES PER $1,000
OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
PRIMARY PRIMARY
INSURED'S INSURED'S
ATTAINED MONTHLY ATTAINED MONTHLY
AGE RATE AGE RATE
<S> <C> <C> <C>
35 $ 000.14417 70 $ 003.08917
36 000.15167 71 003.43000
37 000.16167 72 003.82500
38 000.17333 73 004.27500
39 000.18417 74 004.77167
40 000.19917 75 005.30500
41 000.21417 76 005.87333
42 000.22917 77 006.46917
43 000.24667 78 007.10000
44 000.26583 79 007.78500
45 000.28833 80 008.54667
46 000.31083 81 009.41000
47 000.33583 82 010.39167
48 000.36417 83 011.49500
49 000.39417 84 012.69917
50 000.42917 85 013.98083
51 000.46833 86 015.32667
52 000.51333 87 016.71833
53 000.56500 88 018.15083
54 000.62333 89 019.64833
55 000.68833 90 021.23333
56 000.75833 91 022.95000
57 000.83333 92 024.87000
58 000.91583 93 027.20083
59 001.01000 94 030.42917
60 001.11417
61 001.23083
62 001.36500
63 001.51833
64 001.68667
65 001.87333
66 002.07500
67 002.28667
68 002.52833
69 002.79083
</TABLE>
PAGE 3
<PAGE> 7
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
POLICY INFORMATION 2
TABLE OF GUARANTEED MAXIMUM
INSURANCE COST RATES 3
SUMMARY 5
DEFINITIONS 5
OWNER AND BENEFICIARY PROVISIONS
Owner 6
Beneficiary 6
Changing Owner or Beneficiary 6
Assignment 6
PREMIUM PROVISIONS
Initial Premium 6
Subsequent Premiums 6
Limits 7
Grace Period 7
Reinstatement 7
POLICY ACCOUNT PROVISIONS
Premium Payments 7
Monthly Deductions 8
Other Deductions 8
Allocations 8
Transfers Among Investment Options 9
POLICY VALUES PROVISIONS
Policy Loans 10
Loan Interest 10
Loan Repayment 11
Cash Surrender Value 11
Net Cash Surrender Value 11
Surrender Charges 11
Partial Withdrawals 12
VALUATION
Guaranteed Interest Division (GID) 13
Separate Account (SA)
Investment Divisions 13
SEPARATE ACCOUNT 14
INSURANCE COVERAGE PROVISIONS
Death Benefit 16
Changing Face Amount of Insurance or
Death Benefit Option 17
BENEFIT PAYMENT PROVISIONS 19
OTHER PROVISIONS
The Contract 20
Applicable Tax Law 20
Policy Cost Factors 20
Incontestability 20
Misstatement of Age 21
Suicide Exclusion 21
Policy Dates 21
Policy Periods 21
Postponement of Payments 21
Basis of Computations 22
Annual Report 22
Policy Changes 22
TABLES OF MONTHLY PAYMENTS 23
</TABLE>
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<PAGE> 8
-5-
SUMMARY
The premiums you pay, after deductions shown in the
Table of Expense Charges in the Policy Information
section, are put in your Policy Account. Amounts in
your Policy Account are allocated at your direction
to one or more investment divisions of our SA and to
our GID.
The investment divisions of our SA are invested in
securities and other investments whose value is
subject to market fluctuations and investment risk.
There is no guarantee of principal or investment
experience.
Our GID earns interest at rates we declare. The rates
are guaranteed to be not less than 4%. The principal,
after deductions, is also guaranteed.
The duration of life insurance coverage depends upon
the amount in your Policy Account. If death Option A
is in effect, the death benefit is the Face Amount of
Insurance, and the amount of the death benefit is
fixed except when it is a percentage of your Policy
Account. If death benefit Option B is in effect, the
death benefit is the Face Amount of Insurance plus
the amount in your Policy Account. The amount of the
death benefit is variable. Under either option the
death benefit will be never less than a percentage of
the Policy Account as stated in the "Insurance
Coverage Provisions" section.
We make monthly deductions from your Policy Account
to cover the cost of the benefits provided by this
policy and the cost of any benefits provided by
riders to this policy. If you give up this policy for
its Net Cash Surrender Value or reduce the Face
Amount of Insurance during the first ten policy
years, we may deduct a surrender charge from the
Policy Account. This is only a summary of what the
policy provides. You should read all of the policy
carefully. The policy terms govern your rights and
our obligations.
DEFINITIONS
"We," "our," and "us" mean SAFECO Life Insurance
Company.
"You" and "Your" mean the owner of the policy at the
time an owner's right is exercised.
References to amounts and values include all
adjustments provided by this policy.
A copy of the application for this policy and any
additional benefit riders are at the back of the
policy.
ADMINISTRATIVE OFFICE The address of our Administrative Office is shown in
the Policy Information section. You should send
premium payments and requests to that address unless
instructed otherwise.
<PAGE> 9
OWNER AND BENEFICIARY PROVISIONS
OWNER The owner of this policy is the primary insured
unless named otherwise in the application, or later
changed.
If the primary insured is living on the Final Policy
Date defined in the Policy Information section, we
will pay you the amount in the Policy Account on that
date minus any outstanding loan and loan interest.
This policy will then end.
As the owner, you are entitled to exercise all the
rights of this policy while the primary insured is
living. To exercise a right you do not need the
consent of anyone who has only a conditional or
future ownership interest in this policy.
BENEFICIARY The beneficiary is as named in the application,
unless later changed. The beneficiary is entitled to
the insurance benefits of this policy. If two or more
persons are named, those who survive the insured will
share the insurance benefits equally, unless you have
made another arrangement with us.
If there is no designated beneficiary living at the
death of the insured we will pay the benefits to the
owner or owner's estate. If any beneficiary dies
within 60 days after the insured, and before payment
of any proceeds, payments will be made as though the
beneficiary had died before the insured. The
beneficiary designation may include provisions that
replace these.
CHANGING OWNER OR
BENEFICIARY While the insured is living, you may change the owner
or beneficiary by written notice to our
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 You may assign this policy, but we will not be bound
by an assignment unless we have received it in
writing. Your rights and those of any other person
referred to in this policy will be subject to the
assignment. We assume 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.
PREMIUM PROVISIONS
INITIAL PREMIUM The initial premium payment shown in the Policy
Information section is due on or before delivery of
the policy. No insurance will take effect before the
initial premium payment is paid. Other premiums may
be paid at any time at our Administrative Office
while the policy is in force and before the Final
Policy Date. They may be in any amount subject to the
limits described below.
SUBSEQUENT PREMIUMS We will send premium reminder notices to you for the
planned periodic premium shown in the Policy
Information section unless you ask us not to in the
application for this policy or later by written
notice to our Administrative Office. You may skip
planned premium payments or change their frequency
and amount.
-6-
<PAGE> 10
-7-
LIMITS Each premium payment after the initial one must be at
least $50. We may increase this minimum limit 90 days
after we send you written notice of such increase.
We reserve the right not to accept premium payments
(in a policy year) that we determine would cause this
policy to fail to qualify as life insurance under
applicable tax law as interpreted by us (see "Other
Provisions-Applicable Tax Law").
GRACE PERIOD The duration of insurance coverage depends upon the
Net Cash Surrender Value being sufficient to cover
the monthly deductions described in "Policy Account
Provisions-Monthly Deductions." If the Net Cash
Surrender Value at the begin- ning of any policy
month is less than such deductions for that month, we
will send a written notice to you and any assignee on
our records at last known addresses stating that a
grace period of 61 days has begun, starting with the
date the notice is mailed. The notice will also state
the amount of the premium payment or loan repayment
sufficient to cover 3 monthly deductions.
If we do not receive such amount at our
Administrative Office before the end of the grace
period, we will then (1) withdraw the amount in your
Policy Account, including any applicable surrender
charge; and (2) send a written notice to you and any
assignee on our records at last known addresses
stating that this policy has ended without value.
If the primary insured dies during the grace period,
we will pay the insurance benefits as described in
the "Insurance Coverage Provisions" section.
REINSTATEMENT If this policy has ended without value, you may
reinstate it while the primary insured is alive if
you:
1. ask for reinstatement within 5 years after the end
of the grace period;
2. provide evidence of insurability satisfactory to
us; and
3. make a premium payment of an amount sufficient to
keep the policy in force for at least 3 months
after the date of reinstatement.
The effective date of the reinstated policy will be
the beginning of the policy month which coincides
with or next follows the date we approve your
reinstatement application.
POLICY ACCOUNT PROVISIONS
PREMIUM PAYMENTS When we receive your premium payments, we subtract
the charges shown in the Table of Expense Charges in
the Policy Information section. We put the balance
(the net premium) in your Policy Account as of the
date we receive the premium payment at our
Administrative Office, and before any deductions from
your Policy Account due on that date are made.
However, we will put the net initial premium
<PAGE> 11
payment in your Policy Account as of the Effective
Date (see "Other Provisions-Policy Dates") if later
than the date of receipt.
MONTHLY DEDUCTIONS At the beginning of each policy month we make a
deduction from your Policy Account to cover monthly
administrative charges and to provide insurance
coverage, subject to the "Premium Provisions-Grace
Period." Such deduction for any policy month is
determined as of the beginning of that month:
- the monthly administrative charges shown in the
Table of Expense Charges in the Policy Information
section,
- PLUS the monthly cost of insurance for the primary
insured that we determine;
- PLUS the monthly cost of any benefits provided by
riders to this policy, as determined in accordance
with such riders.
The monthly cost of insurance is our current monthly
"cost of insurance rate" times the "net amount at
risk" (current death benefit minus the amount in your
Policy Account) at the beginning of the policy month;
plus any extra charge shown in the Policy Information
section times the Face Amount of Insurance at the
beginning of the policy month. For this purpose the
amount in your Policy Account is determined before
the monthly cost of insurance deduction but after all
other deductions due on that date have been made. The
cost of insurance rate is based on the attained age
and rating class of the primary insured. ("Attained
age" means age on the birthday preceding the
beginning of the then current policy year.)
We will determine cost of insurance rates from time
to time. Any change in the cost of insurance rates we
use will be as described in "Other Provisions-Policy
Cost Factors." They will never be more than those
shown in the Table of Guaranteed Maximum Insurance
Cost Rates in the Policy Information section.
OTHER DEDUCTIONS We also make the following other deductions from your
Policy Account as they occur:
- We deduct a charge if you make a partial withdrawal
of the Net Surrender Cash Value (see "Policy Values
Provisions-Partial Withdrawals").
- We deduct a surrender charge if, during the first
ten policy years, you give up the policy for its
Net Cash Surrender Value or you request a reduction
in the Face Amount of Insurance or this policy ends
without value at the end of a grace period (see
"Policy Values Provisions-Surrender Charges").
- We deduct a charge if you increase the Face Amount
of Insurance (see "Insurance Coverage
Provisions-Changing Face Amount of Insurance or
Death Benefit Option").
- We deduct a charge for certain transfers (see
"Policy Account Provisions-Transfers Among
Investment Options").
ALLOCATIONS This policy provides investment options for the
amount in your Policy Account beginning on the
Investment Start Date (see "Other Provisions-Policy
Dates"). When your initial premium is received, we
establish a Policy Account for you. For the first 25
days after the Effective Date, we will credit all
amounts in your Policy
-8-
<PAGE> 12
-9-
Account with the net investment experience of our
Money Market investment division. At the end of this
25 day period we will allocate the amount in your
Policy Account to the investment divisions of our SA
and to our GID as specified by your premium
allocation percentages. Amounts put into your Policy
Account after this period, and deductions from it are
allocated to the investment divisions of our SA and
to the unloaned portion of our GID at your direction.
You specified your original premium allocation and
deduction allocation percentages in your application
for this policy, a copy of which is at the back of
this policy. Unless you change them, such percentages
shall also apply to subsequent premium and deduction
allocations.
Allocation percentages must be zero or a whole number
not greater than 100. The sum of the premium
allocation percentages must equal 100, and the sum
of the deduction allocation percentages must equal
100.
You may change such allocation percentages by written
notice (or by telephone request, if you so
authorized) to our Administrative Office. A change
will take effect on the date we receive it at our
Administrative Office.
If we cannot make a monthly deduction on the basis of
the deduction allocation percentages then in effect,
we will make that deduction based on the proportion
that your unloaned value in our GID and your values
in the investment divisions of our SA bear to the
total unloaned value in your Policy Account.
TRANSFERS AMONG At your request we will transfer amounts from your
INVESTMENT OPTIONS value in any investment division of our SA to one or
more other divisions of our SA or to our GID. The
minimum amount that we will transfer from your value
in an investment division of our SA on any date is
the lesser of the amount shown in the Policy
Information section or your value in that investment
division on that date.
You may ask us to transfer on any policy anniversary
an amount from your unloaned value in our GID to one
or more investment divisions of our SA. However, we
will make such a transfer only if (1) we receive your
request for it at least 30 days before that policy
anniversary; and (2) the amount you request is not
more than the greater of 25% of your unloaned value
in our GID on that anniversary or the minimum amount
shown in the Policy Information section. In no event
will we transfer more than such unloaned value. The
minimum amount that we will transfer from your value
in our GID on any policy anniversary is the lesser of
the amount shown in the Policy Information Section or
your unloaned value in our GID on that date.
Four transfers may be made in a policy year without
charge. We will make an expense charge for additional
transfers in a policy year, as shown in the Table of
Expense Charges in the Policy Information Section. We
will allocate the transfer expense charge equally
between the investment options from which the amounts
you requested were transferred.
You must make all such requests in writing (or by
telephone request, if you so authorized) to our
Administrative Office. A transfer will take effect on
the date we receive it at our Administrative Office,
except that a transfer you request from our GID will
be made as of the policy anniversary following the
date we receive your request.
<PAGE> 13
POLICY VALUES PROVISIONS
POLICY LOANS You can obtain from us a loan on this policy while it
has a loan value. This policy will be the only
security for the loan. The initial loan and each
requested addition to the loan must be for at least
the minimum loan amount shown in the Policy
Information section. Any amount on loan is part of
your Policy Account (see "Valuation").
The loan value on any date is the Cash Surrender
Value on that date, less interest at the loan
interest rate to the next policy anniversary. The
amount of the loan may not be more than the loan
value.
Your request for a policy loan must be in writing to
our Administrative Office. You may tell us how much
of the loan is to be allocated to your unloaned value
in our GID and your value in each investment division
of our SA. Such values will be determined as of the
date we receive your request. If you do not tell us,
we will allocate the loan on the basis of your
monthly deduction allocation percentages then in
effect. If we cannot allocate the loan on the basis
of your direction or those percentages, we will
allocate it based on the proportion that your
unloaned value in our GID and your values in the
investment divisions of our SA bear to the total
unloaned value in your Policy Account.
The loaned portion of your Policy Account will be
maintained as a part of our GID). Thus, when a loaned
amount is allocated to an investment division of our
SA, we will redeem units of that investment division
sufficient in value to cover the amount of the loan
so allocated and transfer that amount to our GID.
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. We will
determine the rate at the beginning of each policy
year, subject to the following paragraphs. It will
apply to any new or outstanding loan under the policy
during the policy year next following the date of
determination.
The maximum loan interest rate for a policy year
shall be 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 Corporates 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, we
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. Allowance will be made because we
charge interest in advance; we shall adhere to
maximum rates equivalent to the above rates, which
are expressed as rates for interest in arrears. We
reserve the right to establish a rate lower than the
maximum.
No change in the rate shall be less than 1/2 of 1% a
year. We 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. We will
reduce the rate to or below the maximum rate as
determined by clause (1) of the preceding paragraph
if such maximum is lower than the rate being charged
by 1/2 of 1% or more.
-10-
<PAGE> 14
-11-
We will notify you of the initial loan interest rate
when you make a loan. We will also give you advance
written notice of any increase in the interest rate
of any outstanding loan.
Loan interest is due on each policy anniversary. If
the interest is not paid when due, it will be added
to your outstanding loan and allocated on the basis
of the deduction allocation percentages then in
effect. If we cannot make the allocation on the basis
of these percentages, we will make it based on the
proportion that your unloaned value in our GID and
your values in the investment divisions of our SA
bear to the total unloaned value in your 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 You may repay all or part of a policy loan at any
time while the primary insured is alive and this
policy is in force. We will assume that any payment
you make to us while you have a loan is a loan
repayment, unless you tell us in writing that it is a
premium payment. Each loan repayment must be at least
$50.00, with an exception for the final loan
repayment.
Repayments will first be allocated to our GID until
you have repaid any loaned amounts that were
allocated to our GID. We will allocate repayments
above that amount among our GID and the investment
divisions of our SA on the basis of your premium
allocation percentages then in effect.
Failure to repay a policy loan or to pay loan
interest will not terminate this policy unless the
Net Cash Surrender Value is less than the monthly
deduction due on a monthly policy anniversary. In
that case the "Premium Provisions-Grace Period" will
apply.
A policy loan will have a permanent effect on your
benefits under this policy even if it is repaid.
CASH SURRENDER VALUE The Cash Surrender Value on any date is equal to the
amount in the Policy Account on that date minus any
applicable surrender charge.
NET CASH SURRENDER VALUE The Net Cash Surrender Value is equal to the Cash
Surrender Value minus any loan and loan interest. You
may give up this policy for its Net Cash Surrender
Value at any time while the primary insured is
living. You may do this by sending a written request
for it and this policy to our Administrative Office.
We will compute the Net Cash Surrender Value as of
the date we receive your request for it and this
policy at our Administrative Office. All insurance
coverage under this policy ends on such date.
SURRENDER CHARGES If you give up this policy for its Net Cash Surrender
Value or if it ends without value at the end of a
grace period in the first ten policy years, we will
subtract a surrender charge from the Policy Account.
A description of surrender charges is in the Table of
Surrender Charges in the Policy Information section.
If the Face Amount of Insurance is reduced during any
of the first ten policy years because you ask us to
reduce it, we may also deduct from the Policy Account
a pro rata surrender charge. Such deduction will be
made in accordance with the "Policy Account
Provisions-Allocations."
<PAGE> 15
The amount of the pro rata surrender charge is (a)
divided by (b), times (c), where:
(a) is where (a) is the decrease in the Face Amount
of Insurance to which a surrender charge will be
applied. The amount of the decrease is the
difference between the Face Amount of Insurance
immediately before the reduction and the new Face
Amount of Insurance. However, this amount will be
reduced by (1) the sum of all requested and
approved prior increases in the Face Amount of
Insurance; less (2) the sum of all requested and
approved prior reductions in the Face Amount of
insurance (as described in "Insurance Coverage
Provisions-Changing Face Amount of Insurance or
Death Benefit Option") minus the portion of such
prior reductions on which a pro rata surrender
charge was previously made;
(b) is the initial Face Amount of Insurance; and
(c) is the applicable surrender charge immediately
before the reduction.
If a pro rata surrender charge is made, the surrender
charges shown in the Table of Surrender Charges in
the Policy Information section are reduced
proportionately, and we will send you a new table
which reflects such changes.
PARTIAL WITHDRAWALS After the first policy year you may ask for a partial
withdrawal of the Net Cash Surrender Value, subject
to the provisions below and to the minimum withdrawal
amount shown in the Policy Information section. A
partial withdrawal will result in a reduction in the
death benefit, the Cash Surrender Value and your
Policy Account equal to the amount requested plus the
expense charge shown in the Table of Expense Charges
in the Policy Information section. If you selected
death benefit Option A, we will reduce the death
benefit by reducing the Face Amount of Insurance of
your policy.
Your request for a partial withdrawal of the Net Cash
Surrender Value must be in writing to our
Administrative Office. You may tell us how much of
each partial withdrawal is to come from your unloaned
value in our GID and from your values in each of the
investment divisions of our SA. If you do not tell us
we will make the partial withdrawal on the basis of
your monthly deduction allocation percentages then in
effect. If we cannot make the partial withdrawal on
the basis of your direction or those percentages we
will make it based on the proportion that your
unloaned value in our GID and your values in the
investment divisions of our SA bear to the total
unloaned value in your Policy Account. We will
allocate the partial withdrawal charges equally
between the investment options from which the amounts
you requested were withdrawn.
Such partial withdrawal and resulting reductions will
take effect on the date we receive it at our
Administrative Office. We will send you a new Policy
Information section that reflects the changes. It
will become a part of this policy. We may require you
to return the policy to our Administrative Office to
make a change.
-12-
<PAGE> 16
-13-
We reserve the right to decline a request for a
partial withdrawal of the Net Cash Surrender Value
if: (a) the death benefit would be reduced below the
minimum amount for which we would then issue this
policy under our rules; or (b) we determine that the
partial withdrawal would cause this policy to fail to
qualify as life insurance under applicable tax law as
interpreted by us (see "Other Provisions-Applicable
Tax Law").
VALUATION
The amount in your Policy Account at any time is
equal to the sum of the amounts you then have in our
GID and the investment divisions of our SA under this
policy.
GUARANTEED INTEREST The amount you have in our GID at any time is equal
DIVISION (GID) to the amounts allocated and transferred to it under
this policy, plus the interest credited to it, minus
amounts deducted, transferred and withdrawn from it
under this policy.
We will credit the amount in our GID with interest at
rates we determine. We will determine such interest
rates for unloaned and loaned amounts in our GID. Any
change in the interest rates we determine will be as
described in "Other Provisions-Policy Cost Factors."
Such interest rates will not be less than 4%.
At the end of each policy month we will credit
interest on amounts in our GID as follows:
_ On amounts that remain in our GID for the entire
policy month, from the beginning to the end of
the month.
_ On amounts allocated to our GID during a policy
month that are net premium payments or loan
repayments, from the date we receive them to the
end of the policy month. However, we will credit
interest on the amount derived from the initial
premium payment from the Effective Date, if later
than the date of receipt.
