<PAGE>
REGISTRATION NO. 333-30329
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
PRE-EFFECTIVE AMENDMENT NO. 1
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, ESQ
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 possible after Effective Date.
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.
<PAGE>
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) Form of Participation Agreement (Fidelity VIP I & II)
Form of Sub-Licensing Agreement *
(c) Form of Participation Agreement (Fidelity VIP III)
Form of Sub-Licensing Agreement
(d) Participation Agreement by and among SAFECO
Life Insurance Company, Lexington
Natural Resources Trust, and
Lexington Management Corporation **
(e) Form of Participation Agreement (Wanger)
Form of Sub-Licensing Agreement
(f) Form of Participation Agreement (ACVP)
Form of Sub-Licensing Agreement
(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)
<PAGE>
* Incorporated by reference to Post-Effective
Amendment of SAFECO Separate Account SL filed with
the SEC on April 30, 1997 (File No. 33-10248)
** 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)
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Items Caption in Prospectus
- ------------ ---------------------
1. SAFECO, The Separate Account
2. SAFECO
3. Not Applicable
4. Distribution of the Policies
5. The Separate Account
6.(a) Not Applicable
6.(b) Not Applicable
9. Legal Proceedings
10. The Policy
11. Variable Insurance Products Funds
12. Variable Insurance Products Funds
13. Charges and Deductions
14. The Policy
15. The Separate Account
16. Variable Insurance Products Funds
17. Policy Benefits and Rights
18. The Policy
19. Not Applicable
20. Not Applicable
21. Not Applicable
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. SAFECO
26. SAFECO
27. SAFECO
28. SAFECO
29. SAFECO
30. SAFECO
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Not Applicable
36. SAFECO
37. Not Applicable
38. Distribution of the Policies
39. Distribution of the Policies
40. Not Applicable
41.(a) Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. The Policy
45. Not Applicable
46. Policy Benefits and Rights
47. Not Applicable
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. SAFECO, The Policy
52. Variable Insurance Products Funds
53. Tax Status
54. Financial Statements
55. Not Applicable
<PAGE>
INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
- ------------------------------------------------------------------------
This Prospectus describes an individual flexible premium variable life insurance
policy ("Policy"). The Policy is designed for the maximum flexibility in meeting
the insurance needs of individuals. The Policy provides death protection until
the Policy Anniversary following the Primary Insured's 95th birthday, at which
time SAFECO will pay the value of the Policy Account, less any outstanding
indebtedness.
Net premiums will be placed in the Owner's Policy Account, which are then
allocated to one or more Investment Divisions of SAFECO Life Insurance Company's
("SAFECO") Separate Account SL ("Separate Account") and/or to SAFECO's
Guaranteed Interest Division.
The Separate Account has Investment Divisions, each of which invests in shares
of a corresponding portfolio of Fidelity's Variable Insurance Products Fund,
Fidelity's Variable Insurance Products Fund II, Fidelity's Variable Insurance
Products Fund III, Lexington Natural Resources Trust, Lexington Emerging Markets
Fund, Inc., SAFECO Resource Series Trust, Wanger Advisors Trust and American
Century Variable Portfolios, Inc., collectively, the "Funds." (See "The Separate
Account" on Page 6 for further information.)
Fidelity's Variable Insurance Products Fund ("VIP") is a trust comprised of five
mutual fund portfolios, each of which is currently available in connection with
the Policies. The five portfolios are: Money Market, High Income, Equity-Income,
Growth and Overseas.
Fidelity's Variable Insurance Products Fund II ("VIP II") is a trust comprised
of five mutual fund portfolios, each of which is currently available in
connection with the Policies. The five portfolios are: Investment Grade Bond,
Asset Manager, Index 500, Asset Manager: Growth, and Contrafund.
Fidelity's Variable Insurance Products Fund III ("VIP III") is a trust comprised
of three mutual fund portfolios, each of which is currently available in
connection with the Policies. The three portfolios are: Growth Opportunities,
Growth & Income and Balanced.
Lexington Natural Resources Trust and the Lexington Emerging Markets Fund, Inc.
("Lexington Emerging Markets Fund") each consist of only one portfolio which are
offered hereunder; the Lexington Natural Resources Portfolio and the Lexington
Emerging Markets Portfolio, respectively.
SAFECO Resource Series Trust ("SAFECO RST") currently consists of six
portfolios, five of which are currently available in connection with the
Policies. The five portfolios are: Equity, Growth, Northwest, Bond and Small
Company.
Wanger Advisors Trust ("Wanger") currently consists of 2 portfolios, one of
which is currently available in connection with the Policies. The portfolio is
Wanger U.S. Small Cap.
American Century Variable Portfolios, Inc. ("ACVP") currently consists of five
portfolios, two of which are currently available in connection with the
Policies. The two portfolios are: VP International and VP Balanced.
The Guaranteed Interest Division is part of SAFECO's general account.
The portion of the Policy Account that is in an Investment Division of the
Separate Account will vary depending on the value of such Investment Division,
which in turn depends on the investment performance of the corresponding
portfolio of the Funds. There are no minimum guarantees as to the value of such
portion of the Policy Account. The portion of the Policy Account that is in the
Guaranteed Interest Division will accumulate, after deductions, at a rate of
interest determined by SAFECO. Such rate will not be less than 4% per year.
It may not be advantageous to purchase the Policy as a replacement for another
type of life insurance. It also may not be advantageous to purchase flexible
premium variable life insurance to obtain additional insurance protection if the
purchaser already owns another flexible premium life insurance policy.
The amount of death benefit, or the duration of insurance coverage, or both, may
be variable or fixed as elected by the Owner.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY CURRENT PROSPECTUSES FOR
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND, FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II, FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND III, LEXINGTON
NATURAL RESOURCES TRUST, LEXINGTON EMERGING MARKETS FUND, INC., SAFECO RESOURCE
SERIES TRUST, WANGER ADVISORS TRUST, AND AMERICAN CENTURY VARIABLE PORTFOLIOS,
INC.
THE DATE OF THIS PROSPECTUS IS OCTOBER 30, 1997.
- --------------------------------------------------------------------------------
( i )
<PAGE>
GLOSSARY
ADMINISTRATIVE OFFICE
Refers to the office where all requests should be addressed. The address of the
Administrative Office is P.O. Box 34690, Seattle, Washington 98124-8991. The
Phone number is 1-800-426-7355.
ATTAINED AGE
Age of Insured on most recent Policy Anniversary.
BENEFICIARY
The Beneficiary is as named in the application, unless later changed. The
Beneficiary is entitled to the insurance benefits of the Policy.
EFFECTIVE DATE
The Effective Date is the date when insurance coverage begins under the Policy.
FACE AMOUNT OF INSURANCE
The amount chosen by the Owner used to determine the death benefit.
GUARANTEED INTEREST DIVISION
The Guaranteed Interest Division is part of SAFECO's general account and
guarantees the principal and interest rate paid.
INSURED
Primary Insured and Rider Insured(s) identified in the Policy.
INVESTMENT DIVISION
A Division of the Separate Account invested wholly in shares of one of the
portfolios of the Funds.
MATURITY DATE
The Policy Anniversary following the Primary Insured's 95th birthday. On the
Maturity Date, the Net Cash Surrender Value will be paid to the Owner.
MAXIMUM PREMIUM
The annual premium for the Face Amount of Insurance at issue that would be
payable in equal amounts through the Maturity Date and which is based on: the
guaranteed cost of insurance using the 1980 Commissioner's Standard Ordinary
Mortality Table, the other charges made in accordance with the Policy, and the
net investment earnings at an effective annual rate of 5%.
MONTHLY ANNIVERSARY
The same day as the Effective Date for each succeeding month.
NET CASH SURRENDER VALUE
The Net Cash Surrender Value is equal to the amount in the Owner's Policy
Account, minus any applicable surrender charge, minus any loan and loan
interest.
NET PREMIUM
The premium paid less the premium tax charge that varies by state or
subdivision.
OWNER
The Owner is the Primary Insured unless named otherwise in the application or
later changed.
POLICY ACCOUNT
The sum of the value of Policy assets both in the Guaranteed Interest Division
and the Separate Account.
( ii )
<PAGE>
POLICY ANNIVERSARY
The same day and month as the Effective Date for each succeeding year.
POLICY MONTH
A period of time commencing on the same day of the month as the Effective Date
and ending on the day preceding the same day of the next month.
POLICY YEAR
The first Policy Year starts on the Effective Date. Future Policy Years start on
the same day and month in each subsequent year, i.e., the Policy Anniversary.
PRIMARY INSURED
The insured person whose death benefit includes the Policy Account.
SEPARATE ACCOUNT
A segregated asset account named SAFECO Separate Account SL, maintained by
SAFECO into which a portion of its assets has been allocated for variable life
policies.
UNIT VALUE
The unit of measure used to determine the value of the Investment Divisions in
the Separate Account.
VALUATION DAY
A valuation day is each day that the NYSE is open for trading.
VALUATION PERIOD
The interval of time between a Valuation Day and the next Valuation Day. It is
measured from the closing of the NYSE.
( iii )
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY....................................................................................... 1
SAFECO........................................................................................ 5
Advertising and Performance........................................................... 5
THE SEPARATE ACCOUNT.......................................................................... 5
SEPARATE ACCOUNT INVESTMENT DIVISIONS......................................................... 6
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS.......................................... 6
Fidelity's Variable Insurance Products Fund Investment Objectives and Policies of the
Portfolios............................................................................ 6
Fidelity's Variable Insurance Products Fund II Investment Objectives and Policies of
the Portfolios........................................................................ 7
Fidelity's Variable Insurance Products Fund III Investment Objectives and Policies of
the Portfolios........................................................................ 8
Lexington Natural Resources Trust Investment Objectives and Policies of the
Portfolio............................................................................. 9
Lexington Emerging Markets Fund Investment Objectives and Policies of the Portfolio... 9
SAFECO Resource Series Trust Investment Objectives and Policies of the Portfolios..... 9
Wanger Advisors Trust Investment Objectives and Policies of the Portfolio............. 10
American Century Variable Portfolios, Inc. Investment Objectives and Policies of the
Portfolios ........................................................................... 10
Substitution of Securities............................................................ 10
ALLOCATIONS................................................................................... 11
PREMIUMS...................................................................................... 11
The Initial Premium................................................................... 11
Subsequent Premiums................................................................... 11
Limits................................................................................ 11
Grace Period.......................................................................... 12
Reinstatement......................................................................... 12
POLICY BENEFITS AND RIGHTS.................................................................... 12
Insurance Benefits.................................................................... 12
Death Benefit......................................................................... 12
Guaranteed Death Benefit Endorsement.................................................. 13
Changing Face Amount of Insurance or Death Benefit Option............................. 13
Transfers Among Investment Options.................................................... 14
Policy Loans.......................................................................... 14
Loan Interest......................................................................... 15
Loan Repayment........................................................................ 15
Cash Withdrawal....................................................................... 16
Full Cash Surrender................................................................... 16
Other Services........................................................................ 16
Programs.......................................................................... 16
Dollar Cost Averaging Program..................................................... 16
Automatic Asset Reallocation Program.............................................. 17
SMART Distribution Program........................................................ 17
CHARGES AND DEDUCTIONS........................................................................ 17
Deductions From Premium Payments...................................................... 17
Premium Tax Charge................................................................ 17
Deductions from Policy Account........................................................ 17
First Year Administrative Charge................................................ 17
</TABLE>
( iv )
<PAGE>
<TABLE>
<S> <C>
Monthly Charges................................................................. 17
The Monthly Administrative Charge............................................. 17
The Monthly Cost of Insurance for the Primary Insured......................... 17
The Monthly Cost of Any Benefits Provided by Riders........................... 18
Deductions from Separate Account...................................................... 18
Mortality and Expense Risk Charge................................................. 18
Income Tax Charge................................................................. 18
Surrender Charges..................................................................... 18
Full Surrenders................................................................... 18
Decreases in Face Amount of Insurance............................................. 19
Fund Expenses......................................................................... 19
Fidelity's VIP, VIP II and VIP III Funds.......................................... 19
Lexington Natural Resources Trust and Lexington Emerging Markets Fund............. 20
SAFECO Resource Series Trust...................................................... 20
Wanger Advisors Trust............................................................. 20
American Century Variable Portfolios, Inc......................................... 21
VALUATION..................................................................................... 21
OTHER PROVISIONS.............................................................................. 21
Owner................................................................................. 21
Beneficiary........................................................................... 21
Changing Owner or Beneficiary......................................................... 21
Assignment............................................................................ 22
DELAY OF PAYMENTS............................................................................. 22
MANAGEMENT OF THE COMPANY..................................................................... 22
TAX STATUS.................................................................................... 23
Introduction.......................................................................... 23
Diversification....................................................................... 23
Tax Treatment of the Policy........................................................... 24
Policy Proceeds....................................................................... 24
Tax Treatment of Loans and Surrenders................................................. 24
Multiple Policies..................................................................... 25
Tax Treatment of Assignments.......................................................... 25
Qualified Plans....................................................................... 25
SEPARATE ACCOUNT VOTING RIGHTS................................................................ 26
Disregard of Voting Instructions...................................................... 26
DISTRIBUTION OF THE POLICIES.................................................................. 26
REPORTS TO POLICY OWNERS...................................................................... 27
LEGAL PROCEEDINGS............................................................................. 27
EXPERTS....................................................................................... 27
FINANCIAL STATEMENTS.......................................................................... 27
APPENDIX A -- FINANCIAL STATEMENTS............................................................ A-1
APPENDIX B -- HYPOTHETICAL ILLUSTRATIONS
Of Death Benefits, Policy Account and Net Cash Surrender Values, and Accumulated
Premiums.............................................................................. B-1
APPENDIX C -- ILLUSTRATIONS
Of Variation in Death Benefit, Policy Account and Cash Surrender Values in Relation to
the Funds' Investment Experience...................................................... C-1
APPENDIX D -- STANDARD & POOR'S 500........................................................... D-1
APPENDIX E -- LONG-TERM MARKET TRENDS......................................................... E-1
</TABLE>
( v )
<PAGE>
[This page intentionally left blank]
( vi )
<PAGE>
SUMMARY
- ------------------------------------------------------------------------
The following summary of Prospectus information and diagram of the Policy should
be read in conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy contained
in this Prospectus assumes that the Policy is in force and that there is no
outstanding indebtedness.
DIAGRAM OF POLICY
PREMIUM PAYMENTS
- The Owner can vary amount and frequency.
/
DEDUCTIONS FROM PREMIUMS
- Premium tax that varies by state or subdivision.
/
NET PREMIUM
- The Owner directs the net premium to be invested in the Guaranteed
Interest Division (GID) or to the Separate Account which offers twenty three
different Investment Divisions. Each Investment Division invests in a
separate portfolio of Fidelity's Variable Insurance Products Fund,
Fidelity's Variable Insurance Products Fund II, Fidelity's Variable
Insurance Products Fund III, Lexington Natural Resources Trust, Lexington
Emerging Markets Fund, SAFECO Resource Series Trust, Wanger Advisors Trust
or American Century Variable Portfolios, Inc.
/
DEDUCTIONS FROM POLICY ACCOUNT
- Monthly charge for cost of insurance and cost of any riders.
- Monthly charge for administrative expenses of $25.00 per month the first
year, $5.00 per month thereafter.
/
DEDUCTIONS FROM SEPARATE ACCOUNT
- Daily charge, at an annual rate of 0.70% from the Investment Divisions for
mortality and expense risks. This charge is not deducted from the GID.
- Investment advisory fees and fund expenses are deducted from each
portfolio.
/
BENEFITS
LIVING BENEFITS:
- Policy loans are available during the first ten Policy Years through 2%
net interest rate Policy loans.
- Preferred Policy loans and all Policy loans following the tenth Policy
Anniversary are at a zero net interest rate.
- The Policy may be surrendered at any time for its Net Cash Surrender
Value.
- Withdrawals can be made after the first Policy Anniversary (subject to
certain restrictions). The death benefit will be reduced by the amount of
the withdrawal.
- Accelerated payment of a portion of the lowest scheduled death benefit is
available under certain conditions to Insureds suffering from terminal
illnesses.
RETIREMENT PLANNING:
- Loans or withdrawals of Net Cash Surrender Values may be taken.
DEATH BENEFITS:
- Death benefits are income tax free to the Beneficiary.
- Lifetime income to the Beneficiary is available in a variety of settlement
options.
- For certain Policies a Guaranteed Death Benefit Endorsement may be added
to the Policy.
1
<PAGE>
THE POLICY
The Policy described in this Prospectus is a flexible premium variable life
insurance policy. The Policy is "flexible" because unlike the fixed premium and
benefits of an ordinary whole life insurance policy, the frequency and amount of
premium payments can vary, the Owner can choose between death benefit options
and increase or decrease the amount of insurance coverage, all within the same
policy of insurance.
After SAFECO accepts the Primary Insured, receives at least the minimum initial
premium and deducts certain charges, the Policy Account is established. For the
first 25 days after SAFECO establishes the Owner's Policy Account, the Policy
Account will be allocated to the Money Market Investment Division of the
Separate Account. At the end of this 25 day period, the Policy Account will be
allocated to the Investment Divisions of the Separate Account and to the
unloaned portion of the Guaranteed Interest Division in accordance with the
Owner's instructions. The Policy Account reflects the amount and frequency of
premium payments, deductions for the cost of insurance and expenses, the
investment experience of amounts allocated to the Separate Account, interest
earned on amounts allocated to the Guaranteed Interest Division, loans and
withdrawals. There is no minimum guaranteed value with respect to any amounts
allocated to the Separate Account.
The Guaranteed Interest Division guarantees the principal and interest credited
and paid. The declared interest rate will vary and is guaranteed to never be
less than 4% per year.
The Policy is "variable" because the Policy Account, and under certain
circumstances the death benefit under the Policy, may increase or decrease
depending upon the investment results of the selected Investment Divisions of
the Separate Account.
There are two death benefit options: Option A and Option B. If death benefit
Option A is in effect, the death benefit is the greater of the Face Amount of
Insurance or a percentage of the amount in the Policy Account. Under this
option, the amount of the death benefit is fixed, except when it is determined
by such a percentage. If death benefit Option B is in effect, the death benefit
is the greater of the Face Amount of Insurance plus the amount in the Policy
Account, or a percentage of the amount in the Policy Account. Under this option,
the amount of the death benefit is variable. The Owner can change the selection
of death benefit option.
SAFECO makes monthly deductions from the Policy Account (i) to cover the cost of
the benefits provided by the Policy, (ii) to cover the cost of any benefits
provided by riders to the Policy and (iii) for the cost of administering the
Policy. If the Net Cash Surrender Value of the Policy is not sufficient to cover
the monthly deduction when due, a grace period of 61 days will be allowed for
the payment of a premium or a loan repayment. If a premium or a loan repayment
sufficient to cover three monthly deductions of cost of insurance plus other
charges made in accordance with the Policy is still unpaid at the end of the
grace period, the Policy will lapse and all coverage under the Policy will
terminate. If the Guaranteed Death Benefit Endorsement is in force with the
Policy, then as long as required premiums are paid, the Policy will not
terminate prior to the Primary Insured's 80th birthday and a death benefit will
be payable upon the death of the Primary Insured regardless of the investment
performance of the Investment Divisions selected. (See "Guaranteed Death Benefit
Endorsement" on page 13.)
The Policy has been designed to comply with the definition of life insurance
contained in Section 7702 of the Internal Revenue Code of 1986, as amended.
However, the law in this regard is very complex and unclear. While every attempt
has been made to comply, there is the risk that the Internal Revenue Service
will not concur with SAFECO's interpretations of Section 7702 that were made in
determining such compliance. For a further discussion, see "Tax Status -- Tax
Treatment of the Policy" on Page 24.
THE SEPARATE ACCOUNT
The Separate Account has been established by SAFECO pursuant to the insurance
laws of the State of Washington and is organized as a unit investment trust
under the Investment Company Act of 1940, as amended. Net premiums are placed in
the Owner's Policy Account, which are then allocated to one or more Investment
Divisions of the Separate Account and/or to the Guaranteed Interest Division.
The Separate Account is divided into Investment Divisions. Each Investment
Division invests in portfolio(s) of the Funds. The Owner can choose to allocate
net premiums or cash value in up to seventeen of the available twenty three
Investment Divisions at any one time.
2
<PAGE>
Fidelity's Variable Insurance Products Fund ("VIP") is a trust comprised of five
mutual fund portfolios, each of which is currently available in connection with
the Policies. The five portfolios are: Money Market, High Income, Equity-Income,
Growth and Overseas.
Fidelity's Variable Insurance Products Fund II ("VIP II") is a trust comprised
of five mutual fund portfolios, each of which is currently available in
connection with the Policies. The five portfolios are: Investment Grade Bond,
Asset Manager, Index 500, Asset Manager: Growth and Contrafund.
Fidelity's Variable Insurance Products Fund III ("VIP III") is a trust comprised
of three mutual fund portfolios, each of which is currently available in
connection with the Policies. The three portfolios are: Growth Opportunities,
Growth & Income and Balanced.
Lexington Natural Resources Trust and the Lexington Emerging Markets Fund, Inc.
("Lexington Emerging Markets Fund") each consist of only one portfolio which are
offered hereunder; the Lexington Natural Resources Portfolio and the Lexington
Emerging Markets Portfolio, respectively.
SAFECO Resource Series Trust ("SAFECO RST") currently consists of six
portfolios, five of which are currently available in connection with the
Policies. The five portfolios are: Equity, Growth, Northwest, Bond and Small
Company.
Wanger Advisors Trust ("Wanger") currently consists of 2 portfolios, one of
which is currently available in connection with the Policies. The portfolio is
Wanger U.S. Small Cap.
American Century Variable Portfolios, Inc. ("ACVP") currently consists of five
portfolios, two of which are currently available in connection with the
Policies. The two portfolios are: VP International and VP Balanced.
RIGHT TO EXAMINE THE POLICY
The Owner may examine the Policy and if for any reason is not satisfied, may
cancel the Policy by returning it with a written request for cancellation to
SAFECO's Administrative Office by the later of: (a) the 30th day after receipt;
or (b) the 45th day after Part I of the application was signed. If the Owner
cancels the Policy, SAFECO will refund an amount equal to the premium payments
made under the Policy.
CHARGES AND DEDUCTIONS
FROM THE PREMIUM PAYMENTS
PREMIUM TAX CHARGE. State and/or local premium taxes are assessed based on the
Owner's residence.
FROM THE POLICY ACCOUNT
FIRST YEAR ADMINISTRATIVE CHARGE. During the first Policy Year, a charge of
$20.00 is deducted from the Policy Account at the beginning of each Policy
Month.
MONTHLY DEDUCTION. Deductions from the Policy Account at the beginning of each
Policy Month consist of:
1. THE MONTHLY ADMINISTRATIVE CHARGE is currently $5.00 per Policy Month.
SAFECO has reserved the right to change this charge, but it will never be
more than $8.00 per Policy Month;
2. THE MONTHLY COST OF INSURANCE for the Primary Insured; and
3. THE MONTHLY COST OF ANY BENEFITS provided by riders to the Policy.
FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. This charge is equal on an annual basis to
0.70% of the daily net asset value of the Separate Account.
INCOME TAX CHARGE. SAFECO has reserved the right to make a provision for
federal, state and local income taxes which have resulted from the operation of
any Investment Division of the Separate Account.
3
<PAGE>
SURRENDER CHARGES
FOR FULL SURRENDERS. A surrender charge of up to 50% of the Maximum Premium
will be deducted from the Policy Account if the Policy is surrendered in the
first ten Policy Years. An Owner can minimize the amount of Surrender Charge by
limiting the amount of premiums paid in the first year. (See "Charges and
Deductions -- Surrender Charges" on Page 18.)
FOR DECREASES IN FACE AMOUNT OF INSURANCE. A portion of the Surrender Charge
will be deducted from the Policy Account for decreases in the Face Amount of
Insurance. (See "Charges and Deductions -- Surrender Charges" on Page 18.)
FUND EXPENSES
Each portfolio of the Funds pays an investment advisory fee. The Funds have also
assumed responsibility for paying certain operating expenses. (See "Charges and
Deductions -- Fund Expenses" on Page 19.)
For a complete discussion of all the charges and deductions, see "Charges and
Deductions" on Page 17.
POLICY LOANS
The Owner may obtain a Policy loan, using the Policy Net Cash Surrender Value as
security. (See "Policy Benefits and Rights -- Policy Loans" on Page 14.)
TAX STATUS
MODIFIED ENDOWMENT CONTRACTS
The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) alters the tax
treatment accorded to loans and certain distributions from life insurance
policies which are deemed to be "modified endowment contracts."
A Policy will be a modified endowment contract if it is issued or materially
changed on or after June 21, 1988, and if the cumulative amount paid under it at
any time during the first seven Policy Years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums (the "7-pay test"). A material change to the Policy at any time results
in the commencement of a new 7-pay test period. An increase in a death benefit
not as a result of investment performance is a material change. A Policy that
was entered into prior to June 21, 1988, may be deemed to be a modified
endowment contract if it is materially changed and fails to meet the 7-pay test.
If the Policy is acquired through an exchange of another life insurance policy,
the 7-pay test is applicable even though the original policy was entered into
prior to June 21, 1988. Due to the flexible premium nature of the Policy, the
determination of whether it qualifies for treatment as a modified endowment
contract depends on the individual circumstances of each Policy. SAFECO will
make every effort to provide Owners with information necessary to determine the
applicability of the 7-pay test. However, Owners should consult with a tax
advisor as to its applicability to their own circumstances.
If a Policy is a modified endowment contract, partial or full surrenders and/or
loan proceeds are taxable to the extent of income in the Policy and will also be
subject to an additional 10% federal income tax penalty applied to the income.
However, the penalty does not apply to any distribution: (1) made on or after
the date on which the taxpayer reaches age 59 1/2; (2) which is attributable to
the taxpayer becoming disabled (within the meaning of Section 72(m)(7) of the
Internal Revenue Code); or (3) which is part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life expectancies) of
such taxpayer and his or her beneficiary. These distributions are taxed using an
"income-first" method rather than a "basis-first" method. Owners should consult
a tax adviser regarding the possible tax consequences of loans from and/or
surrenders of the Policy.
TAMRA further provides that multiple contracts that are issued during any
calendar year to the same Owner by one company or its affiliates are treated as
one contract for purposes of determining the taxable portion of any loans or
distributions. Such treatment may result in adverse tax consequences including
more rapid taxation of the loans or
4
<PAGE>
distributed amounts from such combination of contracts. Owners should consult a
tax adviser prior to purchasing more than one modified endowment contract during
any calendar year.
For more details, see "Tax Status -- Policy Proceeds" on Page 24 and "Tax Status
- -- Tax Treatment of Loans and Surrenders" on Page 24.
SAFECO
- ------------------------------------------------------------------------
SAFECO Life Insurance Company is a stock life insurance company which was
organized under the laws of the State of Washington on January 23, 1957. SAFECO
writes individual and group life, accident and health insurance and annuities.
SAFECO is licensed to do business in the District of Columbia and all states
except New York. SAFECO is a wholly-owned subsidiary of SAFECO Corporation,
which is a holding company whose subsidiaries are engaged primarily in insurance
and financial service businesses. The home office address of SAFECO is P.O. Box
34690, Seattle, Washington 98124-1690. The address of the Administrative Office
is P.O. Box 34690, Seattle, Washington 98124-8991. The phone number is
1-800-426-7355. All requests should be directed to the Administrative Office.