_ On amounts transferred to our GID during a policy
month, from the date of the transfer to the end
of the policy month.
_ On amounts deducted or withdrawn from our GID
during a policy month, from the beginning of the
policy month to the date of the deduction or
withdrawal.
Interest credited to the loaned portion of our GID
will be allocated at the end of each policy month to
the unloaned portion of our GID.
SEPARATE ACCOUNT (SA) The amount you have in an investment division of our
INVESTMENT DIVISIONS SA under this policy at any time is equal to the
number of units this policy then has in that division
multiplied by the division's unit value at that time.
Amounts allocated, transferred or added to an
investment division of our SA are used to purchase
units of that division; units are redeemed when
amounts are
<PAGE> 17
deducted, transferred or withdrawn. These
transactions are called "policy transactions."
The number of units a policy has in an investment
division at any time is equal to the number of units
purchased minus the number of units redeemed in that
division up to that time. The number of units
purchased or redeemed in a policy transaction is
equal to the dollar amount of the policy transaction
divided by the division's unit value on the date of
the policy transaction. Policy transaction may be
made on any day but the unit value that applies will
be the unit value for the next business day. For
example, if a monthly deduction from an investment
division falls due on a Saturday, it will be made as
of that day but at the unit value for the next
business day, which usually would be the next Monday.
Unit values for the investment divisions will be
determined at the close of trading on each "business
day," i.e., each day in which the degree of trading
of the investment company's portfolio in which the
division is invested might materially affect the net
return of the portfolio. Normally, this would be each
day that the New York Stock Exchange is open.
The unit value of an investment division of our SA on
any business day is equal to the unit value for that
division on the immediately preceding business day
multiplied by the net investment factor for that
division on that business day.
The net investment factor for an investment division
of our SA on any business day is (a) divided by (b),
minus (c), where:
(a) is the net asset value of the shares in
designated investment companies that belong to
the investment division at the close of business
on each business day before any policy
transactions are made on that day, plus the per
share amount of any dividend or capital gain
distribution paid by the investment companies on
that day;
(b) is the value of the assets in that investment
division at the close of business on the
immediately preceding business day after all
policy transactions were made for that day; and
(c) is a charge not exceeding .00002477 for each day
in that "business day," as defined above,
corresponding to a charge not exceeding .90% per
year for mortality and expense risks, plus any
charge for that day for taxes or amounts set
aside as a reserve for taxes.
The net asset value of an investment company's shares
held in each investment division shall be the value
reported to us by that investment company.
SEPARATE ACCOUNT
The Separate Account is our Separate Account SL(SA).
We established and we maintain it under the laws of
the State of Washington. Realized and unrealized
gains and losses from the assets of our SA are
credited or charged against it
-14-
<PAGE> 18
-15-
without regard to our other income, gains, or losses.
Assets are put in our SA to support this policy and
other variable life insurance policies. Assets may be
put in our SA for other purposes, but not to support
contracts or policies other than variable contracts.
The assets of our SA are our property. The portion of
its assets equal to the reserves and other policy
liabilities with respect to our SA will not be
chargeable with liabilities arising out of any other
business we conduct. We may transfer assets of an
investment division in excess of the reserves and
other liabilities with respect to that division to
another investment division or to our General
Account.
Our SA consists of "investment divisions." Each
division may invest its assets in a separate class of
shares of a designated investment company or
companies. The investment divisions of our SA that
you chose for your initial allocations are shown on
the application for this policy, a copy of which is
at the back of this policy. We may from time to time
make other investment divisions available to you. We
will provide you with written notice of all material
details including investment objectives and all
charges.
We have the right to change or add designated
investment companies. We have the right to add or
remove investment divisions. We have the right to
withdraw assets of a class of policies to which this
policy belongs from an investment division and put
them in another investment division. We also have the
right to combine any two or more investment
divisions. The term "investment division" in this
policy shall then refer to any other investment
division in which the assets of a class of policies
to which this policy belongs were placed.
We have the right to:
1. register or deregister the Separate Account under
the Investment Company Act of 1940;
2. manage the Separate Account under the direction
of a committee, and discharge such committee at
any time;
3. restrict or eliminate any voting rights of policy
owners, or other persons who have voting rights
as to the Separate Account; and
4. operate the Separate Account or one or more of
the investment divisions by making direct
investments or in any other form. If we do so, we
may invest the assets of the Separate Account or
one or more of the investment divisions in any
legal investments. We will rely upon our own or
outside counsel for advice in this regard. Also,
unless otherwise required by law or regulation,
an investment adviser or any investment policy
may not be changed without our consent.
If any of these changes result in a material change
in the underlying investments of an investment
division of our SA, we will notify you of such
change. If you have value in that investment
division, if you wish we will transfer it at your
written direction from that division (without charge)
to another division of our SA or to the unloaned
portion of our GID, and you may then change your
premium and deduction allocation percentages.
<PAGE> 19
INSURANCE COVERAGE PROVISIONS
We will pay the insurance benefits of this policy to
the beneficiary when we receive at our Administrative
Office (1) proof that the insured died before the
Final Policy Date; and (2) all other requirements
deemed necessary before such payment may be made.
These insurance benefits include the following
amounts for the primary insured, which we will
determine as of the date of the primary insured's
death:
- the death benefit described below
- PLUS any other benefits then due from riders to
this policy;
- MINUS any loan (and loan interest) on the
policy;
- MINUS any overdue deductions if the primary
insured dies during the grace period.
We will add interest to the resulting amount for the
period from the date of death to the date of payment.
Interest will be at a rate not less than 4%, or the
rate required by any applicable law.
Payment of these benefits may also be affected by
other provisions of this Policy. See "Other
Provisions" where we specify our right to contest the
policy, the suicide exclusion, and what happens if
age has been misstated. Special exclusions or
limitations (if any) are listed in the Policy
Information section.
DEATH BENEFIT The death benefit will be determined at any time
under either Option A or Option B below, whichever
you have 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
below) of the amount in your 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 your
Policy Account, or a percentage (see below) of the
amount in your Policy Account. Under this option the
amount of death benefit is variable.
Under either option, the duration of insurance
coverage depends upon the amount in your 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.
-16-
<PAGE> 20
-17-
TABLE OF APPLICABLE PERCENTAGES
FOR AGES NOT SHOWN, THE APPLICABLE PERCENTAGES SHALL
DECREASE BY A RATABLE PORTION FOR EACH FULL YEAR
<TABLE>
<CAPTION>
PRIMARY
INSURED'S AGE PERCENTAGE
<S> <C>
40 and under 250%
45 215
50 185
55 150
60 130
65 120
70 115
75 thru 90 105
95 100
</TABLE>
CHANGING FACE AMOUNT During the first policy year the death benefit option
OF INSURANCE and the Face Amount of or Insurance will be as you
DEATH BENEFIT OPTION chose on the application for this policy, and which
are shown in the Policy Information section. At any
time after the first policy year while this policy is
in force, you may change the death benefit option or
the Face Amount of Insurance by written request to us
at our Administrative Office, subject to the
following:
- You may ask us to increase the Face Amount of
Insurance if you provide evidence satisfactory to
us of the insurability of the primary insured.
Any increase you ask for must be at least
$10,000. There is a charge for such increase that
is shown in the Policy Information section. We
will deduct the charge from your Policy Account
as of the date the increase takes effect. Such
deduction will be made in accordance with the
"Policy Account Provisions-Allocations."
You may reconsider this increase in Face Amount
of Insurance for a ten (10) day period after
requesting it. If you mail to our Administrative
Office a notice canceling the increase, we will
credit your Policy Account with the amount
charged for the increase.
- You may ask us to reduce the Face Amount of
Insurance but not to less than the minimum amount
for which we would then issue this policy under
our rules. If you do this in the first ten policy
years, we will deduct from your Policy Account a
pro rata share of the applicable surrender charge
(see "Policy Values Provisions- Surrender
Charges").
- You may change your death benefit option. If you
ask us to change from Option A to Option B, we
will decrease the Face Amount of Insurance by the
amount in your Policy Account on the date of
change. However, we reserve the right to decline
to make such change if it would reduce the Face
Amount of Insurance below the minimum amount for
which we would then issue this policy under our
rules. If you ask us to change from Option B to
Option A, we will increase the Face Amount of
Insurance by the amount in your 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
<PAGE> 21
change. We do not require evidence of
insurability, nor do we deduct surrender charges
or the charge for increases in the Face Amount of
Insurance, for such changes.
You may ask for a change by completing an application
for change, which you can get from our agent or by
writing to us at our Administrative Office. A copy
of your application for change will be attached to
the new Policy Information section that we will issue
when the change is made. The new section and the
application for change will become a part of this
policy. We may require you to return the policy to
our Administrative Office to make a policy change.
Any change will take effect at the beginning of the
policy month that coincides with or next follows the
date we approve the request.
We reserve the right to decline to make any change
that we determine would cause this policy to fail to
qualify as life insurance under applicable tax law as
interpreted by us (see "Other Provisions-Applicable
Tax Law").
-18-
<PAGE> 22
-19-
BENEFIT PAYMENT PROVISIONS
You can have surrenders or partial withdrawals of the
Net Cash Surrender Value, the Policy Account payable
on the Final Policy Date, and insurance benefits paid
in one sum. Or, you can choose another form of
payment. If you do not arrange for a specific choice
before the primary insured dies, the beneficiary will
have this right when the primary insured dies. If you
do make an arrangement, however, the beneficiary
cannot change it after the primary insured dies.
Payments under the following options will not be
affected by the investment experience of any
investment division of our SA after proceeds are
applied under such options.
The options are:
Option 1: Proceeds may be left on deposit with us.
They will earn interest at a rate not
less than 4% per year compounded and
credited annually. The entire amount, or
an amount of $250 or more, may be
withdrawn at any time. We have the right
to postpone payment for the period
permitted by law. We will not postpone
payment for more than six months after we
receive written request.
Option 2: Proceeds may be paid in equal
installments for a fixed period of up to
30 years. The amount of monthly
installments for each $1,000 of proceeds
will be as shown in the "Table of Monthly
Payments" for Option 2.
Option 3: Proceeds may be paid in equal
installments for a period of 10 or 20
years, and thereafter for as long as the
payee lives. The amount of each monthly
installment per $1,000 of proceeds will
depend upon the age of the payee. Values
are shown in the "Table of Monthly
Payments" for Option 3.
We may require that the payee under any option
selected be a natural person. We may require proof of
the payee's age if the amount or duration of payments
is affected. Selection of an option will also be
subject to our rules in effect at the time of
selection; such rules include the minimum amount to
be applied under an option and the minimum amount for
each payment. All funds held by us under options 2 or
3 will earn interest at a rate of not less than 4%
per year.
Payment choices (or any later changes) will be made
and will take effect in the same way as a change of
beneficiary. Amounts applied under these options will
not be subject to the claims of creditors or to legal
process, to the extent permitted by law.
<PAGE> 23
OTHER PROVISIONS
THE CONTRACT This policy is issued in consideration of payment of
the initial premium payment shown in the Policy
Information section.
This policy, and the attached copy of the initial
application and all subsequent applications to change
the policy, and all additional Policy Information
sections added to this policy, make up the entire
contract. The rights conferred by this policy are in
addition to those provided by applicable Federal and
State laws and regulations.
Only our President or one of our Vice Presidents can
modify this policy or waive any of our rights or
requirements under it. The person making these
changes must put them in writing and sign them.
APPLICABLE TAX LAW For you and the beneficiary to receive the tax
treatment accorded to life insurance under Federal
law, this policy must qualify initially and continue
to qualify as life insurance under the Internal
Revenue Code or successor law. Therefore, to assure
this qualification for you we have reserved earlier
in this policy the right to decline to accept premium
payments, to decline to change death benefit
options, or to decline to make partial withdrawals
that would cause the policy to fail to qualify as
life insurance under applicable tax law as
interpreted by us. Further, we reserve the right to
make changes in this policy or its riders (for
example in the percentages table in the "Insurance
Coverage Provisions" section) or to make
distributions from the policy to the extent we deem
it necessary to continue to qualify this policy as
life insurance. Any such changes will apply uniformly
to all policies that are affected. You will be given
advance written notice of such changes.
POLICY COST FACTORS Changes in policy cost factors (interest rates we
credit, cost of insurance deductions, and expense
charges) will be by class and based upon changes in
future expectations for such elements as: investment
earnings, mortality, persistency, expenses and
taxes. Any change in policy cost factors will be
determined in accordance with procedures and
standards on file, if required, with the insurance
supervisory official of the jurisdiction in which
this policy is delivered.
INCONTESTABILITY We have the right to contest the validity of this
policy based on material misstatements made in the
initial application including supplements and
amendments for this policy, copies of which are at
the back of this policy. We also have the right to
contest the validity of any policy change based on
material misstatements made in any application for
that change. However, we will not contest the
validity of this policy after it has been in effect
during the lifetime of the primary insured for two
years from the Effective Date shown in the Policy
Information section. We will not contest any policy
change that requires evidence of insurability, or any
reinstatement of this policy, after the change or
reinstatement has been in effect for two years
during the primary insured's lifetime
No statement shall be used to contest a claim unless
contained in an application.
All statements made in an application are
representations and not warranties.
See any additional benefit riders for modifications
of this provision that apply to them.
-20-
<PAGE> 24
-21-
MISSTATEMENT OF AGE If the primary insured's age has been misstated on
any application, the death benefit and any benefits
provided by riders to this policy shall be those
which would be purchased by the most recent deduction
for the cost of insurance, and the cost of any
benefits provided by riders, at the correct age.
SUICIDE EXCLUSION If the primary insured commits suicide (while sane or
insane) within two years after the Effective Date
shown in the Policy Information section, our
liability will be limited to the payment of a single
sum. This sum will be equal to the premiums paid,
minus any loan and loan interest and minus any
partial withdrawals of the Net Cash Surrender Value.
If the primary insured commits suicide (while sane or
insane) within two years after the effective date of
a change that you asked for that increases the death
benefit, then our liability as to increase in amount
will be limited to the payment of a single sum equal
to the monthly cost of insurance deductions made for
such increase. This will include the expense charge
deducted for the increase (see "Insurance Coverage
Provisions-Changing Face Amount of Insurance or Death
Benefit Option").
POLICY DATES The "Effective Date" is the date insurance coverage
begins under this policy. It is shown in the Policy
Information section. The "Investment Start Date" is
the date we receive at least the minimum initial
premium payment, which is shown in the Policy
Information section.
POLICY PERIODS We measure policy years, policy months, and policy
anniversaries from the Effective Date shown in the
Policy Information section. Each policy month begins
on the same day in each calendar month as the date of
the month in the Effective Date.
POSTPONEMENT OF PAYMENTS We may not be able to obtain the value of the assets
of the investment divisions of our SA if: (1) the New
York Stock Exchange is closed; (2) the Securities and
Exchange Commission requires trading to be restricted
or declares an emergency; or (3) the Securities and
Exchange Commission by order permits us to defer
payments for the protection of our policy owners.
During such times, as to amounts allocated to the
investment division of our SA, we may defer:
1. Determination and payment of surrenders or
partial withdrawals of the Net Cash Surrender
Value.
2. Determination and payment of any death benefit in
excess of the Face Amount of Insurance.
3. Payment of loans.
4. Determination of the unit values of the
investment divisions of our SA.
5. Any requested transfers among investment
divisions of SA.
6. Use of insurance benefits under the payment
options.
As to amounts allocated to our GID, we may defer
payment of any loan amount or surrender or partial
withdrawal of the Net Cash Surrender Value for up to
six months after we receive a request for it.
<PAGE> 25
BASIS OF COMPUTATIONS We provide Cash Surrender Values that are at least
equal to or more than those required by law. If
required to do so, we have filed with the insurance
supervisory official of the jurisdiction in which
this policy is delivered a detailed statement of our
method of computing such values.
We base minimum cash surrender values on the
Commissioners 1980 Age Last Birthday Standard
Ordinary Mortality Tables with interest at 4% per
year. We also use these tables as the basis for
determining maximum insurance costs.
ANNUAL REPORT For each policy year we will send you a report for
this policy that shows the current death benefit, the
value you have in our GID, the number of units, the
unit value and the total value you have in each
investment division of our SA, the Cash Surrender
Value and any outstanding policy loan with the
current loan interest rate. It will also show the
premiums paid and policy transactions for the year.
For the investment divisions of our SA it will show
the dollar amount of each policy transaction, the
number of units involved in the policy transaction
and the unit value on the date of the policy
transaction. The report will also show such other
information as may be required by the insurance
supervisory official of the jurisdiction in which
this policy is delivered.
POLICY CHANGES You may change this policy to another available plan
of insurance or add additional benefit riders or make
other changes, subject to our rules at the time of
change.
-22-
<PAGE> 26
-23-
TABLES OF MONTHLY PAYMENTS
UNDER OPTIONS 2 AND 3 PER $1000 OF PROCEEDS
Option 2 Payments For a Fixed Period
<TABLE>
<CAPTION>
Years Amount Years Amount Years Amount Years Amount Years Amount Years Amount
- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 84.84 6 15.56 11 9.31 16 7.00 21 5.81 26 5.10
2 43.25 7 13.59 12 8.69 17 6.71 22 5.64 27 5.00
3 29.40 8 12.12 13 8.17 18 6.44 23 5.49 28 4.90
4 22.47 9 10.97 14 7.72 19 6.21 24 5.35 29 4.80
5 18.32 10 10.06 15 7.34 20 6.00 25 5.22 30 4.72
</TABLE>
Option 3 Life Income With Payments Guaranteed For a Certain Period
<TABLE>
<CAPTION>
Age Period Age Period
--- ------ --- ------
<S> <C> <C> <C> <C> <C>
10 20 10 20
40 4.03 4.01 63 5.53 5.18
41 4.07 4.04 64 5.65 5.25
42 4.10 4.07 65 5.78 5.32
43 4.14 4.11 66 5.91 5.39
44 4.18 4.15 67 6.04 5.45
45 4.23 4.19 68 6.19 5.52
46 4.27 4.23 69 6.34 5.58
47 4.32 4.27 70 6.50 5.63
48 4.37 4.31 71 6.67 5.69
49 4.42 4.36 72 6.85 5.74
50 4.48 4.40 73 7.03 5.78
51 4.53 4.45 74 7.22 5.82
52 4.59 4.50 75 7.41 5.85
53 4.66 4.56 76 7.60 5.88
54 4.73 4.61 77 7.80 5.91
55 4.80 4.67 78 8.00 5.93
56 4.87 4.73 79 8.20 5.95
57 4.95 4.79 80 8.39 5.96
58 5.04 4.85 81 8.57 5.97
59 5.13 4.92 82 8.75 5.98
60 5.22 4.98 83 8.92 5.99
61 5.32 5.05 84 9.07 5.99
62 5.42 5.12 85 9.21 6.00
</TABLE>
<PAGE> 27
ENDORSEMENT
GUARANTEED DEATH The Death Benefit section of this policy is modified
BENEFIT PROVISION by adding the following provision entitled
"Guaranteed Death Benefit":
This policy will not terminate before the policy
anniversary following the primary insured's 80th
birthday, if at the beginning of each policy month,
the Adjusted Guaranteed Death Benefit Premium equals
or exceeds the Accumulated Monthly Death Benefit
Premium.
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,
including the current month. The Monthly Guaranteed
Death Benefit Premium is shown in the Policy
Information section; and is the monthly premium
amount payable to qualify for this endorsement. We
will send you a new Policy Information section if the
Monthly Guaranteed Death Benefit Premium changes due
to other changes you have requested in the policy.
The Adjusted Guaranteed Death Benefit Premium is an
amount equal to:
1. The sum of the premiums received since issue;
minus
2. any partial surrender; minus
3. any loans and loan interest.
This endorsement will terminate if:
1. At the beginning of any policy month the Adjusted
Guaranteed Death Benefit Premium does not equal
or exceed the Accumulated Monthly Death Benefit
Premium, unless within 61 days of the beginning
of such policy month sufficient premiums are paid
to qualify for this endorsement; or
2. an additional term rider is added to this policy.
Effective date of Endorsement if different from the
Effective date of the policy:
_____________
SAFECO Life Insurance Company
/s/ R.A. PIERSON
R.A. Pierson
Sr. Vice President and Secretary
<PAGE> 28
ENDORSEMENT
MONTHLY DEDUCTIONS The "Monthly Deductions" provision of this policy is
modified by replacing the second paragraph with the
following:
The monthly cost of insurance is our current monthly
"cost of insurance rate" times the "net amount at
risk" (current death benefit minus the amount in your
Policy Account) at the beginning of the policy month;
plus any extra charges shown in the Policy
Information section times the Face Amount of
Insurance at the beginning of the policy month. For
this purpose the amount in your Policy Account is
determined before the monthly cost of insurance
deduction but after all other deductions due on that
date have been made. The cost of insurance rate is
based on issue age, coverage duration and rating
class of the primary insured.
TRANSFERS AMONG The "Transfers Among Investment Options" provision of
INVESTMENT OPTIONS this policy is modified by replacing the third
paragraph with the following:
Twelve transfers may be made in a policy year without
charge. We may make an expense charge for additional
transfers in a policy year, as shown in the Table of
Expense Charges in the Policy Information Section. We
will allocate the transfer expense charge equally
between the investment options from which the amounts
you requested were transferred. Transfers made
pursuant to any systematic investment program you
have elected are not counted toward the twelve free
transfers in any policy year.
Effective date of Endorsement if different from the
Effective date of the policy:
_____________
SAFECO Life Insurance Company
/s/ R.A. PIERSON
R.A. Pierson, Secretary
<PAGE> 29
[LOGO]
SAFECO
A Stock Life Insurance Company
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE PLAN
Life Insurance payable upon death before Final Policy Date.
Policy Account payable on Final Policy Date.
Adjustable Death Benefit.
Values provided by this policy are based on declared interest rates,
and on the investment divisions of a Separate Account which in
turn depends on the investment performance of the corresponding
portfolios of investment companies.
Values are not guaranteed as to dollar amount.
Investment options are described in this policy.
Nonparticipating policy.
SAFECO Life Insurance Company Financial Administrative Services
15411 NE 51st Street PO. Box 290752
Redmond, WA 98052-5114 Wethersfield, CT 06129-0752
1-800-426-7355
<PAGE> 1
EXHIBIT A (6) (a)
Articles of Incorporation of the Company Revised as of 11/90
<PAGE> 2
EXHIBIT 6.a.
ARTICLES OF INCORPORATION
OF
SAFECO LIFE INSURANCE COMPANY
(As Amended to November 26, 1990)
BE IT KNOWN that the undersigned
H. K. Dent
O. D. Fisher
William G. Reed
W. L. Campbell
Gordon H. Sweany
have associated themselves together and do hereby associate themselves together
for the purpose of forming a corporation under the laws of the State of
Washington, and do declare as follows:
I
The names and addresses of the incorporators are:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
H. K. Dent Seattle, Washington
O. D. Fisher Seattle, Washington
William G. Reed Seattle, Washington
W. L. Campbell Seattle, Washington
Gordon H. Sweany Seattle, Washington
</TABLE>
II
The name of the company is SAFECO Life Insurance Company.
III
The objects for which the company is formed are to transact insurance
business, make insurance and engage in any other lawful business. The kinds of
insurance the company will issue are as follows:
<PAGE> 3
1. Life Insurance: Insurance on human lives and insurance appertaining
thereto or connected therewith; including, but not limited to, the granting of
annuities and endowment benefits, additional benefits in the event of death by
accident, additional benefits in the event of the total and permanent disability
of the insured, and optional modes of settlement of proceeds.
2. Disability Insurance: Insurance against bodily injury, disablement
or death by accident, disablement resulting from sickness, and every insurance
appertaining thereto.
3. The said company shall be operated as a stock insurance company, and
may issue policies upon both the participating plan and the non-participating
plan. The Board of Directors of said company may from time to time distribute
equitably to the holders of participating policies issued by said company such
sum out of the earnings as in its judgment is proper, after setting aside from
said earnings such sums for dividends to be paid stockholders and for surplus
as the Board of Directors shall see fit. Such distribution of earnings may be
made by an equitable apportionment to holders of participating policies issued
by the company irrespective of the class and character of the risks, insureds or
types of policies involved, or the Board of Directors may in its discretion
classify the risks of the company according to the various hazards covered or
types of policies or insureds involved or otherwise as to the Board may appear
equitable and distribute such earnings or any portion thereof to the holders of
participating policies in each classification according to the experience of the
company in such cases or otherwise as the Board shall see fit.
IV
The amount of the capital stock shall be Five Million ($5,000,000.00)
Dollars, and the number of shares shall be twenty thousand (20,000), and the par
value of each of said shares shall be Two Hundred Fifty ($250.00) Dollars.
V
The duration of the existence of this company shall be perpetual and
forever.
VI
The number of directors of this company shall be fixed as provided in
its bylaws, and may be changed from time to time by
<PAGE> 4
amending the bylaws as therein provided, but the number thereof shall never be
less than five (5) nor more than thirty (30). The names and addresses of the
directors who shall constitute the Board of Directors of the company for the
initial term of not more than six (6) months from the date hereof are as
follows:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
J. H. Ballinger Seattle, Washington
Edw. K. Bisher Aberdeen, Washington
Mrs. A. Scott Bullitt Seattle, Washington
W. L. Campbell Seattle, Washington
Norton Clapp Seattle, Washington
H. K. Dent Seattle, Washington
R. M. Dooly Portland, Oregon
O. D. Fisher Seattle, Washington
Reuben H. Fleet Los Angeles, California
Chase Garfield Los Angeles, California
Edward I. Garrett Seattle, Washington
Thomas F. Gleed Seattle, Washington
Joshua Green Seattle, Washington
Chapin Henry Seattle, Washington
J. A. Humbird Vancouver, B.C.
Richard E. Lang Seattle, Washington
John L. Locke Seattle, Washington
William G. Reed Seattle, Washington
Volney Richmond, Jr. Seattle, Washington
Deitrich Schmitz Seattle, Washington
D.E. Skinner Seattle, Washington
R.E. Slaughter Stillwater, Minnesota
</TABLE>
VII
The office and principal place of business of the company is to be
located in the City of Redmond, State of Washington, and the company intends to
transact business anywhere that it may be found convenient.
VIII
The power to adopt, alter, amend or repeal bylaws shall be vested in
the Board of Directors, subject to the power of the
-3-
<PAGE> 5
shareholders to change or repeal such bylaws; provided, however, that the Board
of Directors shall not make or alter any bylaws fixing their qualifications,
classifications, or terms of office.
-4-
<PAGE> 1
EXHIBIT A (6) (b)
Bylaws of the Company Revised as of 11/91
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EXHIBIT 6.b.
BYLAWS
OF
SAFECO LIFE INSURANCE COMPANY
(As last amended November 8, 1991)
ARTICLE I
STOCKHOLDER'S MEETINGS
1. ANNUAL MEETING. The annual meeting of the stockholders of the
corporation for the election of directors to succeed those whose terms expire,
and for the transaction of such other business as may properly come before the
meeting, shall be held at 1:30 o'clock in the afternoon on the last business day
of April of each year or on such other day as may be designated by the Chairman
of the Board of Directors, the President, or the Board of Directors.
The meeting shall be held at the registered office of the corporation, or at
such other place as may be designated by the Chairman of the Board of Directors,
the President, or the Board of Directors.
2. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes may be called at any time by the Board of Directors to be
held at such time and place as the Board may prescribe. At any time, upon the
request of the Chairman of the Board, the President, or any of three (3)
directors, or of any stockholder or stockholders holding in the aggregate one-
fifth (1/5) of the voting power of all stockholders, it shall be the duty of the
Secretary to call a special meeting of the stockholders to be held at the
registered office of the corporation at such time as the Secretary may fix, not
less than ten (10) nor more than thirty-five (35) days after the receipt of said
request, and if the Secretary shall neglect or refuse to issue such call, the
directors or stockholders making the request may do so.
3. NOTICE OF MEETING. Notice of the annual stockholders' meeting shall
be given to all stockholders of record entitled to vote at such meeting at least
ten (10) days prior to the day named for the meeting. Persons authorized to call
special stockholders' meetings shall cause written notice of the time, place and
purpose of the meeting to be given all stockholders of record entitled to vote
at such meeting, at least ten (10) days prior to the day named for the meeting,
except that notice of a meeting to act on an amendment to the articles of
incorporation, a plan of merger or share exchange, a proposed sale or other
disposition of all or substantially all the assets of the corporation, or the
dissolution of the corporation shall be given at least twenty (20) days prior to
the day named for the meeting.
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If such written notice is placed in the United States mail, postage prepaid, and
addressed to a stockholder at the stockholder's last known post office address,
notice shall be deemed to have been given.
Notice of any stockholders' meeting may be waived in writing
by any stockholder at any time, either before or after the meeting.
4. ORGANIZATION OF MEETING - QUORUM. A stockholders' meeting, duly
called, can be organized for the transaction of business whenever a quorum is
present. The presence, in person or by proxy, of the holders of a majority of
the voting power of all stockholders shall constitute a quorum; and the
stockholders present at a duly organized meeting can continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
5. ADJOURNED MEETINGS. An adjournment or adjournments of any
stockholders' meeting may be taken to such time and place as those present may
determine, without new notice being given, whether by reason of the failure of a
quorum to attend or otherwise; but any meeting at which directors are to be
elected shall be adjourned only from day to day until such directors are
elected, and in the case of any such meeting which is adjourned because of the
failure of a quorum to attend, those who attend the second of such adjourned
meetings, although less than a quorum, shall nevertheless constitute a quorum
for the purpose of electing directors.
6. VOTING AT MEETINGS. Each holder of stock shall at all times and for
all purposes be entitled to one vote for each share of stock then of record in
his name on the books of the corporation. Every stockholder shall have the right
to cast his vote either in person or by proxy. All voting at stockholders'
meetings shall be viva voce, unless any qualified voter shall demand a vote by
ballot. In the case of voting by ballot, each ballot shall state the name of the
stockholder voting, the number of shares owned by him, and, in addition, if such
vote be cast by proxy, it shall also state the name of the proxy.
ARTICLE II
BOARD OF DIRECTORS
1. NUMBER AND QUALIFICATIONS. The business affairs of the corporation
shall be managed by a Board of from five (5) to ten (10) directors, as set from
time to time by resolution of the Board of Directors, which directors need not
be stockholders of the corporation.
2. ELECTION - TERM OF OFFICE. The directors shall be elected by the
stockholders at each annual stockholders' meeting, to hold office until the next
annual stockholders' meeting and
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until their respective successors are elected and qualified. In the event of
failure to hold an election of directors at any annual stockholders' meeting, or
in the event of failure to hold any annual stockholders' meeting as provided in
these Bylaws, election of directors may be held at a special meeting of the
stockholders called for that purpose.
3. VACANCIES. Except as otherwise provided by law, vacancies in the
Board of Directors, whether caused by resignation, death or otherwise, may be
filled by a majority of the remaining directors attending any regular meeting of
the Board, or any special meeting, if the notice of such special meeting
indicates that filling such vacancy is a purpose of the meeting (even though
less than a quorum is present). A director thus elected to fill any vacancy
shall hold office for the unexpired term of the director's predecessor, and
until the director's successor is elected and qualified.
4. ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be known as the annual meeting thereof.
5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall
be held quarterly, on the Friday following the first Wednesday in February, May,
August and November of each year, at such time and place as the Chairman of the
Board, the President, or the Board may designate.
6. SPECIAL MEETINGS. Special meetings of the Board may be held at any
place at any time when called by the Chairman of the Board of Directors or the
President, or when called by the Secretary or an Assistant Secretary on request
of three (3) directors.
7. NOTICE OF MEETINGS. No notice of the annual meeting of the Board of
Directors shall be required. Notice of the time and place of quarterly or
special meetings of the Board shall be given by the Secretary, or by the person
calling the meeting, by mail, private carrier, personal delivery, radio,
telegram or facsimile, or by personal communication over the telephone, or
otherwise, at least three (3) days prior to the date upon which the meeting is
to be held; provided, that no notice of any meeting need be given to any
director if it is waived by such director in writing, or by radio or telegram,
whether before or after such meeting is held or if the director is present at
such meeting; and any meeting of the Board shall be a legal meeting without any
notice thereof having been given if all of the directors are either present or
waive notice thereof. Oral notice is effective when communicated; written notice
is effective upon dispatch if sent or delivered to the director's address or
other number appearing on the records of the corporation.
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8. QUORUM. A majority of the members of the Board of Directors shall be
necessary to constitute a quorum for the transaction of business, but a less
number may adjourn any meeting from time to time and the same may be held
without further notice. When a quorum is present at any meeting, a majority vote
of the members in attendance thereat shall decide any question brought before
such meeting.
ARTICLE III
FINANCE COMMITTEE
1. POWERS AND DUTIES. The Finance Committee shall have general
supervision of the finances and investments of the corporation. The committee is
charged with the duty of authorizing or approving all investments, loans, sales
or exchanges by or on behalf of the corporation. It shall designate or approve
the designation of depositories for the funds of the corporation; it shall have
authority to buy and sell securities and to make loans of such character as is
permitted by law; and it may direct any action necessary to collect amounts due
the corporation. All actions of the Finance Committee shall be recorded in the
minutes of the Finance Committee, and reports thereof shall be submitted to the
Board of Directors for approval of disapproval as soon as practicable after such
action. Such action shall be subject to revision or alteration by the Board of
Directors; provided, that no rights of third parties shall be affected by any
such revision or alteration.
2. RULES OF PROCEDURE. The Finance Committee shall fix its own rules of
procedure and shall meet where and as provided by such rules or by resolution of
the Board of Directors. Special meetings of the Committee may be called at any
time by the Chairman or by any two members. At all meetings, the presence of a
majority of the members shall be necessary to constitute a quorum, and the
affirmative vote of a majority of the quorum shall be necessary and sufficient
for the adoption of any resolution.
ARTICLE IV
OTHER COMMITTEES
The Board of Directors shall have authority to establish by resolution
such other committees as the Board may from time to time deem necessary or
advisable. The membership, duties and authority of such committees shall be as
the Board may from time to time establish.
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ARTICLE V
OFFICERS
1. OFFICERS ENUMERATED - ELECTION. The officers of the corporation
shall be a Chairman of the Board of Directors, a President, one or more Vice
Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one
or more Assistant Treasurers, all of whom shall be elected by the Board of
Directors at the annual meeting thereof, to hold office for the term of one year
and until their successors are elected and qualified.
2. QUALIFICATIONS. None of the officers of the corporation, except the
Chairman of the Board of Directors and the President, needs be a director.
Excluding the Chairman of the Board of Directors and the President, any two or
more of the other corporate officers may be combined in one person.
3. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors shall
preside at all meetings of stockholders and Directors, and shall perform such
other duties as may from time to time be assigned by the Board of Directors.
4. PRESIDENT. The President shall be the chief executive officer of the
corporation and, subject to the ultimate authority of the Board of Directors,
shall have general charge, supervision and control over the business and affairs
of the corporation and shall be responsible for the management thereof.
5. VICE PRESIDENTS. In the absence or disability of the president, one
of the Vice Presidents, in the order determined by the order of their election,
shall act as President, but a Vice president who is not a director cannot
succeed to or fill the office of president. Each Vice President shall perform
such other duties as the Board of Directors or the President may from time to
time designate or assign. One or more of the Vice Presidents may be designated
by the Board of Directors as Resident Vice President, Senior Vice president,
Executive Vice President, or such other title as the Board deems appropriate for
the position and duties.
6. SECRETARY. The Secretary shall be the custodian of the records,
books of account, and seal of the corporation and, in general, shall perform all
duties usually incident to the office of Secretary, and make such reports and
perform such other duties as may from time to time be requested or assigned by
the Board of Directors or the President.
7. ASSISTANT SECRETARIES. The Assistant Secretaries shall perform such
duties as may be assigned to them by the Secretary, the President, or the Board
of Directors. In the absence or disability of the Secretary, one of the
Assistant
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Secretaries, in the order determined by the order of their election, shall
perform all of the duties and may exercise any of powers of the Secretary.
8. TREASURER. The Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation. The Treasurer shall
deposit all such funds in the name of the corporation in such depositories or
invest them in such investments as may be designated or approved by the Finance
Committee or the Board of Directors, and shall authorize disbursement of the
funds of the corporation in payment of just demands against the corporation, or
as may be ordered by the Board of Directors, or the Finance Committee, on
securing proper vouchers for such disbursements. The Treasurer shall render to
the Board of Directors from time to time as may be required of him an account of
all his transactions as Treasurer, and shall perform such other duties as may
from time to time be assigned by the Board of Directors, the Finance Committee,
or the President.
9. ASSISTANT TREASURERS. The Assistant Treasurers shall perform such
duties as may be assigned to them by the Treasurer, the President, the Finance
Committee, or the Board of Directors. In the absence or disability of the
Treasurer, the Assistant Treasurers, in the order determined by the order of
their election, shall perform all of the duties and may exercise any of the
powers of the Treasurer.
10. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary to exercise such powers and
perform such duties as shall be determined from time to time by the Board.
11. REMOVAL. Any officer of the corporation may be removed by the
affirmative vote of a majority of the whole Board of Directors, whenever in
their judgment the best interests of the corporation will be served thereby;
such removal, however, shall be without prejudice to the contract rights of the
person so removed.
12. FACSIMILE SIGNATURES. The President, with the Secretary, shall sign
all policies of insurance issued by the company; provided, that facsimile
signatures on policies shall be recognized as binding when countersigned by a
regularly authorized agent of the company.
ARTICLE VI
CORPORATION PROXIES
Unless otherwise ordered by the Board of Directors, any and all shares
of stock owned or held by this company in any other
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corporation shall be represented and voted at any meeting of the shareholders of
any such corporation by any one of the following officers of this company in the
following order who shall attend such meeting, i.e., the Chairman of the Board
of Directors, the President, a Vice President, the Chairman of the Finance
Committee, or the Treasurer, and such representation by any one of the officers
above named shall be deemed and considered a representation in person by this
company at such meeting. Any one of the officers above named may execute a proxy
appointing any other person as attorney and proxy to represent this company at
such shareholders' meeting and to vote upon all stock of such corporation owned
or held by this company with all power and authority in the premises that any of
the officers above named would possess if personally present. The Board of
Directors by resolution may from time to time confer like powers upon any other
person or persons.
ARTICLE VII
STOCK
1. CERTIFICATES OF STOCK. Certificates of stock of the corporation
shall be issued in such form in accordance with the corporation law of the State
of Washington as may be approved by the Board of Directors, and may be signed by
the President or any Vice President, and the Secretary or any Assistant
Secretary.
2. TRANSFERS. Shares of stock may be transferred by delivery of the
certificates therefore accompanied either by an assignment in writing on the
back of the certificate or by a written power of attorney to sell, assign and
transfer the same by the record holder of the certificate; but no transfer shall
be valid except as between the parties thereto until such transfer shall have
been made on the books of the corporation. Except as specifically provided in
these Bylaws, no shares of stock shall be transferred on the books of the
corporation until the outstanding certificate therefore has been surrendered to
the corporation.
3. STOCKHOLDERS OF RECORD. The corporation shall be entitled to treat
the holder of record on the books of the corporation of any share or shares of
stock as the holder in fact thereof for all purposes, including the payment of
dividends on such stock and the right to vote on such stock.
4. LOSS OR DESTRUCTION OF CERTIFICATES. In the case of loss or
destruction of any certificates of stock, another may be issued in its place
upon proof of such loss or destruction, and upon the giving of a satisfactory
bond or indemnity to the corporation. A new certificate may be issued without
requiring any bond when in the judgment of the Board of Directors it is proper
to do so.
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5. CLOSING OF TRANSFER BOOKS. The Board of Directors may close the
books of the corporation against transfers of stock of the corporation for such
period as the directors may from time to time determine, in anticipation of
stockholders' meetings, or the payment of any dividend or distribution, or any
change or conversion or exchange of shares of the corporation.
6. REGULATIONS. The Board of Directors shall have the power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, conversion and registration of certificates for
shares of the stock of the corporation not inconsistent with the Bylaws, the
Articles of Incorporation, or the laws of the State of Washington.
ARTICLE VIII
INDEMNIFICATION
1. DIRECTORS. To the full extent permitted by the Washington Business
Corporation Act, the corporation shall indemnify any person who was or is a
party to any proceeding (whether brought by or in the right of the company or
otherwise) by reason of the fact that he or she is or was a director of the
corporation, or, while a director of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee,
or agent of another foreign or domestic corporation, partnership, joint venture,
trust, other enterprise, or employee benefit plan, against judgments, penalties,
fines, settlements, and reasonable expenses actually incurred by him or her in
connection with such proceeding.
2. OFFICERS AND CERTAIN OTHER PERSONS. The corporation shall extend
such indemnification as is provided to directors under paragraph 1 of this
Article to any person, not a director of the corporation, who is or was an
officer of the corporation or is or was serving at the request of the
corporation as a director, officer, partner, trustee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust, other
enterprise, or employee benefit plan. In addition, the Board of Directors may,
by resolution, extend such further indemnification to an officer or such other
person as may to it seem fair and reasonable in view of all relevant
circumstances.
3. OTHER EMPLOYEES AND AGENTS. The Board of Directors may, by
resolution, elect to treat any employee or agent of the corporation as an
"officer" of the corporation for the purpose of extending the indemnification
provided in paragraph 2 of this Article.
4. DEFINITIONS. For purposes of this Article, the terms "director,"
"corporation," "expenses," "party" and "proceeding" have those meanings assigned
to them in the "indemnification of
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directors and officers" sections of the Washington Business Corporation Act.
5. NOT EXCLUSIVE -- CONTINUING. The indemnification provided by this
Article shall not be deemed exclusive of other rights to which the director,
officer, employee or agent may be entitled as a matter of law or by contract,
and shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE IX
SEAL
The seal of this corporation shall consist of a flat-faced, circular
die with the words,
SAFECO LIFE INSURANCE COMPANY
and with the words and figures "Corporate Seal, 1957" in the center, and with
the word "Washington" also being shown on the face of the seal.
ARTICLE X
COPIES OF RESOLUTIONS
Any person dealing with the corporation may rely upon a copy of any of
the records of the proceedings, resolutions, or votes of the stockholders, the
Board of Directors, or the Finance Committee, when certified by the President, a
Vice President, Secretary, or an Assistant Secretary.
ARTICLE XI
AMENDMENT OF BYLAWS
1. BY THE STOCKHOLDERS. These Bylaws may be amended, altered or
repealed at any meeting of the stockholders, if notice of the proposed
alteration or amendment is contained in the notice of the meeting.
2. BY THE BOARD OF DIRECTORS. These Bylaws may be amended, altered or
repealed by the affirmative vote of a majority of the whole Board of Directors
at any regular meeting of the Board, or at any special meeting if notice of the
proposed alteration or amendment is contained in the notice of such special
meeting; provided, however, that the Board of Directors shall not amend, alter
or repeal any Bylaw in such a manner as to affect in any way the qualification,
classification, or term of office of the directors. Any action of the Board of
Directors,
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with respect to the amendment, alteration or repeal of these Bylaws is hereby
made expressly subject to change or repeal by the stockholders.