All premium payments should be directed to the address, P.O.Box 34815, Seattle,
WA 98124-1815.
ADVERTISING AND PERFORMANCE
Total returns for the Funds may be quoted in advertising and marketing materials
when accompanied by policy performance at the Separate Account level.
Comparative performance information may also be used from time to time,
including Lipper Analytical Services, Inc., Morningstar, Inc. and The VARDS
Report by Financial Planning Resources, Inc., or major market indices such as
the Dow Jones Industrial Average Index, Standard & Poor's 500 Composite Stock
Price Index, Morgan Stanley Capital International World Index, Morgan Stanley
Emerging Markets Free Index, Morgan Stanley Capital International, Europe,
Australiasia, Far East (EAFE) Index and other circular services and
publications. Such comparative performance information will be stated in the
same terms in which the comparative data and indices are stated. The services
utilize industry standard measurements some of which are described below:
Relative volatility measures the variability of a return from its mean, in terms
of a standard measurement. Beta is a measure of a portfolio's market risk. The
beta of the market is 1.00 as measured with the S&P 500 Index. Accordingly, a
portfolio with a beta of 1.10 is expected to perform 10% better than the market
in up markets and 10% worse than the market in down markets. Conversely, a beta
of .85 indicates that the portfolio is expected to perform 15% worse than the
market in up markets and 15% better than the market in down markets. R(2) is a
measure of correlation between the portfolio and a benchmark index, such as the
S&P 500 Index, calculated over three years. R(2) is a proportion that ranges
between 0.00 and 1.00. As R(2) decreases, so does the validity of the benchmark
comparison.
THE SEPARATE ACCOUNT
- ------------------------------------------------------------------------
The Board of Directors of SAFECO adopted a resolution to establish a segregated
asset account pursuant to Washington insurance law on November 6, 1986. This
segregated asset account has been designated Separate Account SL. SAFECO has
caused the Separate Account to be registered with the Securities and Exchange
Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Separate
Account meets the definition of a "separate account" under the federal
securities laws.
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
5
<PAGE>
realized, are, in accordance with the Policies, credited to or charged against
the Separate Account without regard to other income, gains or losses of SAFECO.
SAFECO's obligations arising under the Policies are general corporate
obligations.
The Separate Account is divided into Investment Divisions. Each Investment
Division invests in shares of a corresponding portfolio of the Funds. This
Prospectus describes Policies under which net premiums are allocable to
portfolios of the Funds through Investment Divisions of the Separate Account.
SEPARATE ACCOUNT INVESTMENT DIVISIONS
- ------------------------------------------------------------------------
Each Investment Division of the Separate Account is invested solely in the
shares of one portfolio of the Funds. Each of the Funds, except Lexington
Natural Resources Trust, is an open-end, diversified management investment
company registered under the 1940 Act. Lexington Natural Resources Trust is an
open-ended, non-diversified management investment company registered under the
1940 Act. While a brief summary of the investment objectives and policies of the
portfolios of the Funds is set forth below, more comprehensive information,
including a discussion of potential risks, is found in the Prospectuses for the
Funds which are included with this Prospectus. Each of the Funds is intended for
use in connection with variable annuity contracts and variable life insurance
policies offered by various life insurance companies. For a further discussion,
see the Funds' Prospectuses. Each of the Funds has entered into an investment
advisory agreement with the respective Funds' investment advisor.
Shares of the Funds are issued and redeemed in connection with variable life
policies issued through the Separate Account, other SAFECO Separate Accounts
issuing variable contracts and variable annuity and/or variable life insurance
policies issued through separate accounts of life insurance companies not
affiliated with SAFECO. Shares of the SAFECO RST may also be made directly
available to qualified plans. The Funds do not foresee any disadvantage to
Owners arising out of the fact that the Funds have been made available to
separate accounts of companies not affiliated with SAFECO. Nevertheless, the
Funds intend to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in the Fund(s). This might force
the Fund(s) to sell portfolio securities at disadvantageous prices.
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
- ------------------------------------------------------------------------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND ("VIP")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP MONEY MARKET High-quality, U.S. dollar denominated Seeks to obtain as high a level of
money market securities of domestic current income as is consistent with
and foreign issuers, such as preserving capital and providing
certificates of deposit, obligations liquidity.
of governments and their agencies and
commercial paper and notes.
VIP HIGH INCOME At least 65% in income-producing debt Seeks to obtain a high level of
securities and preferred stocks, current income by investing primarily
including convertible securities; up in high- yielding, lower-rated,
to 20% in common stocks and other fixed-income securities, while also
equity securities; and up to 15% in considering growth of capital.
securities that are illiquid by virtue High-yielding lower grade corporate
of restrictions on resale and all debt securities are commonly known as
other illiquid securities. "junk bonds" and involve a significant
degree of risk. See "Securities and
Investment Practices" in the
accompanying Variable Insurance
Products Fund Prospectus.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP EQUITY-INCOME At least 65% in income-producing Seeks reasonable income by investing
common or preferred stock and the primarily in income-producing equity
remainder in debt securities. securities, with the potential for
capital appreciation as a
consideration.
VIP GROWTH Portfolio will normally purchase Seeks to achieve capital appreciation.
common stocks, although investments
are not restricted to any one type of
security. Capital appreciation may
also be found in other types of
securities, including bonds and
preferred stocks.
VIP OVERSEAS Normally invests at least 65% of its Seeks long-term growth of capital
assets in securities of companies from primarily through investments in
at least three countries outside of foreign securities.
North America.
Funds focused on international
investing involve additional risks
compared to funds invested in
primarily domestic securities.
International funds have increased
economic and political risks as they
are exposed to events and factors in
various world markets that are beyond
our control.
</TABLE>
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP II INVESTMENT The Portfolio will maintain a dollar- Seeks as high a level of current
GRADE BOND weighted average portfolio maturity of income as is consistent with the
ten years or less. Under normal preservation of capital by investing
conditions, at least 65% of the in a broad range of investment-grade,
Portfolio's total assets will be fixed-income securities.
invested in investment-grade
fixed-income securities such as bonds,
notes and debentures. Investment-grade
securities are those rated Baa or
better by Moody's Investors Service,
Inc. or BBB or better by Standard &
Poor's Corporation, and unrated
securities judged by Fidelity
Management to be of equivalent
quality.
VIP II ASSET MANAGER The Portfolio allocates its assets Seeks high total return with reduced
among domestic and foreign stocks, risk over the long-term.
bonds and short-term fixed income
instruments.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP II INDEX 500 The Portfolio's assets will be Seeks investment results that
invested in equity securities of correspond to the total return (i.e.,
companies which compose the S&P 500*. the combination of capital changes and
income) of common stocks publicly
traded in the United States, as
represented by the Standard & Poor's
Composite Index of 500 Stocks,while
keeping transaction costs and other
expenses low.
</TABLE>
<TABLE>
<S> <C> <C>
VIP II ASSET MANAGER:
GROWTH The Portfolio's assets will be Seeks maximum total return over the
diversified across domestic and long term.
foreign stocks, bonds and short term
instruments while maintaining a
neutral mix which will vary over short
term periods gradually adjusting the
Portfolio's holdings within defined
ranges.
VIP II CONTRAFUND The Portfolio's assets will be Seeks long-term capital appreciation.
invested mainly in undervalued or
out-of-favor equity securities of
companies and industries. This
strategy can lead to investments in
stocks of small companies which may
not be well-known.
</TABLE>
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND III ("VIP III")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
VIP III GROWTH The Portfolio's assets will be Seeks to provide capital growth
OPPORTUNITIES invested mainly in common stocks and through investing in common stocks and
securities convertible to common securities convertible into common
stocks. stocks.
VIP III GROWTH & The Portfolio's assets will be Seeks high total return through a
INCOME invested mainly in equity securities combination of current income and
of companies that pay current capital appreciation.
dividends and show potential for
growth in earnings. The fund may also
invest in debt securities and equity
securities that are not paying
dividends, but offer potential for
capital appreciation or future income.
Investments may also include preferred
stocks and investment-grade debt
securities.
VIP III BALANCED The Portfolio allocates its assets Seeks high total return through a
among stocks, fixed-income senior combination of current income and
securities and other securities. capital appreciation.
</TABLE>
* "Standard & Poor's-Registered Trademark-", "S&P-Registered Trademark-", "S&P
500-Registered Trademark-", "Standard & Poor's 500" and "500" are trademarks
of Standard & Poor's Corporation ("S&P") and have been licensed for use by
SAFECO. The Index 500 Portfolio is not sponsored, endorsed, sold or promoted
by S&P and S&P makes no representation regarding the advisability of investing
in the Index 500 Portfolio.
8
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
LEXINGTON NATURAL Natural resource assets are materials Seeks long-term growth of capital
RESOURCES derived from natural sources which through investing primarily in common
have economic value. The Portfolio stocks of companies that own or
seeks to identify securities of develop natural resources and other
companies that, in its management's basic commodities, or supply goods and
opinion, are undervalued relative to services to such companies.
the value of natural resource holdings
of such companies in light of current
and anticipated economic or financial
conditions. Examples of natural
resource assets include companies that
specialize in energy sources, forest
products, environmental technology,
agriculture products, chemical
products, metals (ferrous and
non-ferrous, strategic, precious) and
other basic commodities.
</TABLE>
LEXINGTON EMERGING MARKETS FUND, INC. ("LEXINGTON EMERGING MARKETS FUND")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
LEXINGTON EMERGING The Portfolio invests primarily in Seeks long-term growth of capital
MARKETS emerging country and emerging market primarily through investment in equity
equity securities. For purposes of its securities and equivalents of
objective, the Portfolio considers companies domiciled in, or doing
emerging country equity securities to business in emerging countries and
be any country whose economy and emerging markets.
market the World Bank or United
Nations considers to be emerging or
developing. Examples of these
countries include Malaysia, Thailand,
Philippines, Brazil, Chile and Poland.
</TABLE>
SAFECO RESOURCE SERIES TRUST ("SAFECO RST")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
SAFECO RST EQUITY The Portfolio ordinarily invests Seeks long-term growth of capital and
principally in common stocks or reasonable current income.
securities convertible into common
stocks.
SAFECO RST GROWTH The Portfolio ordinarily invests a Seeks growth of capital and the
preponderance of its assets in common increased income that ordinarily
stock selected for potential follows from such growth.
appreciation.
SAFECO RST NORTHWEST The Portfolio invests at least 65% of Seeks long-term growth of capital
its total assets in securities issued through investing primarily in
by companies with their principal Northwest companies.
executive offices located in, Alaska,
Idaho, Montana, Oregon or Washington.
SAFECO RST BOND The Portfolio invests primarily in Seeks as high a level of current
medium-term debt securities. income as is consistent with the
relative stability of capital.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
SAFECO RST SMALL The Portfolio will invest primarily in Seeks long-term growth of capital
COMPANY companies with total market through investing primarily in
capitalization of less than $1 small-sized companies.
billion.
</TABLE>
WANGER ADVISORS TRUST
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
WANGER U.S. SMALL CAP The portfolio invests primarily in Seeks long-term growth of capital.
stocks of small and medium-size U.S.
companies.
</TABLE>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. ("ACVP")
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVES
- ---------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
AMERICAN CENTURY VP The fund will seek to achieve its Seeks capital growth.
INTERNATIONAL investment objective by investing
primarily in securities of foreign
companies that meet certain
fundamental and technical standards of
selection and have, in the opinion of
the investment manager, potential for
appreciation. The fund tries to stay
fully invested in such securities,
regardless of the movement of stock
prices generally.
AMERICAN CENTURY VP The fund will seek to achieve its Seeks capital growth and current
BALANCED objective by investing approximately income.
60% of its assets in growth stocks and
the remainder in fixed income
securities. With regard to the equity
portion, the fund will invest in
common stocks (including securities
convertible into common stocks and
other equity equivalents) and other
securities that meet certain
fundamental and technical standards of
selection and have, in the opinion of
the fund's investment manager,
better-than-average potential for
appreciation. The fixed income portion
of the fund will be invested in fixed
income securities, with a minimum of
25% of the fund's assets in fixed
income senior securities.
</TABLE>
There is no assurance that the investment objective of any of the portfolios
will be met. Owners bear the complete investment risk for Policy Account values
allocated to an Investment Division.
Additional portfolios and/or additional funds may from time to time be made
available as investments to underlie the Policy. However, the right to make such
selections will be limited by the terms and conditions imposed on such
transactions by SAFECO.
SUBSTITUTION OF SECURITIES
If the shares of the Funds or any portfolio within the Funds become unavailable
for investment by the Separate Account or, if in the judgment of SAFECO, further
investment in such shares becomes inappropriate in view of the purposes of the
Policy, SAFECO may substitute shares of another mutual fund (or portfolio within
the Fund(s)). No
10
<PAGE>
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under the requirements it may impose.
ALLOCATIONS
- ------------------------------------------------------------------------
The Policy provides investment options for the amount in the Policy Account. The
Owner specifies the original premium allocation and deduction allocation
percentages in the application for the Policy. Unless changed, such percentages
also apply to subsequent premium and deductions. Allocation percentages must be
zero or a whole number not greater than 100. The sum of the premium allocation
percentages and of the deduction allocation percentages must each equal 100. The
Owner can maintain balances in a maximum of seventeen Investment Divisions, in
addition to the Guaranteed Interest Division, at any one time.
After SAFECO accepts the Primary Insured, receives at least the minimum initial
premium and deducts certain charges, the Policy Account is established for the
Owner. For the first 25 days after SAFECO establishes the Owner's Policy
Account, the Policy Account will be allocated to the Money Market Investment
Division of the Separate Account. At the end of this 25 day period, the Policy
Account may be allocated to one or more Investment Divisions up to a maximum of
seventeen and to the unloaned portion of the Guaranteed Interest Division in
accordance with the Owner's instructions. Additional premiums and deductions
will be allocated to the Investment Divisions of the Separate Account and to the
unloaned portion of the Guaranteed Interest Division as specified by the Owner.
If SAFECO cannot make a monthly deduction on the basis of the allocation
percentages, the deduction will be based on the proportion that the unloaned
value in the Guaranteed Interest Division and the values in the Investment
Divisions bear to the total unloaned value in the Policy Account.
PREMIUMS
- ------------------------------------------------------------------------
THE INITIAL PREMIUM
The initial premium payment is due on or before delivery of the Policy. The
minimum initial premium required is that premium sufficient to cover two monthly
deductions for cost of insurance plus other charges made in accordance with the
Policy. The agent selling the Policy will provide a prospective purchaser with
this information. No insurance will take effect before the initial premium
payment is paid.
SUBSEQUENT PREMIUMS
Additional premiums may be paid at any time at P.O. Box 34815, Seattle, WA
98124-1815 while the Policy is in force and before the Maturity Date. These
premiums must be in the form of a check or money order payable to SAFECO Life.
Such premiums may be in any amount subject to the limits described below.
If the Owner elects to pay premiums on a planned periodic premium basis, SAFECO
will send premium reminder notices. Instead of receiving premium reminder
notices, an Owner can elect to have premiums automatically deducted from the
Owner's bank account. The Owner may skip planned premium payments or change
their frequency and amount.
For certain Policies a Guaranteed Death Benefit Endorsement may be added to the
Policy. In order to maintain this Endorsement in force, the Monthly Guaranteed
Death Benefit Premium must be paid. When the Endorsement is issued or other
changes in the Policy are requested, SAFECO will send confirmation to the Owner
which will show the Monthly Guaranteed Death Benefit Premium. (See "Guaranteed
Death Benefit Endorsement" on Page 13.)
LIMITS
SAFECO reserves the right not to accept premium payments in any Policy Year that
it determines would cause the Policy to fail to qualify as life insurance under
applicable tax law as currently interpreted by SAFECO. For a further
explanation, see "Tax Status -- Policy Proceeds" on Page 24.
11
<PAGE>
GRACE PERIOD
The duration of insurance coverage depends on whether the Net Cash Surrender
Value is sufficient to cover the monthly deductions described below. If the Net
Cash Surrender Value at the beginning of any Policy Month is less than such
deductions for that month, SAFECO will send a written notice to the Owner and
any assignee of record at the last known address stating that a grace period of
61 days has begun, starting on the date the notice was sent. The notice will
also state the amount of the payment (either a loan repayment or a premium
payment) sufficient to cover three monthly deductions of cost of insurance plus
other charges made in accordance with the Policy.
If SAFECO does not receive such amount at P.O. Box 34815, Seattle, WA
98124-1815, before the end of the grace period, SAFECO will send a written
notice to the Owner and any assignee of record stating that the Policy has ended
without value. If the Insured dies during the grace period, SAFECO will pay the
insurance benefits. The grace period provisions are not applicable while the
Guaranteed Death Benefit Endorsement is in effect.
REINSTATEMENT
If the Policy has ended without value, it may be reinstated while the Primary
Insured is alive if:
1. a request for reinstatement is made within five years after the end of the
grace period;
2. evidence of insurability satisfactory to SAFECO is provided;
3. a premium payment is made in an amount sufficient, after the date of
reinstatement, to cover three monthly deductions of cost of insurance plus
other charges made in accordance with the Policy;
4. a payment or reinstatement is made of any indebtedness against the Policy
which existed at the end of the grace period; and
5. a payment is made to cover the monthly deductions for the insurance coverage
during the grace period.
The coverage will become effective on the beginning of the Policy Month which
coincides with or next follows the date the reinstatement application is
approved.
POLICY BENEFITS AND RIGHTS
- ------------------------------------------------------------------------
INSURANCE BENEFITS
SAFECO will pay the insurance benefits of this Policy to the beneficiary when
SAFECO receives at its Administrative Office (1) proof that the Insured died
while the Policy was in force; and (2) all other requirements deemed necessary
before such payment may be made. These insurance benefits include the following
amounts for the Primary Insured, which SAFECO will determine as of the date of
the Primary Insured's death:
1. the death benefit described below; plus
2. any other benefits then due from riders to the Policy; minus
3. any loan and loan interest on the Policy; minus
4. any overdue deductions if the Primary Insured dies during the grace period.
DEATH BENEFIT
The death benefit will be determined at any time under either Option A or Option
B (as described below), whichever the Owner has chosen and is in effect at such
time.
Under Option A, the death benefit is the greater of the Face Amount of
Insurance, or a percentage (see the following table) of the amount in the Policy
Account. Under this option, the amount of the death benefit is fixed, except
when it is determined by such a percentage.
Under Option B, the death benefit is the greater of the Face Amount of Insurance
plus the amount in the Policy Account, or a percentage (see the following table)
of the amount in the Policy Account. Under this option, the amount of death
benefit is variable.
12
<PAGE>
Under either option, the duration of insurance coverage depends upon the amount
in the Policy Account.
The percentage referred to above is the applicable percentage from the following
table for the Primary Insured's age (last birthday) at the beginning of the
Policy Year of determination.
TABLE OF APPLICABLE PERCENTAGES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIMARY PRIMARY
INSURED'S AGE PERCENTAGE INSURED'S AGE PERCENTAGE
- -------------- ----------- -------------- -----------
<S> <C> <C> <C>
40 and under 250% 65 120%
45 215% 70 115%
50 185% 75 through 90 105%
55 150% 95 100%
60 130%
</TABLE>
For ages not shown, the applicable percentages shall decrease by a ratable
portion for each full year.
GUARANTEED DEATH BENEFIT ENDORSEMENT
In those states where approved, a Guaranteed Death Benefit Endorsement may be
added to the Policy. The Endorsement provides that prior to the Policy
Anniversary following the Primary Insured's 80th birthday, the Policy will not
terminate and a death benefit will be payable upon the death of the Primary
Insured regardless of the investment performance of the Investment Divisions
selected, provided the required premiums have been paid.
In order to keep the Endorsement in force, at the beginning of each Policy
Month, the Adjusted Guaranteed Death Benefit Premium must equal or exceed the
Accumulated Monthly Death Benefit Premium.
The Adjusted Guaranteed Death Benefit Premium is an amount equal to: (1) the sum
of the premiums received since issue; minus (2) any withdrawal; minus (3) any
loans and loan interest. The Accumulated Monthly Death Benefit Premium is an
amount equal to the sum of the Monthly Guaranteed Death Benefit Premiums for
each month since issue. The Monthly Guaranteed Death Benefit Premium is shown in
the Coverage Description of the Policy. The Monthly Guaranteed Death Benefit
Premium may change due to other changes the Owner has requested in the Policy.
The Guaranteed Death Benefit Endorsement is not available on policies that
include an increasing premium additional term insurance rider either on the
Primary Insured or another person.
CHANGING FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION
During the first Policy Year, the death benefit option and the Face Amount of
Insurance will be as selected on the application for the Policy. At any time
after the first Policy Year while the Policy is in force, the Owner may change
the death benefit option or the Face Amount of Insurance by written request to
SAFECO at its Administrative Office, subject to the following:
1. The Owner may ask SAFECO to increase the Face Amount of Insurance if the
Owner provides satisfactory evidence of the insurability of the Primary
Insured. Any increase must be at least $10,000.
The Owner may reconsider this Face Amount of Insurance increase after
requesting it. The Owner must mail a notice to SAFECO at its Administrative
Office canceling the increase within a thirty day period after receiving
confirmation of the increase.
2. The Owner may ask SAFECO to reduce the Face Amount of Insurance, but not to
less than the minimum amount for which SAFECO would then issue the Policy
under its then existing administrative rules. If such a reduction occurs in
the first ten Policy Years, SAFECO will deduct from the Policy Account a pro
rata share of the applicable Surrender Charge. (See "Charges and Deductions
-- Decreases in Face Amount of Insurance" on Page 19.)
3. The Owner may change the death benefit option. If the change is from Option
A to Option B, the Face Amount of Insurance will be decreased by the amount
in the Policy Account on the date of change. SAFECO has reserved the right
to decline to make such change if it would reduce the Face Amount of
Insurance below the
13
<PAGE>
minimum amount for which SAFECO would then issue the Policy under its then
existing administrative rules. If the change is from Option B to Option A,
the Face Amount of Insurance will be increased by the amount in the Policy
Account on the date of change. Such decreases and increases in the Face
Amount of Insurance are made so that the death benefit remains the same on
the date of change. There is no charge for this change.
Any changes will take effect at the beginning of the Policy Month that coincides
with or next follows the date SAFECO approves the request. SAFECO has reserved
the right to decline to make any change that is determined would cause the
Policy to fail to qualify as life insurance under applicable tax law as
interpreted by SAFECO. An Owner may ask for a change by completing an
application for change and sending it to the Administrative Office.
TRANSFERS AMONG INVESTMENT OPTIONS
At the request of the Owner, SAFECO will transfer amounts from the Owner's value
in any Investment Division to one or more other Investment Divisions or to the
Guaranteed Interest Division (GID). This transfer will take effect on the date
SAFECO receives the request in its Administrative Office. The Owner can maintain
balances in a maximum of seventeen Investment Divisions at any one time.
All such requests must be in writing (or by telephone request, if authorized) to
the Administrative Office.
At the request of the Owner, SAFECO will transfer an amount from the Owner's
unloaned value in the GID to one or more Investment Divisions. In no event will
SAFECO transfer more than such unloaned value. The Owner's unloaned value in the
GID is equal to:
1. the Owner's Policy assets in the GID; minus
2. any loan and loan interest.
However, SAFECO has the right to exercise any of the following limitations when
the Owner requests a transfer from the unloaned value in the GID: (1) postpone
the transfer for 30 days from the date SAFECO receives the Owner's request; (2)
reduce the amount of transfer so it does not exceed 25% of the Owner's unloaned
value in the GID; and (3) limit the total number of transfers to one per Policy
Year with the transfer being effective on the Policy Anniversary following the
date SAFECO receives the Owner's request.
POLICY LOANS
The Owner may obtain a loan on the Policy while it has a loan value. The Policy
will be the only security for the loan. Any amount on loan is part of the Policy
Account. The loan value on any date is 90% of the Net Cash Surrender Value on
that date, less interest at the loan interest rate to the next Policy
Anniversary. The amount of the loan may not be more than the loan value.
A request for a Policy loan must be in writing to the Administrative Office. The
Owner can elect how much of the loan is to be allocated to the unloaned value in
the Guaranteed Interest Division and to the value in each Investment Division.
Such values will be determined on the date the request is received.
If a portion of the loan is allocated to an Investment Division of the Separate
Account, SAFECO will redeem Units sufficient to cover that part of the loan and
transfer the amount to the loaned portion of the Guaranteed Interest Division.
If the Owner does not elect an allocation, the loan will be allocated on the
basis of the monthly deduction allocation percentages then in effect. If the
loan cannot be allocated on the basis of the Owner's direction or those
percentages, the loan will be based on the proportion that the unloaned value in
the Guaranteed Interest Division and the values in the Investment Divisions of
the Separate Account bear to the total unloaned value in the Policy Account.
Any amount that secures a loan remains part of the Policy Account, but is
maintained in the loaned portion of the Guaranteed Interest Division.
Policy loans reduce the policy account value and increase the potential that the
policy could lapse resulting in possible adverse tax consequences (see "Tax
Treatment of Loans and Surrenders," page 24).
For the first 10 Policy Years, the loan interest rate will be 2 percent greater
than the rate credited to that part of the GID that is security for the loan.
However, the loan interest rate charged on Preferred Loans, as defined below,
and
14
<PAGE>
on any new or existing loans after the 10th Policy Anniversary will be equal to
the rate credited to that part of the GID that is security for the loan.
During the first 10 Policy Years, the amount available as a Preferred Loan is:
1. the amount in the Policy Account; minus
2. the sum of premiums paid; plus
3. withdrawals.
On each of the first 9 Policy Anniversaries, loans will be reallocated as
Preferred or nonpreferred in accordance with the preceding formula.
LOAN INTEREST
Interest, payable in advance, will be charged on any Policy loan from the date
of the loan and shall be due and payable on each Policy Anniversary. The rate is
determined at the beginning of each Policy Year and applies to any new or
existing loan under the Policy during the Policy Year next following the date of
determination.
The maximum loan interest rate for a Policy Year is the greater of: (1) the
"Published Monthly Average," as defined below, for the calendar month that ends
two months before the date of determination; or (2) 5%. "Published Monthly
Average" means the Monthly Average Corporate Yield shown in Moody's Corporate
Bond Yield Averages published by Moody's Investors Service, Inc., or any
successor thereto. If such averages are no longer published, SAFECO will use
such other averages as may be established by regulation by the insurance
supervisory official of the jurisdiction in which the Policy is delivered. In no
event will the loan interest rate for a Policy Year be greater than the maximum
rate permitted by applicable law.
No change in the rate shall be less than 1/2 of 1% a year. SAFECO may increase
the rate whenever the maximum rate as determined by clause (1) of the preceding
paragraph increases by 1/2 of 1% or more. SAFECO will reduce the rate to or
below the maximum rate as determined by clause (1) if such maximum is lower than
the rate to be charged by 1/2 of 1% or more.
SAFECO will notify the Owner of the initial loan interest rate when a loan is
made. SAFECO will also give the Owner written notice of any increase in the
interest rate of any outstanding loan. Loan interest is due on each Policy
Anniversary. If the interest is not paid when due, it will be added to the
outstanding loan and will be deducted from the Investment Divisions and the
unloaned value in the Guaranteed Interest Division on the basis of the deduction
allocation percentages then in effect. If the deduction cannot be made on the
basis of these percentages, the deduction will be based on the proportion that
the unloaned value in the Guaranteed Interest Division and the values in the
Investment Divisions bear to the total unloaned value in the Policy Account. The
unpaid interest will then be treated as part of the loaned amount and will bear
interest at the loan rate.