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EXHIBIT A (9)
Reinsurance Agreement
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BMA
REINSURANCE AGREEMENT
between
SAFECO LIFE INSURANCE COMPANY
Seattle, Washington
hereinafter referred to as the CEDING COMPANY
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
hereinafter referred to as BMA
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AUTOMATIC TREATY
TABLE OF CONTENTS
<TABLE>
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ARTICLE PAGE
<S> <C> <C>
I BASIS OF REINSURANCE .................................................1
II LIABILITY ............................................................2
III ADMINISTRATIVE REPORTING .............................................3
IV PLANS OF REINSURANCE .................................................5
V REINSURANCE PREMIUM ..................................................5
VI PREMIUM ACCOUNTING ...................................................6
VII OVERSIGHTS ......................... .................................7
VIII REDUCTIONS, TERMINATIONS AND CHANGES .................................7
IX INCREASE IN RETENTION AND RECAPTURES..................................8
X REINSTATEMENTS .......................................................9
XI EXPENSE OF ORIGINAL POLICY............................................9
XII CLAIMS................................................................9
XIII TAX CREDITS...........................................................10
XIV INSPECTION OF RECORDS ................................................11
XV INSOLVENCY............................................................11
XVI ARBITRATION...........................................................12
XVII PARTIES TO AGREEMENT .................................................12
XVIII TERMINATION OF AGREEMENT..............................................13
</TABLE>
SCHEDULES
A SPECIFICATIONS
B BENEFITS AND NAR CALCULATIONS
C ADDITIONAL INFORMATION AND EXCEPTIONS
EXHIBITS
I RETENTION LIMITS
IA UNDERWRITING GUIDELINES
II REINSURANCE PREMIUMS
III COMMISSIONS AND ALLOWANCES (COINSURANCE)
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ARTICLE I
BASIS OF REINSURANCE
REINSURANCE UNDER THIS AGREEMENT MUST BE INDIVIDUAL INSURANCE. THE CEDING
COMPANY SHALL AUTOMATICALLY REINSURE THE LIFE INSURANCE FOR THE PLAN(S) AS
STATED IN SCHEDULE A AND ANY ADDITIONAL BENEFITS LISTED IN SCHEDULE B.
1. REQUIREMENTS FOR AUTOMATIC REINSURANCE
A. The individual risk must be a permanent resident of the United
States or Canada.
B. The individual risk must be underwritten by the CEDING COMPANY
according to the standard underwriting practices and guidelines as
shown in Exhibit IA. The CEDING COMPANY shall immediately notify
BMA of any changes in underwriting practices or guidelines. Any
risk falling into a category of special underwriting programs shall
be excluded from this Agreement.
C. Any risk offered on a facultative basis to BMA or any other
reinsurer shall not qualify for automatic reinsurance.
D. The maximum issue age on any risk shall be age 70. Issue ages over
70 must be submitted facultatively.
E. The mortality rating on any one risk must not exceed Table 8, or
300%, or its equivalent on a flat extra premium basis. Cases
exceeding Table 8, or 300%, or its equivalent must be submitted
facultatively.
F. The maximum amount of insurance issued and applied for in all
companies on any one risk shall not exceed the Jumbo limits as
stated in Schedule A.
G. On any risk, the CEDING COMPANY must retain the amounts of
insurance as stated in Exhibit I.
H. The maximum amounts of insurance to be reinsured on any one life
shall not exceed the automatic binding limits as stated in Schedule
A.
I. The minimum amount of insurance to be ceded shall be $5,000.
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2. REQUIREMENTS FOR FACULTATIVE REINSURANCE
A. Plan of Insurance Listed in Schedule A:
(1) If the Requirements for Automatic Reinsurance are met but
the CEDING COMPANY prefers to apply for facultative
reinsurance, or
(2) If Requirements for Automatic Reinsurance are not met then
the CEDING COMPANY must submit to BMA all the underwriting
documentation relating to the insurability of the individual
risk for facultative reinsurance.
B. Plan of Insurance Not Listed in Schedule A:
On a Yearly Renewable Term treaty the CEDING COMPANY may
submit an application for facultative reinsurance on any
plan(s).
On a Coinsurance treaty the Ceding Company cannot submit an
application for facultative reinsurance on plan(s) other
than the plan(s) listed in Schedule A.
C. An application for facultative reinsurance may include life insurance
with or without either disability waiver of premium or accidental
death or both. Only accidental death reinsurance may be submitted
without an application for life insurance.
D. Copies of all underwriting papers relating to the insurability of the
individual risk must be sent to BMA for facultative reinsurance.
After BMA has examined the underwriting papers, BMA will promptly
notify the CEDING COMPANY of the underwriting offer subject to
additional requirements, the final underwriting offer or declination.
Any final underwriting offer on the individual risk will
automatically terminate upon the earliest of:
(1) The date BMA receives notice of a withdrawal/cancellation by
the CEDING COMPANY,
(2) 120 days after the date on which the offer was made, or
(3) The date specified in BMA`s approval to extend the offer.
E. The minimum amount of insurance to be ceded shall be $5,000.
ARTICLE II
LIABILITY
1. BMA's liability for automatic reinsurance shall begin simultaneously with
the CEDING COMPANY's liability.
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2. Except for additional coverage pertaining to conditional receipt as
described in Schedule C, BMA's liability for facultative reinsurance on
individual risks shall not begin unless and until the CEDING COMPANY has
accepted BMA's final and unconditional written offer on the application
for facultative reinsurance.
3. BMA's liability for reinsurance on individual risks shall terminate when
the CEDING COMPANY's liability terminates.
4. As long as the original policy remains in full force, all paid-up
additions and accumulated dividends shall be the liability of the CEDING
COMPANY.
5. In no event shall reinsurance under this Agreement be in force unless the
insurance issued directly by the CEDING COMPANY is in force and is issued
and delivered in a jurisdiction in which the CEDING COMPANY is properly
licensed.
6. The payment of reinsurance premiums in accordance with this Agreement
shall be a condition precedent to the liability of BMA under reinsurance
covered by this Agreement
ARTICLE III
ADMINISTRATIVE REPORTING
1. Self-Administered Business
Promptly after liability for insurance has begun on an individual risk, the
CEDING COMPANY shall have the responsibility of maintaining adequate records for
the administration of the reinsurance account and shall furnish BMA with monthly
reports, in substantial conformity with the following:
A. MONTHLY NEW BUSINESS REPORT
<TABLE>
<CAPTION>
<S> <C> <C>
(1) policy number (10) amount reinsured
(2) full name of insured (11) automatic/facultative indicator
(3) date of birth (12) state of residence
(4) sex (13) table rating
(5) issue age (14) flat extra (amount + number of years)
(6) policy date (15) death benefit option (UL products)
(7) underwriting classification (16) net amount at risk
(8) plan of insurance (17) transaction code
(9) amount issued (18) currency if other than U.S.
</TABLE>
3
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B. MONTHLY CONVERSION REPORT
The CEDING COMPANY shall furnish BMA with a separate listing of
reinsurance policies that are conversions or replacements to the plan(s)
as stated in Schedule A. The listing should provide the following
information:
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<CAPTION>
<S> <C> <C>
(1) 1 through 18 in 1.A above (4) attained age
(2) original policy date (5) duration
(3) original policy number (6) effective date if other than policy date
</TABLE>
C. MONTHLY PREMIUM REPORT
At the end of each month the CEDING COMPANY shall send to BMA a listing of
all reinsurance policies issued or renewing during the past month
accompanied by the reinsurance premiums for such policies. The listing
should be segregated into first year issues and renewals and should
provide the following information:
(1) 1 through 18 in 1.A above
(2) current net amount at risk
(3) On Yearly Renewable Term treaties the net reinsurance premium due
for each reinsured policy with the premium for life and each
supplemental benefit separated.
(4) On Coinsurance treaties the gross reinsurance premium,
commissions, net reinsurance premium and other amounts (e.g.
dividends, cash surrender values) with premium separated for life
and each supplemental benefit.
All monthly lists shall be submitted to BMA no later than the 20th day of
the following month.
D. MONTHLY CHANGE REPORT
The CEDING COMPANY shall report the details of all policy terminations and
changes on the reinsured policies. In addition to the data indicated in
1.A, above, the report should provide information about the nature, the
effective date, and the financial result of the change with respect to
reinsurance.
E. MONTHLY POLICY EXHIBIT REPORT
The CEDING COMPANY shall provide a summary of new issues, terminations,
recaptures, changes, death claims and reinstatements during the month and
the inforce reinsurance at the end of the month.
F. QUARTERLY REPORTING
1. Within ten (10) days following the end of the quarter, the CEDING
COMPANY shall provide BMA with Premiums Due and Unpaid and
Commissions Due and Unpaid. This report may be in summary form
reporting totals by line of business with separate totals for first
year and renewals.
2. Within ten (10) days following the end of the quarter, the CEDING
COMPANY shall provide BMA with totals for the reserve liability
including statutory reserves by valuation basis segregated by
Yearly Renewable Term and Coinsurance.
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G. ANNUAL INFORCE LISTING
Within ten (10) days after the close of the year, the CEDING
COMPANY shall furnish BMA a listing of reinsurance in force by
policy, by year of issue, segregated by Yearly Renewable Term
and Coinsurance and include tax reserves for the same.
H. CLAIMS
Claims shall be reported as incurred on an individual basis.
2. Individual Cession Business
Promptly after liability for reinsurance has begun on the individual risk the
CEDING COMPANY shall send BMA a "Reinsurance Cession". Based on the information
on the "Reinsurance Cession", BMA will prepare and send the CEDING COMPANY a
"Reinsurance Cession Card". When reinsurance is reduced or changed the CEDING
COMPANY shall send BMA an "Amended Reinsurance Cession".
ARTICLE IV
PLANS OF REINSURANCE
1. Life reinsurance shall be ceded on the basis stated in Schedule A.
2. Copies of all life insurance policies, riders, rate manuals, benefit
forms, commuted value tables and cash value tables shall be provided by
the CEDING COMPANY to BMA, and BMA shall be promptly notified of any
changes therein.
ARTICLE V
REINSURANCE PREMIUMS
1. Life Reinsurance Premiums
A. Life Reinsurance Premiums Paid on a Coinsurance Basis
The CEDING COMPANY shall pay the current premium as shown in Exhibit
II based on the amount of life insurance reinsured, less the
allowance stated in Exhibit III. In addition, the CEDING COMPANY
shall pay any substandard table extra and flat extra premiums, but
shall exclude the policy fee. In the event the current premium is
changed, BMA shall be notified by the CEDING COMPANY immediately.
5
<PAGE> 9
B. Life Reinsurance Premiums on a Yearly Renewable Term Basis
The life reinsurance premium on the net amount at risk shall be based
on rates shown in Exhibit II.
For those premiums less than the net premium rate or rates based on
the 1980 Smoker/Nonsmoker CSO Table at 4 1/2% interest, only the
latter rate or rates shall be guaranteed. Should BMA increase the
reinsurance premiums to the 1980 Smoker/Nonsmoker CSO Table at 4 1/2%
interest, then the CEDING COMPANY shall have the right to immediately
recapture any business affected by that change.
ARTICLE VI
PREMIUM ACCOUNTING
1. Payment of Reinsurance Premium.
A. The reinsurance premiums shall be paid to BMA using the rates shown
in Exhibit II.
B. On issues ceded by individual cessions BMA shall send the CEDING
COMPANY each month two copies of a statement listing first year and
renewal reinsurance premiums less refunds and allowances which are
due during the current month.
C. On self-administered business the CEDING COMPANY shall provide the
statement to BMA using the format described in Article III Self-
Administered Business.
D. If a net reinsurance premium balance is payable to BMA the CEDING
COMPANY shall pay this balance within forty-five (45) days after the
close of that month. If the full balance is not received within the
forty-five (45) day period, the reinsurance premiums for reinsurance
risks listed on the statement, for which payment was not received,
shall be delinquent and the liability of BMA shall cease as of the
date reinsurance premium were due.
E. If a net reinsurance premium balance is payable to the CEDING
COMPANY, BMA shall pay this net balance within forty-five (45) days
after the monthly statement was sent to the CEDING COMPANY. If the
monthly statement has not been returned within forty-five (45) days,
BMA shall assume the CEDING COMPANY has verified and is in agreement
with the net balance and shall make payment to the CEDING COMPANY.
2. Currency.
The reinsurance premiums and benefits payable under this Agreement shall be
payable in the lawful money of the United States or Canada.
6
<PAGE> 10
ARTICLE VII
OVERSIGHTS
1. If there is an unintentional oversight or clerical error in the
administration of this Agreement by either the CEDING COMPANY or BMA, it
can be corrected provided the correction takes place promptly after the
time the oversight or clerical error is first discovered. In that event,
the CEDING COMPANY and BMA will be restored to the position they would
have occupied had such oversight or clerical error not occurred.
ARTICLE VIII
REDUCTIONS, TERMINATIONS AND CHANGES
1. A. If in accordance with policy provisions the original policy
is converted to permanent life insurance, the life risk under the
converted policy which exceeds the amount of risk originally
retained by the CEDING COMPANY shall continue to be reinsured with
BMA.
B. If there is a replacement where full underwriting evidence is not
required according to the CEDING COMPANY regular underwriting rules,
the life risk which exceeds the amount of risk originally retained by
the CEDING COMPANY shall continue to be reinsured with BMA-
C. If there is a replacement where full underwriting evidence is
required by the CEDING COMPANY, reinsurance may be ceded to BMA
subject to a written agreement between BMA and the CEDING COMPANY.
2. If the amount of insurance under a policy or rider reinsured under this
Agreement increases and
A. The increase is subject to new underwriting evidence, the provisions
of Article I shall apply to the increase in reinsurance.
B. The increase is not subject to new underwriting evidence, BMA shall
accept automatically the increase in reinsurance but not to exceed
the automatic binding limit as stated in Schedule A.
3. If the amount of insurance under a policy or rider reinsured under this
Agreement is increased or reduced, any increase or reduction in
reinsurance for the risk involved shall be effective on the effective date
of the increase or reduction in the amount of insurance.
4. If any portion of the prior insurance retained by the CEDING COMPANY
on an individual life reduces of terminates, any reinsurance under
this Agreement based on the same life shall also be reduced or
terminated. The CEDING COMPANY shall reduce its reinsurance by
applying the retention limits which were in effect at the time the
policy was issued. The "reinsurance adjustment due to lapse or
reduction of previous insurance" shall be effective on the same date
as the lapse or reduction of prior insurance. The reinsurance to be
terminated or reduced shall be determined in chronological order by
the date the risk was first reinsured. Two or more policies issued
the same date shall be considered one policy.
7
<PAGE> 11
5. If the insurance for a risk is shared by more than one reinsurer, BMA's
percentage of the increased or reduced reinsurance shall be the same as
BMA's percentage of initial reinsurance of the individual risk.
6. If a risk reinsured under this Agreement is terminated, the reinsurance
for that risk shall be terminated as of the effective date of the
termination.
7. For facultative reinsurance, if the CEDING COMPANY reduces the mortality
rating, the reduction shall be subject to the facultative provisions of
this Agreement as stated in Article I, Section 2.
8. BMA shall refund all unearned reinsurance premiums not including policy
fees, less applicable allowances, arising from reductions, terminations
and changes as described in this Article.
ARTICLE IX
INCREASE IN RETENTION
AND RECAPTURES
1. If the CEDING COMPANY changes its retention limits, as listed in Exhibit
I, prompt written notice of the change shall be provided to BMA.
2. The CEDING COMPANY shall have the option of recapturing the reinsurance
under this Agreement in the event the CEDING COMPANY increases its
retention limit and the policies have been in force the required length of
time as stated in Schedule A. The CEDING COMPANY may exercise its option
to recapture by giving written notice to BMA within ninety (90) days after
the effective date of the increase in retention. If the recapture option
is not exercised within ninety days (90) days after the effective date of
the increase in retention the CEDING COMPANY may choose to recapture at a
later date. In that case, the date of the written notification to BMA
shall determine the effective date the recapture program shall begin.
3. If the CEDING COMPANY exercises its option to recapture, then:
A. The CEDING COMPANY shall reduce the reinsurance on all individual
risks on which it retained its maximum retention for the age and
mortality rating that was in effect at the time the reinsurance was
ceded.
B. The CEDING COMPANY shall increase its total amount of insurance on
the individual risk up to its new retention by reducing the amount of
reinsurance. If an individual risk is shared by more than one
reinsurer, BMA's percentage of the reduced reinsurance shall be the
same as BMA's initial percentage of reinsurance on the individual
risk.
8
<PAGE> 12
C. The reduction of reinsurance shall become effective on the later of the
following dates:
(1) The policy anniversary date immediately following the date the
recapture program is to begin as determined by paragraph 2. of
this Article;
(2) The number of years stated in Schedule A starting with the
"policy date."
D. In the event the CEDING COMPANY overlooks any reduction in the amount
of a reinsurance policy because of an increase in the CEDING
COMPANY's retention, the acceptance by BMA of reinsurance premiums
under these circumstances shall not constitute a liability on the
part of BMA for such reinsurance. BMA shall be liable only for a
refund of premiums.
4. No recapture shall be permitted for reinsurance on an individual risk if
(a) the CEDING COMPANY retained less than its maximum retention for the
age and mortality rating in effect at the time the reinsurance was ceded
to BMA, or if (b) the CEDING COMPANY did not retain any of the individual
risk.
ARTICLE X
REINSTATEMENT
1. If a policy reinsured under this Agreement lapses for nonpayment of
premium or is continued on the Reduced Paid-up or Extended Term Insurance
basis, and is reinstated in accordance with the terms of the policy and
the CEDING COMPANY's rules, the reinsurance on such policy shall
automatically be reinstated by BMA upon written notice of such
reinstatement. The CEDING COMPANY shall pay BMA all back reinsurance
premiums.
ARTICLE XI
EXPENSE OF ORIGINAL POLICY
The CEDING COMPANY shall bear the expense of all medical examinations,
inspection fees, and other charges in connection with the issuance of the
insurance.
ARTICLE XII
CLAIMS
1. The CEDING COMPANY shall give BMA prompt notice of any claim. Copies of
the proofs obtained by the CEDING COMPANY together with a statement
showing the amount due or paid on such claim by the CEDING COMPANY shall
be furnished to BMA. at the time payment is requested.
9
<PAGE> 13
2. BMA shall accept the decision of the CEDING COMPANY in settling the claim
and shall pay its portion to the CEDING COMPANY upon receipt of proof that
the CEDING COMPANY has paid the claimant. It is agreed, however, that if a
lesser amount at risk is retained by the CEDING COMPANY than the amount
ceded to BMA, the CEDING COMPANY shall consult with BMA concerning its
investigation and/or payment of the claim, although the final decision
shall be that of the CEDING COMPANY.
3. The CEDING COMPANY shall notify BMA of its intention to contest,
compromise, or litigate a claim involving reinsurance, and BMA shall pay
its share of the payment and specific claim expenses therein involved.
"Claim expenses" shall be deemed to mean only the reasonable legal and
investigative expenses connected with the litigation or settlement of
claims. "Claim expenses" shall not include expenses incurred in connection
with a dispute or contest arising out of conflicting claims of entitlement
to policy proceeds which the CEDING COMPANY admits are payable or any
routine claim administrative expenses including compensation of salaried
officers and employees of the CEDING COMPANY and any possible
extracontractual damages.
4. In the event the amount of insurance provided by a policy or policies
reinsured hereunder is increased or reduced because of a misstatement of
age or sex established after the death of the insured, BMA shall share in
the increase or reduction in the proportion that the net liability of BMA
bore to the sum of the retained net liability of the CEDING COMPANY and
the net liability of other reinsurers immediately prior to such increase
or reduction. The reinsurance with BMA shall be written from commencement
on the basis of the adjusted amounts using premiums and reserves at the
correct ages and sex. The adjustment for the difference in premiums shall
be made without interest.
5. It is understood and agreed that the payment of a death claim by BMA shall
be made in one sum regardless of the mode of settlement under the policy
of the CEDING COMPANY.
6. In no event shall BMA have any liability for any Extra-Contractual damages
which are assessed against the CEDING COMPANY as a result of acts,
omissions or course of conduct committed by the CEDING COMPANY or its
agents, other than a good faith decision to deny claim liability, in
connection with insurance reinsured under this Agreement. It is recognized
that there may be special circumstances involved which indicate that BMA
should participate in certain assessed damages. These circumstances are
not amenable to advance specific definition, but could include those
situations in which BMA was an active party in the act, omission or course
of conduct which ultimately results in the assessment of such damages. The
extent of such participation will be determined on a good faith assessment
of culpability in each case, but all factors being equal, the division of
any such assessment will generally be in the proportion of net liability
borne by each party.
7. If a claim is approved for disability waiver of premium insurance
reinsured under this Agreement, the CEDING COMPANY shall continue to pay
reinsurance premiums to BMA. BMA shall reimburse the CEDING COMPANY BMA's
share of the annual liability.
ARTICLE XIII
TAX CREDITS
In jurisdictions which impose premium taxes on the CEDING COMPANY without
deduction for reinsurance, BMA shall reimburse the CEDING COMPANY for taxes
paid on the amount of the reinsurance premiums on the basis shown in Schedule A,
unless BMA itself is required to pay a direct tax on such reinsurance premiums.
10
<PAGE> 14
ARTICLE XIV
INSPECTION OF RECORDS
BMA shall have the right, at any reasonable time, to inspect at the office of
the CEDING COMPANY, all books and documents which relate to reinsurance under
this Agreement.
ARTICLE XV
INSOLVENCY
1. In the event of insolvency of the CEDING COMPANY, all reinsurance shall be
payable by BMA directly to the CEDING COMPANY or its liquidator, receiver,
or statutory successor, on the basis of the liability of the CEDING
COMPANY under the policy or policies reinsured, without diminution because
of the insolvency of the CEDING COMPANY.
2. It is agreed that the liquidator, receiver, or statutory successor of the
insolvent CEDING COMPANY shall give written notice to BMA of the pending
of a claim against the insolvent CEDING COMPANY on any policy reinsured
within a reasonable time after such claim is filed in the insolvency
proceedings. During the pendency of any such claim BMA may investigate
such claim and interpose, in the proceeding where such claim is to be
adjudicated, any defense or defenses which BMA may deem available to the
CEDING COMPANY or its liquidator, receiver, or statutory successor. The
expense thus incurred by BMA shall be chargeable, subject to court
approval, against the insolvent CEDING COMPANY as part of the expense of
liquidation to the extent of a proportionate share of the benefit which
may accrue to the CEDING COMPANY solely as a result of the defense
undertaken by BMA.
3. Where two or more reinsurers are participating in the same claim and a
majority in interest elect to interpose a defense to such claim, the
expense shall be apportioned in accordance with the terms of the Agreement
as though such expenses had been incurred by the CEDING COMPANY.
4. Any debts or credits, matured or unmatured, liquidated or unliquidated, in
favor of or against either the CEDING COMPANY or BMA with respect to this
agreement or with respect to any other claim of one party against the
other are deemed mutual debts or credits, as the case may be, and shall be
set off, and only the balance shall be allowed or paid.
11
<PAGE> 15
ARTICLE XVI
ARBITRATION
1. It is the intention of the CEDING COMPANY and BMA that the customs and
practices of the insurance and reinsurance industry shall be given full
effect in the operation and interpretation of this Agreement. The parties
agree to act in all things with the highest good faith. However, if BMA
and the CEDING COMPANY cannot mutually resolve a dispute or claim which
arises out of or relates to this agreement, the dispute or claim shall be
settled through arbitration.
2. The arbitrators shall be impartial regarding the dispute, and shall base
their decision on the terms and conditions of this agreement plus, as
necessary, on the customs and practices of the insurance and reinsurance
industry.
3. There shall be three arbitrators who must be officers of life insurance
companies other than the parties to this agreement. Each of the parties to
this agreement shall appoint one of the arbitrators and these two
arbitrators shall select the third. If a party to this agreement fails to
appoint an arbitrator within thirty days after the other party to this
agreement has given notice of the arbitrator appointment, the American
Arbitration Association shall appoint an arbitrator for the party to this
Agreement that has failed to do so. Should the two arbitrators be unable
to agree on the choice of the third, then the appointment of this
arbitrator is left to the American Arbitration Association.
4. Except for the appointment of arbitrators in accordance with the
provisions of Section 3 of this Article, arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association which are in effect on the date of delivery of
demand for arbitration. Arbitration shall be conducted in Kansas City,
Missouri.
5. Each party to this agreement shall pay part of the arbitration expenses
which are apportioned to it by the arbitrators.
6. The award agreed by the arbitrators shall be final, and judgment may be
entered upon it in any court having jurisdiction.
ARTICLE XVII
PARTIES TO AGREEMENT
This is an Agreement for indemnity reinsurance solely between the CEDING COMPANY
and BMA. The acceptance of reinsurance under this Agreement shall not
create any right or legal relation whatever between BMA and the insured, owner,
or any other party to or under any policy reinsured under this Agreement.
12
<PAGE> 16
ARTICLE XVIII
TERMINATION OF AGREEMENT
1. This Agreement may be terminated at any time by either party giving at
least ninety (90) days written notice of termination. The day the notice
is deposited in the mail addressed to the Home Office, or to an Officer of
either company shall be the first day of the ninety-day (90) period.
2. The CEDING COMPANY shall continue to cede reinsurance and BMA shall
continue to accept reinsurance, as provided for by the terms of this
Agreement, until the date of termination.
3. All automatic reinsurance which became effective prior to the termination
of this Agreement and all facultative reinsurance approved by BMA based
upon applications received prior to termination of this Agreement shall
remain in effect until its termination or expiration, unless the CEDING
COMPANY and BMA mutually decide otherwise.
13
<PAGE> 17
IN WITNESS WHEREOF, this agreement shall be effective with policies dated 12:01
A.M. January 1, 1993 and is hereby executed in duplicate between
SAFECO LIFE INSURANCE COMPANY
Seattle, Washington
referred to as the CEDING COMPANY
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
referred to as BMA,
and duly signed by both parties' respective officers as follows:
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
CEDING COMPANY
/s/ [Signature Illegible] Actuary 1-25-93
_____________________________ _________________________
Signature Title
/s/ Dale Johnson Asst. Vice Pres.
_____________________________ _________________________
Signature Title
Jan. 26, 1993
______________________
date
BMA
/s/ [Signature illegible]
_____________________________ Managing Director/Reinsurance
signature title
/s/ W.M. Couch Reinsurance
_____________________________ Administrative Vice President
signature title
February 2, 1993
_____________________________
date
<PAGE> 18
SCHEDULE A
SPECIFICATIONS
1. TYPE OF BUSINESS:
Life insurance issued by the CEDING COMPANY
2. TYPE OF REPORTING
Self-administered
3. PLANS OF INSURANCE:
Single life plans
4. BASIS OF REINSURANCE: Automatic Yearly Renewable Term
SURNAME ALPHABETIC DIVISION: A-Z
25% Quota share
5. JUMBO LIMIT:
A. Life: $20,000,000
B. Accidental Death: $300,000
6. BINDING LIMIT:
A. Life: Two (2) times the retention of the CEDING COMPANY
B. Waiver of Premium or Monthly Cost of Insurance: Amounts
equal to but not exceeding the premiums payable to the
CEDING COMPANY for the amount of life insurance ceded to
BMA.
C. Accidental Death: $200,000
7. YEARS TO RECAPTURE:
Ten (10) years
8. PREMIUM TAX REIMBURSEMENT:
Premium taxes reimbursed based on reinsurance premiums received.
<PAGE> 19
SCHEDULE B
The following benefits are reinsured under this agreement:
1. LIFE
A. Single Life Plans - The net amount at risk shall be provided by
the CEDING COMPANY on the self-administered reports.
2. WAIVER OF PREMIUM OR MONTHLY COST OF INSURANCE
Reinsurance premiums in the first year is zero. Renewal reinsurance
premiums to BMA are 90% of the gross disability premium charged the
insured by the CEDING COMPANY on the initial amount reinsured for
waiver of premium and the amount reinsured for monthly cost of
insurance.
3. ACCIDENTAL DEATH
Reinsurance premium in the first year is zero. Renewal premiums are
90% of the premium charged the insured by the CEDING COMPANY on the
initial amount reinsured.
<PAGE> 20
SCHEDULE C
ADDITIONAL INFORMATION
1. This agreement includes coverage for conditional receipt liability
for facultative cases sent to BMA In no event shall BMA's
conditional receipt liability exceed $750,000.00 or the automatic
binding limit specified in Schedule A, whichever is less.
BMA's conditional receipt liability shall begin simultaneously with
the CEDING COMPANY's liability and shall cease upon:
A. BMA's declination of the risk, or
B. The first acceptance by the CEDING COMPANY of an unconditional
offer by a reinsurer other than BMA, or
C. The expiration of 120 days from the date BMA's facultative
offer is communicated to the CEDING COMPANY.
2. This agreement includes coverage for a Guaranteed Insurability
Option Rider using the rates shown in Schedule 1.
3. BMA will accept individual cessions up to $10,000,000 on the
premium schedules marked Exhibit II and III; reinsurance rates
marked Exhibit IV will apply to amounts in excess of $10,000,000.
4. Reinsurance premiums are based on a percentage applied to BMA's ALB
rates.
5. There arc no policy fees paid to BMA under this agreement.
6. Term riders reinsured shall be charged the same rate as the base
plan.
EXCEPTIONS
1. Article III, Administrative Reporting,
All reporting will be furnished to BMA on a quarterly basis.
<PAGE> 21
EXHIBIT I
RETENTION SCHEDULE
CEDING COMPANY: SAFECO LIFE INSURANCE COMPANY
CEDING COMPANY'S MAXIMUM LIMITS OF RETENTION - MALE AND FEMALE
EFFECTIVE WITH POLICIES DATED:
LIFE
Please be sure to show your limit of retention for all ages and all rate
classifications. Show "none" in all categories where you have no retention.
<TABLE>
<CAPTION>
SUBSTANDARD SUBSTANDARD SUBSTANDARD
ISSUE TABLE FLAT EXTRA TABLE FLAT EXTRA TABLE FLAT EXTRA
AGES STANDARD All
<S> <C> <C> <C> <C>
All* $500,000 $500,000
</TABLE>
*Ages 0-80
DISABILITY
Is your Disability (Waiver of Premium, Waiver of Monthly Deduction) retention
the same as Life? No
----
If not, explain. U.L. PLANS: REINSURED IN PROPORTION TO BASE COVERAGE REINSURED.
NON U.L. PLANS: (THESE ARE PRIMARILY TERM): RETENTION OF
$10,000 ANNUAL PREMIUM.
Do you have a separate retention for Payor Benefit issued in connection with
children's policies, based on commuted amount of premium? No If so, what is
the commuted amount retention? ----
----
ACCIDENTAL DEATH (ADB)
$ 250,000 (maximum issue: lesser of: $250,000 or 3 times base)
Does your ADB retention apply to any ADB rate classification assigned? No
----
Is ADB retention in addition to Life amount above? No
----
<PAGE> 22
EXHIBIT IA
UNDERWRITING GUIDELINES
Principle Underwriting Manual NARe'S
SAFECO LIFE MEDICAL REQUIREMENTS
<TABLE>
<CAPTION>
*AGES 0-34 AGES 35-45 AGES 46-50 AGES 51-60 AGES 61-70 AGES 71-80
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
**Amounts Non-Med Non-Med Non-Med Paramed-I Paramed-II MD Exam
0-50,000 EKG
SMA-HORL
50,001- Non-Med Non-Med Paramed-I Paramed-I Paramed-II MD Exam
99,999 EKG
SMA-HORL
100,000- Paramed-I Paramed-I Paramed-I Paramed-I Paramed-II MD Exam
249,999 MP-HORL MP-HORL MP-HORL MP-HORL MP-HORL EKG
SMA-HORL
250,000- Paramed-I Paramed-I Paramed-II Paramed-II MD-Exam MD Exam
499,999 MP-HORL MP-HORL MP-HORL MP-HORL EKG EKG
SMA-HORL SMA-HORL
500,000- Paramed-I Paramed-II Paramed-II MD Exam MD Exam MD Exam
1,000,000 SMA-HORL SMA-HORL SMA-HORL EKG XKG EKG
SMA-HORL SMA-HORL SMA-HORL
1,000,001- MD Exam MD Exam MD Exam MD Exam MD Exam MD Exam
2,000,000 SMA-HORL EKG EKG XKG XKG EKG
SMA-HORL SMA-HORL SMA-HORL SMA-HORL SMA-HORL
X-Ray
***Over MD Exam MD Exam MD Exam MD Exam MD Exam MD Exam
2,000,000 EKG XKG XKG XKG XKG EKG
SMA-HORL SMA-HORL SMA-HORL SMA-HORL SMA-HORL SMA-HORL
SMKR: X-Ray SMKR: X-Ray SMKR: X-Ray X-Ray
</TABLE>
NOTE: HOS-HORL required with every exam or blood test.
*NON-MEDICAL: AGES 0-15 ARE NON-MEDICAL THROUGH $249,999. ENTER CHART AT
$250,000 and up.
**If GIO is applied for, include amount of first GIO option in arriving at the
exam requirements.
***A chest X-Ray is required for amounts $5 million and up, all ages, smokers
and non-smokers.
SEE REVERSE SIDE FOR LIST OF APPOINTED PARAMEDICAL COMPANIES AND INSTRUCTIONS
FOR ORDERING MEDICAL REQUIREMENTS.
Effective June 15, 1992
<PAGE> 23
EXHIBIT IIA
FLAT EXTRA PREMIUMS
PERMANENT EXTRAS (for more than Five Years)
Reinsurance premium in the first year are zero. In renewal years,
it is 80% of the flat extra premium charged the insured by the
CEDING COMPANY, multiplied by the initial amount ceded. (For cost
of insurance plans use net amount at risk)
TEMPORARY EXTRA (for Five Years or Less)
Reinsurance premium is 80% of the flat extra premium charged the
insured by the CEDING COMPANY in first and renewal years,
multiplied by the initial amount ceded. (For cost of insurance
plans, use net amount at risk)
SUBSTANDARD PREMIUMS
Substandard premiums are increased standard premiums 25% per Table.
<PAGE> 24
ADDENDUM
to the Automatic Umbrella Reinsurance Agreement
covering Single life plans
dated January 1, 1993
between
SAFECO LIFE INSURANCE COMPANY
Seattle, Washington
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter called the BMA)
Purpose: To include BMA's second excess automatic coverage on the
Variable Universal Life plan.
1. BMA shall accept two times the retention of the CEDING
COMPANY (25% of the maximum $4,000,000 pool) of the
second excess coverage for the Variable Universal Life
plan. BMA will not participate in the first excess (30%
of the issue amount) up to the maximum of first excess
participation ($214,000). When the insurance amount
exceeds the CEDING COMPANY's retention and the first
excess limits, BMA will accept 25% of the second excess
reinsurance.
2. THE EFFECTIVE DATE shall be January 1, 1993.
Except as herein amended, the provisions of the said Reinsurance Agreement shall
remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
CEDING COMPANY Actuary
/s/ [Signature Illegible] 1-25-93
_______________________________ ___________________
signature title
/s/ Dale Johnson Asst. Vice President
_______________________________ ____________________
signature title
Jan. 26, 1993
________________________
date
<PAGE> 1
EXHIBIT A (9) (b)
Servicing Agreement
<PAGE> 2
SERVICE AGREEMENT
AGREEMENT made as of the 9th day of September, 1994, by and between SAFECO
Life Insurance Company ("the Customer"), having its principal office and place
of business at 15411 Northeast 51st Street, Redmond, Washington 98052, and
Financial Administrative Services, Inc. ("FAS"), having its principal office and
place of business at 95 Bridge St., Haddam, Connecticut 06438.
WHEREAS, Customer desires to appoint FAS as Record Keeping Service Agent for
Customer's insurance policies ("the Policies"), and FAS desires to accept such
appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
SECTION 1 Terms of Appointment
1.01 Subject to the provisions set forth in this Agreement, Customer hereby
appoints FAS as Recordkeeping Service Agent for the Policies. The Policies
subject to this Agreement are described in Exhibit A.
1.02 FAS hereby accepts such appointment and agrees that on and after the
effective date of its appointment it will act as Customer's Recordkeeping
Service Agent for the Policies.
1.03 FAS agrees to provide the necessary facilities, equipment, and personnel to
perform its duties and obligations hereunder in accordance with industry
practice, such facilities being referred to hereinafter as the "FAS Facilities"
and such systems being referred to hereinafter as the "FAS System".
1.04 FAS agrees that it will perform, at the direction of the Customer, those
Recordkeeping Service Agent Functions as set forth in Schedule A, Schedule B,
Schedule C, Schedule D, Schedule E and Schedule F of SAFECO's FAS Operations
Manual (the "Operations Manual"), which was in effect on the effective date of
this Agreement and which shall be considered a part of this Agreement.
1.05 FAS shall modify its systems and procedures to comply with any applicable
federal or state statute, law, or regulation pertaining to the administration
and servicing of the Customer's product(s) under this Agreement, within a
reasonable time of receiving written law or regulation from Customer, unless
such statute, law or regulation substantially increases the obligations of FAS,
in which case, FAS reserves the right to terminate this Agreement in accordance
with Section 9.02. Such termination may occur in the initial and in subsequent
terms of this Agreement.
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<PAGE> 3
SECTION 2 Term
2.01 Subject to termination as hereinafter provided, this Agreement shall remain
in force and effect for an initial term of three (3) years. This Agreement shall
continue in force and effect from year to year thereafter until terminated as
herein provided, each such additional year being an additional term of this
Agreement.
2.02 In the event that this Agreement is terminated, regardless of the reason
for such termination, FAS shall cooperate with Customer and use its best efforts
to effect an orderly transfer of administration as rapidly and smoothly as
possible and shall provide all necessary staff, services and assistance required
subject to reimbursement of FAS for such assistance at its standard rates and
fees as defined in this Agreement.
SECTION 3 Fees and Expenses
3.01 During the initial term of the Agreement, Customer shall pay FAS within
thirty (30) days of receipt of FAS' statement, the fees and charges in the
amounts as set out in Exhibit B annexed hereto and made a part hereof.
3.02 Customer shall also reimburse FAS for all reasonable out-of-pocket expenses
incurred by FAS in the performance of this Agreement; FAS hereby agrees that the
expenses referred to in this section shall be only those charges directly
incurred by FAS as referred to in Exhibit B or those other expenses authorized
by Customer.
3.03 For each additional term of this Agreement, FAS shall be entitled to
receive such fees and charges as shall be agreed upon by the parties prior to
commencement of each term, pursuant to Section 9.03 hereof.
3.04 In no event will any fee under Paragraph 3.03 above exceed the like fee
during the previous term of this Agreement by more than fifteen percent (15%).
3.05 Payment terms hereunder are net thirty (30) days with interest at one and
one-half percent (1 1/2%) per month, but in no event more than the highest
interest rate allowable by law assessed on all amounts owing more than thirty
(30) days.
2
<PAGE> 4
SECTION 4 Representations and Warranties of FAS
FAS represents and warrants to Customer as follows:
4.01 It is a corporation duly organized and existing and in good standing under
the laws of the State of Connecticut.
4.02 It is empowered under applicable laws and by its charter and bylaws to
enter into and perform the services contemplated in this Agreement.
4.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform the services contemplated in this Agreement.
4.04 It has, and will continue to have and maintain, the necessary facilities,
equipment, licenses, and personnel to perform its duties and obligations under
this Agreement.
4.05 To the best of FAS' knowledge based on due inquiry, FAS represents and
warrants that neither FAS, its affiliates which are involved in providing any of
the services provided pursuant to this Agreement nor any person employed in any
material connection with respect to the services provided pursuant to this
Agreement:
(a) within the last ten (10) years has been convicted of any
felony or misdemeanor arising out of conduct involving
embezzlement, fraudulent conversion, or misappropriation of
funds or securities, or involving violations of Sections 1341,
1342, or 1343 of Title 18, United States Code; or
(b) within the last ten (10) years has been found by any state
regulatory authority to have violated or has acknowledged
violation of any provision of any state insurance law
involving fraud, deceit or knowing misrepresentation; or
(c) within the last ten (10) years has been found by any federal
or state regulatory authorities to have violated or have
acknowledged violation of any provision of federal or state
securities laws involving fraud, deceit or knowing
misrepresentation.
4.06 To the best of FAS' knowledge and ability, FAS has complied with and will
continue to comply with, all laws and regulations.
SECTION 5 Representations and Warranties of Customer
Customer represents and warrants to FAS as follows:
3
<PAGE> 5
5.01 It is a corporation duly organized and existing and in good standing under
the laws of the State of Washington.
5.02 It is empowered under the applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.
5.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
5.04 All of the Prospectuses, Policies, and other forms provided by Customer
shall have been approved by all required regulatory agencies and shall be in
compliance with all state, and local laws and regulations.
5.05 Customer has complied with, and will continue to comply with, all laws and
it has and will continue to make, all required filings with regulatory agencies
in connection with the offer, sale, or administration of the Policies.
SECTION 6 Liability
6.01 FAS shall not be responsible for, and Customer shall indemnify and hold FAS
harmless from and against, any and all costs, expenses, losses, damages,
charges, counsel fees, payments and liability, which may be asserted against FAS
or for which it may be held liable, to the extent arising out of or attributable
to:
a) Customer's willful refusal or failure to comply with the terms
of this Agreement, or which arise out of Customer's
negligence, mistake or willful misconduct or which arise out
of the breach of any representation, or warranty of Customer
hereunder;
b) FAS' reliance on, or use of, information, rate books, cash
value and reserve factors, data records and/or documents
received by FAS from the Customer;
c) FAS's reliance on, or acts of good faith based on, any
instructions or requests made by any persons listed on a
"Schedule of Authorized Personnel" to be furnished to FAS by
the Customer upon execution of this Agreement and attached as
Exhibit C, and as amended from time to time in writing by the
Customer.
6.02 FAS shall be responsible for and shall indemnify and hold Customer harmless
from and against any and all direct losses, damages, costs, charges, counsel
fees, payments, expenses and liability, to the extent arising out of or
attributable to FAS'
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<PAGE> 6
willful refusal or failure to comply with the terms of this Agreement, or which
arise out of FAS, negligence, or willful misconduct or which arise out of the
breach of any representation, or warranty of FAS hereunder.
6.03 In the event FAS is unable to perform its obligations under the terms of
this Agreement because of strikes, equipment or transmission failure or damage,
or other causes beyond its control, FAS will not be liable for any damages
resulting from such causes. FAS shall use reasonable care to minimize the
likelihood of any damage, loss of data, delays or errors resulting from the
uncontrollable event and, in the event such damage, loss of data, delays or
errors occur, FAS shall use its best efforts to mitigate the effect of such
occurrence.
6.04 At any time FAS may apply to a person indicated in Exhibit C as a person
authorized to give instructions under this section with respect to any matter
arising in connection with this Agreement. FAS shall not be liable for, and
shall be indemnified by Customer against, any action taken or omitted by FAS in
good faith in reliance upon such instructions.