LOAN REPAYMENT
All or part of a Policy loan may be repaid at any time while the Primary Insured
is alive and the Policy is in force. SAFECO will assume that any payment made,
while a loan is outstanding, is a loan repayment, unless SAFECO is notified in
writing that it is a premium payment. Repayments will be allocated among the
Guaranteed Interest Division and the Investment Divisions on the basis of the
premium allocation percentages then in effect. This does not apply to automatic
bank withdrawal payments, as they will always be considered premium.
Failure to repay a Policy loan or to pay loan interest will not terminate the
Policy unless the Net Cash Surrender Value is less than the monthly deduction
due on a Monthly Anniversary, in which case the grace period provision would
apply. (See "Premiums-Grace Period" on Page 12.)
A Policy loan will have a permanent effect on the benefits under the Policy even
if it is repaid, because the investment results of the Investment Divisions will
apply only to the amount remaining in such Investment Divisions. The longer the
loan is outstanding, the greater the effect is likely to be. Depending on the
investment results of the Investment Divisions while the loan is outstanding,
the effect could be favorable or unfavorable.
15
<PAGE>
CASH WITHDRAWAL
After the first Policy Year, an Owner may ask for a withdrawal of the Net Cash
Surrender Value. A withdrawal will result in reductions in the death benefit,
the Net Cash Surrender Value and the Policy Account. In addition, adverse tax
consequence may apply (see "Tax Treatment of Loans and Surrenders," page 24).
Any request for a withdrawal must be in writing to the Administrative Office.
The Owner may inform SAFECO of the amount of each withdrawal that is to come
from the unloaned value in the Guaranteed Division and the amount that is to
come from values in each Investment Division. If the Owner does not so inform
SAFECO, the withdrawal will be made on the basis of the monthly allocation
percentages then in effect. If SAFECO cannot make the withdrawal on the basis of
the direction of the Owner or those percentages, the withdrawal will be based on
the proportion that the unloaned value in the Guaranteed Interest Division and
the values in the Investment Division bear to the total unloaned value in the
Policy Account.
SAFECO reserves the right to decline a request for a withdrawal if (a) the death
benefit would be reduced below the minimum amount for which SAFECO would then
issue a Policy; or (b) SAFECO determines that the withdrawal would cause the
Policy to fail to qualify as life insurance under applicable tax law.
FULL CASH SURRENDER
The Owner may give up the Policy for its Net Cash Surrender Value at any time
while the Primary Insured is living. All insurance coverage will then cease.
Upon a full cash surrender of the Policy, Surrender Charges may be incurred.
(See "Charges and Deductions -- Full Surrenders" on Page 18.) In addition,
adverse tax consequences may apply (see "Tax Treatment of Loans and Surrenders,"
page 24).
OTHER SERVICES
THE PROGRAMS. SAFECO offers several investment related programs: Dollar Cost
Averaging; Automatic Asset Reallocation; and SMART Systematic Method to Access
Revenue Tax-preferred Distribution. There is no additional charge for
participating in one or more of these programs. The Dollar Cost Averaging
Program may be combined with the Automatic Asset Reallocation Program. Each of
the programs has its own requirements, as discussed below.
DOLLAR COST AVERAGING PROGRAM. Dollar Cost Averaging is a method of systematic
investing designed to achieve a lower average cost per unit over time. It does
not assure a profit nor protect against a loss in value in a declining market.
For the method to be effective, investing should continue in both market ups and
downs. Also, financial ability to maintain a consistent level of investment
should be considered.
To initiate a Dollar Cost Averaging Program, an Owner designates the source
division from which the funds will be automatically transferred, the target
divisions to which the funds will be transferred, and the corresponding
percentages or amounts to be transferred. (See "Transfers Among Investment
Options" on Page 14.) The source division can be any one of the Investment
Divisions and/or the Guaranteed Interest Division. The target divisions can be
any one or a combination of Investment Divisions and/or the Guaranteed Interest
Division. The Owner elects the transfers to occur on a monthly, quarterly,
semiannual or annual basis. The initial transfer will occur on the first Monthly
Anniversary following the date SAFECO receives the request. Subsequent transfers
will occur on the Monthly Anniversary corresponding to the interval selected.
The amount to be transferred must be stated as a set dollar amount of the
Owner's value in the source division. The amounts to be received by the target
divisions may be specified as set dollar amounts or percentages.
An Owner may enroll in this program at the time the contract is issued or
anytime thereafter by completing the Dollar Cost Averaging enrollment form and
returning it to the Administrative Office or by contacting the Administrative
Office by telephone.
By completing a new enrollment form and returning it to the Administrative
Office, or by telephoning the Administrative office, an Owner may change the
amount to be transferred from the source division, or the amount or percentage
to be received by the target divisions. Dollar Cost Averaging terminates once
all funds are depleted from the source division.
16
<PAGE>
AUTOMATIC ASSET REALLOCATION PROGRAM. Automatic Asset Reallocation is a
disciplined approach to maintaining a selected investment mix over a long term
by transferring amounts between divisions. (See "Transfers Among Investment
Options" on Page 14.)
To initiate an Automatic Asset Reallocation Program, an Owner designates which
Investment Divisions and/or Guaranteed Interest Division will participate in
rebalancing and the corresponding rebalancing percentages. The Owner elects the
rebalancing to occur on a monthly, quarterly, semiannual or annual basis. The
initial rebalancing will occur on the Monthly Anniversary following the date
SAFECO receives the request. Subsequent rebalancing will occur on the Monthly
Anniversary corresponding to the interval selected.
The Program may be terminated at any time and the percentages may be changed by
written notice or telephone authorization. The requested change must be received
at the Administrative Office.
SMART DISTRIBUTION PROGRAM. SAFECO offers a program that automatically provides
a level stream of income over a prearranged period of time. Following the second
Policy Year, SAFECO will make monthly, quarterly, semi-annual or annual
distributions of a predetermined dollar amount to an Owner that has enrolled in
the SMART Distribution Program. The distributions will occur on the Monthly
Anniversary corresponding to the interval selected. The Owner elects the
divisions from which the distributions are to be made and specifies the uniform
distribution amounts.
The Owner may elect the distributions to be all withdrawals, all loans, or a
combination of withdrawals and then loans. Distributions will follow the normal
withdrawal and loan processing requirements. (See "Cash Withdrawal" on Page 16
and "Policy Loans" on Page 14.) The distributions will be completed by
electronic funds transfer (EFT). Distributions may also result in adverse tax
consequences (see "Tax Treatment of Loans and Surrenders," page 24).
The distributions will be calculated to maintain the insurance coverage in force
to maturity using an average annual total return determined by the Owner.
CHARGES AND DEDUCTIONS
- ------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUM PAYMENTS
PREMIUM TAX CHARGE. All states and certain jurisdictions, such as cities and
counties, tax premium payments and some levy other charges. SAFECO deducts the
applicable tax which it has been charged from each premium payment based on the
Owner's residence.
DEDUCTIONS FROM POLICY ACCOUNT
FIRST YEAR ADMINISTRATIVE CHARGE. At the beginning of each Policy Month during
the first Policy Year, a deduction of $20.00 is made from the Policy Account. It
covers the cost of application processing, establishing Policy records and
underwriting costs. Underwriting is the process of assigning the Insured to an
appropriate risk class. SAFECO does not make a profit from this charge.
MONTHLY CHARGES. At the beginning of each Policy Month, a deduction is made
from the Policy Account to cover monthly administrative charges and to provide
insurance coverage, subject to the grace period provision described above. Such
deduction for any Policy Month is the sum of the following amounts determined as
of the beginning of that month:
1. THE MONTHLY ADMINISTRATIVE CHARGE is currently $5.00 per Policy Month.
However, SAFECO reserves the right to change this charge, but it will never
be more than $8.00 per Policy Month. This charge compensates SAFECO for the
ongoing administration of the Policy and the Separate Account. Such
administration includes the costs associated with maintenance of Policy
records, Policy Owner service, reports to Owners and all accounting, reserve
calculation, regulatory and reporting requirements and auditing of the
Separate Account. SAFECO does not expect to profit from this charge.
2. THE MONTHLY COST OF INSURANCE FOR THE PRIMARY INSURED. The monthly cost of
insurance is the current monthly "cost of insurance rate" times the "net
amount at risk" (current death benefit minus the amount in the Policy
Account) at the beginning of the Policy Month, plus any flat extra-rated
charge times the Face Amount of
17
<PAGE>
Insurance at the beginning of the Policy Month. For this purpose the amount in
the Policy Account is determined before the monthly cost of insurance deduction,
but after all other deductions due on that date have been made. The cost of
insurance is based on issue age, coverage duration and rating class of the
Primary Insured and a preferred underwriting category is available to Insureds
who are determined to have better than average nonsmoker mortality (preferred
nonsmoker) and smoker mortality (preferred smoker). As of the date hereof, the
current rates which SAFECO is charging are less than or equal to the guaranteed
rates. SAFECO may change the current rate no more frequently than once per
Policy Year. The Guaranteed Maximum Insurance Cost Rates for standard risks are
based on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday.
3. THE MONTHLY COST OF ANY BENEFITS PROVIDED BY RIDERS to the Policy.
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 21). This risk charge is equal on an annual basis to .70% of the daily
net asset value of the Separate Account. This risk charge compensates SAFECO for
assuming the mortality and expense risks under the Policy. The mortality risk
assumed by SAFECO is that the Primary Insureds, as a group, may not live as long
as expected. The expense risk assumed by SAFECO is that actual expenses may be
greater than those assumed. SAFECO is responsible for all administration of the
Policy and the Separate Account. If this charge is not needed to cover mortality
and expenses under the Policy, any excess may be used for distribution costs.
SAFECO will realize a gain from this charge to the extent that it is not needed
to provide benefits and pay expenses under the Policy.
INCOME TAX CHARGE. SAFECO does not currently assess any charge for income taxes
incurred by SAFECO as a result of the operations of the Investment Divisions of
the Separate Account. SAFECO reserves the right to assess a charge for such
taxes against the Investment Divisions if SAFECO determines that such taxes will
be incurred.
SURRENDER CHARGES
FULL SURRENDERS. The Policy provides that a Surrender Charge, which is graded
down 20% per year starting in the seventh year, is deducted from the Policy
Account if the Policy is given up for its Net Cash Surrender Value in the first
ten Policy Years. The Surrender Charge at any time in a Policy Year is equal to
the lesser of (1) a percentage of the Maximum Premium for the Policy as follows:
50% for Policy Years 1 through 6, 40% for Policy Year 7, 30% for Policy Year 8,
20% for Policy Year 9, and 10% for Policy Year 10; or (2) an amount equal to (A)
minus (B), where (A) is 30% of the premium payments received during the first
Policy Year up to the Maximum Premium for the Policy, plus 9% of all other
premium payments received to the time of surrender; and (B) is the amount of any
pro rata Surrender Charge previously made under the Policy.
The Maximum Premium is used solely to calculate the Surrender Charge; it does
not impose a limit on the amount of premium that an Owner can pay. There is a
limitation imposed by the Internal Revenue Code and the regulations thereunder.
(See "Premiums -- Limits" on Page 11.) While an Owner can minimize the amount of
Surrender Charge by limiting the amount of premium paid in the first year, this
would adversely effect contract performance in every aspect other than the
contemplation of a total cash surrender.
EXAMPLE
- --------------------------------------------------------------------------------
Assume a $100,000 Policy for a male preferred non-smoker, age 45. For this
Policy the Maximum Premium is $1,716.00. The Table of Surrender Charges that
appears in the Coverage Description would be determined as follows:
TABLE OF SURRENDER CHARGES
<TABLE>
<CAPTION>
POLICY MAXIMUM MAXIMUM SURRENDER
YEAR PERCENTAGE PREMIUM CHARGE
- ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
1 50.0% x $1,716 = $858
2 50.0% x $1,716 = $858
3 50.0% x $1,716 = $858
4 50.0% x $1,716 = $858
5 50.0% x $1,716 = $858
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POLICY MAXIMUM MAXIMUM SURRENDER
YEAR PERCENTAGE PREMIUM CHARGE
- ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
6 50.0% x $1,716 = $858
7 40.0% x $1,716 = $686
8 30.0% x $1,716 = $515
9 20.0% x $1,716 = $343
10 10.0% x $1,716 = $172
</TABLE>
The Surrender Charges reimburse SAFECO in part for expenses incurred in the
distribution of the Policy.
DECREASES IN FACE AMOUNT OF INSURANCE. If there is a requested decrease in the
Face Amount of Insurance during the first ten Policy Years, SAFECO will deduct a
portion of the Surrender Charge from the Policy Account. If the Owner increased
the Face Amount in the past and is now applying for a decrease, the decrease
will be taken against the coverage increases first, starting with the most
recent increase. If a surrender charge applies at the time of the decrease,
SAFECO will deduct a surrender charge from the Policy Account. The maximum
Surrender Charge payable in the future will be reduced proportionately.
FUND EXPENSES
FIDELITY'S VIP FUND, VIP II FUND AND VIP III FUND
<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER AFTER
FEES EXPENSES REIMBURSEMENT
----------------- ------------- -------------------
<S> <C> <C> <C>
VIP Money Market 0.21% 0.09% 0.30%
VIP High Income 0.59% 0.12% 0.71%
VIP Equity-Income 0.51% 0.07% 0.58%(1)
VIP Growth 0.61% 0.08% 0.69%(1)
VIP Overseas 0.76% 0.17% 0.93%(1)
VIP II Investment Grade Bond 0.45% 0.13% 0.58%
VIP II Asset Manager 0.64% 0.10% 0.74%(1)
VIP II Index 500 0.13% 0.15% 0.28%(2)
VIP II Contrafund 0.61% 0.13% 0.74%(1)
VIP II Asset Manager: Growth 0.65% 0.22% 0.87%(1)
VIP III Balanced 0.48% 0.24% 0.72%(1)
VIP III Growth Opportunities 0.61% 0.16% 0.77%(1)
VIP III Growth & Income 0.50% 0.20% 0.70%
</TABLE>
Each portfolio of the Funds pays all its expenses, without limitation, that are
not assumed by the investment advisor or its affiliates. Each portfolio pays for
the typesetting and printing of its Prospectuses, Statements of Additional
Information, reports and proxy material to existing shareholders, legal expenses
and the fees of the custodian, auditor and non-interested Trustees. Other
charges paid by each portfolio include interest, taxes, brokerage commissions,
each portfolio's proportionate share of insurance premiums and Investment
Company Institute dues, and the costs of registering shares under federal and
state securities laws. Each portfolio is also liable for such nonrecurring
expenses as may arise, including costs of litigation to which each portfolio is
a party and any obligation they may have to indemnify the officers and Trustees
of the Fund(s) with respect to litigation.
(1)A portion of the brokerage commission that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented
in the table would have been .56% for Equity Income Portfolio, .67% for
Growth Portfolio, .92% for Overseas Portfolio, .73% for Asset Manager
Portfolio, .71% for Contrafund Portfolio, .85% for Asset Manager: Growth
Portfolio, .76% for Growth Opportunities Portfolio, and .71% for Balanced
Portfolio.
(2)FMR (Fidelity Management Research) 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.
19
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST AND LEXINGTON EMERGING MARKETS FUND, INC.
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. Other Expenses and Total Expenses After
Reimbursement for Lexington Natural Resources Trust are .42% and 1.42%
respectively. Other Expenses and Total Expenses After Reimbursement for
Lexington Emerging Markets Fund are .79% and 1.64% respectively.
Each Fund pays all its expenses, without limitation, that are not assumed by
Lexington Management Corporation. These expenses include, but are not limited
to, accounting, printing and mailing expenses; custodian, directors',
professional, registration and computer processing fees; and other operating
expenses.
<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER AFTER
FEES EXPENSES REIMBURSEMENT
------------- ------------- -------------
<S> <C> <C> <C>
Lexington Natural Resources Trust 1.00% 0.42% 1.42%
Lexington Emerging Markets Fund 0.85% 0.79% 1.64%
</TABLE>
SAFECO RESOURCE SERIES TRUST*
<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER AFTER
FEES EXPENSES REIMBURSEMENT
------------- ------------- -------------
<S> <C> <C> <C>
SAFECO RST Equity Portfolio 0.70% 0.02% 0.72%
SAFECO RST Growth Portfolio 0.72% 0.07% 0.79%
SAFECO RST Northwest Portfolio 0.70% 0.00%** 0.70%
SAFECO RST Bond Portfolio 0.73% 0.00%** 0.73%
SAFECO RST Small Company Portfolio 0.85% 0.10%*** 0.95%
</TABLE>
* As a percentage of average net assets.
** SAFECO pays all Other Expenses of the Northwest and Bond Portfolios until
the portfolio's assets reach $20 million. Once a portfolio's assets exceed
$20 million, the Other Expenses of the portfolio will be paid by such
portfolio.
During the year ended December 31, 1996, SAFECO paid for or reimbursed all
of the Other Expenses of the Northwest and Bond Portfolios. Expenses before
such reimbursement as a percentage of net assets were as follows:
<TABLE>
<S> <C>
SAFECO RST Northwest Portfolio 1.11%
SAFECO RST Bond Portfolio 0.87%
</TABLE>
*** The amounts shown for the Small Company Portfolio are estimated expenses
based on the maximum management fee and estimated Other Expenses. SAFECO
Asset Management Company (SAM) will pay all Other Expenses of the Small
Company Portfolio in excess of .10% of the portfolio's average annual net
assets until such time as the portfolio's net assets exceed $20 million.
Once the portfolio's net assets exceed $20 million, all of the Other
Expenses will be paid by the portfolio. For the fiscal year ending December
31, 1997, the estimated Other Expenses for the Small Company Portfolio are
expected to total .35%.
WANGER ADVISORS TRUST:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
----------------- ------------- -------------------
<S> <C> <C> <C>
Wanger U.S. Small Cap 0.99% 0.22% 1.21%
</TABLE>
As required by the SEC rules, "Other Expenses" reflects gross custodian fees.
Net of custodian fees paid indirectly, Other Expenses would have been 0.20% and
Total Expenses would have been 1.19%.
20
<PAGE>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
----------------- ------------- -------------------
<S> <C> <C> <C>
American Century VP International 1.50% 0.00% 1.50%
American Century VP Balanced 1.00% 0.00% 1.00%
</TABLE>
VALUATION
- ------------------------------------------------------------------------
The amount in the Policy Account in an Investment Division at any time is equal
to the number of units attributable to the Policy Account in that Investment
Division multiplied by the Division Unit Value at that time. Amounts allocated,
transferred or added to an Investment Division are used to purchase units of
that Division. Units are redeemed when amounts are deducted, transferred or
withdrawn.
The Division Unit Value in the current Valuation Period is equal to (1)
multiplied by (2) where:
(1) is the Division Unit Value for the preceding Valuation Period; and
(2) is the net investment factor for the Investment Division for the current
Valuation Period.
The net investment factor for an Investment Division for a Valuation Period is
(a) divided by (b), minus (c), where:
(a) is the net asset value of the shares owned by that Investment Division
before any Policy transactions are made plus the per share amount of any
dividend or capital gain distribution paid by the investment companies at
the end of the current Valuation Period;
(b) is the net asset value of the shares owned by that Investment Division after
all Policy transactions were made at the end of the immediately preceding
Valuation Period;
(c) is a charge not exceeding .70% per year for mortality and expense risks,
plus any charge for taxes or amounts set aside as a reserve for taxes, for
the current Valuation Period.
The net asset value of an investment company's shares held in each Investment
Division shall be the value reported to SAFECO by that investment company.
OTHER PROVISIONS
- ------------------------------------------------------------------------
OWNER
If the Primary Insured is living on the Maturity Date, the Owner will receive
the amount in the Policy Account on that date minus any outstanding loan and
loan interest. The Policy will then end.
The Owner is entitled to exercise all the rights of the Policy while the Primary
Insured is living. To exercise a right the Owner does not need the consent of
anyone who has only a conditional or future ownership interest in the Policy.
BENEFICIARY
If two or more persons are named as Beneficiary, those who survive the Insured
will share the insurance benefits equally, unless other arrangements have been
made. If there is no designated Beneficiary living at the death of the Insured,
the benefits will be paid to the Owner or Owner's estate.
If any Beneficiary dies within 60 days after the Insured, and before payment of
any proceeds, payment will be made as though the Beneficiary had died before the
Insured. The Beneficiary designation may include provisions that replace the
ones described here.
CHANGING OWNER OR BENEFICIARY
While the Insured is living, the Owner or Beneficiary may be changed by
providing written notice from the Policy Owner to the Administrative Office.
Such a change will be effective when written notice is received and recorded and
will control payment of proceeds made after that time.
21
<PAGE>
ASSIGNMENT
The Policy may be assigned, but SAFECO will not be bound by an assignment unless
it has received such assignment in writing at its Administrative Office. The
Owner's rights and those of any other person under the Policy will be subject to
the assignment. SAFECO assumes no responsibility for the validity of an
assignment. A collateral assignment will not change ownership. An absolute
assignment will be considered as a change of ownership to the assignee.
DELAY OF PAYMENTS
- ------------------------------------------------------------------------
SAFECO will generally pay Policy proceeds within seven business days of receipt
of a completed request for such payment. However, SAFECO reserves the right to
postpone surrender payments and loans from the Guaranteed Interest Division for
up to six months. SAFECO reserves the right to postpone any type of payment from
the Separate Account for any period when:
1. the New York Stock Exchange is closed other than customary weekend and
holiday closings;
2. trading on the Exchange is restricted;
3. an emergency exists as a result of which it is not reasonably practicable to
dispose of securities held in the Separate Account or determine their value;
or
4. the Securities and Exchange Commission so permits delay for the protection
of security holders.
The applicable rules of the Securities and Exchange Commission shall govern as
to whether the conditions in 2 and 3 exist.
MANAGEMENT OF THE COMPANY
- ------------------------------------------------------------------------
The following are the Officers and Directors of SAFECO:
OFFICERS
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH SAFECO
- ---------------------------------- -----------------------------------------------------------------
<S> <C>
Roger H. Eigsti Chairman of the Board
Richard E. Zunker President
John P. Fenlason Senior Vice President
James T. Flynn Vice President, Controller and Assistant Secretary
Patrick B. McCormick Vice President
Roger F. Harbin Senior Vice President and Actuary
Michael J. Kinzer Vice President and Chief Actuary
Rod A. Pierson Senior Vice President and Secretary
</TABLE>
DIRECTORS
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH SAFECO
- ---------------------------------- -----------------------------------------------------------------
<S> <C>
Donald S. Chapman Director
Boh A. Dickey Director
Roger H. Eigsti Director
Rod A. Pierson Director
James W. Ruddy Director
Robert L. Spaulding Director
Robert W. Swegle Director
Richard E. Zunker Director
</TABLE>
* The business address for Messrs. Zunker, Fenlason, Flynn, McCormick, Harbin,
and Kinzer is 15411 N.E. 51st Street, Redmond, Washington 98052. The
business address for all other individuals listed is SAFECO Plaza, Seattle,
Washington 98185.
22
<PAGE>
TAX STATUS
- ------------------------------------------------------------------------
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON SAFECO'S UNDERSTANDING OF CURRENT
FEDERAL INCOME TAX LAW APPLICABLE TO LIFE INSURANCE IN GENERAL. SAFECO CANNOT
PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE. PURCHASERS
ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY OF SUCH
CHANGES. SECTION 7702 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), DEFINES THE TERM "LIFE INSURANCE CONTRACT" FOR PURPOSES OF THE CODE.
SAFECO BELIEVES THAT THE POLICIES TO BE ISSUED WILL QUALIFY AS "LIFE INSURANCE
CONTRACTS" UNDER SECTION 7702. SAFECO DOES NOT GUARANTEE THE TAX STATUS OF THE
POLICIES. PURCHASERS BEAR THE COMPLETE RISK THAT THE POLICIES MAY NOT BE TREATED
AS "LIFE INSURANCE" UNDER FEDERAL INCOME TAX LAWS. PURCHASERS SHOULD CONSULT
THEIR OWN TAX ADVISERS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING
DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED IN THIS
PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.
INTRODUCTION
The discussion contained herein is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any applicable state or other tax laws. Moreover, the
discussion herein is based upon SAFECO's understanding of current federal income
tax laws as they are currently interpreted. No representation is made regarding
the likelihood of continuation of those current federal income tax laws or of
the current interpretations by the Internal Revenue Service.
SAFECO is taxed as a life insurance company under the Code. For federal income
tax purposes, the Separate Account is not a separate entity from SAFECO and its
operations form a part of SAFECO.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable life insurance policies. The Code provides that a
variable life insurance policy will not be treated as life insurance for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the Policy
as a life insurance contract would result in imposition of federal income tax on
the Owner with respect to earnings allocable to the Policy prior to the receipt
of payments under the Policy. The Code contains a safe harbor provision which
provides that life insurance policies such as the Policies meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five (55%) percent of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies. There is an exception for securities issued by the U.S. Treasury in
connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
Section 1.817-5), which establish diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (i) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (ii) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (iii) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these Regulations, all securities of the same
issuer are treated as a single investment.
The Technical and Miscellaneous Revenue Act of 1988 ("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 & Research Company, Lexington Management
Corporation, SAFECO Asset Management Company, Wanger Asset Management, L.P. and
American Century Investment Management, Inc. in such a manner as to comply with
these diversification requirements.
23
<PAGE>
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Policy is different
in some respects from the situations addressed in published rulings issued by
the Internal Revenue Service in which it was held that the Policy Owner was not
the owner of the assets of the separate account. It is unknown whether these
differences, such as the Owner's ability to transfer among investment choices or
the number and type of investment choices available, would cause the Owner to be
considered as the owner of the assets of the Separate Account.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, SAFECO reserves the right to modify the
Policy in an attempt to maintain favorable tax treatment.
TAX TREATMENT OF THE POLICY
The Policy has been designed to comply with the definition of life insurance
contained in Section 7702 of the Code. Although some interim guidance has been
provided and proposed regulations have been issued, final regulations have not
been adopted. Section 7702 of the Code requires the use of reasonable mortality
and other expense charges. In establishing these charges, SAFECO has relied on
the interim guidance provided in IRS Notice 88-128 and proposed regulations
issued on July 5, 1991. Currently, there is even less guidance as to a Policy
issued on a substandard risk basis and thus it is even less clear whether a
Policy issued on such basis would meet the requirements of Section 7702 of the
Code.
While SAFECO has attempted to comply with Section 7702, the law in this area is
very complex and unclear. There is a risk, therefore, that the Internal Revenue
Service will not concur with SAFECO's interpretations of Section 7702 that were
made in determining such compliance. In the event the Policy is determined not
to so comply, it would not qualify for the favorable tax treatment usually
accorded life insurance policies. Owners should consult their tax advisers with
respect to the tax consequences of purchasing the Policy.
POLICY PROCEEDS
The tax treatment accorded to loan proceeds and/or surrender payments from the
Policies will depend on whether the Policy is considered to be a modified
endowment contract. (See "Tax Treatment of Loans and Surrenders" on Page 24.)
Otherwise, SAFECO believes that the Policy should receive the same federal
income tax treatment as any other type of life insurance. As such, the death
benefit thereunder is excludable from the gross income of the Beneficiary under
Section 101(a) of the Code. Also, the Owner is not deemed to be in constructive
receipt of the Policy Account or Net Cash Surrender Value, including increments
thereon, under a Policy until there is a distribution of such amounts.
Federal, state and local estate, inheritance and other tax consequences of
ownership, or receipt of Policy proceeds, depend on the circumstances of each
Owner or Beneficiary.
TAX TREATMENT OF LOANS AND SURRENDERS
Section 7702A of the Code sets forth the rules for determining when a life
insurance policy will be deemed to be a Modified Endowment Contract. A modified
endowment contract is a contract which is entered into or materially changed on
or after June 21, 1988 and fails to meet the 7-pay test. A Policy fails to meet
the 7-pay test when the cumulative amount paid under the Policy at any time
during the first seven Policy Years exceeds the sum of the net level premiums
which would have been paid on or before such time if the Policy provided for
paid-up future benefits after the payment of seven level annual premiums. A
material change would include any increase in the future benefits or addition of
qualified additional benefits provided under a Policy unless the increase is
attributable to: (1) the payment of premiums necessary to fund the lowest death
benefit and qualified additional benefits payable in
24
<PAGE>
the first seven Policy years; or (2) the crediting of interest or other earnings
(including policyholder dividends) with respect to such premiums.
Furthermore, any Policy received in exchange for a Policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. The status of an exchange of a
contract issued before June 21, 1988 is unclear; however, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988 will be considered as entered
into as of the date of the exchange and therefore subject to Section 7702A.
Due to the flexible premium nature of the Policy, the determination of whether
it qualifies for treatment as a modified endowment contract depends on the
individual circumstances of each Policy.
If the Policy is classified as a modified endowment contract, then surrenders
and/or loan proceeds are taxable to the extent of income in the Policy. Such
distributions are deemed to be on a last-in, first-out basis, which means the
taxable income is distributed first. Loan proceeds and/or surrender payments may
also be subject to an additional 10% federal income tax penalty applied to the
income portion of such distribution. The penalty shall not apply, however, to
any distributions: (1) made on or after the date on which the taxpayer reaches
age 59 1/2; (2) which is attributable to the taxpayer becoming disabled (within
the meaning of Section 72(m)(7) of the Code); or (3) which is part of a series
of substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of such taxpayer and his beneficiary.
If a Policy is not classified as a modified endowment contract, then any
surrenders will be treated first as a recovery of the investment in the Policy
which would not be received as taxable income. However, if a distribution is the
result of a reduction in benefits under the Policy within the first fifteen
years after the Policy is issued in order to comply with Section 7702, such
distribution will, under rules set forth in Section 7702, be taxed as ordinary
income to the extent of income in the Policy.
Any loans from a Policy which is not classified as a modified endowment
contract, will be treated as indebtedness of the Owner and not a distribution.
Personal interest payable on a loan under a Policy owned by an individual is
generally not deductible. Furthermore, no deduction will be allowed for interest
on loans under Policies covering the life of any employee or officer of the
taxpayer or any person financially interested in the business carried on by the
taxpayer to the extent the indebtedness for such employee, officer or
financially interested person exceeds $50,000. The deductibility of interest
payable on Policy loans may be subject to further rules and limitations under
Sections 163 and 264 of the Code.
Policy Owners should seek competent tax advice on the tax consequences of taking
loans, distributions or surrendering any Policy.
MULTIPLE POLICIES
TAMRA further provides that multiple contracts that are issued within a calendar
year period to the same owner by one company or its affiliates are treated as
one contract for purposes of determining the taxable portion of any loans or
distributions. Such treatment may result in adverse tax consequences including
more rapid taxation of the loans or distributed amounts from such combination of
contracts. Policy Owners should consult a tax adviser prior to purchasing more
than one modified endowment contract in any calendar year period.
TAX TREATMENTS OF ASSIGNMENTS
An assignment of a Policy may be a taxable event. Policy Owners should therefore
consult competent tax advisers should they wish to assign their Policies.
QUALIFIED PLANS
The Policies may be used in conjunction with certain qualified plans. Because
the rules governing such use are complex, a purchaser should not do so until he
has consulted a competent qualified plans consultant.
25
<PAGE>
SEPARATE ACCOUNT VOTING RIGHTS
- ------------------------------------------------------------------------
In accordance with its view of present applicable law, SAFECO will vote the
shares with respect to each 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 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 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 portfolio in its own
right, it may elect to do so.
The voting interests of the Owner (or the Beneficiary) in the portfolios 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 portfolio as of the record date
for the shareholder meeting of the Fund. Fractional votes are counted. Policy
Account values in the Guaranteed Interest Division will not be considered in
determining the voting interests of the Owner.
The number of shares which a person has a right to vote will be determined as of
the record date set by the Fund's Board which must be at least 14 days and not
more than 90 days prior to the meeting of the Fund.
Each person having the voting interest in the Separate Account will receive
periodic reports relating to the portfolios 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 or portfolios 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 portfolios or which varies from
the general quality and nature of investments and investment techniques used by
other funds with similar investment objectives underlying other separate
accounts of SAFECO or of an affiliated life insurance company. In the event that
SAFECO does disregard voting instructions, a summary of that action and the
reasons for such action will be included in the next semi-annual report.
DISTRIBUTION OF THE POLICIES
- ------------------------------------------------------------------------
The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for the
Separate Account, SAFECO Securities, Inc., P.O. Box 34890, Seattle, Washington
98124-1890, a wholly-owned subsidiary of SAFECO Corporation. Prior to April 29,
1994, PNMR Securities, Inc., an affiliate of SAFECO Securities, acted as
principal underwriter for the Separate Account. SAFECO pays commissions to the
selling broker-dealers which may vary.
The commissions paid to registered representatives on the sale of the Policies
are not more than 60% of the premiums paid in the first year nor more than 2%
during renewal years. In addition, commissions, overrides and bonuses may be
paid to the distributors of the Policies. There are no separate deductions,
other than previously described, to pay sales commissions or sales expenses.
26
<PAGE>
REPORTS TO POLICY OWNERS
- ------------------------------------------------------------------------
Within 30 days after every third Policy Month, a quarterly statement will be
sent to each Owner. Taken together every four Quarterly Statements make up an
annual statement providing a complete year to date Policy history for the
proceeding Policy Year. These statements will show the current amount of death
benefits payable under the Policy, the current value of the Policy Account, the
current Net Cash Surrender Value and any loan, including loan interest. These
statements will also show premiums paid, investment returns and all charges
deducted during the Policy Year.
LEGAL PROCEEDINGS
- ------------------------------------------------------------------------
There are no legal proceedings to which the Separate Account or the Principal
Underwriter is a party. SAFECO is engaged in various kinds of routine litigation
which, in the opinion of SAFECO, is not of material importance in relation to
the total capital and surplus of SAFECO.
EXPERTS
- ------------------------------------------------------------------------
The financial statements of SAFECO Life Separate Account SL at December 31, 1996
and for each of the periods indicated therein, and the consolidated financial
statements of SAFECO Life Insurance Company and Subsidiaries at December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and in the Registration Statement. Such
Financial statements have been included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
The financial statements of SAFECO that are included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Policy. They should not be considered as bearing upon the investment
experience of the Investment Divisions of the Separate Account.
The most current financial statements of the Company are those as of the end of
the most recent fiscal year. The Company does not prepare financial statements
more often than annually. Any incremental benefit of more frequent financial
statements, though unaudited, does not justify the additional cost of preparing
them.
Therefore, SAFECO has not provided interim Financial Statements. There has been
no adverse material change in SAFECO's financial position since the dates of the
Audited Financial Statements.
27
<PAGE>
SAFECO LIFE
SEPARATE ACCOUNT SL
AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
A-1
<PAGE>
SEPARATE ACCOUNT SL
DECEMBER 31, 1996
TABLE OF CONTENTS
Statement of Assets and Liabilities....................................... A-4
Statement of Operations................................................... A-5
Statement of Changes in Net Assets........................................ A-6
Notes to Financial Statement.............................................. A-7
A-2
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of SAFECO Life Insurance Company and
Unitholders of SAFECO Life Separate Account SL
We have audited the accompanying statement of assets and liabilities of the
Investment Divisions of SAFECO Life Separate Account SL (comprising,
respectively, the Fidelity VIP Growth, Fidelity VIP Money Market, Fidelity VIP
Equity Income, Fidelity VIP Overseas, Fidelity VIP High Income, Fidelity VIP II
Investment Grade Bond, Fidelity VIP II Asset Manager, Fidelity VIP II Index 500,
Fidelity VIP II Contrafund, Fidelity VIP II Asset Manager: Growth, SAFECO RST
Equity, SAFECO RST Growth, SAFECO RST Northwest, SAFECO RST Bond, Lexington
Natural Resources, and Lexington Emerging Markets Divisions) as of December 31,
1996, and the related statements of operations and changes in net assets, and
the unit values for each of the periods indicated therein. These financial
statements and unit values are the responsibility of SAFECO Life Separate
Account SL's management. Our responsibility is to express an opinion on these
financial statements and unit values based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and unit values are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
the unit values. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with Fidelity Management and Research
Company, SAFECO Resource Series Trust, Lexington Natural Resources Trust, and
Lexington Emerging Markets Fund, Inc. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and unit values referred to above
present fairly, in all material respects, the financial position of each of the
respective Investment Divisions of SAFECO Life Separate Account SL as listed
above at December 31, 1996, the results of their operations, the changes in
their net assets, and their unit values for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 31, 1997
A-3
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY VIP VIP FIDELITY
VIP MONEY EQUITY VIP
GROWTH MARKET INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
Variable Insurance Products Fund ("VIP")
Cost:
Growth Portfolio - $12,041,755 $13,828,604
Money Market Portfolio - 1,947,891 $ 1,947,891
Equity Income Portfolio - 5,878,562 $ 6,905,843
Overseas Portfolio - 3,756,282 $ 4,224,947
Due (To) From SAFECO LIFE....................... (15,850) 432 (668) (386)
----------- ----------- ----------- -----------
Net Assets...................................... $13,812,754 $ 1,948,323 $ 6,905,175 $ 4,224,561
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Units Outstanding............................... 65,318.146 16,323.151 29,568.961 28,044.526
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Unit Value and Redemption Price Per Unit........ $ 211.469 $ 119.360 $ 233.528 $ 150.638
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-4
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
VIP VIP II VIP II FIDELITY
HIGH INVESTMENT ASSET VIP II
INCOME GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION DIVISION
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
Variable Insurance Products Fund ("VIP")
Cost:
High Income Portfolio - $1,365,314 $ 1,445,332
Variable Insurance Products Fund ("VIP II")
Cost:
Investment Grade Bond Portfolio - 692,913 $ 717,688
Asset Manager Portfolio - 6,971,437 $ 8,084,845
Index 500 Portfolio - 2,741,349 $ 3,131,806
Due (To) From SAFECO LIFE.................. (160) 1,834 (1,700) (346)
----------- ------------- ------------- -------------
Net Assets................................. $ 1,445,172 $ 719,522 $ 8,083,145 $ 3,131,460
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
Units Outstanding.......................... 10,146.110 5,462.481 47,774.983 17,980.394
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
Unit Value and Redemption Price Per Unit... $ 142.436 $ 131.721 $ 169.192 $ 174.160
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements
A-4a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY
VIP II
FIDELITY 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>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO LEXINGTON LEXINGTON
RST RST NATURAL EMERGING
NORTHWEST BOND RESOURCES MARKETS
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
SAFECO Resource Series Trust ("RST")
Cost:
Northwest Portfolio - $ 9,069 $ 9,216
Bond Portfolio - 8,391 $ 8,038
Lexington Natural Resources Trust
Cost:
Natural Resources Portfolio - 624,550 $ 683,427
Lexington Emerging Markets Fund, Inc.
Cost:
Emerging Markets Portfolio - 516,116 $ 512,750
Due (To) From SAFECO LIFE....................... (400) 0 (14) 0
----------- ----------- ----------- -----------
Net Assets...................................... $ 8,816 $ 8,038 $ 683,413 $ 512,750
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Units Outstanding............................... 88.842 79.865 5,936.067 5,424.580
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Unit Value and Redemption Price Per Unit........ $ 99.237 $ 100.648 $ 115.129 $ 94.523
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-4c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
FIDELITY FIDELITY
FIDELITY VIP VIP FIDELITY
VIP MONEY EQUITY VIP
GROWTH MARKET INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends....................................... $ 652,496 $ 106,904 $ 220,067 $ 73,902
Expenses (Note 3):
Mortality and Expense Risk Charge............. (106,992) (18,880) (52,471) (33,173)
----------- ----------- ----------- -----------
Net Investment Income (Loss).................... 545,504 88,024 167,596 40,729
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments......... 666,095 0 261,564 84,017
Net Change in Unrealized Appreciation
(Depreciation) of Investments................. 189,972 0 308,534 292,888
----------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments................................... 856,067 0 570,098 376,905
----------- ----------- ----------- -----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... $1,401,571 $ 88,024 $ 737,694 $ 417,634
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-5
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
FIDELITY FIDELITY FIDELITY
VIP VIP II VIP II FIDELITY
HIGH INVESTMENT ASSET VIP II
INCOME GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION DIVISION
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 62,691 $ 50,447 $ 440,128 $ 54,385
Expenses (Note 3):
Mortality and Expense Risk Charge........ (9,849) (7,083) (66,690) (17,435)
----------- ------------- ------------- -------------
Net Investment Income (Loss)............... 52,842 43,364 373,438 36,950
----------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments.... 14,163 7,591 67,740 68,068
Net Change in Unrealized Appreciation
(Depreciation) of Investments............ 61,598 (36,058) 502,688 290,744
----------- ------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on
Investments.............................. 75,761 (28,467) 570,428 358,812
----------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $ 128,603 $ 14,897 $ 943,866 $ 395,762
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements
A-5a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
FIDELITY
VIP II
FIDELITY ASSET SAFECO SAFECO
VIP II MANAGER: RST RST
CONTRAFUND GROWTH EQUITY GROWTH
DIVISION DIVISION DIVISION* DIVISION*
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................... $ 11,263 $ 41,438 $ 30,039 $ 115,216
Expenses (Note 3):
Mortality and Expense Risk Charge.......... (18,320) (4,651) (675) (3,614)
------------- ------------- ----------- -----------
Net Investment Income (Loss)................. (7,057) 36,787 29,364 111,602
------------- ------------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments...... 36,577 12,549 2,283 (3,530)
Net Change in Unrealized Appreciation
(Depreciation) of Investments.............. 383,171 43,534 (11,822) 23,996
------------- ------------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments................................ 419,748 56,083 (9,539) 20,466
------------- ------------- ----------- -----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 412,691 $ 92,870 $ 19,825 $ 132,068
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
- ------------
* For the period from April 30, 1996 (date of inception) through December 31,
1996.
See Notes to Financial Statements
A-5b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
SAFECO SAFECO LEXINGTON LEXINGTON
RST RST NATURAL EMERGING
NORTHWEST BOND RESOURCES MARKETS
DIVISION* DIVISION* DIVISION* DIVISION*
----------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................... $ 60 $ 439 $ 2,151 $ 0
Expenses (Note 3):
Mortality and Expense Risk Charge.......... (18) (17) (1,331) (1,451)
----- ------ ----------- -------------
Net Investment Income (Loss)................. 42 422 820 (1,451)
----- ------ ----------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments...... (13) 0 5,839 (3,540)
Net Change in Unrealized Appreciation
(Depreciation) of Investments.............. 147 (353) 58,877 (3,366)
----- ------ ----------- -------------
Net Realized and Unrealized Gain (Loss) on
Investments................................ 134 (353) 64,716 (6,906)
----- ------ ----------- -------------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 176 $ 69 $ 65,536 $ (8,357)
----- ------ ----------- -------------
----- ------ ----------- -------------
</TABLE>
- ------------
* For the period from April 30, 1996 (date of inception) through December 31,
1996.
See Notes to Financial Statements
A-5c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
GROWTH DIVISION MONEY MARKET DIVISION
------------------------ ------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)..................... $ 545,504 $ (36,557) $ 88,024 $ 63,118
Net Realized Gain (Loss) on Investments.......... 666,095 188,204 0 0
Net Change in Unrealized Appreciation
(Depreciation) of Investments.................. 189,972 1,533,152 0 0
----------- ----------- ----------- -----------
Net Change in Net Assets from Operations......... 1,401,571 1,684,799 88,024 63,118
CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums................... 4,124,943 2,788,510 3,446,186 2,556,160
Transfers out for Policy Related Transactions.... (1,568,735) (1,047,233) (130,228) (262,728)
Transfers between Separate Account SL's Divisions
and (to) from Guaranteed Interest Division,
Net............................................ 1,043,497 1,455,022 (2,712,658) (3,011,769)
Gain (Loss) Attributable to SAFECO Life.......... (3,620) (1,542) (10,424) 1,967
----------- ----------- ----------- -----------
Net Change in Net Assets from Policy
Transactions................................... 3,596,085 3,194,757 592,876 (716,370)
----------- ----------- ----------- -----------
Net Change in Net Assets......................... 4,997,656 4,879,556 680,900 (653,252)
Net Assets, Beginning of Period.................. 8,815,098 3,935,542 1,267,423 1,920,675
----------- ----------- ----------- -----------
Net Assets, End of Period........................ $13,812,754 $ 8,815,098 $ 1,948,323 $ 1,267,423
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-6
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY INCOME DIVISION OVERSEAS DIVISION
---------------------- ----------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)........................ $ 167,596 $ 155,355 $ 40,729 $ (6,143)
Net Realized Gain (Loss) on Investments............. 261,564 40,434 84,017 20,370
Net Change in Unrealized Appreciation (Depreciation)
of Investments.................................... 308,534 707,446 292,888 204,791
---------- ---------- ---------- ----------
Net Change in Net Assets from Operations............ 737,694 903,235 417,634 219,018
CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums...................... 2,357,488 1,581,131 1,166,002 1,213,891
Transfers out for Policy Related Transactions....... (902,544) (503,402) (538,631) (334,256)
Transfers between Separate Account SL's Divisions
and (to) from Guaranteed Interest Division, Net... 20,519 813,922 269,996 (217,295)
Gain (Loss) Attributable to SAFECO Life............. (1,691) (278) (673) (570)
---------- ---------- ---------- ----------
Net Change in Net Assets from Policy Transactions... 1,473,772 1,891,373 896,694 661,770
---------- ---------- ---------- ----------
Net Change in Net Assets............................ 2,211,466 2,794,608 1,314,328 880,788
Net Assets, Beginning of Period..................... 4,693,709 1,899,101 2,910,233 2,029,445
---------- ---------- ---------- ----------
Net Assets, End of Period........................... $6,905,175 $4,693,709 $4,224,561 $2,910,233
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements
A-6a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP INVESTMENT GRADE
HIGH INCOME DIVISION BOND DIVISION
--------------------- --------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
--------------------- --------------------
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)............................ $ 52,842 $ 17,317 $ 43,364 $ 19,947
Net Realized Gain (Loss) on Investments................. 14,163 59,151 7,591 21,080
Net Change in Unrealized Appreciation (Depreciation) of
Investments........................................... 61,598 19,704 (36,058) 76,923
---------- --------- --------- ---------
Net Change in Net Assets from Operations................ 128,603 96,172 14,897 117,950
CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums.......................... 489,342 300,343 271,528 269,765
Transfers out for Policy Related Transactions........... (192,518) (78,496) (144,121) (185,044)
Transfers between Separate Account SL's Divisions and
(to) from Guaranteed Interest Division, Net........... 326,333 101,072 (412,302) 39,576
Gain (Loss) Attributable to SAFECO Life................. (37) (72) 64 192
---------- --------- --------- ---------
Net Change in Net Assets from Policy Transactions....... 623,120 322,847 (284,831) 124,489
---------- --------- --------- ---------
Net Change in Net Assets................................ 751,723 419,019 (269,934) 242,439
Net Assets, Beginning of Period......................... 693,449 274,430 989,456 747,017
---------- --------- --------- ---------
Net Assets, End of Period............................... $1,445,172 $ 693,449 $ 719,522 $ 989,456
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See Notes to Financial Statements
A-6b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
ASSET MANAGER DIVISION INDEX 500 DIVISION
------------------------ ----------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
------------------------ ----------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)....................... $ 373,438 $ 58,189 $ 36,950 $ 1,833
Net Realized Gain (Loss) on Investments............ 67,740 83,052 68,068 86,079
Net Change in Unrealized Appreciation
(Depreciation) of Investments.................... 502,688 780,414 290,744 97,988
----------- ----------- ---------- ----------
Net Change in Net Assets from Operations........... 943,866 921,655 395,762 185,900
CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS:
Transfers in from Net Premiums..................... 2,044,200 2,403,059 1,192,914 512,837
Transfers out for Policy Related Transactions...... (1,211,057) (1,114,423) (284,721) (123,725)
Transfers between Separate Account SL's Divisions
and (to) from Guaranteed Interest Division,
Net.............................................. (422,044) (733,021) 670,973 403,638
Gain (Loss) Attributable to SAFECO Life............ (2,344) (322) (159) (182)
----------- ----------- ---------- ----------
Net Change in Net Assets from Policy
Transactions..................................... 408,755 555,293 1,579,007 792,568
----------- ----------- ---------- ----------
Net Change in Net Assets........................... 1,352,621 1,476,948 1,974,769 978,468
Net Assets, Beginning of Period.................... 6,730,524 5,253,576 1,156,691 178,223
----------- ----------- ---------- ----------
Net Assets, End of Period.......................... $ 8,083,145 $ 6,730,524 $3,131,460 $1,156,691
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
See Notes to Financial Statements
A-6c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
CONTRAFUND DIVISION ASSET MANAGER: GROWTH DIVISION
------------------------------- -------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1996 1995* 1996 1995*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)......... $ (7,057) $ 11,419 $ 36,787 $ 7,571
Net Realized Gain (Loss) on
Investments........................ 36,577 5,064 12,549 766
Net Change in Unrealized Appreciation
(Depreciation) of Investments...... 383,171 5,779 43,534 (2,769)
------------- ------------- ------------- -------------
Net Change in Net Assets from
Operations......................... 412,691 22,262 92,870 5,568
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums....... 1,223,954 352,947 247,373 52,359
Transfers out for Policy Related
Transactions....................... (250,013) (34,578) (47,071) (5,450)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net................................ 744,280 727,253 315,334 142,922
Gain (Loss) Attributable to SAFECO
Life............................... (4,087) (1,118) 3,877 1,098
------------- ------------- ------------- -------------
Net Change in Net Assets from Policy
Transactions....................... 1,714,134 1,044,504 519,513 190,929
------------- ------------- ------------- -------------
Net Change in Net Assets............. 2,126,825 1,066,766 612,383 196,497
Net Assets, Beginning of Period...... 1,066,766 0 196,497 0
------------- ------------- ------------- -------------
Net Assets, End of Period............ $ 3,193,591 $ 1,066,766 $ 808,880 $ 196,497
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
- ------------
* For the period from April 30, 1995 (date of inception) through December 31,
1995.
See Notes to Financial Statements
A-6d
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SAFECO RST SAFECO RST SAFECO RST
EQUITY GROWTH NORTHWEST
DIVISION DIVISION 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>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
NATURAL EMERGING
SAFECO RST RESOURCES MARKETS
BOND DIVISION DIVISION DIVISION
------------- ------------- -------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31** DECEMBER 31** DECEMBER 31**
1996 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
CHANGE IN NET ASSETS FROM OPERATIONS:
Net Investment Income (Loss)................ $ 422 $ 820 $ (1,451)
Net Realized Gain (Loss) on Investments..... 0 5,839 (3,540)
Net Change in Unrealized Appreciation
(Depreciation) of Investments............. (353) 58,877 (3,366)
------------- ------------- -------------
Net Change in Net Assets from Operations.... 69 65,536 (8,357)
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums.............. 7,138 136,380 132,526
Transfers out for Policy Related
Transactions.............................. (41) (9,309) (14,320)
Transfers between Separate Account SL's
Divisions and (to) from Guaranteed
Interest Division, Net.................... 870 480,695 402,781
Gain (Loss) Attributable to SAFECO Life..... 2 10,111 120
------------- ------------- -------------
Net Change in Net Assets from Policy
Transactions.............................. 7,969 617,877 521,107
------------- ------------- -------------
Net Change in Net Assets.................... 8,038 683,413 512,750
Net Assets, Beginning of Period............. 0 0 0
------------- ------------- -------------
Net Assets, End of Period................... $ 8,038 $ 683,413 $ 512,750
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------
** For the period from April 30, 1996 (date of inception) through December 31,
1996.
See Notes to Financial Statements
A-6f
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
SAFECO Life Separate Account SL (Account SL) is a separate account of SAFECO
Life Insurance Company (SAFECO), a wholly-owned subsidiary of SAFECO
Corporation, and is a unit investment trust registered under the Investment
Company Act of 1940, as amended.
Account SL was formed by SAFECO to support the operations of its variable
life insurance policies. SAFECO Securities, Inc., a wholly-owned subsidiary
of SAFECO Corporation, is the principal underwriter of the Policies issued
through Account SL. The assets of Account SL are the property of SAFECO and
such assets applicable to the Policies will not be chargeable with
liabilities arising out of any other business SAFECO may conduct.
On January 3, 1996, SAFECO was granted approval in an order by the SEC to
transfer Policy Account Values from Investment Divisions invested in
portfolios of Hudson River Trust to certain Investment Divisions invested in
portfolios of Variable Insurance Products (VIP) and Variable Insurance
Product II (VIPII). On February 20, 1996, SAFECO transferred the Policy
Account Values specified in the order. From February 20, 1996 to April 29,
1996, Account SL consisted solely of ten Investment Divisions invested in
portfolios of VIP and VIPII.
On April 30, 1996, Account SL introduced six new Investment Divisions to
policyholders. These divisions invest in the Equity, Growth, Northwest, and
Bond Portfolios of SAFECO Resource Series Trust, the Lexington Natural
Resources Portfolio of Lexington Natural Resources Trust, and the Lexington
Emerging Markets Portfolio of the Lexington Emerging Markets Fund, Inc.
Policyowners are permitted to transfer their funds to other investment
divisions of Account SL and to the Guaranteed Interest Division, which is
not part of Account SL.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of Account SL are prepared in conformity with
generally accepted accounting principles, which permits management to make
certain estimates and assumptions at the date of the financial statements.
Descriptions of the significant accounting policies used in preparing the
financial statements are set forth below.
SECURITY VALUATION. Investments in shares are valued at the net asset value
of the respective portfolio.
SECURITY TRANSACTIONS. Investment transactions are recorded on the trade
date. Realized gains (losses) on sales of shares are determined on the basis
of identified cost. Net investment income and net realized and unrealized
gain (loss) on investments are allocated to the contracts on a pro rata
basis.
FEDERAL INCOME TAXES. The operations of Account SL are included in the
Federal income tax return of SAFECO. Under the provisions of the policies,
SAFECO has the right to charge Account SL. No charge is currently being made
against Account SL for such tax since, under current tax law, SAFECO pays no
tax on investment income and capital gains reflected in variable life
insurance policy reserves.
3. EXPENSES
SAFECO assumes mortality and expense risks related to the operations of
Account SL and deducts a charge from the assets of Account SL at an annual
rate of .90% of policyowners' net assets to cover these risks. SAFECO also
makes deductions from premiums for administrative expenses and state premium
taxes before amounts are allocated to Account SL.