6.05 The Customer shall immediately provide FAS with written notice of any
change of authority of persons authorized and enumerated in Exhibit C to provide
FAS with instructions or directions relating to services to be performed by FAS
under this Agreement.
6.06 In the event malfunction of the FAS System or other business process causes
an error or mistake in any record, report, data, information or output under the
terms of this Agreement, FAS shall upon discovery of this event notify the
Customer in writing and at FAS' expense correct and reprocess such records.
6.07 In the event malfunction of the FAS System causes an error or mistake in
any record, report, data, information or output under the terms of the
Agreement, if Customer discovers an error or mistake, the Customer shall
promptly notify FAS in writing.
6.08 In the event of a mistake caused by FAS, relating to the services performed
by FAS under this Agreement, as described in Section 1.04, FAS shall upon
discovery of this event notify the Customer in writing and at FAS's expense
correct such systems and records. If the parties to this Agreement cannot
mutually agree on an appropriate resolution of this mistake, Section 9.06 will
apply.
6.09 FAS has received the software being used to perform its obligations to
Customer under this Agreement from Integrity Life through The Leverage Group on
an as is basis. SAFECO will hold FAS harmless from any inadequacies, problems
and non-performance created by Integrity Life with respect to such software as
received by FAS. Programming and or administrative corrections to such
5
<PAGE> 7
inadequacies, problems and non-performance will be regarded as customized
modifications which are billable to the Customer as expressed in Exhibit B.
SECTION 7 Covenants of Customer and FAS
7.01 FAS shall keep safe the following items, and establish and maintain
facilities and procedures for the safekeeping of: policy forms; check forms and
facsimile signature imprinting devices, if any; and all other documents,
reports, records, books, files and other materials relative to this Agreement,
as set forth in Schedule E of the Operations Manual referenced in Section 1.04
above.
7.02 Upon reasonable notice to FAS, Customer shall have access, during ordinary
business hours, to all documents, records, reports, books, files, and other
materials relative to this Agreement and maintained by FAS, subject to the
reasonable security concerns of FAS.
7.03 It is expressly understood and agreed that all documents, reports, records,
books, files and other materials relative to this Agreement shall be the sole
property of Customer and that such property shall be held by FAS as agent,
during the continuance of the Agreement.
7.04 FAS shall maintain appropriate backup computer files according to the terms
of the FAS back up procedures in the FAS Disaster Recovery Plan. The purpose of
these files is to permit file recovery in the event of destruction of normal
processing files. FAS shall maintain appropriate back up copies as outlined in
the Operations Manual referenced in Section 1.04 above. Customer may review the
procedures in effect upon demand.
7.05 Customer shall in a timely fashion, provide FAS with all information
necessary for the timely and proper administration of the policies subject to
the Agreement as listed in Exhibit A, including information related to changes
in applicable laws and regulations pertaining to the administration and
servicing of the Customer's product(s) under this Agreement. This includes, but
is not limited to: policy forms; a list of all states of license; agents and
representatives authorized to sell Customer's policies; rate books; cash value
and reserve factors; data records; actuarial support; mortality rates; and
verified client files or facsimile, such as microfilm or microfiche.
7.06 All information furnished to FAS by the Customer, its policyholders and all
other parties in interest regarding the Policies is confidential and FAS shall
not disclose such information, directly or indirectly, to any third party except
to
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<PAGE> 8
the extent that FAS is required by law to make such disclosure; nor shall FAS
use any such information for any purpose other than to Customer's benefit or to
perform its obligations under the Agreement.
7.07 The Customer acknowledges that FAS has proprietary rights in and to the FAS
System and that the FAS System constitutes confidential material and trade
secrets of FAS; and it agrees to maintain the confidentiality of the FAS System,
except to the extent that Customer is required by law to make such disclosure.
7.08 The Customer acknowledges that this agreement in no way gives the Customer
any rights in, and/or to the Systems and/or Facilities used by FAS in
performance of its duties hereunder.
7.09 All premium, loan repayments and other receipts are directed to a Customer
owned lock box for deposit in a Customer owned account. In the event that any
monies are inadvertently received by FAS, FAS shall hold such monies in trust on
Customer's behalf. The documents accompanying the payment will be date stamped
by FAS (to insure proper interest or investment effective date) and forwarded on
the day of receipt with the payment to the lock box for processing in the
standard manner. In no event will FAS deposit any funds in any account other
than the aforementioned Customer owned account.
7.10 The Customer acknowledges its responsibility to provide actuarial support
for policy and agent administration and financial reporting as referenced in
Schedule B of the Operations Manual.
7.11 If either party is required to produce any information by order of any
government agency or other regulatory body, it may, upon not less than ten (10)
days after written notice to the other party, release the required information,
unless compelled by statute, regulatory requirements, or Court order to release
the information sooner. This provision shall apply whether or not the required
information is confidential or proprietary.
7.12 FAS shall maintain a general liability policy or policies under which FAS
is a named insured in an amount of not less than $1,000,000 and which covers
FAS' performance of services under this Agreement and provide proof of such
insurance to Customer at least annually.
7.13 FAS shall maintain an errors and omissions policy or policies under which
FAS is named insured in an amount of not less than $1,000,000 and which covers
FAS' performance of services under this Agreement and provide proof of such
insurance to Customer at least annually.
7.14 FAS shall maintain a fidelity bond or bonds under its parent company policy
under which FAS is covered in an amount not less
7
<PAGE> 9
than $10,000,000 which covers the acts of FAS' directors, officers, employees
and agents in connection with the performance of services under this Agreement
and provide proof of such bond or bonds to Customer at least annually.
SECTION 8 Computer Access
8.01 Provided both parties hereto have authorized such access by signing in the
space therefor on the signature page hereof, and subject to the terms and
conditions set forth below, Customer shall be entitled to obtain access on a
"view only" basis to all data relating to the Policies (the "Information") which
is maintained on the computer(s) utilized by or on behalf of FAS in providing
the services it provides to Customer pursuant to the Agreement ("System
Access").
8.02 Customer's access to such data shall be on Mondays through Fridays,
exclusive of holidays, between the hours of 8 a.m. and 5 p.m., Hartford,
Connecticut time. FAS retains the right, however, to limit or otherwise change
those hours at any time and for any reason without prior notice to Customer.
Furthermore, FAS makes no representations or warranties as to the ability of
Customer to successfully utilize System Access at any given time, in light of
the fact that computer facilities suffer occasional "down-time".
8.03 Customer shall take no actions to affect or modify System Access, the
Information or any of the hardware or software utilized by or on behalf of FAS
in conjunction with System Access. Use of System Access to view data shall be
made only through means and codes authorized by FAS hereunder or pursuant
hereto. Customer agrees not to divulge such means and codes to any person other
than those of its employees it wishes to have use System Access. Neither FAS nor
any of its affiliates shall have responsibility for determining whether a person
with the proper means and codes to utilize System Access was properly authorized
to do so by Customer.
8.04 FAS shall have the right to modify or cause the modification of the System
Access program from time to time at its sole discretion without prior notice to
Customer.
8.05 In the event that Customer suspects a possible breach of security with
respect to System Access, including any intended disclosure of codes, or
Customer obtains Information, through System Access, on any person other than
its own policyholders, then Customer shall immediately notify FAS of such
circumstances by telephone, followed by a confirmation in writing, specifying
the nature of the problem.
8.06 Neither FAS nor any of its affiliates shall be liable to Customer for
any loss, cost or liability arising out of or in conjunction with Customer's
participation in System Access. Under
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<PAGE> 10
no circumstances shall FAS or any of its affiliates be liable to Customer for
any indirect, incidental or consequential damages arising out of or in
conjunction with Customer's participation in such system, even if advised of the
possibility thereof.
8.07 Customer shall indemnify FAS and its affiliates and hold them harmless from
all direct losses and all liabilities resulting to them, as well as all costs
and expenses (including court costs and attorneys fees) reasonably incurred by
them, due to Customer's failure to properly safeguard the codes and/or passwords
provided pursuant hereto for its use. Customer shall also indemnify FAS and its
affiliates and hold them harmless from all liabilities, costs and expenses
(including court costs and attorneys fees) reasonably incurred as a result of
Customer's breach of its obligations of confidentiality with respect to the
Information unless Section 7.11 shall apply to the Information. Customer shall
further indemnify and hold FAS and its affiliates harmless from all liabilities,
costs and expenses (including court costs and attorneys fees) reasonably
incurred by them due to any acts or omissions of Customer in its use of
Information.
SECTION 9 Termination of Agreement
9.01 This Agreement may be terminated or amended by mutual agreement at any
time.
9.02 Subsequent to the initial term as defined in Section 2.01, this Agreement
may be terminated by either party by written notice to the other party ninety
(90) days following delivery by registered mail of said written notice to the
other party. The Customer has the option of continuing this Agreement for up to
three hundred sixty (360) days after written notice to terminate is received
from FAS, unless such termination is based on Section 9.04 with respect to a
material breach of the Agreement by Customer. Customer will continue to pay the
standard fees to FAS from the notice of termination date to the termination of
the Agreement.
9.03 At least ninety (90) days prior to the end of any term hereof, FAS shall
give Customer written notice if FAS desires to increase its fees or charges to
Customer or to change the manner of payment. If FAS and Customer do not agree to
fees and changes before the end of the term during which such notice is given by
FAS, this Agreement shall terminate at a date not less than ninety (90) days
after the end of such term. The Customer has the option of continuing the
Agreement for up to three hundred sixty (360) days, at standard Agreement fees
after the end of such term.
9.04 If either of the parties hereto shall materially breach this
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<PAGE> 11
Agreement or be materially in default in the performance of any of its duties
and obligations hereunder (the Defaulting Party), the other party hereto may
give written notice thereof to the Defaulting Party and if such default or
breach shall not have been remedied within thirty (30) days after such written
notice is given, then the party giving such written notice may terminate this
Agreement by giving thirty (30) days written notice of such termination to the
Defaulting Party. If FAS is the Defaulting Party, and Customer elects to
terminate this Agreement as described above, and the Customer shall agree in
writing, FAS shall continue to provide the services described herein to the
Customer for a period not to exceed three hundred sixty (360) days following
such termination; FAS shall be required to remedy the default or breach if
Customer elects to continue such services; and, such service to be provided in
accordance with the terms of this Agreement and at the standard rate charged the
Customer the last six (6) months under the most recent term. If Customer is the
Defaulting Party, and FAS elects to terminate this Agreement as described above
and the Customer shall agree in writing, FAS shall continue to provide the
services described herein to the Customer for a period not to exceed three
hundred sixty (360) days following such termination provided, however, Customer
shall be required to remedy the default or breach as a condition of continuing
such services. In this situation, during the continuation period, such service
shall be provided in accordance with the terms of the Agreement and at a rate of
one hundred twenty five percent (125%) of the fees in effect for the last six
(6) months under the most recent term. Termination of this Agreement by default
or breach by the Customer shall not constitute a waiver of any rights of FAS in
reference to services performed prior to such termination or rights of FAS to be
reimbursed for out-of-pocket expenditures; termination of this Agreement by
default or breach by FAS shall not constitute a waiver by the Customer of any
other rights it might have under this Agreement.
9.05 Neither party shall be liable to the other party under this Agreement for
consequential or exemplary damages in excess of fifty percent (50%) of the total
fees paid under this Agreement to FAS during the twelve months immediately
preceding the action or event creating the initial liability.
9.06 Arbitration - Any damages sought for termination for material breach or
other dispute between the parties relating to any transaction under this
Agreement, or any act or omission hereunder, shall be referred to three
arbitrators who must be members of the American Arbitration Association and who
are not related or affiliated in any way with Customer or Customer's affiliates
or FAS or FAS' affiliates. FAS and Customer shall each appoint one of the
arbitrators and such two arbitrators shall select the third. Should the two
arbitrators not be able to agree on the choice of the third, the appointment
shall be left to the American Arbitration Association. Any such arbitration
shall take place in
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<PAGE> 12
Middlesex County, Connecticut unless some other location is mutually agreed upon
by the parties. The arbitrators so chosen shall take into consideration the
scope and purpose of this Agreement. They will be relieved of all judicial
formalities and may abstain from following strict rules of law. They shall
decide by a majority of votes, and from their written decision, there shall be
no appeal. Each party will be responsible for its own arbitration costs,
including its arbitrators and direct costs, and shall equally divide the costs
of the third arbitrator, court reporter and facility charges.
SECTION 10 Changes and Modifications
10.01 FAS shall have the right, at any time, and from time to time, to alter and
modify any system, programs, procedures or facilities used or employed in
performing its duties and obligations hereunder, provided that no such
alterations or modifications shall, without the consent of the Customer,
materially change or affect the operations and procedures of the Customer in
using or employing the FAS System or Facilities hereunder.
10.02 From time to time FAS may develop or the Customer may request enhancements
to FAS' administrative capability with respect to administration of insurance
policies by FAS or particular features of the Policies ("Enhancements").
Development of such Enhancements shall be in accordance with the procedures set
forth in Exhibit D hereto. The Customer will bear the cost of Enhancements
needed to accommodate special features of its Policies.
10.03 Any modifications to the Service Agreement shall be valid only if made in
writing and signed by the authorized party(s) for both the Customer and FAS as
outlined in Exhibit C.
SECTION 11 Assignment
11.01 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party hereto without the prior written consent of the other,
which consent shall not be unreasonably withheld.
11.02 This agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
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SECTION 12 Miscellaneous
12.01 Customer or its duly authorized independent and internal auditors will
have the right under this Agreement to perform onsite audits of records,
procedures, and accounts directly pertaining to the Policies serviced by FAS
hereunder at FAS Facilities in accordance with reasonable frequencies and
reasonable and customary notice to FAS. At the request of Customer, FAS will
make available to Customer's auditors and representatives of regulatory agencies
all reasonably requested records, data and access to operating procedures,
within the scope of this Agreement.
12.02 The parties hereto agree that all tapes, books, reference manuals,
instructions, records, information and data pertaining to the business of the
other party, FAS' system and Enhancements as set forth in Exhibit D and the
policy owners serviced by Customer hereunder which are exchanged or received
pursuant to the negotiation of and/or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
or used by the receiving party as contemplated under this Agreement and that all
such tapes, books, reference manuals, instructions, records, information and
data in the possession of each of the parties hereto shall be returned to the
party from which it was obtained upon the termination or expiration of this
Agreement.
12.03 It is understood and agreed that all services performed hereunder by FAS
shall be as an independent contractor and not as an employee of Customer.
12.04 For the purposes of this Agreement, the terms policy, policies, contract
and contracts are interchangeable where appropriate and refer to the primary
coverage documents for each of Customer's insureds.
12.05 This Agreement, including Exhibits A - D which are deemed to be
incorporated herein and made a part hereof, constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof, whether oral or written, and this Agreement may not
be modified except in a written instrument executed by both of the parties
hereto.
12.06 The representations and warranties contained herein shall survive the
execution of the Agreement and the performance of services hereunder.
12.07 This Agreement shall be governed by the laws of the State of Connecticut.
12.08 All notices and requests in connection with the Agreement shall be given
or made upon the respective parties in writing and shall be deemed given as of
the day deposited in the U.S. mail,
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<PAGE> 14
postage pre-paid, certified or registered, return receipt requested, and
addressed as follows:
If to FAS: FAS
95 Bridge Street
Haddam, Connecticut 06438
Attn: Chief Executive Officer
If to Customer: SAFECO Life Insurance Company
15411 N.E. 51st Street
Redmond, Washington 98052
Attn: President
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
12.09 FAS agrees to maintain and make available to Customer complete books and
records of all transactions performed on behalf of Customer. The books and
records shall be maintained in accordance with prudent standards of insurance
and securities laws and regulations record keeping and must be maintained in
accordance with the retention periods as set forth in Schedule E of the
Operations Manual as referenced in Section 1.04 above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers as of the day and year first above written.
SAFECO Life Insurance Company
Attest: /s/ Dale Johnson
-----------------------------------
By: [illegible]
--------------------------------------
Title: V.P. [illegible]
-----------------------------------
Financial Administrative Services, Inc.
Attest: /s/ Bonnie Wasgutt
----------------------------------
By: [illegible]
--------------------------------------
Title: President
----------------------------------
System Access Authorized By:
FAS: By: /s/ [signature illegible]
--------------------------------
Customer: By: [illegible]
---------------------------
THE ABOVE INFORMATION AND ATTACHED EXHIBITS ARE CONSIDERED TO BE CONFIDENTIAL
AND PROPRIETARY. THEY ARE TO ONLY BE SHARED WITH EMPLOYEES OF THE CUSTOMER
AND/OR EMPLOYEES OF FAS.
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<PAGE> 15
EXHIBIT A
Policies on Policy Form L-9450 issued on behalf of SAFECO Life Insurance
Company, are subject to this Agreement. Riders, benefits and/or endorsements
attached to such policies are also subject to this Agreement.
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<PAGE> 16
EXHIBIT B
PRICING SCHEDULE
SYSTEM IMPLEMENTATION FEE: Actual implementation cost will be based on a
minimum of $50,000.
This fee will be charged to implement the Customer's products on the FAS system.
This includes:
a. Installation of the Leverage System from Integrity Life.
b. Implementation of the billing, premium collection, and commission
payment process.
C. Format and implement the Policyholder Quarterly Statement and any
other client specific forms.
d. Implementation of accounting.
e. Implementation of appropriate management reporting.
f. System testing with appropriate user sign off.
g. Development of Customer specific administrative procedures and
service levels.
Implementation Fee will be payable as follows:
a. $20,000.00 paid with letter of intent dated April 11, 1994.
b. $30,000.00 payable upon execution of the Service Agreement.
ISSUE AND ASSEMBLY FEE:
For each policy added to the system due to original issue, term conversion,
guaranteed insurability option or other transactions requiring issuance of a
new policy, the following schedule will apply.
Full Policy Issue Service
<TABLE>
<CAPTION>
Per Policy Fee In-Force Policy Count
--------------- ---------------------
<S> <C>
$15.00 1 - 5,000
14.50 5,001 - 10,000
14.00 10,001 - 15,000
13.50 15,001 - 20,000
13.00 20,001 +
</TABLE>
* Policy issue fees are not subject to the Minimum Monthly Administration
Fee.
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<PAGE> 17
FAS will maintain records of all expenses charged to Customer under this
Agreement.
Per Policy Monthly Administration Fees:
For all active policies:
<TABLE>
<CAPTION>
Monthly Fee Annualized In-Force Policy Count
<S> <C> <C>
$3.50 $42.00 1 - 5,000
3.45 41.40 5,001 - 10,000
3.40 40.80 10,001 - 15,000
3.35 40.20 15,001 - 20,000
3.30 39.60 20,001 +
</TABLE>
* For example, 15,000 in-force policies would be billed $3.50 for the
first 5,000 policies, $3.45 for the next 5,000 policies and $3.40 for
the remaining 5,000.
<TABLE>
<S> <C>
Inactive policies $.50 per month per policy
Minimum Monthly
Administration Fees $ 7,000
</TABLE>
Conversion of policy records and commencement of administrative activities by
FAS is scheduled for October 1, 1994. The monthly administrative charges will
commence on October 1, 1994, whether or not the policy records have actually
been converted.
Fees are billed monthly based upon the number of policies on the system on the
date of billing. The total policies transferred from Integrity Life for all
companies will be combined for satisfying the Minimum Monthly Administration
Fee. This amount ($7,000) will be billed for administration only when the number
of policies times the monthly charge does not meet or exceed this amount.
Additional Charges:
The additional charges incurred by the Customer include, but are not limited to:
a. Telephone Costs to include: basic phone line, long distance and 800
long distance lines, optional Dial-In Service to NAS (Netware Access
Server), and other phone costs incurred in communicating with the
Customer, its insureds or its agents and representatives.
b. U.S. Mail postage charges are passed through to Customer. No
service charge applies.
C. Express delivery charges are Customer's responsibility.
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<PAGE> 18
d. Expenses incurred in printing Customer specific forms.
e. Reasonable travel expenses incurred on behalf of the Customer by FAS,
its employees and/or duly authorized agents and representatives.
f. Related expenses for record retention beyond that currently provided
(microfilm, microfiche, paper).
g. Custom programming for unique policy provisions, special reports, etc.,
is available at the rate of $600 per person day, and are passed through
to Customer.
h. On-site consulting is billable to the Customer at the rate of $600 per
day.
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<PAGE> 19
EXHIBIT C
SCHEDULE OF AUTHORIZED PERSONNEL
The following parties are authorized on the part of SAFECO Life Insurance
Company to modify the Service Agreement:
John P. Fenlason, Senior Vice President
I. Richard Green, Vice President
The following parties are authorized on the part of SAFECO Life Insurance
Company to modify the Operations Manual:
I. Richard Green, Vice President
Dale R. Johnson, Assistant Vice President
Exceptions may be authorized by the personnel as set forth in Schedule F of the
Operations Manual as referenced in Section 1.04 of the Service Agreement.
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<PAGE> 20
EXHIBIT D
SOFTWARE ENHANCEMENT PROCEDURES
I. Definitions
The following terms have the meanings ascribed to them for the purposes of
these procedures and agreements.
A. Generic Feature: A process, modification or addition which FAS has
or will need to support its own procedures or policies of other
companies.
B. Special Enhancement: A modification or addition needed or desired
which is not required to support the current policy or procedures,
but as to which the rights, cost and development are shared.
C. Proprietary Enhancement: A modification or addition requested which is
deemed unique or confidential in which Customer wishes to retain all
rights, unless it is: (1) substantially the same as one that has
already begun to develop in whole or in part; or, (2) related to a
change in law, regulation or enforcement; or, (3) subject to the prior
proprietary rights of any other company, to the best of FAS'
knowledge.