A-7
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. UNIT ACTIVITY
<TABLE>
<CAPTION>
FIDELITY VIP
FIDELITY VIP MONEY MARKET
GROWTH DIVISION(1) DIVISION
-------------------- --------------------
YEAR ENDED 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
EQUITY INCOME(1) OVERSEAS 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 II
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>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP II ASSET MANAGER:
CONTRAFUND DIVISION GROWTH DIVISION
------------------------------------ --------------------------------------
YEAR ENDED 1996 PERIOD ENDED 1995* YEAR ENDED 1996 PERIOD ENDED 1995*
--------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Units:
Units Sold....................... 15,208 9,226 4,590 1,750
Units Redeemed................... (1,897) (295) (397) (48)
------- ----- ----- -----
Net Increase (Decrease).......... 13,311 8,931 4,193 1,702
------- ----- ----- -----
------- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
SAFECO RST
GROWTH
SAFECO RST DIVISION(1)
EQUITY DIVISION -----------------
------------------- PERIOD ENDED
PERIOD ENDED DECEMBER 31
DECEMBER 31 1996** 1996**
------------------- -----------------
<S> <C> <C>
Units:
Units Sold...................................................... 2,782 12,683
Units Redeemed.................................................. (63) (340)
----- -------
Net Increase (Decrease)......................................... 2,719 12,343
----- -------
----- -------
</TABLE>
<TABLE>
<CAPTION>
SAFECO RST SAFECO RST
NORTHWEST DIVISION BOND DIVISION
--------------------- ---------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31 1996** DECEMBER 31 1996**
--------------------- ---------------------
<S> <C> <C>
Units:
Units Sold...................................................... 93 80
Units Redeemed.................................................. (4) (0)
-- --
Net Increase (Decrease)......................................... 89 80
-- --
-- --
</TABLE>
<TABLE>
<CAPTION>
LEXINGTON NATURAL LEXINGTON EMERGING
RESOURCES DIVISION MARKETS DIVISION(1)
------------------- -------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31 1996** DECEMBER 31 1996**
------------------- -------------------
<S> <C> <C>
Units:
Units Sold...................................................... 6,044 5,577
Units Redeemed.................................................. (108) (153)
----- -----
Net Increase (Decrease)......................................... 5,936 5,424
----- -----
----- -----
</TABLE>
- ------------
(1) Officers of SAFECO have minor investments in this investment division at
December 31, 1996
* For the period from April 30, 1995 (date of inception) through December 31,
1995.
** For the period from April 30, 1996 (date of inception) through December 31,
1996.
A-9
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
GROWTH MONEY MARKET EQUITY INCOME
DIVISION DIVISION DIVISION
------------- ------------- -------------
<S> <C> <C> <C>
Purchases............................................... $ 6,750,699 $ 5,490,861 $ 2,728,393
------------- ------------- -------------
------------- ------------- -------------
Sales................................................... ($2,607,222) ($4,809,783) ($1,086,546)
------------- ------------- -------------
------------- ------------- -------------
Number of Shares Owned at December 31, 1996............. 444,078 1,947,891 328,381
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
FIDELITY VIP
FIDELITY VIP FIDELITY VIP II INVESTMENT
OVERSEAS HIGH INCOME GRADE BOND
DIVISION DIVISION DIVISION
------------- ------------- -------------
<S> <C> <C> <C>
Purchases............................................... $ 1,905,974 $ 1,705,017 $ 662,797
------------- ------------- -------------
------------- ------------- -------------
Sales................................................... ($968,365) ($1,028,883) ($903,820)
------------- ------------- -------------
------------- ------------- -------------
Number of Shares Owned at December 31, 1996............. 224,254 115,442 58,635
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
FIDELITY VIP
FIDELITY VIP II ASSET
II ASSET FIDELITY VIP FIDELITY VIP MANAGER:
MANAGER II INDEX 500 II 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>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996*
---------------------------------------------------
SAFECO RST
SAFECO RST SAFECO RST NORTHWEST
EQUITY DIVISION GROWTH 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
--------------- --------------- ---------------
--------------- --------------- ---------------
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996*
---------------------------------------------------
LEXINGTON LEXINGTON
NATURAL EMERGING
SAFECO RST 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>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. UNIT VALUES
The following are unit values attributable to unitholders as of the date
indicated:
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
FIDELITY VIP MONEY MARKET EQUITY INCOME FIDELITY VIP
GROWTH DIVISION DIVISION DIVISION OVERSEAS DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... $ 118.301 $ 103.032 $ 123.900 $ 90.087
December 31, 1993.................... 139.950 105.409 145.146 122.522
December 31, 1994.................... 138.673 108.907 154.013 123.521
December 31, 1995.................... 186.039 114.270 206.203 134.264
December 31, 1996.................... 211.469 119.360 233.528 150.638
<CAPTION>
FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II
HIGH INCOME INVESTMENT GRADE ASSET MANAGER INDEX 500
DIVISION BOND DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... N/A $ 105.619 $ 115.113 N/A
December 31, 1993.................... $ 108.076 116.148 138.097 $ 105.094
December 31, 1994.................... 105.455 110.786 128.527 105.239
December 31, 1995.................... 126.046 128.816 148.977 143.089
December 31, 1996.................... 142.436 131.721 169.192 174.160
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
CONTRAFUND ASSET MANAGER: SAFECO RST EQUITY SAFECO RST GROWTH
DIVISION GROWTH DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... N/A N/A N/A N/A
December 31, 1993.................... N/A N/A N/A N/A
December 31, 1994.................... N/A N/A N/A N/A
December 31, 1995.................... $ 119.439 $ 115.467 N/A N/A
December 31, 1996.................... 143.581 137.235 $ 117.794 $ 115.231
<CAPTION>
SAFECO RST LEXINGTON NATURAL LEXINGTON
NORTHWEST SAFECO RST BOND RESOURCES EMERGING MARKETS
DIVISION DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1992.................... N/A N/A N/A N/A
December 31, 1993.................... N/A N/A N/A N/A
December 31, 1994.................... N/A N/A N/A N/A
December 31, 1995.................... N/A N/A N/A N/A
December 31, 1996.................... $99.237 $ 100.648 $ 115.129 $94.523
</TABLE>
N/A Unit Values are shown beginning the first year end after inception for the
respective division.
A-12
<PAGE>
SAFECO LIFE
SEPARATE ACCOUNT SL
UNAUDITED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30,1997
A-13
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
JUNE 30, 1997
TABLE OF CONTENTS
Statement of Assets and Liabilities....................................... A-15
Statement of Operations................................................... A-16
Statement of Changes in Net Assets........................................ A-17
Notes to Financial Statements............................................. A-18
A-14
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
FIDELITY VIP MONEY VIP EQUITY VIP
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 - $12,800,804 $15,458,563
Money Market Portfolio - 3,012,536 $ 3,012,536
Equity Income Portfolio - 7,593,757 $ 9,024,510
Overseas Portfolio - 4,489,028 $ 5,263,995
Due (To) From SAFECO LIFE....................... (19,184) 280 (1,466) (948)
----------- ----------- ----------- -----------
Net Assets...................................... $15,439,379 $ 3,012,816 $ 9,023,044 $ 5,263,047
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Units Outstanding............................... 64,427.251 24,666.927 33,344.167 30,140.837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Unit Value and Redemption Price Per Unit........ $ 239.641 $ 122.140 $ 270.603 $ 174.615
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-15
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
FIDELITY VIP II INVESTMENT II ASSET FIDELITY VIP
HIGH INCOME GRADE BOND MANAGER II 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 - $1,526,772 $ 1,585,450
Variable Insurance Products Fund II ("VIP II")
Cost:
Investment Grade Bond Portfolio - 721,142 $ 727,476
Asset Manager Portfolio - 8,082,601 $ 9,074,079
Index 500 Portfolio - 3,367,768 $ 4,223,427
Due (To) From SAFECO LIFE................................... (278) 1,842 (2,549) (794)
------------- ------------- ------------- -------------
Net Assets.................................................. $ 1,585,172 $ 729,318 $ 9,071,530 $ 4,222,633
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Units Outstanding........................................... 10,379.355 5,409.660 48,429.983 20,260.736
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Unit Value and Redemption Price Per Unit.................... $ 152.724 $ 134.818 $ 187.312 $ 208.415
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements
A-15a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP
II ASSET
FIDELITY VIP MANAGER: SAFECO RST SAFECO RST
II 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 - $3,653,096 $ 4,322,724
Asset Manager: Growth Portfolio -
1,297,081 $ 1,455,320
SAFECO Resource Series Trust ("RST")
Cost:
Equity Portfolio - 1,072,492 $ 1,159,481
Growth Portfolio - 2,411,377 $ 2,736,636
Due (To) From SAFECO LIFE............... (459) (253) (86) 7,409
------------- ------------- ------------- -------------
Net Assets.............................. $ 4,322,265 $ 1,455,067 $ 1,159,395 $ 2,744,045
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Units Outstanding....................... 27,088.176 9,331.056 8,452.535 20,502.814
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Unit Value and Redemption Price Per
Unit.................................. $ 159.563 $ 155.938 $ 137.165 $ 133.837
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements
A-15b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
SAFECO RST NATURAL EMERGING
NORTHWEST SAFECO RST RESOURCES MARKETS
DIVISION BOND DIVISION DIVISION DIVISION
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
NET ASSETS:
Investments at fair value in:
SAFECO Resource Series Trust ("RST")
Cost:
Northwest Portfolio - $51,012 $ 56,301
Bond Portfolio - 61,761 $ 62,756
Lexington Natural Resources Trust
Cost:
Natural Resources Portfolio - 867,227 $ 953,900
Lexington Emerging Markets Fund, Inc.
Cost:
Emerging Markets Portfolio - 610,472 $ 678,961
Due (To) From SAFECO LIFE..................... (478) (4) (58) (58)
------------- ------------- ----------- ----------
Net Assets.................................... $ 55,823 $ 62,752 $ 953,842 $ 678,903
------------- ------------- ----------- ----------
------------- ------------- ----------- ----------
Units Outstanding............................. 476.893 614.268 8,035.289 6,269.117
------------- ------------- ----------- ----------
------------- ------------- ----------- ----------
Unit Value and Redemption Price Per Unit...... $ 117.055 $ 102.157 $ 118.707 $ 108.293
------------- ------------- ----------- ----------
------------- ------------- ----------- ----------
</TABLE>
See Notes to Financial Statements
A-15c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------
FIDELITY FIDELITY
FIDELITY VIP VIP FIDELITY
VIP MONEY EQUITY VIP
GROWTH MARKET INCOME OVERSEAS
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends....................................... $ 516,357 $ 67,482 $ 730,426 $ 374,033
Expenses (Note 3):
Mortality and Expense Risk Charge............. (64,163) (10,791) (34,937) (20,413)
----------- ----------- ----------- -----------
Net Investment Income (Loss).................... 452,194 56,691 695,489 353,620
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments......... 450,902 0 75,225 46,399
Net Change in Unrealized Appreciation
(Depreciation) of Investments................. 870,911 0 403,472 306,302
----------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments................................... 1,321,813 0 478,697 352,701
----------- ----------- ----------- -----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS:..................................... $1,774,007 $ 56,691 $1,174,186 $ 706,321
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-16
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------
FIDELITY FIDELITY FIDELITY
VIP VIP II VIP II FIDELITY
HIGH INVESTMENT ASSET VIP II
INCOME GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION DIVISION
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 118,089 $ 41,932 $ 990,660 $ 112,819
Expenses (Note 3):
Mortality and Expense Risk Charge........ (6,602) (3,160) (37,806) (15,937)
----------- ------------- ------------- -------------
Net Investment Income (Loss)............... 111,487 38,772 952,854 96,882
----------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments.... 16,599 (3,749) 41,397 91,633
Net Change in Unrealized Appreciation
(Depreciation) of Investments............ (21,340) (18,441) (121,930) 465,201
----------- ------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on
Investments.............................. (4,741) (22,190) (80,533) 556,834
----------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS:................................ $ 106,746 $ 16,582 $ 872,321 $ 653,716
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements
A-16a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------
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>
INVESTMENT INCOME (LOSS):
Dividends.................................... $ 104,398 $ 1,396 $ 0 $ 0
Expenses (Note 3):
Mortality and Expense Risk Charge.......... (16,418) (5,007) (2,888) (8,769)
------------- ------------- ----------- -----------
Net Investment Income (Loss)................. 87,980 (3,611) (2,888) (8,769)
------------- ------------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments...... 38,853 31,967 6,835 45,278
Net Change in Unrealized Appreciation
(Depreciation) of Investments.............. 280,679 117,474 98,810 301,263
------------- ------------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments................................ 319,532 149,441 105,645 346,541
------------- ------------- ----------- -----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS:.................................. $ 407,512 $ 145,830 $ 102,757 $ 337,772
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-16b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------
SAFECO SAFECO LEXINGTON LEXINGTON
RST RST NATURAL EMERGING
NORTHWEST BOND RESOURCES MARKETS
DIVISION DIVISION DIVISION DIVISION
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................... $ 0 $ 0 $ 0 $ 0
Expenses (Note 3):
Mortality and Expense Risk Charge.......... (141) (208) (3,134) (3,286)
------- ------- ----------- -----------
Net Investment Income (Loss)................. (141) (208) (3,134) (3,286)
------- ------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments...... 592 163 18,533 17,935
Net Change in Unrealized Appreciation
(Depreciation) of Investments.............. 5,142 1,347 27,796 71,855
------- ------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments................................ 5,734 1,510 46,329 89,790
------- ------- ----------- -----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS:.................................. $ 5,593 $ 1,302 $ 43,195 $ 86,504
------- ------- ----------- -----------
------- ------- ----------- -----------
</TABLE>
See Notes to Financial Statements
A-16c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
GROWTH DIVISION MONEY MARKET DIVISION
-------------------------------- --------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97 12/31/96 6/30/97 12/31/96
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income (Loss)....... $ 452,194 $ 545,504 $ 56,691 $ 88,024
Net Realized Gain (Loss) on
Investments...................... 450,902 666,095 0 0
Net Change in Unrealized
Appreciation (Depreciation) of
Investments...................... 870,911 189,972 0 0
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Operations....................... 1,774,007 1,401,571 56,691 88,024
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums..... 1,706,024 4,124,943 1,682,612 3,446,186
Transfers out for Policy Related
Transactions..................... (799,446) (1,568,735) (149,789) (130,228)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net.............................. (1,047,372) 1,043,497 (528,873) (2,712,658)
Gain (Loss) Attributable to SAFECO
Life............................. (6,588) (3,620) 3,852 (10,424)
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Policy Transactions.............. (147,382) 3,596,085 1,007,802 592,876
---------------- -------------- ---------------- --------------
Net Change in Net Assets........... 1,626,625 4,997,656 1,064,493 680,900
Net Assets, Beginning of Period.... 13,812,754 8,815,098 1,948,323 1,267,423
---------------- -------------- ---------------- --------------
Net Assets, End of Period.......... $ 15,439,379 $ 13,812,754 $ 3,012,816 $ 1,948,323
---------------- -------------- ---------------- --------------
---------------- -------------- ---------------- --------------
</TABLE>
See Notes to Financial Statements
A-17
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY INCOME DIVISION OVERSEAS DIVISION
-------------------------------- --------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97 12/31/96 6/30/97 12/31/96
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income (Loss)....... $ 695,489 $ 167,596 $ 353,620 $ 40,729
Net Realized Gain (Loss) on
Investments...................... 75,225 261,564 46,399 84,017
Net Change in Unrealized
Appreciation (Depreciation) of
Investments...................... 403,472 308,534 306,302 292,888
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Operations....................... 1,174,186 737,694 706,321 417,634
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums..... 1,069,275 2,357,488 551,489 1,166,002
Transfers out for Policy Related
Transactions..................... (342,508) (902,544) (253,144) (538,631)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net.............................. 217,715 20,519 34,551 269,996
Gain (Loss) Attributable to SAFECO
Life............................. (799) (1,691) (731) (673)
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Policy Transactions.............. 943,683 1,473,772 332,165 896,694
---------------- -------------- ---------------- --------------
Net Change in Net Assets........... 2,117,869 2,211,466 1,038,486 1,314,328
Net Assets, Beginning of Period.... 6,905,175 4,693,709 4,224,561 2,910,233
---------------- -------------- ---------------- --------------
Net Assets, End of Period.......... $ 9,023,044 $ 6,905,175 $ 5,263,047 $ 4,224,561
---------------- -------------- ---------------- --------------
---------------- -------------- ---------------- --------------
</TABLE>
See Notes to Financial Statements
A-17a
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP II
HIGH INCOME DIVISION INVESTMENT GRADE BOND DIVISION
-------------------------------- --------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97 12/31/96 6/30/97 12/31/96
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income (Loss)....... $ 111,487 $ 52,842 $ 38,772 $ 43,364
Net Realized Gain (Loss) on
Investments...................... 16,599 14,163 (3,749) 7,591
Net Change in Unrealized
Appreciation (Depreciation) of
Investments...................... (21,340) 61,598 (18,441) (36,058)
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Operations....................... 106,746 128,603 16,582 14,897
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums..... 303,480 489,342 85,572 271,528
Transfers out for Policy Related
Transactions..................... (94,949) (192,518) (67,488) (144,121)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net.............................. (175,149) 326,333 (24,930) (412,302)
Gain (Loss) Attributable to SAFECO
Life............................. (128) (37) 60 64
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Policy Transactions.............. 33,254 623,120 (6,786) (284,831)
---------------- -------------- ---------------- --------------
Net Change in Net Assets........... 140,000 751,723 9,796 (269,934)
Net Assets, Beginning of Period.... 1,445,172 693,449 719,522 989,456
---------------- -------------- ---------------- --------------
Net Assets, End of Period.......... $ 1,585,172 $ 1,445,172 $ 729,318 $ 719,522
---------------- -------------- ---------------- --------------
---------------- -------------- ---------------- --------------
</TABLE>
See Notes to Financial Statements
A-17b
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
ASSET MANAGER DIVISION INDEX 500 DIVISION
-------------------------------- --------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97 12/31/96 6/30/97 12/31/96
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income (Loss)....... $ 952,854 $ 373,438 $ 96,882 $ 36,950
Net Realized Gain (Loss) on
Investments...................... 41,397 67,740 91,633 68,068
Net Change in Unrealized
Appreciation (Depreciation) of
Investments...................... (121,930) 502,688 465,201 290,744
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Operations....................... 872,321 943,866 653,716 395,762
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums..... 801,202 2,044,200 559,000 1,192,914
Transfers out for Policy Related
Transactions..................... (461,563) (1,211,057) (206,347) (284,721)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net.............................. (222,610) (422,044) 85,250 670,973
Gain (Loss) Attributable to SAFECO
Life............................. (965) (2,344) (446) (159)
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Policy Transactions.............. 116,064 408,755 437,457 1,579,007
---------------- -------------- ---------------- --------------
Net Change in Net Assets........... 988,385 1,352,621 1,091,173 1,974,769
Net Assets, Beginning of Period.... 8,083,145 6,730,524 3,131,460 1,156,691
---------------- -------------- ---------------- --------------
Net Assets, End of Period.......... $ 9,071,530 $ 8,083,145 $ 4,222,633 $ 3,131,460
---------------- -------------- ---------------- --------------
---------------- -------------- ---------------- --------------
</TABLE>
See Notes to Financial Statements
A-17c
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
CONTRAFUND DIVISION ASSET MANAGER: GROWTH DIVISION
-------------------------------- --------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97 12/31/96 6/30/97 12/31/96
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income (Loss)....... $ 87,980 $ (7,057) $ (3,611) $ 36,787
Net Realized Gain (Loss) on
Investments...................... 38,853 36,577 31,967 12,549
Net Change in Unrealized
Appreciation (Depreciation) of
Investments...................... 280,679 383,171 117,474 43,534
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Operations....................... 407,512 412,691 145,830 92,870
CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS:
Transfers in from Net Premiums..... 746,067 1,223,954 223,310 247,373
Transfers out for Policy Related
Transactions..................... (258,471) (250,013) (8,214) (47,071)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division,
Net.............................. 235,565 744,280 284,788 315,334
Gain (Loss) Attributable to SAFECO
Life............................. (1,999) (4,087) 473 3,877
---------------- -------------- ---------------- --------------
Net Change in Net Assets from
Policy Transactions.............. 721,162 1,714,134 500,357 519,513
---------------- -------------- ---------------- --------------
Net Change in Net Assets........... 1,128,674 2,126,825 646,187 612,383
Net Assets, Beginning of Period.... 3,193,591 1,066,766 808,880 196,497
---------------- -------------- ---------------- --------------
Net Assets, End of Period.......... $ 4,322,265 $ 3,193,591 $ 1,455,067 $ 808,880
---------------- -------------- ---------------- --------------
---------------- -------------- ---------------- --------------
</TABLE>
See Notes to Financial Statements
A-17d
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SAFECO RST SAFECO RST
EQUITY DIVISION GROWTH DIVISION
---------------------------------- ----------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
6/30/97 12/31/96* 6/30/97 12/31/96*
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income (Loss).. $ (2,888) $ 29,364 $ (8,769) $ 111,602
Net Realized Gain (Loss) on
Investments................. 6,835 2,283 45,278 (3,530)
Net Change in Unrealized
Appreciation (Depreciation)
of Investments.............. 98,810 (11,822) 301,263 23,996
---------------- ---------------- ---------------- ----------------
Net Change in Net Assets from
Operations.................. 102,757 19,825 337,772 132,068
CHANGE IN NET ASSETS FROM
POLICY TRANSACTIONS:
Transfers in from Net
Premiums.................... 295,704 56,058 605,742 265,857
Transfers out for Policy
Related Transactions........ (46,425) (7,234) (104,771) (36,206)
Transfers between Separate
Account SL's Divisions and
(to) from Guaranteed
Interest Division, Net...... 487,431 251,559 481,442 1,054,115
Gain (Loss) Attributable to
SAFECO Life................. (275) (5) 1,538 6,488
---------------- ---------------- ---------------- ----------------
Net Change in Net Assets from
Policy Transactions......... 736,435 300,378 983,951 1,290,254
---------------- ---------------- ---------------- ----------------
Net Change in Net Assets...... 839,192 320,203 1,321,723 1,422,322
Net Assets, Beginning of
Period ..................... 320,203 0 1,422,322 0
---------------- ---------------- ---------------- ----------------
Net Assets, End of Period..... $ 1,159,395 $ 320,203 $ 2,744,045 $ 1,422,322
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
</TABLE>
- ------------
* For the period from April 30, 1996 (date of inception) through December 31,
1996.
See Notes to Financial Statements
A-17e
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SAFECO RST SAFECO RST
NORTHWEST DIVISION BOND DIVISION
------------------------------------ ------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
6/30/97 12/31/96* 6/30/97 12/31/96*
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income (Loss).. $ (141) $ 42 $ (208) $ 422
Net Realized Gain (Loss) on
Investments................. 592 (13) 163 0
Net Change in Unrealized
Appreciation (Depreciation)
of Investments.............. 5,142 147 1,347 (353)
-------- ------- -------- -------
Net Change in Net Assets from
Operations.................. 5,593 176 1,302 69
CHANGE IN NET ASSETS FROM
POLICY TRANSACTIONS:
Transfers in from Net
Premiums.................... 7,861 3,602 2,100 7,138
Transfers out for Policy
Related Transactions........ (2,199) (371) (2,594) (41)
Transfers between Separate
Account SL's Divisions and
(to) from Guaranteed
Interest Division, Net...... 35,869 5,808 53,873 870
Gain (Loss) Attributable to
SAFECO Life................. (117) (399) 33 2
-------- ------- -------- -------
Net Change in Net Assets from
Policy Transactions......... 41,414 8,640 53,412 7,969
-------- ------- -------- -------
Net Change in Net Assets...... 47,007 8,816 54,714 8,038
Net Assets, Beginning of
Period ..................... 8,816 0 8,038 0
-------- ------- -------- -------
Net Assets, End of Period..... $ 55,823 $ 8,816 $ 62,752 $ 8,038
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
- ------------
* For the period from April 30, 1996 (date of inception) through December 31,
1996.
See Notes to Financial Statements
A-17f
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
LEXINGTON NATURAL LEXINGTON EMERGING
RESOURCES DIVISION MARKETS DIVISION
------------------------------- -------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
6/30/97 12/31/96* 6/30/97 12/31/96*
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS FROM
OPERATIONS:
Net Investment Income
(Loss)...................... $ (3,134) $ 820 $ (3,286) $ (1,451)
Net Realized Gain (Loss) on
Investments................. 18,533 5,839 17,935 (3,540)
Net Change in Unrealized
Appreciation (Depreciation)
of Investments.............. 27,796 58,877 71,855 (3,366)
-------------- -------------- -------------- --------------
Net Change in Net Assets from
Operations.................. 43,195 65,536 86,504 (8,357)
CHANGE IN NET ASSETS FROM
POLICY TRANSACTIONS:
Transfers in from Net
Premiums.................... 145,006 136,380 132,755 132,526
Transfers out for Policy
Related Transactions........ (28,626) (9,309) (23,712) (14,320)
Transfers between Separate
Account SL's Divisions and
(to) from Guaranteed
Interest Division, Net...... 122,323 480,695 (26,480) 402,781
Gain (Loss) Attributable to
SAFECO Life................. (11,469) 10,111 (2,914) 120
-------------- -------------- -------------- --------------
Net Change in Net Assets from
Policy Transactions......... 227,234 617,877 79,649 521,107
-------------- -------------- -------------- --------------
Net Change in Net Assets...... 270,429 683,413 166,153 512,750
Net Assets, Beginning of
Period ..................... 683,413 0 512,750 0
-------------- -------------- -------------- --------------
Net Assets, End of Period..... $ 953,842 $ 683,413 $ 678,903 $ 512,750
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
- ------------
* For the period from April 30, 1996 (date of inception) through December 31,
1996.
See Notes to Financial Statements
A-17g
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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-18
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4) UNIT ACTIVITY
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
GROWTH DIVISION MONEY MARKET DIVISION
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97(1) 12/31/96(2) 6/30/97 12/31/96
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Units:
Units Sold....................... 8,704 25,612 19,962 30,477
Units Redeemed................... (9,595) (7,677) (11,618) (25,245)
------ ------- ------- -------
Net Increase (Decrease).......... (891) 17,935 8,344 5,232
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY INCOME OVERSEAS DIVISION
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97(1) 12/31/96(2) 6/30/97(1) 12/31/96(2)
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Units:
Units Sold....................... 5,711 10,927 4,450 10,117
Units Redeemed................... (1,936) (4,121) (2,354) (3,747)
------ ------- ------ -------
Net Increase (Decrease).......... 3,775 6,806 2,096 6,370
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP INVESTMENT GRADE
HIGH INCOME DIVISION BOND DIVISION
---------------------------------- ------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97(1) 12/31/96(2) 6/30/97 12/31/96
----------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Units:
Units Sold....................... 2,497 6,059 665 2,123
Units Redeemed................... (2,264) (1,414) (718) (4,342)
------ ------ --- ------
Net Increase (Decrease).......... 233 4,645 (53) (2,219)
------ ------ --- ------
------ ------ --- ------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
ASSET MANAGER DIVISION INDEX 500 DIVISION
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97(1) 12/31/96(2) 6/30/97(1) 12/31/96(2)
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Units:
Units Sold....................... 5,391 13,029 3,888 11,713
Units Redeemed................... (4,736) (10,432) (1,607) (1,817)
------ ------- ------ -------
Net Increase (Decrease).......... 655 2,597 2,281 9,896
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
- ------------
(1) Officers of SAFECO have minor investments in this division at June 30, 1997.
(2) Officers of SAFECO have minor investments in this division at December 31,
1996.
A-19
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FIDELITY VIP II
FIDELITY VIP II ASSET MANAGER:
CONTRAFUND DIVISION GROWTH DIVISION
---------------------------------- --------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
6/30/97 12/31/96 6/30/97 12/31/96
----------------- --------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Units:
Units Sold....................... 6,757 15,208 3,973 4,590
Units Redeemed................... (1,911) (1,897) (536) (397)
------ ------- ----- -----
Net Increase (Decrease).......... 4,846 13,311 3,437 4,193
------ ------- ----- -----
------ ------- ----- -----
</TABLE>
<TABLE>
<CAPTION>
SAFECO RST SAFECO RST
EQUITY DIVISION GROWTH DIVISION
---------------------------------------- --------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
6/30/97 12/31/96* 6/30/97(1) 12/31/96(2)*
------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Units:
Units Sold.................. 6,106 2,782 9,112 12,683
Units Redeemed.............. (371) (63) (953) (340)
----- ----- ----- -------
Net Increase (Decrease)..... 5,735 2,719 8,159 12,343
----- ----- ----- -------
----- ----- ----- -------
</TABLE>
<TABLE>
<CAPTION>
SAFECO RST SAFECO RST
NORTHWEST DIVISION BOND DIVISION
-------------------------------------------- --------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
6/30/97 12/31/96* 6/30/97 12/31/96*
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Units:
Units Sold.................. 409 93 560 80
Units Redeemed.............. (21) (4) (26) 0
-- --
--- ---
Net Increase (Decrease)..... 388 89 534 80
-- --
-- --
--- ---
--- ---
</TABLE>
<TABLE>
<CAPTION>
LEXINGTON NATURAL LEXINGTON EMERGING
RESOURCES DIVISION MARKETS DIVISION
---------------------------------------- ----------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
6/30/97 12/31/96* 6/30/97(1) 12/31/96(2)*
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Units:
Units Sold.................. 2,529 6,044 1,766 5,577
Units Redeemed.............. (431) (108) (922) (153)
----- ----- ----- -----
Net Increase (Decrease)..... 2,098 5,936 844 5,424
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
- ------------
(1) Officers of SAFECO have minor investments in this division at June 30, 1997.
(2) Officers of SAFECO have minor investments in this division at December 31,
1996.
* For the period from April 30, 1996 (date of inception) through December 31,
1996.
A-20
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5) INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
GROWTH MONEY MARKET EQUITY INCOME
DIVISION DIVISION DIVISION
------------- ------------- ---------------
<S> <C> <C> <C>
Purchases............................................. $ 1,773,866 $ 3,127,123 $ 1,959,960
------------- ------------- ---------------
------------- ------------- ---------------
Sales................................................. $(1,463,211) $(2,062,478) $ (319,846)
------------- ------------- ---------------
------------- ------------- ---------------
Number of Shares Owned at June 30, 1997............... 452,005 3,012,536 409,089
------------- ------------- ---------------
------------- ------------- ---------------
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------
FIDELITY VIP II
FIDELITY VIP FIDELITY VIP INVESTMENT
OVERSEAS HIGH INCOME GRADE BOND
DIVISION DIVISION DIVISION
------------- ------------- ---------------
<S> <C> <C> <C>
Purchases............................................. $ 1,053,655 $ 876,804 $ 131,630
------------- ------------- ---------------
------------- ------------- ---------------
Sales................................................. $ (366,879) $ (731,856) $ (99,670)
------------- ------------- ---------------
------------- ------------- ---------------
Number of Shares Owned at June 30, 1997............... 262,674 127,550 61,442
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------------
FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II
ASSET MANAGER INDEX 500 CONTRAFUND ASSET MANAGER:
DIVISION DIVISION DIVISION GROWTH DIVISION
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Purchases........................ $ 1,567,600 $ 894,497 $ 1,054,465 $ 721,442
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Sales............................ $ (497,076) $ (360,596) $ (244,524) $ (224,537)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Number of Shares Owned at June
30, 1997........................ 546,631 40,759 241,089 97,476
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
A-21
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------------
SAFECO RST
SAFECO RST SAFECO RST NORTHWEST
EQUITY DIVISION GROWTH DIVISION DIVISION
--------------- --------------- ---------------
<S> <C> <C> <C>
Purchases............................... $ 864,967 $1,472,331 $ 49,696
--------------- --------------- ---------------
--------------- --------------- ---------------
Sales................................... $(131,288) $(499,730) $ (8,303)
--------------- --------------- ---------------
--------------- --------------- ---------------
Number of Shares Owned at June 30,
1997................................... 45,577 121,791 3,921
--------------- --------------- ---------------
--------------- --------------- ---------------
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------------
LEXINGTON LEXINGTON
NATURAL EMERGING
SAFECO RST BOND RESOURCES MARKETS
DIVISION DIVISION DIVISION
--------------- --------------- ---------------
<S> <C> <C> <C>
Purchases............................... $ 101,524 $ 369,730 $ 313,725
--------------- --------------- ---------------
--------------- --------------- ---------------
Sales................................... $ (48,378) $(134,572) $(233,955)
--------------- --------------- ---------------
--------------- --------------- ---------------
Number of Shares Owned at June 30,
1997................................... 5,726 64,453 58,531
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
A-22
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6) UNIT VALUES
The following are unit values attributable to unitholders as of the date
indicated:
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
FIDELITY VIP MONEY MARKET EQUITY INCOME FIDELITY VIP
GROWTH DIVISION DIVISION DIVISION OVERSEAS DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 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
June 30, 1997........................ 239.641 122.140 270.603 174.615
<CAPTION>
FIDELITY VIP FIDELITY VIP II FIDELITY VIP II FIDELITY VIP II
HIGH INCOME INVESTMENT GRADE ASSET MANAGER INDEX 500
DIVISION BOND DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 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
June 30, 1997........................ 152.724 134.818 187.312 208.415
<CAPTION>
FIDELITY VIP II FIDELITY VIP II
CONTRAFUND ASSET MANAGER: SAFECO RST EQUITY SAFECO RST GROWTH
DIVISION GROWTH DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
December 31, 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
June 30, 1997........................ 159.563 155.938 137.165 133.837
<CAPTION>
SAFECO RST LEXINGTON NATURAL LEXINGTON
NORTHWEST SAFECO RST BOND RESOURCES EMERGING MARKETS
DIVISION DIVISION DIVISION DIVISION
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
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
June 30, 1997........................ 117.055 102.157 118.707 108.293
</TABLE>
N/A Unit Values are shown beginning the first year end after inception for the
respective division.
A-23
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
A-24
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors................................................................ A-26
Consolidated Financial Statements
Consolidated Balance Sheet................................................................ A-27
Statement of Consolidated Income.......................................................... A-28
Statement of Changes in Stockholder's Equity.............................................. A-29
Statement of Consolidated Cash Flows...................................................... A-30
Notes to Consolidated Financial Statements................................................ A-32
</TABLE>
A-25
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SAFECO Life Insurance Company
We have audited the accompanying consolidated balance sheet of SAFECO Life
Insurance Company and subsidiaries as of December 31, 1996 and 1995, and the
related statements of consolidated income, changes in stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
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 & YOUNG LLP
Seattle, Washington
February 14, 1997
A-26
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Investments (Note 2):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1996-$7,597,733; 1995-$7,195,332)...................... $ 7,853,553 $ 7,720,108
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1996-$2,670,004; 1995-$2,388,514)........................ 2,488,324 2,044,517
Marketable Equity Securities, at Market Value
(Cost: 1996-$9,629; 1995-$14,904)....................................... 18,902 25,776
First Mortgage Loans on Real Estate:
Nonaffiliates (At cost, less allowance for losses:
1996-$10,943; 1995-$9,633)............................................ 447,596 416,110
Affiliates.............................................................. 140,743 137,823
Real Estate (At cost, less accumulated depreciation: 1996-$180;
1995-$398).............................................................. 4,134 4,972
Policy Loans.............................................................. 58,153 55,925
Short-Term Investments (At cost which approximates market)................ 69,878 68,614
Investment in Limited Partnerships........................................ 250 1,289
----------- -----------
Total Investments....................................................... 11,081,533 10,475,134
Cash........................................................................ 19,136 34,886
Accrued Investment Income................................................... 159,790 150,897
Accounts and Notes Receivable (At cost, less allowance for doubtful
accounts: 1996-$85; 1995-$72)............................................. 23,582 27,971
Reinsurance Recoverables (Note 5)........................................... 25,204 16,656
Deferred Policy Acquisition Costs (Net of valuation allowance:
1996-$19,040; 1995-$42,815)............................................... 240,464 210,491
Other Assets................................................................ 5,497 5,739
Current Income Taxes Recoverable (Note 9)................................... 792 --
Assets Held in Separate Accounts............................................ 491,212 276,399
----------- -----------
Total Assets........................................................ $12,047,210 $11,198,173
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and Contract Liabilities (Note 5):
Future Policy Benefits.................................................. $ 149,624 $ 154,090
Policy and Contract Claims.............................................. 29,155 26,407
Premiums Paid in Advance................................................ 8,846 8,209
Funds Held Under Deposit Contracts...................................... 9,792,730 8,756,384
Other Policyholders' Funds.............................................. 134,422 323,302
----------- -----------
Total Policy and Contract Liabilities................................... 10,114,777 9,268,392
Other Liabilities......................................................... 76,089 112,008
Federal Income Taxes (Note 9):
Current................................................................. -- 13,047
Deferred (Includes tax on unrealized appreciation of investment
securities: 1996-$86,120; 1995-$172,493)............................... 103,648 196,492
Liabilities Related to Separate Accounts.................................. 491,212 276,399
----------- -----------
Total Liabilities..................................................... 10,785,726 9,866,338
----------- -----------
Stockholder's Equity:
Common Stock, $250 Par Value; 20,000 Shares Authorized,
Issued and Outstanding.................................................. 5,000 5,000
Additional Paid-In Capital................................................ 85,000 85,000
Retained Earnings (Note 7)................................................ 1,011,439 921,383
Unrealized Appreciation of Investment Securities, Net of Tax (Note 2)..... 160,045 320,452
----------- -----------
Total Stockholder's Equity............................................ 1,261,484 1,331,835
----------- -----------
Total Liabilities and Stockholder's Equity.......................... $12,047,210 $11,198,173
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
A-27
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums........................................................ $ 240,100 $ 237,025 $ 252,929
Investment Income:
Interest on Fixed Maturities.................................. 767,309 716,510 648,296
Interest on Mortgage Loans.................................... 52,127 51,912 51,135
Interest on Short-Term Investments............................ 2,935 4,017 3,351
Dividends from Marketable Equity Securities................... 843 1,387 1,446
Dividends from Redeemable Preferred Stock..................... 12,654 3,065 618
Other Investment Income....................................... 3,879 4,155 4,375
---------- ---------- ---------
Total..................................................... 839,747 781,046 709,221
Less Investment Expenses........................................ 3,709 3,546 3,551
---------- ---------- ---------
Net Investment Income........................................... 836,038 777,500 705,670
---------- ---------- ---------
Other Revenue................................................... 12,933 11,608 9,795
Realized Investment Gain........................................ 10,439 5,676 5,639
---------- ---------- ---------
Total..................................................... 1,099,510 1,031,809 974,033
---------- ---------- ---------
Benefits and Expenses:
Policy Benefits................................................. 782,213 723,466 674,215
Commissions..................................................... 74,724 79,163 84,760
Personnel Costs................................................. 43,609 42,314 42,439
Taxes Other Than Payroll and Income Taxes....................... 15,512 7,913 7,652
Other Operating Expenses........................................ 45,224 42,978 44,519
Amortization of Deferred Policy Acquisition Costs............... 35,652 32,376 29,407
Deferral of Policy Acquisition Costs............................ (42,426) (35,347) (43,360)
---------- ---------- ---------
Total..................................................... 954,508 892,863 839,632
---------- ---------- ---------
Income before Federal Income Taxes................................ 145,002 138,946 134,401
---------- ---------- ---------
Provision (Benefit) for Federal Income Taxes (Note 9):
Current......................................................... 57,417 61,830 57,365
Deferred........................................................ (6,471) (13,800) (10,154)
---------- ---------- ---------
Total..................................................... 50,946 48,030 47,211
---------- ---------- ---------
Net Income........................................................ $ 94,056 $ 90,916 $ 87,190
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
A-28
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock..................................................... $ 5,000 $ 5,000 $ 5,000
---------- ---------- ---------
Additional Paid-In Capital....................................... 85,000 85,000 85,000
---------- ---------- ---------
Retained Earnings:
Balance at the Beginning of Year........................... 921,383 834,467 751,277
Net Income................................................. 94,056 90,916 87,190
Dividends to Parent........................................ (4,000) (4,000) (4,000)
---------- ---------- ---------
Balance at the End of Year................................. 1,011,439 921,383 834,467
---------- ---------- ---------
Unrealized Appreciation (Depreciation) of Investment Securities,
Net of Tax (Note 1 and 2):
Balance at the Beginning of Year........................... 320,452 (126,229) 6,828
Net Effect of Adoption of FASB Statement 115............... -- -- 279,957
Change in Unrealized Appreciation or Depreciation.......... (175,861) 474,511 (413,014)
Change in Deferred Policy Acquisition Costs Valuation
Allowance................................................ 15,454 (27,830) --
---------- ---------- ---------
Balance at the End of Year................................. 160,045 320,452 (126,229)
---------- ---------- ---------
Stockholder's Equity......................................... $1,261,484 $1,331,835 $ 798,238
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
A-29
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received................................. $ 216,801 $ 216,269 $ 233,129
Dividends and Interest Received............................. 754,878 703,053 641,234
Other Operating Receipts.................................... 12,948 10,607 11,419
Insurance Claims and Policy Benefits Paid................... (302,955) (272,206) (242,523)
Underwriting, Acquisition and Insurance Operating Costs
Paid...................................................... (172,251) (169,904) (177,188)
Income Taxes Paid........................................... (71,255) (61,247) (60,566)
----------- ----------- -----------
Net Cash Provided by Operating Activities............. 438,166 426,572 405,505
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale....................... (1,544,998) (1,424,510) (1,110,154)
Fixed Maturities Held-to-Maturity......................... (473,206) (291,965) (358,297)
Marketable Equity Securities.............................. (272) (260) (407)
Other Investments......................................... (15) (14) (24,381)
Policy and Nonaffiliated Mortgage Loans................... (85,485) (55,302) (68,710)
Affiliated Mortgage Loans................................. (34,650) (12,643) (54,000)
Maturities of Fixed Maturities Available-for-Sale........... 466,509 375,291 476,410
Maturities of Fixed Maturities Held-to-Maturity............. 21,694 17,878 54,564
Sales of:
Fixed Maturities Available-for-Sale....................... 721,229 327,160 250,227
Fixed Maturities Held-to-Maturity......................... 13,316 -- --
Marketable Equity Securities.............................. 10,394 2,172 65
Other Investments......................................... 1,100 180 23,992
Real Estate............................................... 1,086 876 1,885
Policy and Nonaffiliated Mortgage Loans................... 48,341 50,734 42,038
Affiliated Mortgage Loans................................. 31,730 8,977 6,714
Net (Increase) Decrease in Short-Term Investments........... (1,250) (5,811) 11,793
Other....................................................... (747) (122) 947
----------- ----------- -----------
Net Cash Used in Investing Activities................. (825,224) (1,007,359) (747,314)
----------- ----------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts...................... 1,148,590 1,304,665 1,012,164
Return of Funds Held Under Deposit Contracts................ (765,480) (720,845) (659,697)
Dividends to Parent......................................... (4,000) (4,000) (4,000)
Net Proceeds from (Repayment of) Short-Term Borrowings...... (7,802) 9,143 842
----------- ----------- -----------
Net Cash Provided by Financing Activities............. 371,308 588,963 349,309
----------- ----------- -----------
Net Increase (Decrease) in Cash............................... (15,750) 8,176 7,500
Cash at Beginning of Year..................................... 34,886 26,710 19,210
----------- ----------- -----------
Cash at End of Year........................................... $ 19,136 $ 34,886 $ 26,710
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
For purposes of reporting cash flows, cash consists of balances on hand and on
deposit in banks and financial institutions.
See Notes to Consolidated Financial Statements
A-30
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS --
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Income........................................................... $ 94,056 $ 90,916 $ 87,190
--------- --------- ---------
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Realized Investment Gain......................................... (10,439) (5,676) (5,639)
Amortization of Fixed Maturity Investments....................... (26,811) (26,050) (12,247)
Deferred Federal Income Tax Benefit.............................. (6,471) (13,800) (10,154)
Interest Expense on Deposit Contracts............................ 460,594 432,327 405,536
Other............................................................ 574 3,140 (440)
Changes in:
Future Policy Benefits......................................... (4,466) (1,232) 3,834
Policy and Contract Claims..................................... 2,748 (2,643) (4,136)
Premiums Paid in Advance....................................... 637 (574) (1,174)
Deferred Policy Acquisition Costs.............................. (6,198) (6,116) (12,990)
Accrued Investment Income...................................... (8,893) (8,990) (13,695)
Accrued Interest on Accrual Bonds.............................. (44,015) (36,908) (41,285)
Other Receivables.............................................. (8,639) (2,353) 5,064
Current Federal Income Taxes................................... (13,839) 583 (3,201)
Other Assets and Liabilities................................... 4,668 449 1,820
Other Policyholders' Funds..................................... 4,660 3,499 7,022
--------- --------- ---------
Total Adjustments............................................ 344,110 335,656 318,315
--------- --------- ---------
Net Cash Provided by Operating Activities............................ $ 438,166 $ 426,572 $ 405,505
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
A-31
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. SAFECO Life Insurance Company (the Company) is a stock
life insurance company organized under the laws of the state of Washington.
The Company offers individual and group insurance products, pension plans and
annuity products, marketed through professional agents in all states and the
District of Columbia. The Company owns two subsidiaries, SAFECO National Life
Insurance Company and First SAFECO National Life Insurance Company of New
York. The Company is a wholly-owned subsidiary of SAFECO Corporation which is
a Washington corporation whose subsidiaries engage primarily in insurance and
financial service businesses.
BASIS OF REPORTING. The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles appropriate in
the circumstances and include amounts based on the best estimates and
judgments of management. The financial statements include SAFECO Life
Insurance Company and its subsidiaries.
All significant intercompany transactions have been eliminated in the
consolidated financial statements. Certain reclassifications have been made
to prior year financial information to conform to the 1996 classifications.
ACCOUNTING FOR PREMIUMS. Life and health insurance premiums are reported as
income when collected for traditional individual life policies and when
earned for group life and health policies. Funds received under pension
deposit contracts, annuity contracts and universal life policies are recorded
as liabilities rather than premium income when received. Revenues for
universal life products consist of front-end loads, mortality charges and
expense charges assessed against individual policyholder account balances.
These loads and charges are recognized as income when earned.
INVESTMENTS. The Company adopted Financial Accounting Standards Board (FASB)
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities," on January 1, 1994, applying the provisions of the Statement to
investments held as of, or acquired after that date. See discussion of new
accounting standards on page 10.
Fixed maturity investments (i.e., bonds and redeemable preferred stocks)
which the Company has the positive intent and ability to hold to maturity are
classified as held-to-maturity and carried at amortized cost in the balance
sheet. Fixed maturities classified as available-for-sale are carried at
market value, with changes in unrealized gains and losses recorded directly
to stockholder's equity, net of applicable income taxes and deferred policy
acquisition costs valuation allowance. The Company has no fixed maturities
classified as trading.
All marketable equity securities are classified as available-for-sale and
carried at market value, with changes in unrealized gains and losses recorded
directly to stockholder's equity, net of applicable income taxes.
When the collectibility of income on certain investments is considered
doubtful, they are placed on non-accrual status and thereafter interest
income is recognized only when payment is received. Investments that have
declined in market value below cost and for which the decline is judged to be
other than temporary are written down to fair value. Writedowns are made
directly on an individual security basis and reduce realized investment gains
in the Statement of Consolidated Income.
The cost of security investments sold is determined by the "identified cost"
method.
Mortgage loans are carried at outstanding principal balances, less an
allowance for loan losses.
REAL ESTATE AND DEPRECIATION. Income-producing real estate is classified as
an investment. The Company provides straight-line depreciation on its
buildings based upon their estimated useful lives.
A-32
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1 (continued)
Investment real estate that has declined in market value below cost and for
which the decline is judged to be other than temporary is written down to
estimated realizable value. Writedowns reduce realized investment gains in
the Statement of Consolidated Income.
DEFERRED POLICY ACQUISITION COSTS. Life and health acquisition costs,
consisting of commissions and certain other underwriting expenses, which vary
with and are primarily related to the production of new business, are
deferred.
Acquisition costs for pension deposit contracts, deferred annuity contracts
and universal life policies are amortized over the lives of the contracts or
policies in proportion to the present value of estimated future gross
profits. To the extent actual experience differs from assumptions, and to the
extent estimates of future gross profits require revision, the unamortized
balance of deferred policy acquisition costs is adjusted accordingly; such
adjustments would be included in current operations. There were no
significant revisions made in 1996, 1995 or 1994.
Acquisition costs for traditional individual life insurance policies are
amortized over the premium payment period of the related policies using
assumptions consistent with those used in computing policy benefit
liabilities. Acquisition costs for group life and health policies are
amortized over the lives of the policies in proportion to premium received.
FUTURE POLICY BENEFITS. Liabilities for universal life insurance policies,
deferred annuity and pension deposit contracts are equal to the accumulated
account value of such policies or contracts as of the valuation date.
Liabilities for structured settlement annuities are based on interest rate
assumptions using market rates at issue, graded downward over 40 years to a
range of 5.5% to 8.75%.
Liabilities for future policy benefits under traditional individual life
insurance policies have been computed on the level premium method using
interest, mortality and persistency assumptions based on actual experience
modified to provide for adverse deviation. Interest assumptions range from
8.5% graded to 3.25%.
POLICY AND CONTRACT CLAIMS. The liability for policy and contract claims is
established on the basis of reported losses ("case basis" method). Provision
is also made for claims incurred but not reported, based on historical
experience. The estimates for claims incurred but not reported are
continually reviewed and any necessary adjustments are reflected in current
operations.
SEPARATE ACCOUNTS. The Company administers segregated asset accounts for
variable annuity and variable universal life clients. The assets of these
Separate Accounts, which consist of common stocks, are the property of the
Company. The liabilities of these Separate Accounts represent reserves
established to meet withdrawal and future benefit payment provisions of
contracts with these clients. The assets of the Separate Accounts, equal to
the reserves and other contract liabilities of the Separate Accounts, are not
chargeable with liabilities arising out of any other business the Company may
conduct. Investment risks associated with market value changes are borne by
the clients. Deposits, withdrawals, net investment income and realized and
unrealized capital gains and losses on the assets of the Separate Account are
not reflected in the Statement of Consolidated Income. Management fees and
other charges assessed against the contracts are included in other revenue.
FEDERAL INCOME TAXES. The Company and its subsidiaries are included in a
consolidated federal income tax return filed by SAFECO Corporation. Tax
payments (credits) are made to or received from SAFECO Corporation on a
separate tax return filing basis. The Company provides for federal income
taxes based on financial reporting income and deferred federal income taxes
on temporary differences between financial reporting and taxable income.
NEW ACCOUNTING STANDARDS. The Company adopted FASB Statement 112,
"Employers' Accounting for Postemployment Benefits," effective January 1,
1994. Adoption had no effect on net income.
A-33
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1 (continued)
In 1993, the FASB adopted Statement 114, "Accounting by Creditors for
Impairment of a Loan," which provides guidance on valuing impaired loans. The
FASB also issued Statement 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures," in 1994, which amends Statement
114. Both statements were effective for 1995 and adopted by the Company on
January 1, 1995. Adoption did not affect net income. For additional
disclosure relating to these two statements, see Note 2.
In 1993, the FASB issued Statement 115, "Accounting for Certain Investments
in Debt and Equity Securities," which expands the use of fair value
accounting for debt and equity securities. As of January 1, 1994, the Company
adopted the provisions of this Statement for investments held as of, or
acquired after that date. Statement 115 requires that debt and equity
securities be classified as trading, available-for-sale, or held-to-maturity.
Fixed maturity securities that the Company has the positive intent and
ability to hold to maturity (as narrowly defined by Statement 115) are
classified as held-to-maturity and are reported at amortized cost. Fixed
maturity securities classified as available-for-sale are carried at market
value, with changes in unrealized gains and losses recorded directly to
stockholder's equity, net of applicable income taxes and any deferred policy
acquisition costs valuation allowance. All marketable equity securities are
classified as available-for-sale and continue to be carried at market value,
with changes in unrealized gains and losses recorded directly to
stockholder's equity, net of applicable income taxes. Under Statement 115,
trading securities are carried at market value with immediate recognition in
income of changes in market value. Since the Company does not have any
securities held for trading, the adoption of this Statement had no effect on
net income.
The net effect on stockholder's equity of the adoption of Statement 115 was
an increase of $279,957,000 as of January 1, 1994. The net increase was
comprised of the following amounts: aggregate market value in excess of
amortized cost of fixed maturities classified as available-for-sale of
$458,471,000, less deferred policy acquisition costs valuation allowance of
$27,768,000 and deferred income taxes at 35% of $150,746,000.
The FASB issued an Implementation Guide on Statement 115 in November 1995. In
addition to providing guidance on Statement 115, the Guide allowed for a
one-time-only reclassification of securities among the three categories
defined in Statement 115. The Company reclassified certain fixed maturity
securities from the held-to-maturity category to the available-for-sale
category on December 31, 1995, as allowed by the Guide. The securities
reclassified had a net carrying value (amortized cost) of $331,123,000 and a
market value of $358,630,000 at December 31, 1995. This reclassification had
no effect on net income.
A-34
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. INVESTMENT SUMMARY
A summary of fixed maturities and marketable equity securities classified as
available-for-sale at December 31, 1996 follows:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
----------- ----------- ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities.............. $ 746,401 $ 38,689 $ (1,915) $ 36,774 $ 783,175
States, municipalities and political
subdivisions.......................... 131,538 11,192 (1,009) 10,183 141,721
Foreign governments..................... 74,427 4,575 (7) 4,568 78,995
Public utilities........................ 1,428,912 72,384 (7,220) 65,164 1,494,076
All other corporate bonds............... 2,707,297 100,673 (15,464) 85,209 2,792,506
Mortgage-backed securities.............. 2,509,158 72,485 (18,563) 53,922 2,563,080
----------- ----------- ------------ ------------ -----------
Total fixed maturities classified as
available-for-sale.................... 7,597,733 299,998 (44,178) 255,820 7,853,553
Marketable equity securities............ 9,629 9,518 (245) 9,273 18,902
----------- ----------- ------------ ------------ -----------
Total investment securities classified
as available-for-sale................. $ 7,607,362 $ 309,516 $ (44,423) 265,093 $ 7,872,455
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Deferred policy acquisition costs
valuation allowance........................................................... (19,040)
Applicable federal income tax................................................... (86,008)
------------
Unrealized appreciation of investment
securities, net of tax, included in
stockholder's equity.......................................................... $ 160,045
------------
------------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December 31,
1996 follows:
<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-35
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 (continued)
A summary of fixed maturities and marketable equity securities classified as
available-for-sale at December 31, 1995 follows:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
----------- ----------- ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States government and government
agencies and authorities.............. $ 737,429 $ 73,770 $ (1,007) $ 72,763 $ 810,192
States, municipalities and political
subdivisions.......................... 141,085 20,879 -- 20,879 161,964
Foreign governments..................... 67,873 7,248 -- 7,248 75,121
Public utilities........................ 1,452,490 137,913 (1,395) 136,518 1,589,008
All other corporate bonds............... 2,475,343 183,117 (7,690) 175,427 2,650,770
Mortgage-backed securities.............. 2,321,112 116,938 (4,997) 111,941 2,433,053
----------- ----------- ------------ ------------ -----------
Total fixed maturities classified as
available-for-sale.................... 7,195,332 539,865 (15,089) 524,776 7,720,108
Marketable equity securities............ 14,904 11,172 (300) 10,872 25,776
----------- ----------- ------------ ------------ -----------
Total investment securities classified
as available-for-sale................. $ 7,210,236 $ 551,037 $ (15,389) 535,648 $ 7,745,884
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Deferred policy acquisition costs
valuation allowance........................................................... (42,815)
Applicable federal income tax................................................... (172,381)
------------
Unrealized appreciation of investment
securities, net of tax, included in
stockholder's equity.......................................................... $ 320,452
------------
------------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December 31,
1995 follows:
<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-36
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 (continued)
The amortized cost and estimated market value of fixed maturities at December
31, 1996, by contractual maturity, are presented below. Expected maturities
may differ from contractual maturities because certain borrowers have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------ ------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............................... $ 193,009 $ 199,669 $ 5,000 $ 5,100
Due after one year through five years................. 1,582,958 1,639,786 -- --
Due after five years through ten years................ 1,233,599 1,264,009 28,570 32,934
Due after ten years................................... 2,079,009 2,187,009 2,162,886 2,332,399
Mortgage-backed securities............................ 2,509,158 2,563,080 291,868 299,571
----------- ----------- ----------- -----------
Total............................................. $ 7,597,733 $ 7,853,553 $ 2,488,324 $ 2,670,004
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
At December 31, 1996 and 1995, the Company held below investment grade fixed
maturities of $242 million and $239 million at amortized cost, respectively.
The respective market values of these investments were approximately $239
million and $240 million. These holdings amounted to 2.3% and 2.4% of the
Company's investments in fixed maturities at market value at December 31,
1996 and 1995, respectively.
The carrying value of investments in fixed maturities and mortgage loans that
did not produce income during the year ended December 31, 1996 is less than
one percent of the total of such investments.
Certain fixed maturity securities with an amortized cost of $4,648,000 and
$4,578,000 at December 31, 1996 and 1995, respectively, were on deposit with
various regulatory authorities to meet requirements of insurance and
financial codes.
At both December 31, 1996 and 1995, mortgage loans constituted approximately
4.9% of total assets and are secured by first mortgage liens on
income-producing commercial real estate, primarily in the retail, industrial
and office building sectors. The majority of the properties are located in
the western United States, with 42% of the total in California. Individual
loans generally do not exceed $5 million. At December 31, 1996, less than 1%
of the loans were non-performing.
The proceeds from sales of investment securities and related gains and losses
for 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
----------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales................................. $ 721,229 $ 13,316 $ 10,394
----------------- -------- --------
----------------- -------- --------
Gross realized gains on sales....................... $ 19,779 $ -- $ 4,847
Gross realized losses on sales...................... (18,837) (1,328) --
----------------- -------- --------
Realized gains (losses) on sales................ 942 (1,328) 4,847
Other (Including net gain or loss on calls and
redemptions)....................................... 13,687 (141) --
Writedowns (Including writedowns on securities
subsequently sold)................................. (5,465) -- --
----------------- -------- --------
Total realized gain (loss).......................... $ 9,164 $ (1,469) $ 4,847
----------------- -------- --------
----------------- -------- --------
</TABLE>
A-37
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 (continued)
Two fixed maturities classified as held-to-maturity were sold during 1996 due
to evidence of a significant deterioration in credit quality. The amortized
cost of these securities was $14,644,000, and the losses realized on these
sales were $1,328,000.
The proceeds from sales of investment securities and related gains and losses
for 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
----------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales................................. $ 327,160 $ -- $ 2,172
----------------- -------- --------
----------------- -------- --------
Gross realized gains on sales....................... $ 16,366 $ -- $ 1,253
Gross realized losses on sales...................... (4,336) -- (282)
----------------- -------- --------
Realized gains on sales............................. 12,030 -- 971
Other (Including net gain on calls and
redemptions)...................................... 7,833 -- --
Writedowns (Including writedowns on securities
subsequently sold)................................ (13,628) -- --
----------------- -------- --------
Total realized gain................................. $ 6,235 $ -- $ 971
----------------- -------- --------
----------------- -------- --------
</TABLE>
The proceeds from sales of investment securities and related gains and losses
for 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------
FIXED MATURITIES FIXED MATURITIES MARKETABLE
AVAILABLE-FOR-SALE HELD-TO-MATURITY EQUITY SECURITIES
----------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales................................. $ 250,227 $ -- $ 65
----------------- -------- --------
----------------- -------- --------
Gross realized gains on sales....................... $ 12,994 $ -- $ 115
Gross realized losses on sales...................... (1,533) -- (224)
----------------- -------- --------
Realized gains (losses) on sales.................... 11,461 -- (109)
Other (Including net gain on calls and
redemptions)...................................... 2,475 -- --
Writedowns (Including writedowns on securities
subsequently sold)................................ (4,804) -- --
----------------- -------- --------
Total realized gain (loss).......................... $ 9,132 $ -- $ (109)
----------------- -------- --------
----------------- -------- --------
</TABLE>
A-38
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 (continued)
The following summarizes the realized gains and losses, the changes in
unrealized gains and losses, and applicable income taxes on all investments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities..................................................... $ 7,695 $ 6,235 $ 9,132
Marketable equity securities......................................... 4,847 971 (109)
First mortgage loans on real estate.................................. (2,050) (1,600) (3,000)
Real estate.......................................................... (114) 70 (184)
Short-term investments............................................... -- -- (200)
Investment in limited partnerships................................... 61 -- --
---------- ---------- ----------
Realized gain before federal income taxes.......................... $ 10,439 $ 5,676 $ 5,639
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale.................... $ (268,956) $ 726,046 $ (201,270)
Marketable equity securities......................................... (1,599) 3,971 (3,432)
Deferred policy acquisition costs valuation allowance................ 23,775 (42,815) --
Applicable federal income tax........................................ 86,373 (240,521) 71,645
---------- ---------- ----------
Net change in unrealized appreciation or depreciation................ $ (160,407) $ 446,681 $ (133,057)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes the Company's allowance for credit losses on
non-affiliated mortgage loans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of year.......................................................... $ 9,633 $ 9,511
Provision for credit losses............................................................. 2,050 1,600
Recoveries.............................................................................. -- 15
Loans charged off as uncollectible...................................................... (740) (1,493)
------------- -------------
Allowance at end of year................................................................ $ 10,943 $ 9,633
------------- -------------
------------- -------------
</TABLE>
The allowance includes amounts determined under FAS 114 and FAS 118 (specific
reserves), as well as general reserve amounts. The total investment in
impaired loans, as defined under FAS 114 and 118 and before any reserve for
losses, is $3.2 and $5.7 million at December 31, 1996 and 1995, respectively.
A specific loan loss reserve has been established for each impaired loan, the
total of which is $835,000 and $2.1 million and is included in the overall
allowance of $10.9 and $9.6 million at December 31, 1996 and 1995,
respectively.
A-39
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. COMMITMENTS AND CONTINGENCIES
The Company is obligated under a real estate lease with an affiliate, General
America Corporation, which expires in 2010. The minimum annual rental
commitments under this obligation are $2,336,000. At December 31, 1996,
unfunded mortgage loan commitments approximated $9,375,000. The Company had
no other material commitments or contingencies at December 31, 1996.
4. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUES. Fair value amounts have been determined using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in developing the estimates of
fair value. Accordingly, these estimates are not necessarily indicative of
the amount that could be realized in a current market exchange. The use of
different market assumptions and/or estimating methodologies may have a
material effect on the estimated fair value amounts.
Carrying value is a reasonable estimate of fair value for cash, policy loans,
short-term investments, accounts receivable and other liabilities.
Fair value amounts for investments in fixed maturities and marketable equity
securities are the same as market value. Market value generally represents
quoted market prices for securities traded in the public market place or
analytically determined values for securities not publicly traded.
The fair values of mortgage loans have been estimated by discounting the
projected cash flows using the current rate at which loans would be made to
borrowers with similar credit ratings and for the same maturities.
The fair value of investment contracts with defined maturities is estimated
by discounting projected cash flows using rates that would be offered for
similar contracts with the same remaining maturities. For investment
contracts with no defined maturity, fair value is estimated to be the present
surrender value. These investment contracts are included in Funds Held Under
Deposit Contracts.
Estimated fair values of financial instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale................. $ 7,853,553 $ 7,853,553 $ 7,720,108 $ 7,720,108
Fixed maturities held-to-maturity................... 2,488,324 2,670,004 2,044,517 2,388,514
Marketable equity securities........................ 18,902 18,902 25,776 25,776
Mortgage loans...................................... 588,339 596,000 553,933 584,000
Financial liabilities:
Funds held under deposit contracts.................. 9,792,730 9,935,000 8,756,384 9,282,000
</TABLE>
Other insurance-related financial instruments are exempt from fair value
disclosure requirements.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company's investments in
mortgage-backed securities of $2.9 billion and $2.8 billion at market at
December 31, 1996 and 1995, respectively, are primarily residential
collateralized mortgage obligations and pass-throughs ("CMOs"). CMOs, while
technically defined as derivative instruments, are exempt from derivative
disclosure requirements. The Company's investment in CMOs comprised of the
riskier, more volatile type (e.g., interest only, inverse floaters, etc.) has
been intentionally limited to only a small amount (i.e., less than 1% of
total CMOs at both December 31, 1996 and 1995).
A-40
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4 (continued)
The Company does not enter into financial instruments for trading or
speculative purposes. The Company's involvement in other investment-type
derivatives is also, intentionally, of a very limited nature. Such
derivatives include currency-linked bonds and fixed-rate loan commitments.
Individually, and in the aggregate, these derivatives are not material and
thus no additional disclosures are warranted.
5. POLICY AND CONTRACT LIABILITIES
REINSURANCE. The Company protects itself from excessive losses by ceding
reinsurance to other companies, using automatic and facultative treaties.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. A continuing liability exists in the event a reinsurance
company is unable to meet its obligations to the Company. The financial
condition of its reinsurers is evaluated by the Company to minimize its
exposure to losses from reinsurer insolvencies.
The balance sheet caption "Reinsurance Recoverables" is comprised of the
following amounts:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Unpaid losses and adjustment expense................................................... $ 136 $ 850
Paid claims............................................................................ 957 658
Life policy liabilities................................................................ 23,784 14,844
Other reinsurance recoverables......................................................... 327 304
--------- ---------
Total reinsurance recoverables................................................. $ 25,204 $ 16,656
--------- ---------
--------- ---------
</TABLE>
The effects of reinsurance on the premium and policy benefit amounts in the
Statement of Consolidated Income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums.................................................................. $ (13,679) $ (10,385) $ (9,060)
--------- --------- ---------
--------- --------- ---------
Policy benefits........................................................... $ (4,039) $ (6,344) $ (5,588)
--------- --------- ---------
--------- --------- ---------
Reinsurance Assumed:
Premiums.................................................................. $ 175 $ (5,456) $ 327
--------- --------- ---------
--------- --------- ---------
Policy benefits........................................................... $ 2,500 $ (2,503) $ 3,421
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1995, the Company sold a reinsurance assumed block of group disabled
lives, involving disability income coverage, back to the ceding reinsurance
pool. The ceding pool acquired the Company's $5.7 million disabled life claim
reserve for a return-of-premium payment of $5.7 million. The reinsurance
assumed premiums and policy benefits shown above reflect this transaction.
POLICY AND CONTRACT CLAIMS. Accident and health claim reserves, the majority
of which are incurred and paid in full within a one-year period, amount to
less than 1% of total policy and contract liabilities. Therefore, no
additional disclosures are warranted.
A-41
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. STATUTORY BASIS INFORMATION
The Company and its subsidiaries are required to file annual statements with
state regulatory authorities prepared on an accounting basis as prescribed or
permitted by such authorities (statutory basis). Prescribed statutory
accounting practices include state laws, regulations, and general
administrative rules, as well as a variety of publications of the National
Association of Insurance Commissioners (NAIC). Permitted statutory accounting
practices encompass all accounting practices not so prescribed.
Statutory net income differs from income reported in accordance with
generally accepted accounting principles primarily because policy acquisition
costs are expensed when incurred, reserves are based on different assumptions
and income tax expense reflects only taxes paid or currently payable.
Statutory net income and stockholder's equity, by company, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company.......................................... $ 95,676 $ 101,456 $ 47,280
SAFECO National Life Insurance Company................................. 1,249 1,187 1,242
First SAFECO National Life Insurance Company of New York............... 318 404 108
---------- ---------- ----------
Total............................................................ $ 97,243 $ 103,047 $ 48,630
---------- ---------- ----------
---------- ---------- ----------
<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
A-42
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8 (continued)
on the benefit balance. It is SAFECO Corporation's policy to fund the defined
benefit plan on a current basis to the full extent deductible under federal
income tax regulations. The cost of these plans to the Company was
$7,901,000, $7,599,000 and $6,329,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Companies also provide certain healthcare and life insurance benefits
("other postretirement benefits") for retired employees. Substantially all
employees may become eligible for these benefits if they reach retirement age
while working for the Companies. The cost of these benefits is shared with
the retiree. The Company accrues for these costs during the years that
employees provide services, under FASB Statement 106. Net periodic other
postretirement benefit costs for the Company were $474,000, $282,000 and
$432,000 in 1996, 1995 and 1994, respectively.
The following table summarizes the Company's funded status of the plan:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total accumulated postretirement benefit obligation (APBO).............................. $ 3,765 $ 4,310
Less: plan assets at fair value......................................................... 133 133
--------- ---------
APBO in excess of plan assets........................................................... 3,632 4,177
Unrecognized gain....................................................................... 1,283 361
--------- ---------
Accrued postretirement benefit cost recorded on the balance sheet....................... $ 4,915 $ 4,538
--------- ---------
--------- ---------
</TABLE>
Discount rate assumptions of 7.75%, 7.5% and 8.5% were used at December 31,
1996, 1995 and 1994, respectively. The accumulated postretirement benefit
obligation at December 31, 1996 was determined using a healthcare cost trend
rate of 11% for 1997, declining by 1% per year, starting in 1998, to 6% and
remaining at that level thereafter. A one percentage point increase in the
assumed healthcare cost trend rate for each year would increase the
accumulated other postretirement benefit obligation as of December 31, 1996
by $451,000 and the annual net periodic other postretirement benefit cost for
the year then ended by $76,000.
9. INCOME TAXES
The Company uses the liability method of accounting for income taxes pursuant
to FASB Statement 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are determined based on the
differences between their financial reporting and their tax bases and are
measured using the enacted tax rates.
Differences between income tax computed by applying the U.S. federal income
tax rate of 35% to income before income taxes and the provision for federal
income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense.............................................. $ 50,751 $ 48,631 $ 47,040
Dividends received deduction................................................. (24) (44) (64)
Tax exempt interest.......................................................... (6) (7) (8)
Other........................................................................ 225 (550) 243
--------- --------- ---------
Income tax expense................................................... $ 50,946 $ 48,030 $ 47,211
--------- --------- ---------
--------- --------- ---------
Percent of income tax expense to income before tax........................... 35.1% 34.6% 35.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
A-43
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9 (continued)
The tax effect of temporary differences which give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Discounted loss and adjustment expense reserves.................................... $ 1,359 $ 1,990
Uncollected premium adjustment..................................................... 2,270 2,011
Adjustment to life policy liabilities.............................................. 34,773 30,209
Capitalization of policy acquisition costs......................................... 33,393 21,860
Postretirement benefits............................................................ 1,720 1,588
Realized capital losses............................................................ 5,887 9,348
Guarantee fund assessments......................................................... 3,518 3,680
Other.............................................................................. 1,630 1,414
---------- ----------
Total deferred tax assets.................................................... 84,550 72,100
---------- ----------
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs.................................................. 90,826 88,657
Bond discount accrual.............................................................. 9,525 5,905
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1996-$6,664; 1995-$14,985)................ 86,120 172,493
Other.............................................................................. 1,727 1,537
---------- ----------
Total deferred tax liabilities............................................... 188,198 268,592
---------- ----------
Net deferred tax liability................................................... $ 103,648 $ 196,492
---------- ----------
---------- ----------
</TABLE>
The following table reconciles the deferred tax benefit in the Statement of
Income to the change in the deferred tax liability in the balance sheet at
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax benefit...................................................... $ (6,471) $ (13,800) $ (10,154)
Deferred tax changes reported in stockholder's equity:
Increase (decrease) in liability related to unrealized appreciation or
depreciation of investment securities................................. (94,694) 255,506 (71,645)
Increase (decrease) in liability related to deferred policy acquisition
costs valuation allowance............................................. 8,321 (14,985) --
--------- ---------- ---------
Increase (decrease) in net deferred tax liability......................... $ (92,844) $ 226,721 $ (81,799)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
A-44
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SEGMENT DATA
A major portion of investment income, realized gains or losses and assets is
specifically identifiable with an industry segment. The remainder of these
amounts has been allocated in proportion to the investment income identified
with each segment.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $35,477 of financial services
revenue received from affiliates)............................. $ 48,964 $ 204,069 $ 253,033
Identifiable Investment Income.................................. 506,628 256,939 763,567
Investment Income Allocated..................................... 48,157 24,314 72,471
Identifiable Realized Gain from Investments..................... 2,636 2,884 5,520
Realized Gain from Investments Allocated........................ 3,271 1,648 4,919
----------- ----------- -------------
Total Revenue............................................. $ 609,656 $ 489,854 $ 1,099,510
----------- ----------- -------------
----------- ----------- -------------
Income Before Income Taxes........................................ $ 81,849 $ 63,153 $ 145,002
----------- ----------- -------------
----------- ----------- -------------
<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>
A-45
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10 (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $29,029 of financial services
revenue received from affiliates)............................. $ 45,284 $ 203,349 $ 248,633
Identifiable Investment Income.................................. 450,655 256,570 707,225
Investment Income Allocated..................................... 44,043 26,232 70,275
Identifiable Realized Gain (Loss) from Investments.............. 16,020 (8,586) 7,434
Realized Loss from Investments Allocated........................ (1,112) (646) (1,758)
----------- ----------- -------------
Total Revenue............................................. $ 554,890 $ 476,919 $ 1,031,809
----------- ----------- -------------
----------- ----------- -------------
Income Before Income Taxes........................................ $ 84,956 $ 53,990 $ 138,946
----------- ----------- -------------
----------- ----------- -------------
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs............................... $ 143,228 $ 67,263 $ 210,491
Policy Loans.................................................... 29,109 26,816 55,925
Invested Assets................................................. 6,086,143 3,261,042 9,347,185
Other........................................................... 155,358 327,863 483,221
Invested Assets Allocated......................................... 671,864 400,160 1,072,024
Other Assets Allocated............................................ 18,179 11,148 29,327
----------- ----------- -------------
Total Assets.............................................. $ 7,103,881 $ 4,094,292 $ 11,198,173
----------- ----------- -------------
----------- ----------- -------------
Amortization of Deferred Policy Acquisition Costs................. $ 12,222 $ 20,154 $ 32,376
----------- ----------- -------------
----------- ----------- -------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $27,955 of financial services
revenue received from affiliates)............................. $ 42,805 $ 219,919 $ 262,724
Identifiable Investment Income.................................. 395,127 245,909 641,036
Investment Income Allocated..................................... 39,909 24,725 64,634
Identifiable Realized Gain from Investments..................... 6,744 1,267 8,011
Realized Loss from Investments Allocated........................ (1,463) (909) (2,372)
----------- ----------- -------------
Total Revenue............................................. $ 483,122 $ 490,911 $ 974,033
----------- ----------- -------------
----------- ----------- -------------
Income Before Income Taxes........................................ $ 70,200 $ 64,201 $ 134,401
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
A-46
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10 (continued)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------
FINANCIAL EMPLOYEE
SERVICES BENEFITS TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs............................... $ 151,614 $ 95,576 $ 247,190
Policy Loans.................................................... 28,467 24,862 53,329
Invested Assets................................................. 4,859,921 2,874,141 7,734,062
Other........................................................... 153,120 248,641 401,761
Invested Assets Allocated......................................... 542,890 336,343 879,233
Other Assets Allocated............................................ (880) (569) (1,449)
----------- ----------- -------------
Total Assets.............................................. $ 5,735,132 $ 3,578,994 $ 9,314,126
----------- ----------- -------------
----------- ----------- -------------
Amortization of Deferred Policy Acquisition Costs................. $ 9,914 $ 19,493 $ 29,407
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
A-47
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
- -------------------------------------------------------------------
OF DEATH BENEFITS, POLICY ACCOUNT, CASH SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
The following tables have been prepared to show how the key financial elements
of the Policy work. The tables show how death benefits, Policy Account and Cash
Surrender Values (policy benefits) could vary over an extended period of time if
the Investment Division of the Separate Account had constant hypothetical gross
annual investment returns of 0%, 6% or 12% over the years covered by each table.
The policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0%, 6% or 12% over a period of years, but went
above or below those figures in individual Policy Years. The Policy benefits
will also differ, depending on the premium allocations to each Investment
Division, if the overall actual rates of return averaged 0%, 6% or 12%, but went
above or below those figures for the individual Investment Divisions. The tables
are for preferred and standard risk male non-smokers. Planned premium payments
are assumed to be paid at the beginning of each Policy Year. The difference
between the Policy Account and the Cash Surrender Value in the first ten years
is the surrender charge. The Policy Account amounts reflect the front-end
charges.
The tables illustrate cost of insurance and expense charges (Policy cost
factors) at both the current rates and the maximum rates guaranteed in the
Policies. The amounts shown at the end of each Policy Year reflect a daily
charge against the Investment Divisions. This charge includes a .70% charge
against the Separate Account for mortality and expense risks; the effect on each
Division's investment experience of the charge to Funds' assets for investment
management (0.69%, an average of the 1996 actual investment management fees
charged to the various Portfolios of the Funds); and 0.15% direct Funds'
operating expenses. The effect of these adjustments is that on a 0% gross rate
of return the net rate of return would be -1.54%, on 6% it would be 4.46%, and
on 12% it would be 10.46%.
The tables assume deduction of an applicable premium tax rate based on 2.1% of
premiums. There are tables for both male preferred non-smoker age 45 and male
standard non-smoker age 45 and each class is illustrated using CURRENT and
GUARANTEED Policy cost factors. The current tables assume that the monthly
charge remains constant at $5.00. The guaranteed tables assume that the monthly
charge remains constant at $8.00. The tables reflect the fact that SAFECO does
not currently make any charge for federal taxes.
If SAFECO charged for those taxes in the future, it will take a higher rate of
return to produce after-tax returns of 0%, 6% or 12%.
The second column of each table shows what would happen if an amount equal to
the premiums was invested to earn interest, after taxes, of 5% compounded
annually. These tables show that if a policy is returned in its very early years
for payment of its Cash Surrender Value, that Cash Surrender Value will be low
in comparison to the amount of the premiums accumulated with interest. Thus, the
cost of holding a Policy for a relatively short time will be high.
INDIVIDUAL ILLUSTRATIONS. If requested, SAFECO will furnish a comparable
illustration based on the age, sex and underwriting classification of the
proposed Primary Insured, and an initial Face Amount of Insurance and planned
premiums as selected. If a Policy is purchased, SAFECO will deliver an
individualized illustration reflecting the planned premium chosen and the
Primary Insured's actual risk class.
B-1
<PAGE>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS ASSUMING CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00%
--------------------------------------- ---------------------------------------
ACCUM POLICY CASH POLICY CASH
END OF PREMIUM (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
POLICY YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,900 1,700 250,000 3,105 1,905
2 8,610 250,000 5,901 4,341 250,000 6,498 4,938
3 13,241 250,000 8,790 6,870 250,000 9,977 8,057
4 18,103 250,000 11,597 9,452 250,000 13,575 11,430
5 23,208 250,000 14,343 12,198 250,000 17,319 15,174
6 28,568 250,000 17,034 15,318 250,000 21,221 19,505
7 34,196 250,000 19,650 18,363 250,000 25,269 23,982
8 40,106 250,000 22,195 21,337 250,000 29,474 28,616
9 46,312 250,000 24,674 24,245 250,000 33,847 33,418
10 52,827 250,000 27,091 27,091 250,000 38,401 38,401
11 59,669 250,000 29,376 29,376 250,000 43,077 43,077
12 66,852 250,000 31,514 31,514 250,000 47,867 47,867
13 74,395 250,000 33,496 33,496 250,000 52,772 52,772
14 82,314 250,000 35,311 35,311 250,000 57,788 57,788
15 90,630 250,000 36,941 36,941 250,000 62,910 62,910
16 99,361 250,000 38,377 38,377 250,000 68,139 68,139
17 108,530 250,000 39,610 39,610 250,000 73,479 73,479
18 118,156 250,000 40,632 40,632 250,000 78,937 78,937
19 128,264 250,000 41,427 41,427 250,000 84,514 84,514
20 138,877 250,000 41,976 41,976 250,000 90,212 90,212
Age 75 297,195 250,000 18,676 18,676 250,000 160,412 160,412
<CAPTION>
12.00%
---------------------------------------
POLICY CASH
END OF DEATH ACCOUNT SURRENDER
POLICY YEAR BENEFIT VALUE VALUE
<S> <C> <C> <C>
1 250,000 3,309 2,109
2 250,000 7,120 5,560
3 250,000 11,265 9,345
4 250,000 15,809 13,664
5 250,000 20,817 18,672
6 250,000 26,347 24,631
7 250,000 32,434 31,147
8 250,000 39,145 38,287
9 250,000 46,552 46,123
10 250,000 54,736 54,736
11 250,000 63,721 63,721
12 250,000 73,588 73,588
13 250,000 84,434 84,434
14 250,000 96,373 96,373
15 250,000 109,529 109,529
16 250,000 124,052 124,052
17 250,000 140,117 140,117
18 250,000 157,929 157,929
19 250,000 177,719 177,719
20 250,000 199,757 199,757
Age 75 789,014 751,442 751,442
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT RATES
OF RETURN FOR THE FUNDS' PORTFOLIOS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF
RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN
BE MADE BY SAFECO OR THE FUNDS THAT THIS ASSUMED INVESTMENT RATE OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-2
<PAGE>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS ASSUMING GUARANTEED CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00%
--------------------------------------- ---------------------------------------
END OF ACCUM POLICY CASH POLICY CASH
POLICY PREMIUM (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,676 1,476 250,000 2,873 1,673
2 8,610 250,000 5,493 3,933 250,000 6,063 4,503
3 13,241 250,000 8,205 6,285 250,000 9,334 7,414
4 18,103 250,000 10,806 8,661 250,000 12,682 10,537
5 23,208 250,000 13,293 11,148 250,000 16,109 13,964
6 28,568 250,000 15,657 13,941 250,000 19,606 17,890
7 34,196 250,000 17,887 16,600 250,000 23,168 21,881
8 40,106 250,000 19,973 19,115 250,000 26,787 25,929
9 46,312 250,000 21,900 21,471 250,000 30,450 30,021
10 52,827 250,000 23,653 23,653 250,000 34,148 34,148
11 59,669 250,000 25,218 25,218 250,000 37,870 37,870
12 66,852 250,000 26,587 26,587 250,000 41,611 41,611
13 74,395 250,000 27,748 27,748 250,000 45,364 45,364
14 82,314 250,000 28,687 28,687 250,000 49,120 49,120
15 90,630 250,000 29,375 29,375 250,000 52,858 52,858
16 99,361 250,000 29,789 29,789 250,000 56,561 56,561
17 108,530 250,000 29,897 29,897 250,000 60,207 60,207
18 118,156 250,000 29,654 29,654 250,000 63,764 63,764
19 128,264 250,000 29,009 29,009 250,000 67,195 67,195
20 138,877 250,000 27,920 27,920 250,000 70,470 70,470
Age 75 297,195 250,000 80,276 80,276
<CAPTION>
12.00%
---------------------------------------
END OF POLICY CASH
POLICY DEATH ACCOUNT SURRENDER
YEAR BENEFIT VALUE VALUE
<S> <C> <C> <C>
1 250,000 3,070 1,870
2 250,000 6,658 5,098
3 250,000 10,560 8,640
4 250,000 14,803 12,658
5 250,000 19,422 17,277
6 250,000 24,448 22,732
7 250,000 29,919 28,632
8 250,000 35,872 35,014
9 250,000 42,352 41,923
10 250,000 49,408 49,408
11 250,000 57,100 57,100
12 250,000 65,500 65,500
13 250,000 74,693 74,693
14 250,000 84,773 84,773
15 250,000 95,841 95,841
16 250,000 108,021 108,021
17 250,000 121,456 121,456
18 250,000 136,313 136,313
19 250,000 152,790 152,790
20 250,000 171,138 171,138
Age 75 700,356 667,006 667,006
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
STANDARD NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS ASSUMING CURRENT CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00%
--------------------------------------- ---------------------------------------
ACCUM POLICY CASH POLICY CASH
END OF PREMIUM (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
POLICY YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,724 1,524 250,000 2,923 1,723
2 8,610 250,000 5,579 4,019 250,000 6,155 4,595
3 13,241 250,000 8,328 6,408 250,000 9,470 7,550
4 18,103 250,000 10,987 8,842 250,000 12,885 10,740
5 23,208 250,000 13,595 11,450 250,000 16,448 14,303
6 28,568 250,000 16,158 14,442 250,000 20,168 18,452
7 34,196 250,000 18,653 17,366 250,000 24,033 22,746
8 40,106 250,000 21,090 20,232 250,000 28,056 27,198
9 46,312 250,000 23,469 23,040 250,000 32,248 31,819
10 52,827 250,000 25,790 25,790 250,000 36,615 36,615
11 59,669 250,000 27,983 27,983 250,000 41,099 41,099
12 66,852 250,000 30,017 30,017 250,000 45,676 45,676
13 74,395 250,000 31,881 31,881 250,000 50,343 50,343
14 82,314 250,000 33,564 33,564 250,000 55,097 55,097
15 90,630 250,000 35,053 35,053 250,000 59,935 59,935
16 99,361 250,000 36,331 36,331 250,000 64,849 64,849
17 108,530 250,000 37,398 37,398 250,000 69,852 69,852
18 118,156 250,000 38,234 38,234 250,000 74,938 74,938
19 128,264 250,000 38,830 38,830 250,000 80,112 80,112
20 138,877 250,000 39,167 39,167 250,000 85,375 85,375
Age 75 297,195 250,000 12,138 12,138 250,000 147,146 147,146
<CAPTION>
12.00%
---------------------------------------
POLICY CASH
END OF DEATH ACCOUNT SURRENDER
POLICY YEAR BENEFIT VALUE VALUE
<S> <C> <C> <C>
1 250,000 3,122 1,922
2 250,000 6,756 5,196
3 250,000 10,709 8,789
4 250,000 15,031 12,886
5 250,000 19,803 17,658
6 250,000 25,082 23,366
7 250,000 30,898 29,611
8 250,000 37,321 36,463
9 250,000 44,418 43,989
10 250,000 52,265 52,265
11 250,000 60,881 60,881
12 250,000 70,328 70,328
13 250,000 80,700 80,700
14 250,000 92,103 92,103
15 250,000 104,660 104,660
16 250,000 118,509 118,509
17 250,000 133,826 133,826
18 250,000 150,800 150,800
19 250,000 169,657 169,657
20 250,000 190,661 190,661
Age 75 754,664 718,728 718,728
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
STANDARD NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS ASSUMING GUARANTEED CHARGES(2)
Assuming Hypothetical Gross Annual Investment Return of:
<TABLE>
<CAPTION>
0.00% 6.00%
--------------------------------------- ---------------------------------------
END OF ACCUM POLICY CASH POLICY CASH
POLICY PREMIUM (5% DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,676 1,476 250,000 2,873 1,673
2 8,610 250,000 5,493 3,933 250,000 6,063 4,503
3 13,241 250,000 8,205 6,285 250,000 9,334 7,414
4 18,103 250,000 10,806 8,661 250,000 12,682 10,537
5 23,208 250,000 13,293 11,148 250,000 16,109 13,964
6 28,568 250,000 15,657 13,941 250,000 19,606 17,890
7 34,196 250,000 17,887 16,600 250,000 23,168 21,881
8 40,106 250,000 19,973 19,115 250,000 26,787 25,929
9 46,312 250,000 21,900 21,471 250,000 30,450 30,021
10 52,827 250,000 23,653 23,653 250,000 34,148 34,148
11 59,669 250,000 25,218 25,218 250,000 37,870 37,870
12 66,852 250,000 26,587 26,587 250,000 41,611 41,611
13 74,395 250,000 27,748 27,748 250,000 45,364 45,364
14 82,314 250,000 28,687 28,687 250,000 49,120 49,120
15 90,630 250,000 29,375 29,375 250,000 52,858 52,858
16 99,361 250,000 29,789 29,789 250,000 56,561 56,561
17 108,530 250,000 29,897 29,897 250,000 60,207 60,207
18 118,156 250,000 29,654 29,654 250,000 63,764 63,764
19 128,264 250,000 29,009 29,009 250,000 67,195 67,195
20 138,877 250,000 27,920 27,920 250,000 70,470 70,470
Age 75 297,195 250,000 80,276 80,276
<CAPTION>
12.00%
---------------------------------------
END OF POLICY CASH
POLICY DEATH ACCOUNT SURRENDER
YEAR BENEFIT VALUE VALUE
<S> <C> <C> <C>
1 250,000 3,070 1,870
2 250,000 6,658 5,098
3 250,000 10,560 8,640
4 250,000 14,803 12,658
5 250,000 19,422 17,277
6 250,000 24,448 22,732
7 250,000 29,919 28,632
8 250,000 35,872 35,014
9 250,000 42,352 41,923
10 250,000 49,408 49,408
11 250,000 57,100 57,100
12 250,000 65,500 65,500
13 250,000 74,693 74,693
14 250,000 84,773 84,773
15 250,000 95,841 95,841
16 250,000 108,021 108,021
17 250,000 121,456 121,456
18 250,000 136,313 136,313
19 250,000 152,790 152,790
20 250,000 171,138 171,138
Age 75 700,356 667,006 667,006
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
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>
[This page intentionally left blank]
B-6
<PAGE>
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 .70% 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. 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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP MONEY MARKET DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1983 250,000 3,241 2,041 250,000 3,005 1,805
1984 250,000 6,995 5,435 250,000 6,538 4,978
1985 250,000 10,807 8,887 250,000 10,125 8,205
1986 250,000 14,665 12,520 250,000 13,719 11,574
1987 250,000 18,694 16,549 250,000 17,415 15,270
1988 250,000 23,157 21,441 250,000 21,439 19,723
1989 250,000 28,353 27,066 250,000 26,072 24,785
1990 250,000 33,626 32,768 250,000 30,683 29,825
1991 250,000 38,548 38,119 250,000 34,863 34,434
1992 250,000 42,804 42,804 250,000 38,313 38,313
1993 250,000 46,807 46,807 250,000 41,458 41,458
1994 250,000 51,329 51,329 250,000 44,987 44,987
1995 250,000 56,798 56,798 250,000 49,268 49,268
1996 250,000 62,174 62,174 250,000 63,921 63,921
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP HIGH INCOME DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1986 250,000 3,532 2,332 250,000 3,286 2,086
1987 250,000 6,669 5,109 250,000 6,233 4,673
1988 250,000 10,813 8,893 250,000 10,135 8,215
1989 250,000 13,122 10,977 250,000 12,266 10,121
1990 250,000 15,620 13,475 250,000 14,521 12,376
1991 250,000 25,150 23,434 250,000 23,270 21,554
1992 250,000 34,545 33,258 250,000 31,800 30,513
1993 250,000 45,001 44,143 250,000 41,205 40,347
1994 250,000 46,840 46,411 250,000 42,591 42,162
1995 250,000 59,870 59,870 250,000 54,056 54,056
1996 250,000 71,241 71,241 250,000 63,921 63,921
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP EQUITY-INCOME DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1987 250,000 2,891 1,691 250,000 2,667 1,467
1988 250,000 7,395 5,835 250,000 6,912 5,352
1989 250,000 12,241 10,321 250,000 11,478 9,558
1990 250,000 12,742 10,597 250,000 11,904 9,759
1991 250,000 20,704 18,559 250,000 19,295 17,150
1992 250,000 27,607 25,891 250,000 25,602 23,886
1993 250,000 36,049 34,762 250,000 33,261 31,974
1994 250,000 41,537 40,679 250,000 38,093 37,235
1995 250,000 59,989 59,560 250,000 54,723 54,294
1996 250,000 71,630 71,630 250,000 64,987 64,987
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP GROWTH DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1987 250,000 3,053 1,853 250,000 2,824 1,624
1988 250,000 7,127 5,567 250,000 6,660 5,100
1989 250,000 13,431 11,511 250,000 12,607 10,687
1990 250,000 14,346 12,201 250,000 13,424 11,279
1991 250,000 25,319 23,174 250,000 23,654 21,509
1992 250,000 30,808 29,092 250,000 28,650 26,934
1993 250,000 40,198 38,911 250,000 37,211 35,924
1994 250,000 42,871 42,013 250,000 39,449 38,591
1995 250,000 61,915 61,486 250,000 56,673 56,244
1996 250,000 74,109 74,109 250,000 67,477 67,477
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP OVERSEAS DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1988 250,000 3,206 2,006 250,000 2,971 1,771
1989 250,000 8,020 6,460 250,000 7,512 5,952
1990 250,000 10,789 8,869 250,000 10,111 8,191
1991 250,000 14,831 12,686 250,000 13,880 11,735
1992 250,000 15,734 13,589 250,000 14,638 12,493
1993 250,000 25,740 24,024 250,000 23,835 22,119
1994 250,000 29,005 27,718 250,000 26,679 25,392
1995 250,000 34,860 34,002 250,000 31,829 30,971
1996 250,000 42,561 42,132 250,000 38,553 38,124
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INVESTMENT GRADE BOND DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1989 250,000 3,278 2,078 250,000 3,041 1,841
1990 250,000 6,751 5,191 250,000 6,307 4,747
1991 250,000 11,389 9,469 250,000 10,676 8,756
1992 250,000 15,277 13,132 250,000 14,299 12,154
1993 250,000 20,190 18,045 250,000 18,827 16,682
1994 250,000 22,123 20,407 250,000 20,488 18,772
1995 250,000 29,325 28,038 250,000 26,983 25,696
1996 250,000 33,083 32,225 250,000 30,201 29,343
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP ASSET MANAGER DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1990 250,000 3,158 1,958 250,000 2,924 1,724
1991 250,000 7,712 6,152 250,000 7,218 5,658
1992 250,000 11,982 10,062 250,000 11,239 9,319
1993 250,000 18,160 16,015 250,000 17,027 14,882
1994 250,000 19,520 17,375 250,000 18,215 16,070
1995 250,000 26,241 24,525 250,000 24,356 22,640
1996 250,000 33,339 32,052 250,000 30,767 29,480
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INDEX 500 DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1993 250,000 3,261 2,061 250,000 3,024 1,824
1994 250,000 6,383 4,823 250,000 5,957 4,397
1995 250,000 13,016 11,096 250,000 12,216 10,296
1996 250,000 19,656 17,511 250,000 18,441 16,296
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP II ASSET MANAGER: GROWTH DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
POLICY ------------------------------------------- -------------------------------------------
YEAR END DEATH POLICY CASH SURRENDER DEATH POLICY CASH SURRENDER
DECEMBER 31ST BENEFIT ACCOUNT VALUE VALUE BENEFIT ACCOUNT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 250,000 3,719 2,519 250,000 3,466 2,266
1996 250,000 8,216 6,656 250,000 7,708 6,148
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II CONTRAFUND DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
POLICY ------------------------------------------- -------------------------------------------
YEAR END DEATH POLICY CASH SURRENDER DEATH POLICY CASH SURRENDER
DECEMBER 31ST BENEFIT ACCOUNT VALUE VALUE BENEFIT ACCOUNT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 250,000 4,286 3,086 250,000 4,015 2,815
1996 250,000 8,986 7,426 250,000 8,452 6,892
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to
Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIDELITY'S VIP III BALANCED DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
POLICY ------------------------------------------- -------------------------------------------
YEAR END DEATH POLICY CASH SURRENDER DEATH POLICY CASH SURRENDER
DECEMBER 31ST BENEFIT ACCOUNT VALUE VALUE BENEFIT ACCOUNT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 250,000 3,403 2,203 250,000 3,162 1,962
1996 250,000 7,143 5,583 250,000 6,682 5,122
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP III GROWTH OPPORTUNITIES DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
POLICY ------------------------------------------- -------------------------------------------
YEAR END DEATH POLICY CASH SURRENDER DEATH POLICY CASH SURRENDER
DECEMBER 31ST BENEFIT ACCOUNT VALUE VALUE BENEFIT ACCOUNT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 250,000 4,041 2,841 250,000 3,778 2,578
1996 250,000 8,468 6,908 250,000 6,682 5,122
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP III GROWTH & INCOME DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
POLICY ------------------------------------------- -------------------------------------------
YEAR END DEATH POLICY CASH SURRENDER DEATH POLICY CASH SURRENDER
DECEMBER 31ST BENEFIT ACCOUNT VALUE VALUE BENEFIT ACCOUNT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
THERE WAS NO HISTORICAL EXPERIENCE ON THIS DIVISION AS OF 12/31/96.
THIS DIVISION WAS NOT AVAILABLE PRIOR TO 12/31/96.
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Initial Face Amount: $250,000 Annual Planned Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEXINGTON NATURAL RESOURCES DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1992 250,000 3,038 1,838 250,000 2,809 1,609
1993 250,000 6,803 5,243 250,000 6,352 4,792
1994 250,000 9,216 7,296 250,000 8,614 6,694
1995 250,000 14,261 12,116 250,000 13,327 11,182
1996 250,000 21,891 19,746 250,000 20,406 18,261
</TABLE>
- --------------------------------------------------------------------------------
LEXINGTON EMERGING MARKETS DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 250,000 2,796 1,596 250,000 2,575 1,375
1996 250,000 6,318 4,758 250,000 5,888 4,328
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Annual Planned
Initial Face Amount: $250,000 Premium(1): $4,000.00
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 POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1988 250,000 3,168 1,968 250,000 2,934 1,734
1989 250,000 6,973 5,413 250,000 6,516 4,956
1990 250,000 10,623 8,703 250,000 9,949 8,029
1991 250,000 15,494 13,349 250,000 14,500 12,355
1992 250,000 19,646 17,501 250,000 18,312 16,167
1993 250,000 24,907 23,191 250,000 23,084 21,368
1994 250,000 26,840 25,553 250,000 24,691 23,404
1995 250,000 34,973 34,115 250,000 31,936 31,078
1996 250,000 37,841 37,412 250,000 34,243 33,814
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST EQUITY DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1988 250,000 3,817 2,617 250,000 3,561 2,361
1989 250,000 8,851 7,291 250,000 8,314 6,754
1990 250,000 11,167 9,247 250,000 10,484 8,564
1991 250,000 17,997 15,852 250,000 16,892 14,747
1992 250,000 22,578 20,433 250,000 21,113 18,968
1993 250,000 32,668 30,952 250,000 30,422 28,706
1994 250,000 38,642 37,355 250,000 35,806 34,519
1995 250,000 53,397 52,539 250,000 49,250 48,392
1996 250,000 70,128 69,699 250,000 64,399 63,970
</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>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Annual Planned
Initial Face Amount: $250,000 Premium(1): $4,000.00
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 POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1994 250,000 3,335 2,135 250,000 3,096 1,896
1995 250,000 9,193 7,633 250,000 8,630 7,070
1996 250,000 16,213 14,293 250,000 15,262 13,342
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST NORTHWEST DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1994 250,000 3,053 1,853 250,000 2,823 1,623
1995 250,000 6,592 5,032 250,000 6,152 4,592
1996 250,000 10,808 8,888 250,000 10,120 8,200
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST SMALL COMPANY DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
THERE WAS NO HISTORICAL EXPERIENCE ON THIS DIVISION AS OF 12/31/96.
THIS DIVISION WAS NOT AVAILABLE PRIOR TO 4/30/97.
</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-10
<PAGE>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Annual Planned
Initial Face Amount: $250,000 Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WANGER U.S. SMALL CAP DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1996 250,000 4,528 3,328 250,000 4,249 3,049
</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-11
<PAGE>
VARIABLE UNIVERSAL LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE
PREFERRED NON-SMOKER
<TABLE>
<S> <C> <C> <C>
Annual Planned
Initial Face Amount: $250,000 Premium(1): $4,000.00
Death Benefit Option: A Issue Age: 45
Death Benefits Payable to Age: 95 Premiums Payable to Age: 95
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMERICAN CENTURY VP INTERNATIONAL DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1995 250,000 3,345 2,145 250,000 3,105 1,905
1996 250,000 7,374 5,814 250,000 6,901 5,341
</TABLE>
- --------------------------------------------------------------------------------
AMERICAN CENTURY VP BALANCED DIVISION
<TABLE>
<CAPTION>
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
----------------------------------------- -----------------------------------------
POLICY POLICY POLICY
YEAR END DEATH ACCOUNT CASH SURRENDER DEATH ACCOUNT CASH SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
1992 250,000 2,725 1,525 250,000 2,507 1,307
1993 250,000 6,258 4,698 250,000 5,830 4,270
1994 250,000 9,283 7,363 250,000 8,670 6,750
1995 250,000 14,879 12,734 250,000 13,901 11,756
1996 250,000 19,958 17,813 250,000 18,584 16,439
</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-12
<PAGE>
NET RATES OF RETURN
The VIP, VIP II, and VIP III Division tables shown earlier in this section
appendix are based on the investment performance, after actual expenses, of the
corresponding VIP, VIP II, and VIP III 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 but are
net of the mortality and expense risk charge of 0.70%; and, they are not an
estimate or a guarantee of future investment performance.
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE VIP PORTFOLIOS
<TABLE>
<CAPTION>
VIP VIP VIP
MONEY HIGH EQUITY- VIP VIP
YEAR MARKET INCOME INCOME GROWTH OVERSEAS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1983 8.46
1984 9.73
1985 7.41
1986 6.00 16.98
1987 5.74 0.52 -1.83 2.96
1988 6.69 10.94 22.01 14.88 7.43
1989 8.42 -4.87 16.64 30.81 25.58
1990 7.34 -2.93 -15.99 -12.43 -2.37
1991 5.39 34.38 30.74 44.81 7.30
1992 3.20 22.47 16.19 8.62 -11.42
1993 2.53 19.70 17.59 18.67 36.65
1994 3.55 -2.34 6.37 -0.72 1.02
1995 5.17 20.02 34.39 34.66 8.98
1996 4.71 13.33 13.58 14.01 12.45
</TABLE>
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE VIP II PORTFOLIOS
<TABLE>
<CAPTION>
VIP II
INVESTMENT VIP II VIP II VIP II VIP II
GRADE ASSET INDEX ASSET MGR: CONTRA-
YEAR BOND MANAGER 500 GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1989 9.56
1990 5.51 6.02
1991 15.68 21.86
1992 5.95 11.01
1993 10.26 20.53 9.04
1994 -4.46 -6.79 0.34
1995 16.62 16.26 36.49 22.43 38.92
1996 2.49 13.90 22.01 19.34 20.52
</TABLE>
C-13
<PAGE>
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE VIP III PORTFOLIOS
<TABLE>
<CAPTION>
VIP III VIP III
GROWTH VIP III GROWTH &
YEAR OPPORTUNITIES BALANCED INCOME
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 31.82 13.22
1996 17.57 9.28
</TABLE>
The Lexington Natural Resources Trust and Lexington Emerging Markets Fund
("Lexington") Division tables shown earlier in this appendix 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 but are net of the mortality and expense
risk charge of 0.70%; and, they are not an estimate or a guarantee of future
investment performance.
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE LEXINGTON PORTFOLIOS
<TABLE>
<CAPTION>
LEXINGTON LEXINGTON
NATURAL EMERGING
YEAR RESOURCES MARKETS
- ---------------------------------------------------------
<S> <C> <C>
1992 2.52
1993 10.20
1994 -6.08
1995 16.17 -4.63
1996 26.19 6.76
</TABLE>
The Wanger Advisors Trust ("Wanger") Division tables shown earlier in this
appendix are based on the investment performance, after actual expenses, of the
corresponding Wanger 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 but are net of the mortality
and expense risk charge of 0.70%; and, they are not an estimate or a guarantee
of future investment performance.
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE WANGER PORTFOLIOS
<TABLE>
<CAPTION>
WANGER
U.S. SMALL
YEAR CAP
- --------------------------------------
<S> <C>
1996 45.93
</TABLE>
C-14
<PAGE>
The SAFECO RST Division tables shown earlier in this appendix 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 but are net of the mortality and expense
risk charge of 0.70%; and, they are not an estimate or a guarantee of future
investment performance.
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE SAFECO RST PORTFOLIOS
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
RST RST RST RST RST
YEAR BOND EQUITY GROWTH NORTHWEST SMALL CO.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1988 6.33 25.28
1989 10.60 26.41
1990 5.87 -5.91
1991 13.28 26.15
1992 6.12 7.36
1993 9.85 27.22
1994 -3.63 8.24 11.22 2.95
1995 17.17 27.93 40.30 6.72
1996 -0.16 24.09 31.36 11.74
</TABLE>
The American Century Variable Portfolios, Inc. ("ACVP") Division tables shown
earlier in this appendix are based on the investment performance, after actual
expenses, of the corresponding ACVP 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, but are net of the
mortality and expense risk charge of 0.70%; and, they are not an estimate or a
guarantee of future investment performance.
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE ACVP PORTFOLIOS
<TABLE>
<CAPTION>
ACVP ACVP
YEAR BALANCED INTERNATIONAL
- -----------------------------------------------------------------------
<S> <C> <C>
1992 -6.70
1993 7.00
1994 -0.10
1995 20.40 11.50
1996 11.40 13.60
</TABLE>
C-15
<PAGE>
STANDARD AND POOR'S 500
- -------------------------------------------------------------------
The Standard and Poor's ("S&P 500") is a weighted index of 500 widely held
stocks: 400 Industrials, 40 Financial Company Stocks, 40 Public Utilities, and
20 Transportation stocks, most of which are traded on the New York Stock
Exchange. The S&P 500 is generally regarded as an accurate composite of the
overall stock market.
STANDARD AND POOR'S 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STANDARD AND POOR'S 500
<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 $250,000 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% 3,666 2,466 250,000
1983 22.43% 8,323 6,763 250,000
1984 6.10% 12,001 10,081 250,000
1985 31.57% 19,785 17,640 250,000
1986 18.21% 26,866 24,721 250,000
1987 5.17% 31,236 29,520 250,000
1988 16.50% 39,711 38,424 250,000
1989 31.43% 55,981 55,123 250,000
1990 -3.19% 56,687 56,258 250,000
1991 30.55% 77,668 77,668 250,000
1992 7.68% 86,350 86,350 250,000
1993 10.00% 97,680 97,680 250,000
1994 1.32% 101,238 101,238 250,000
1995 37.51% 142,723 142,723 250,000
1996 23.25% 178,865 178,865 250,000
</TABLE>
1) Assumes an annual $4000 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>
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.]
[CHART]
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>
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.
<PAGE>
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.
Pursuant to section 26(e) of the Investment Company Act of 1940, the
registrant and SAFECO Life Insurance Company represent that the fees and
charges deducted under the contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred and
risks assumed by the insurance company.
INDEMNIFICATION
Under its Bylaws, SAFECO, to the full extent permitted by the Washington
Business Corporation Act, shall indemnify any person who was or is a party to
any proceeding (whether brought by or in the right of SAFECO or otherwise) by
reason of the fact that he or she is or was a director of SAFECO, or, while a
director of SAFECO, is or was serving at the request of SAFECO as a director,
officer, partner, trustee, employee, or agent or another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with such proceeding.
SAFECO shall extend such indemnification as if provided to directors above to
any person, not a director of SAFECO, who is or was an officer of SAFECO or is
or was serving at the request of SAFECO as a director, officer, partner,
trustee, or agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan. In addition, the
Board of Directors of SAFECO may, by resolution, extend such further
indemnification to an officer or such other person as may to it seem fair and
reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of SAFECO
pursuant to such provisions of the bylaws or statutes or otherwise, SAFECO has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by SAFECO of expenses incurred or paid
by a director, officer or controlling person of SAFECO in the successful defense
of any such action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the Policies issued by the Separate
Account, SAFECO will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in said Act and will be governed by the final adjudication of such
issue.
<PAGE>
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 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
<PAGE>
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.
<PAGE>
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
485 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 30th day of June, 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. 15 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.
Name Title Title Date
- ---- ----- ----------
Donald S. Chapman* Director
Donald S. Chapman
/s/ Boh A. Dickey Director
Boh A. Dickey
R.H. Eigsti* Director and Chairman
R.H. Eigsti
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)
<PAGE>
*By /s/ Boh A. Dickey
Boh A. Dickey
Attorney-in-Fact
*By /s/ Richard E. Zunker
Richard E. Zunker
Attorney-in-Fact
<PAGE>
EXHIBITS TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR
SEPARATE ACCOUNT SL
<PAGE>
EXHIBITS
A (3) (c) Commission Schedule
A (5) Individual Flexible Premium Variable Life Insurance Policy
A (9) (c) Form of Participation Agreement (Fidelity VIP III)
Form of Sub-Licensing Agreement
(e) Form of Participation Agreement (Wanger)
Form of Sub-Licensing Agreement
(f) Form of Participation Agreement (ACVP)
Form of Sub-Licensing Agreement
99.C1 Consent of Independent Auditors
99.2 