II. Request for Enhancement:
A. Customer may request a feature by providing a description of the
feature sufficient to enable FAS to determine whether it is a generic
feature, special enhancement or proprietary enhancement. Customer will
clearly state whether it regards such enhancement as proprietary.
B. Within 30 business days following receipt of a request for an
enhancement, FAS will provide written notice to Customer as to how
such enhancement will be classified, plus provide a preliminary
estimate of cost and development time.
C. Upon such notice, Customer will have 30 days to notify FAS in writing
whether and how it wishes to proceed.
III. Rights and Availability of Enhancements:
A. FAS retains all rights to generic features; however, it will make such
features available for use to Customer.
B. Only those companies subscribing to share the cost and
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<PAGE> 21
development of special enhancements will have the right to use such
enhancements. This restriction will apply until such enhancement has
been operational for twelve (12) months.
C. Customer will retain rights to its proprietary enhancements. Others
may use such enhancements if:
1. Customer authorizes use of the enhancement and notifies FAS in
writing of all companies so authorized; or,
2. Six (6) months have elapsed since the enhancement has been
operational and such other company has requested the enhancement
and paid a pro rata share of the expense to Customer; or,
3. Twelve (12) months have elapsed since the enhancement has been
operational, in which case no sharing of expense is required.
D. When FAS recognizes proprietary rights respecting a Proprietary
Enhancement, FAS will not disclose either the concept of the
Proprietary Enhancement or the associated software (in either case
so long as it is non-obvious to a person skilled in the field and
not otherwise known to FAS) to any person without Customer's written
authorization, except FAS may disclose such concept and software to
The Leverage Group to the extent such disclosure is made in
connection with FAS' obligations under this Agreement. FAS will
request that The Leverage Group protect and preserve Customer's
proprietary rights.
IV. Cost of Enhancements:
A. The expense for all generic features will be incurred by FAS. However,
the cost either to allow or adapt such features to exist with
non-generic features will be incurred by Customer.
B. Customer will pay FAS for the cost incurred in developing a special or
proprietary enhancement. In the case that FAS or other companies wish
to share in the enhancements, the expense of such enhancement will be
prorated equally among Customer and any subscribing company. All
arrangements for expense sharing will be made by Customer.
C. The requirement to share the cost of development ceases 12 months
after the enhancement is operational.
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<PAGE> 1
EXHIBIT A (9) (c)
Form of Participation Agreement (Fidelity)
Form of Sub-Licensing Agreement
<PAGE> 2
PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
AND
SAFECO LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 30th day of September, 1991
by and among SAFECO LIFE INSURANCE COMPANY, (hereinafter the "Company"), a
Washington corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
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<PAGE> 3
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to one or more variable life and annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALES OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities
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<PAGE> 4
having jurisdiction or is, in the sole discretion of the Board acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts. No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Sections 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable life and variable annuity contracts with the form
number(s) which are listed on Schedule B attached hereto and incorporated herein
by this reference, as such Schedule B may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
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<PAGE> 5
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Chapter 48.18A RCW of the Washington Insurance Code and has
registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit Investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Washington and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
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<PAGE> 6
2.4. The Company represents that the Contracts are currently
treated as endowment, annuity or life insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Washington and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Washington to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Washington and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Washington and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
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<PAGE> 7
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund, in an amount not less than the
minimal coverage as required currently by entities subject to the requirements
of Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.12. The Company represents and warrants that it will not purchase
Fund shares with Account assets derived from the sale of Contracts to deferred
compensation plans with respect to service for state and local governments which
qualify under Section 457 of the federal Internal Revenue Code, as may be
amended. The Company may purchase Fund shares with Account assets derived from
any sale of a Contract to any other type of tax-advantaged employee benefit
plan; provided however that such plan has no more than 500 employees who are
eligible to participate at the time of the first such purchase hereunder by
the Company of Fund shares derived from the sale of such Contract.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy material, reports to stockholders and other communications
to stockholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract Owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received: so long
as and to the extent that the Securities and Exchange
Commission continues to interpret the 1940 Act to require
pass-through voting
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<PAGE> 8
privileges for variable contract owners. The Company reserves
the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in
the Fund calculates voting privileges in a manner consistent
with the standards set forth on Schedule C attached hereto and
incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance
Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee object to such use within fifteen Business
Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee object to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
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<PAGE> 9
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the Securities and Exchange Commission.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Underwriter may make payments to the Company or
to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made directly
by the Fund. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy
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<PAGE> 10
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and
distributing the Fund's prospectus to owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation Section 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and
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<PAGE> 11
reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Fund, or submitting the question whether
such segregation should be implemented to a vote of all affected Contract owners
and, as appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected contract owners the option of
making such a change; and (2) establishing a new registered management
investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
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<PAGE> 12
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus for
the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature of the Fund not supplied by the Company,
or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
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<PAGE> 13
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Fund, whichever is
applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified
Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal
process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the
Indemnified Party against whom such action is brought
otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to
such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by
it, and the Company will not be liable to such party
under this Agreement for any legal or other expenses
subsequently incurred by such party independently in
connection with the defense thereof other than reasonable
costs of investigation.
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<PAGE> 14
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or
proceedings against them in connection with the issuance
or sale of the Fund Shares or the Contracts or the
operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the Registration Statement or prospectus or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or
on behalf of the Fund; or
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<PAGE> 15
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including
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<PAGE> 16
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful misconduct of
the Board or any member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this
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<PAGE> 17
Agreement, the issuance or sale of the Contracts, with respect to the operation
of either Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws
of the Commonwealth of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 acts, and the rules and regulations
and rulings thereunder, including such exemptions from
those statutes, rules and regulations as the Securities
and Exchange Commission may grant (including, but not
limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance
written notice to the other parties; provided,
however such notice shall not be given earlier than
one year following the date of this Agreement; or
(b) at the option of the Company to the extent that
shares of Portfolios are not reasonably available to
meet the requirements of the Contracts as determined
by the Company, provided however, that such
termination shall apply only to the Portfolio(s) not
reasonably available. Prompt notice of the election
to terminate for such cause shall be furnished by
the Company; or
(c) at the option of the Fund in the event that formal
administrative proceedings are instituted against
the Company by the NASD, the Securities and Exchange
Commission, the Insurance Commissioner or any other
regulatory body regarding the Company's duties under
this Agreement or related to the sale of the
Contracts, with respect to the operation of any
Account, or the purchase of the Fund shares,
provided, however, that the Fund determines in its
sole judgment exercised in good faith, that any such
administrative proceedings will have a material
adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
(d) at the option of the Company in the event that
formal administrative proceedings are instituted
against the Fund or Underwriter by the NASD, the
Securities and Exchange Commission, or any state
securities or insurance department or any other
regulatory body, provided, however, that the Company
determines in its sole judgment exercised in good
faith, that any such administrative proceedings will
have a material adverse effect upon the ability of
the Fund or Underwriter to perform its obligations
under this Agreement; or
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<PAGE> 18
(e) with respect to any Account, upon requisite vote of
the Contract owners having an interest in such
Account (or any subaccount) to substitute the shares
of another investment company for the corresponding
Portfolio shares of the Fund in accordance with the
terms of the Contracts for which those Portfolio
shares had been selected to serve as the underlying
investment media. The Company will give 30 days'
prior written notice to the Fund of the date of any
proposed vote to replace the Fund's shares; or
(f) at the option of the Company, in the event any of
the Fund's shares are not registered, issued or sold
in accordance with applicable state and/or federal
law or such law precludes the use of such shares as
the underlying investment media of the Contracts
issued or to be issued by the Company; or
(g) at the option of the Company, if the Fund ceases to
qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or
similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(h) at the option of the Company, if the Fund fails to
meet the diversification requirements specified in
Article VI hereof; or
(i) at the option of either the Fund or the Underwriter,
if (1) the Fund or the Underwriter, respectively,
shall determine, in their sole judgment reasonably
exercised in good faith, that the Company has
suffered a material adverse change in its business
or financial condition or is the subject of material
adverse publicity and such material adverse change
or material adverse publicity will have a material
adverse impact upon the business and operations of
either the Fund or the Underwriter, (2) the Fund or
the Underwriter shall notify the Company in writing
of such determination and its intent to terminate
this Agreement, and (3) after considering the
actions taken by the Company and any other changes
in circumstances since the giving of such notice,
such determination of the Fund or the Underwriter
shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth
day shall be the effective date of termination; or
(j) at the option of the Company, if (1) the Company
shall determine, in its sole judgment reasonably
exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change
in its business or financial condition or is the
subject of material adverse publicity and such
material adverse change or material adverse
publicity will have a material adverse impact upon
the business and operations of the Company, (2) the
Company shall notify the Fund and the Underwriter in
writing of such determination and its intent to
terminate the Agreement, and (3) after considering
the actions taken by the Fund and/or the
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<PAGE> 19
Underwriter and any other changes in circumstances since
the giving of such notice, such determination shall
continue to apply on the sixtieth (60th) day following
the giving of such notice, which sixtieth day shall be
the effective date of termination; or
(k) at the option of either the Fund or the Underwriter,
if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at
the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however any termination under this
Section 10.1(k) shall be effective forty five (45) days
after the notice specified in Section 1.6(b) was given.
10.2. It is understood and agreed that the right of any party
hereto to terminate this Agreement pursuant to Section 10.1(a) may be exercised
for any reason or for no reason.
10.3. Notice Requirements. No termination of this Agreement shall
be effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
(a) In the event that any termination is based upon the
provisions of Article VII, or the provision of Section
10.1(a), 10.1(i), 10.1(j) or 10.1(k) of this Agreement,
such prior written notice shall be given in advance of
the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this
Agreement, such prior written notice shall be given at
least ninety (90) days before the effective date of
termination.
10.4. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall, at the option of the
Company, continue to make available additional shares of the Fund pursuant to
the terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
10.5. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in either Account) except (i) as necessary to implement Contract Owner initiated
transactions, or (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of
-18-
<PAGE> 20
general application (hereinafter referred to as a "Legally Required
Redemption"). Upon request, the Company will promptly furnish to the Fund and
the Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
15411 N.E. 51st Street
Redmond, WA 98052
Attention: Roger Harbin, V.P.
If to the Underwriter:
82 Devonshire Street
Boston Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims
against the Fund as neither the Board, officers, agents or
shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as
confidential the names and addresses of the owners of the
Contracts and all information reasonably identified as
confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other
confidential information until such time as it may come
into the public domain without the express written consent
of the affected party.
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect
their construction or effect.
12.4. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall
constitute one and the same instrument.
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<PAGE> 21
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise,
the remainder of the Agreement shall not be affected
thereby.
12.6. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including
without limitation the Securities and Exchange Commission,
the NASD and state insurance regulators) and shall permit
such authorities reasonable access to its books and
records in connection with any investigation or inquiry
relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the
California Insurance Commissioner with any information or
reports in connection with services provided under this
Agreement which such Commissioner may request in order to
ascertain whether the variable life insurance operations
of the Company are being conducted in a manner consistent
with the California Variable Life Insurance Regulations
and any other applicable law or regulations.
12.7. The Fund and Underwriter agree that to the extent any
advisory or other fees received by the Fund, the
Underwriter or the Adviser are determined to be unlawful
in legal or administrative proceedings under the 1973 NAIC
model variable life insurance regulation in the states of
California, Colorado, Maryland or Michigan, the
Underwriter shall indemnify and reimburse the Company for
any out of pocket expenses and actual damages the Company
has incurred as a result of any such proceeding; provided
however that the provisions of Section 8.2(b) of this and
8.2(c) shall apply to such indemnification and
reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other
indemnification and reimbursement obligations of the Fund
and/or the Underwriter under this Agreement.
12.8. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and
all rights, remedies and obligations, at law or in equity,
which the parties hereto are entitled to under state and
federal laws.
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<PAGE> 22
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY:
SAFECO LIFE INSURANCE COMPANY
By its authorized officer,
SEAL By: /s/ Illegible
------------------------------
Title: Vice President
------------------------------
Date: 9/30/91
------------------------------
FUND:
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
SEAL By: Illegible
-----------------------------
Title: Senior VP
-----------------------------
Date: 10/7/91
-----------------------------
UNDERWRITER:
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
SEAL By: /s/ Illegible
-----------------------------
Title: V.P.
-----------------------------
Date: 10/3/91
-----------------------------
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<PAGE> 23
SCHEDULE A
ACCOUNTS
NAME OF ACCOUNT Date of Resolution of Company's Board
which Established the Account
SEPARATE ACCOUNT SL November 6, 1986
-22-
<PAGE> 24
SCHEDULE B
CONTRACTS
1. CONTRACT FORM L-9450
-------------------
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<PAGE> 25
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund for
the shareholder meeting to facilitate the establishment of
tabulation procedures. At this time the Underwriter will inform the
Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape
run", or other activity, which will generate the names, addresses
and number of units which are attributed to each
contractowner/policyholder (the "Customer") as of the Record Date.
Allowance should be made for account adjustments made after this
date that could affect the status of the Customers' accounts as of
the Record Date.
Note: The number of proxy statements is determined by the
activities described in Step #2. The Company will use its
best efforts to call in the number of Customers to
Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the
Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide at least one copy of the
last Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its affiliate ("Fidelity
Legal") must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. Individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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<PAGE> 26
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Insurance Company). Contents of
envelope sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately
3-5 business days before mail date. Individual in charge at Company
reviews and approves the contents of the mailing package to ensure
correctness and completeness. Copy of this approval sent to Fidelity
Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to
the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar
days from (but not including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by
proposal into vote categories of all yes, no, or mixed replies, and
to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure and has not been required by Fidelity in the
past.
9. Signatures on Card checked against legal name on account
registration which was printed on the Card.
Note: For Example, if the account registration is under "Bertram
C. Jones, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the
Card.
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<PAGE> 27
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes
of vote tabulation. Any Cards that have "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions
on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper
tabulation of votes and accuracy of that tabulation. The most
prevalent is to sort the Cards as they first arrive into categories
depending upon their vote; an estimate of how the vote is
progressing may then be calculated. If the initial estimates and the
actual vote do not coincide, then an internal audit of that vote
should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then
converted to shares. (It is very important that the Fund receives
the tabulations stated in terms of a percentage and the number of
shares.) Fidelity Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to
Fidelity Legal on the morning of the meeting not later than 10:00
a.m. Boston time. Fidelity Legal may request an earlier deadline if
required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards received
from the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes,
Fidelity Legal will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always
be followed up in writing.
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<PAGE> 28
AMENDMENT NO.___ TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND I
FIDELITY DISTRIBUTORS CORPORATION
and
SAFECO LIFE INSURANCE COMPANY
WHEREAS, SAFECO LIFE INSURANCE COMPANY (the "Company"), VARIABLE
INSURANCE PRODUCTS FUND I (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
have previously entered into a Participation Agreement (the "Agreement")
containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes containing
the Fund's prospectus and/or Statement of Additional Information in lieu of
receiving hard copies of these documents, the Fund will reimburse the Company in
an amount computed as follows. The number of prospectuses and Statements of
Additional Information actually distributed to existing contract owners by the
Company will be multiplied by the Fund's actual per-unit cost of printing the
documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF, we have set our hand as of the 15th day of December, 1994.
SAFECO LIFE INSURANCE COMPANY
By:
-----------------------
Name:
-----------------------
Title:
-----------------------
VARIABLE INSURANCE PRODUCTS FUND I FIDELITY DISTRIBUTORS CORPORATION
By: By:
---------------------------- -------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
<PAGE> 29
PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
AND
SAFECO LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 30th day of September, 1991
by and among SAFECO LIFE INSURANCE COMPANY, (hereinafter the "Company"), a
Washington corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained in order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
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<PAGE> 30
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to one or more variable life and annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALES OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1., the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities
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<PAGE> 31
having jurisdiction or is, in the sole discretion of the Board acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Sections 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable life and variable annuity contracts with the form
number(s) which are listed on Schedule B attached hereto and incorporated herein
by this reference, as such Schedule B may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
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<PAGE> 32
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Chapter 48.18A RCW of the Washington Insurance Code and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Washington and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
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<PAGE> 33
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Washington and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Washington to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Washington and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Washington and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
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<PAGE> 34
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund, in an amount not less than the minimal coverage as required currently
by entities subject to the requirements of Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.12. The Company represents and warrants that it will not purchase
Fund shares with Account assets derived from the sale of Contracts to deferred
compensation plans with respect to service for state and local governments which
qualify under Section 457 of the federal Internal Revenue Code, as may be
amended. The Company may purchase Fund shares with Account assets derived from
any sale of a Contract to any other type of tax-advantaged employee benefit
plan; provided however that such plan has no more than 500 employees who are
eligible to participate at the time of the first such purchase hereunder by the
Company of Fund shares derived from the sale of such Contract.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to stockholders and other communications to
stockholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract Owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received:
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting
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<PAGE> 35
privileges for variable contract owners. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee object to such use within fifteen Business
Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee object to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
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<PAGE> 36
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the
Securities and Exchange Commission.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy
-8-
<PAGE> 37
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing
the Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation Section 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and
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<PAGE> 38
reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Fund, or submitting the question whether
such segregation should be implemented to a vote of all affected Contract owners
and, as appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected contract owners the option of
making such a change; and (2) establishing a new registered management
investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
-10-
<PAGE> 39
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
8.1 (a) The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf of the
Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its control) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund
Shares; or
-11-
<PAGE> 40
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company, as limited by and in accordance
with the provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1 (b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities
or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
8.1 (c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the
Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service
on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which
it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Company to such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company
will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
-12-
<PAGE> 41
8.1 (d) The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. Identification by the Underwriter
8.2 (a) The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or
any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund, Adviser or Underwriter
or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the Contracts,
or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf
of the Fund; or
-13-
<PAGE> 42
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Underwriter; as limited by and in
accordance with the provisions of Sections 8.2(b) and 8.2(c)
hereof.
8.2 (b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2 (c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2 (d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3 (a) The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including
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<PAGE> 43
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful misconduct of
the Board or any member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this
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<PAGE> 44
Agreement, the issuance or sale of the Contracts, with respect to the operation
of either Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written
notice to the other parties; provided, however such notice shall
not be given earlier than one year following the date of this
Agreement; or
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the requirements
of the Contracts as determined by the Company, provided however,
that such termination shall apply only to the Portfolio(s) not
reasonably available. Prompt notice of the election to terminate
for such cause shall be furnished by the Company; or
(c) at the option of the Fund in the event that formal
administrative proceedings are instituted against the Company by
the NASD, the Securities and Exchange Commission, the Insurance
Commissioner or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the
Contracts, with respect to the operation of any Account, or the
purchase of the Fund shares, provided, however, that the Fund
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations
under this Agreement; or
(d) at the option of the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the Securities and Exchange Commission,
or any state securities or insurance department or any other
regulatory body, provided, however, that the Company determines in
its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect
upon the ability of the Fund or Underwriter to perform its
obligations under this Agreement; or
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<PAGE> 45
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in such Account (or any
subaccount) to substitute the shares of another investment company
for the corresponding Portfolio shares of the Fund in accordance
with the terms of the Contracts for which those Portfolio shares
had been selected to serve as the underlying investment media. The
Company will give 30 days' prior written notice to the Fund of the
date of any proposed vote to replace the Fund's shares; or
(f) at the option of the Company, in the event any of the Fund's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(g) at the option of the Company, if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(h) at the option of the Company, if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of either the Fund or the Underwriter, if (1)
the Fund or the Underwriter, respectively, shall determine, in
their sole judgment reasonably exercised in good faith, that the
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse
publicity will have a material adverse impact upon the business
and operations of either the Fund or the Underwriter, (2) the Fund
or the Underwriter shall notify the Company in writing of such
determination and its intent to terminate this Agreement, and (3)
after considering the actions taken by the Company and any other
changes in circumstances since the giving of such notice, such
determination of the Fund or the Underwriter shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination; or
(j) at the option of the Company, if (1) the Company shall
determine, in its sole judgment reasonably exercised in good
faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business or financial condition or
is the subject of material adverse publicity and such material
adverse change or material adverse publicity will have a material
adverse impact upon the business and operations of the Company,
(2) the Company shall notify the Fund and the Underwriter in
writing of such determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the Fund
and/or the
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<PAGE> 46
Underwriter and any other changes in circumstances since the
giving of such notice, such determination shall continue to apply
on the sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of termination; or
(k) at the option of either the Fund or the Underwriter, if the
Company gives the Fund and the Underwriter the written notice
specified in Section 1.6(b) hereof and at the time such notice was
given there was no notice of termination outstanding under any
other provision of this Agreement; provided, however any
termination under this Section 10.1(k) shall be effective forty
five (45) days after the notice specified in Section 1.6(b) was
given.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
(a) In the event that any termination is based upon the provisions
of Article VII, or the provision of Section 10.1(a), 10.1(i),
10.1(j) or 10.1(k) of this Agreement, such prior written notice
shall be given in advance of the effective date of termination as
required by such provisions; and
(b) in the event that any termination is based upon the provisions
of Section 10.1(c) or 10.1(d) of this Agreement, such prior
written notice shall be given at least ninety (90) days before the
effective date of termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.4 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.5. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in either Account) except (i) as necessary to implement Contract Owner initiated
transactions, or (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of
-18-
<PAGE> 47
general application (hereinafter referred to as a "Legally Required
Redemption"). Upon request, the Company will promptly furnish to the Fund and
the Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
15411 N.E. 51st Street
Redmond, WA 98052
Attention: Roger Harbin, V.P.
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
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<PAGE> 48
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the California Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable life insurance operations of the Company are
being conducted in a manner consistent with the California Variable Life
Insurance Regulations and any other applicable law or regulations.
12.7. The Fund and Underwriter agree that to the extent any advisory or
other fees received by the Fund, the Underwriter or the Adviser are determined
to be unlawful in legal or administrative proceedings under the 1973 NAIC model
variable life insurance regulation in the states of California, Colorado,
Maryland or Michigan, the Underwriter shall indemnify and reimburse the Company
for any out of pocket expenses and actual damages the Company has incurred as a
result of any such proceeding; provided however that the provisions of Section
8.2(b) of this and 8.2(c) shall apply to such indemnification and reimbursement
obligation. Such indemnification and reimbursement obligation shall be in
addition to any other indemnification and reimbursement obligations of the Fund
and/or the Underwriter under this Agreement.
12.8. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
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<PAGE> 49
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
SAFECO LIFE INSURANCE COMPANY
By its authorized officer,
SEAL By: /s/ Roger H. Sarbin
---------------------------------
Title: Vice President
------------------------------
Date: 9/30/91
-------------------------------
Fund:
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
SEAL By: /s/ J. Gary Burkhead
---------------------------------
Title: Senior VP
------------------------------
Date: 10/7/91
-------------------------------
Underwriter:
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
SEAL By: /s/ [Signature Illegible]
---------------------------------
Title: V.P.
------------------------------
Date: 10/3/91
-------------------------------
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<PAGE> 50
SCHEDULE A
ACCOUNTS
<TABLE>
<CAPTION>
<S> <C>
NAME OF ACCOUNT DATE OF RESOLUTION OF COMPANY'S BOARD
WHICH ESTABLISHED THE ACCOUNT
SEPARATE ACCOUNT SL November 6, 1986
</TABLE>
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<PAGE> 51
SCHEDULE B
CONTRACTS
1. CONTRACT FORM L-9450
------
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<PAGE> 52
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of the proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform the Company of the
Record, Mailing and Meeting dates. This will be done verbally approximately
two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run," or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call
in the number of Customers to Fidelity, as soon as possible, but no
later than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement.
Underwriter will provide at least one copy of the last Annual Report to the
Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2 - 4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
-24-
<PAGE> 53
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by
the Insurance Company). Contents of envelope sent to Customers by Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly as
possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has
not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
-25-
<PAGE> 54
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
-26-
<PAGE> 55
AMENDMENT NO.___ TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY DISTRIBUTORS CORPORATION
and
SAFECO LIFE INSURANCE COMPANY
WHEREAS, SAFECO LIFE INSURANCE COMPANY (the "Company"), VARIABLE
INSURANCE PRODUCTS FUND II (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
have previously entered into a Participation Agreement (the "Agreement")
containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes containing
the Fund's prospectus and/or Statement of Additional Information in lieu of
receiving hard copies of these documents, the Fund will reimburse the Company in
an amount computed as follows. The number of prospectuses and Statements of
Additional Information actually distributed to existing contract owners by the
Company will be multiplied by the Fund's actual per-unit cost of printing the
documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF, we have set our hand as of the 15th day of December, 1994.
SAFECO LIFE INSURANCE COMPANY
By:
-----------------------
Name:
-----------------------
Title:
-----------------------
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: By:
---------------------------- -------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
<PAGE> 1
EXHIBIT A (10) (a)
Application Form (revised 4/91)
<PAGE> 2
[SAFECO LOGO] LIFE APPLICATION SAFECO LIFE INSURANCE COMPANY
PART I P.O. BOX 84068
SEATTLE, WASHINGTON 98124-8468
- -------------------------------------------------------------------------------
1. Name and address of proposed insured (please print)
Name:
- -------------------------------------------------------------------------------
Street:
- -------------------------------------------------------------------------------
City: State: Zip:
- -------------------------------------------------------------------------------
Soc. Sec. No.: Driver's License No.:
- -------------------------------------------------------------------------------
2. Occupation:
- -------------------------------------------------------------------------------
3. a. Plan: Amount $
--------------------------------------------- ------------
b. Universal Life: Death Benefit Opt. (Level or Incr.?)
------------------------
Planned Premium $ Add'l Initial Pmt.? $
---------------- -------------------
c. Policy Rider(s): On Primary Insured - Amt $
--------------------------------
On Other Insured(s)? Yes No How Many?
--- --- ------------------------------
(Complete Life Application Part I for each Other Insured)
d. Additional Benefits:
[ ] ADB $ [ ] GIO $ [ ] Other
------------- ---------------- ---------------
Waiver of: [ ] target premium [ ] monthly ded. (U-Life only)
[ ] premium (Term, Whole Life)
[ ] ICB $ (Use Part III Application for ICB)
--------------------------------
e. Premium Mode: [ ] Annual [ ] Semi A. [ ] Qtr. [ ] Mo. [ ] L-M
[ ] Other [ ] Automatic prem. Loan if available
---------------------------
Min. Premium $25.00 all modes (L-M Min. $10.00 available when plan allows)
- -------------------------------------------------------------------------------
4. P C Beneficiary (P-Primary, C-Contingent Beneficiary)
[ ] [ ]
--------------------------------------------------------------------
First Middle Last Relationship
[ ] [ ]
--------------------------------------------------------------------
First Middle Last Relationship
[ ] [ ] and any living children born of this marriage or legally
adopted to share equally.
- -------------------------------------------------------------------------------
5. Applicant if other than proposed insured (please print):
---------------------------------------------------------------------------
(Applicant is owner)
Owner's Soc. Sec. or Tax I.D. No. - -
-----------------------------------------
- -------------------------------------------------------------------------------
6. Other life insurance in force and currently applied for:
(check if none): [ ]
- -------------------------------------------------------------------------------
Year Acc. Death
COMPANY Amount Issued Benefit Amount Examined for Policy?
- -------------------------------------------------------------------------------
[ ] Yes [ ] No
- -------------------------------------------------------------------------------
[ ] Yes [ ] No
- -------------------------------------------------------------------------------
[ ] Yes [ ] No
- -------------------------------------------------------------------------------
7. General Information - Has the proposed insured: Yes No
a. Had any application for insurance or reinstatement postponed,
declined, or special rated?..................................... [ ] [ ]
b. Any insurance or annuity policy which this coverage will
replace?........................................................ [ ] [ ]
If "yes" answer to questions a & b above, show reasons,
company name and policy no. in Sec. 13.
c. Had any motor vehicle license suspension, revocation,
restriction or warning letter?.................................. [ ] [ ]
d. Within past 2 years engaged in aviation activities as pilot or
crew member?.................................................... [ ] [ ]
If "yes" show total hours, hours in past years, hours 1 to 2
years ago, hours contemplated next year, type of aircraft and
license in Sec. 13.
e. Within the past 2 years engaged in scuba diving, parachuting,
hang gliding or racing of any motor driven vehicle or craft?.... [ ] [ ]
f. Any plans to live outside the U.S. or Canada?................... [ ] [ ]
g. Used tobacco in any form in the past 12 months?................. [ ] [ ]
Cigarettes: Packs daily. Other:
-------- ------------
- -------------------------------------------------------------------------------
Date of Birth Height Weight
State of ---------------- Age Last ------------------ Weight Loss
Sex Birth Month Day Year Birthday Feet Inches Lbs. Past Year
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Family History Age if Living Cause of Death Age at Death
- -------------------------------------------------------------------------------
Father
- -------------------------------------------------------------------------------
Mother
- -------------------------------------------------------------------------------
Brothers/Sisters
- -------------------------------------------------------------------------------
8. Name and address of proposed insured's physician:
- -------------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ZIP
----------------------------------------------------------------------------
Date last consulted: Why?
--------------------------------- ----------------
Result: (Write details in Sec. 13)
------------------------------------------
- -------------------------------------------------------------------------------
9. Has proposed insured ever had or been treated or diagnosed for, any
disorder, disease, or persistent discomfort of: Yes No
a. Respiratory system (lungs, bronchi, trachea, etc.) such as T.B.,
asthma, emphysema, bronchitis?.................................. [ ] [ ]
b. Circulatory system (heart, blood, arteries, etc.) such as chest
pain, high blood pressure, heart attack, murmur?................ [ ] [ ]
c. Digestive system (esophagus, stomach, intestines, liver, etc.)
such as ulcer, cirrhosis, bleeding?............................. [ ] [ ]
d. Nervous system (brain, nerves, etc.) such as paralysis,
fainting, convulsions, stroke or other mental or nervous
disorders such as depression or suicide attempt?................ [ ] [ ]
e. Genitourinary system (kidney, bladder, reproductive organs,
etc.) such as infection, bleeding, male or female disorders?.... [ ] [ ]
f. Musculoskeletal system (muscles, spine, bones, joints, etc.)
such as arthritis, back problems?............................... [ ] [ ]
g. Eyes, ears, or skin?............................................ [ ] [ ]
h. Growth or cancer, venereal disease or diabetes?................. [ ] [ ]
- -------------------------------------------------------------------------------
10. Within the past 10 years has the proposed insured been treated or
diagnosed for:
a. Glandular disease or disorder (thyroid, adrenal, lymph glands,
etc.) such as abnormal growth or function?...................... [ ] [ ]
b. HIV disease including Acquired Immune Deficiency Syndrome
(AIDS), AIDS Related Complex (ARC), or tested positive for
antibodies to the AIDS virus (HIV)?............................. [ ] [ ]
c. Or sought treatment or professional advice or participated in
Alcoholics Anonymous, because of the use of alcohol or drugs?... [ ] [ ]
d. Or had any other impairment, sickness or diagnostic procedures
such as X-ray, EKG, laboratory tests?........................... [ ] [ ]
e. Or been hospitalized or had surgery performed, advised or
contemplated?................................................... [ ] [ ]
f. Or been on prescribed diet or medication?....................... [ ] [ ]
- -------------------------------------------------------------------------------
[arrow symbol] Before collecting premium these TEMPORARY LIFE INSURANCE
QUESTIONS must be answered. If either question is answered "yes"
or left blank, do not collect premium, no coverage will take
effect and no agent of SAFECO is authorized to accept payment.
Temporary Insurance Agreement on applicant's copy.
11. Has the person listed above as proposed insured: Yes No
a. Within the past 90 days, been admitted to a hospital or other
medical facility, been advised to be admitted, or had surgery
performed or recommended?....................................... [ ] [ ]
b. Within the past 2 years, been treated for heart disorder,
stroke, cancer, AIDS or had such treatment recommended by a
physician or other medical practitioner?........................ [ ] [ ]
- -------------------------------------------------------------------------------
12. [ ] First Premium Paid with Application $ [ ] COD
-------------------------
MAKE ALL CHECKS PAYABLE TO SAFECO LIFE
- -------------------------------------------------------------------------------
13. DETAILS OF "YES" ANSWERS IN QUESTIONS 7-11 Include, when appropriate,
onset and recovery dates, any residuals, and names and addresses of doctors
and hospitals.
- -------------------------------------------------------------------------------
Question #
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Remarks:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
I represent that the statements and answers recorded on this application are
true and complete to the best of my knowledge and belief, and agree that they
shall form a part of any insurance policy issued hereon. I AGREE THAT IF AMOUNT
PAID WITH APPLICATION DOES NOT EQUAL THE FULL FIRST PREMIUM, SAFECO LIFE SHALL
INCUR LIABILITY ONLY IF A POLICY HAS BEEN DELIVERED AND THE FULL FIRST PREMIUM
FOR THE INSURANCE APPLIED FOR HAS BEEN PAID WHILE THE APPLICANT OR INSURED HAS
NO KNOWLEDGE THAT ANY ANSWERS TO THE ABOVE QUESTIONS HAS CHANGED. I have read
and understand the Notice of Insurance Information Practices and, if
applicable, the Temporary Life Insurance Agreement on the reverse side.
- -------------------------------------------------------------------------------
AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION
- -------------------------------------------------------------------------------
I authorize any physician, medical practitioner, hospital, medical clinic,
other provider of health care, any insurance company, any consumer reporting
agency or employer, or the MIB, Inc. to disclose to SAFECO Life Insurance
Company or its authorized medical, underwriting and claims representatives all
information and records relating to diagnosis, treatment, medical history,
physical and mental condition and evaluation, including information about
drugs, alcoholism, or mental illness, or any other information relating to me
or my dependent children.
SAFECO may use that information now or in the future to underwrite my
insurance application, or to reinstate, renew, continue, or pay claims on any
issued policy. This authorization is valid for 30 months from this date. I
understand that SAFECO will not release information obtained except to its
reinsurer(s), the MIB and other persons or organizations performing business or
legal services concerning my application or policy, or as may be legally
required, or as I may further authorize. Information obtained from the MIB will
not be released except as may be required by law. A photocopy of this
authorization is as valid as the original. I understand that I have a right to
receive a copy of this authorization and acknowledge its receipt.
With regard to any investigative consumer report on me, please contact me at
home between the hours of and M. or at work between the
hours of and M. My phone number is, home: (area code) ( )
; work: (area code) ( ) .
I, the Owner, certify under the penalties of perjury that (1) the number
shown in Item 1 or 5 is my correct taxpayer identification number, and (2) I am
not subject to backup withholding either because I have not been notified that
I am subject to backup withholding as a result of a failure to report all
interest or dividends, or the Internal Revenue Service has notified me that I
am no longer subject to backup holding. (If subject to backup withholding, line
through information listed in (2) above.)
Signed this , at State of
------ -------------- ------ ----------- -------------
day month year
PLEASE COMPLETE ATTACHED AGENT'S STATEMENT
X
-----------------------------------------------------------------
Signature of Agent
X
------------------------------------------------------------------
Signature of Proposed Insured (Age 15 or older - 16 in California)
X
------------------------------------------------------------------
Signature of Applicant/Owner *If other than the Proposed Insured
*If applicant is corporation or partnership, a corporate officer or partner
other than proposed insured must sign and state title.
LUC-10 R2 4/91 (R) Registered trademark of SAFECO Corporation.
<PAGE> 1
EXHIBIT A (10) (b)
Part IV of Application Form (revised 6/96)
<PAGE> 2
SAFECO SUPPLEMENTAL LIFE APPLICATION SAFECO LIFE INSURANCE COMPANY
LIFE INSURANCE PART IV P.O. BOX 84068
SEATTLE, WASHINGTON 98124-8468
1. Print name of proposed insured (as on Life App. Part I)
--------------------------------------------------------------------------
2. Initial Allocation Percentages (whole numbers only) Up to nine investment
divisions may be selected.
[LOGO] [LOGO] [LOGO]
FIDELITY LEXINGTON SAFECO
INVESTMENTS ASSET MANAGEMENT
<TABLE>
<CAPTION>
INVESTMENT DIVISION FOR PREMIUMS FOR DEDUCTIONS
<S> <C> <C>
VIP Money Market ___________% _____________%
VIP High Income ___________% _____________%
VIP Equity-Income ___________% _____________%
VIP Growth ___________% _____________%
VIP Overseas ___________% _____________%
VIP II Investment Grade Bond ___________% _____________%
VIP II Asset Manager ___________% _____________%
VIP II Index 500 ___________% _____________%
VIP II Asset Manager Growth ___________% _____________%
VIP II Contrafund ___________% _____________%
Lexington Natural Resources ___________% _____________%
Lexington Emerging Markets ___________% _____________%
SAFECO RST Equity ___________% _____________%
SAFECO RST Growth ___________% _____________%
SAFECO RST Northwest ___________% _____________%
SAFECO RST Bond ___________% _____________%
SAFECO Life Guaranteed Interest ___________% _____________%
_________________________ ___________% _____________%
_________________________ ___________% _____________%
_________________________ ___________% _____________%
_________________________ ___________% _____________%
TOTAL (Must equal 100%) 100% 100%
___________ _____________
</TABLE>
Allocations for deductions will be the same as premiums unless otherwise noted.
3. Telephone Exchange Option
I authorize SAFECO Life Insurance Company to honor telephone instructions from
me, or any other person designated by me, without signature guarantee for (1)
the transfer of funds among divisions or (2) a change of allocation percentages
for premiums or deductions? / / Yes / / No
REMARKS
I/We represent that the statements and answers recorded on this application are
true and complete to the best of my/our knowledge and belief; and, I/we agree
that they shall form a part of any insurance policy issued hereon.
I UNDERSTAND THAT UNDER THE POLICY APPLIED FOR: (A) THE AMOUNT AND DURATION OF
THE DEATH BENEFIT MAY VARY UNDER SPECIFIED CONDITIONS; (B) POLICY VALUES MAY
INCREASE OR DECREASE IN ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF INVESTMENT
DIVISIONS IN A SEPARATE ACCOUNT; (C) THE AMOUNT PAYABLE AT THE FINAL POLICY DATE
IS NOT GUARANTEED BUT IS DEPENDENT ON THE AMOUNT THEN IN THE POLICY ACCOUNT; (D)
ILLUSTRATIONS OF BENEFITS, INCLUDING THE DEATH BENEFITS, POLICY BENEFITS AND
CASH SURRENDER VALUES ARE AVAILABLE UPON REQUEST; AND, (E) THIS POLICY MEETS MY
INVESTMENT OBJECTIVES AND ANTICIPATED FINANCIAL NEEDS.
I hereby acknowledge receipt of the Prospectus for this policy and accompanying
funds, dated ________________________, with supplement, if any, dated
________________________, and Statements of Additional Information if required
(California and other states as required) dated ________________________.
Signed this ____________________ ____________________, ___________ at
Day Month Year
____________________ ___________________
City State
I certify that I have asked and recorded completely and accurately the answers
to all questions on the application and I know of nothing affecting the risk
that has not been recorded.
X________________________________________
Signature of Sales Representative
X________________________________________
Signature of Proposed Insured*
(Age 15 or older - 16 in California)
X________________________________________
Signature of Applicant/Owner.**
If other than the Proposed Insured
* In Pennsylvania, if Proposed Insured is less than age 18, signature of
Parent/Guardian 18 years or older required.
** If applicant/owner is corporation or partnership, a corporate officer or
partner other than Proposed Insured must sign and state title.
Fidelity Investments is a registered trademark of FMR Corporation.
Lexington is a registered trademark of Lexington Management Corporation.
SAFECO Life and SAFECO Asset Management are registered trademarks of SAFECO
Corporation.
<PAGE> 1
EXHIBIT 99.C1
CONSENT OF INDEPENDENT AUDITORS
70
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports on the financial statements of SAFECO Separate Account SL,
dated January 31, 1997, and on the consolidated financial statements of SAFECO
Life Insurance Company and Subsidiaries, dated February 14, 1997, in
Post-Effective Amendment No. 14 to the Registration Statement (Form S-6, No.
33-10248) and related Prospectus of SAFECO Separate Account SL dated April 30,
1997.
/s/ ERNST & YOUNG LLP
Seattle, Washington
April 27, 1997
71
<PAGE> 1
EXHIBIT 99.2
OPINION AND CONSENT OF COUNSEL
72
<PAGE> 2
April 29, 1997
Board of Directors
SAFECO Life Insurance Company
SAFECO Plaza
Seattle, WA 98185
Gentlemen:
I have acted as counsel in connection with the filing with the Securities and
Exchange Commission of Post-Effective Amendment No. 14 to a Registration
Statement on Form S-6 for the Individual Flexible Premium Life Insurance Policy
(the "Policy") to be issued by SAFECO Life Insurance Company and its separate
account, Separate Account SL.
I have made such examination of the law and have examined such records and
documents as in my opinion are necessary or appropriate to enable me to render
the following opinion:
1. SAFECO Life Insurance Company is a valid and existing stock life
insurance company of the state of Washington.
2. Separate Account SL is a separate investment account of SAFECO Life
Insurance Company created and validly existing pursuant to the
insurance laws and regulations of the state of Washington.
3. All of the prescribed corporate procedures for the issuance of the
Policies have been followed, and, when such Policies are issued in
accordance with the Prospectus contained in the Registration
Statement, all state requirements relating to such Policies will have
been complied with.
4. Upon the acceptance of Premium Payments made by a Policyowner pursuant
to a Policy issued in accordance with the prospectus contained in the
Registration Statement and upon compliance with acceptable law, such a
Policyowner will have legally-issued, fully paid, non-assessable
contractual interest under such Policy.
You may use this opinion letter, or a copy hereof, as an exhibit to the
Registration Statement.
Very truly yours,
William E. Crawford
Counsel
73
<PAGE> 1
EXHIBIT 99.C6
CONSENT OF ACTUARY
74
<PAGE> 2
April 2, 1997
Board of Directors
SAFECO Life Insurance Company
SAFECO Plaza
Seattle, WA 98185
The "Illustrations of Death Benefits, Policy Account, Cash Surrender Values and
Accumulated Premiums" ("Hypothetical Illustrations") and the "Illustrations of
Variation in Death Benefit, Policy Account and Cash Surrender Values in
Relation to the Funds' Investment Experience" ("Illustrations") contained in
Post-Effective Amendment No. 14 to the Registration Statement on Form S-6 of
Separate Account SL, which issues flexible premium variable life insurance
policies, have been prepared in accordance with standard actuarial principles.
Both the Hypothetical Illustrations and Illustrations reflect the operation of
the Policy by taking into account all charges under the Policy and in the
underlying Fund. The Hypothetical Illustrations are shown for males in two
underwriting classifications. The Illustrations are shown for a male preferred
non-smoker.
I hereby consent to the inclusion and use of the Hypothetical Illustrations and
Illustrations in Post-Effective Amendment No. 14.
Sincerely,
James A. Mankin, F.S.A., M.A.A.A.
Actuary
75
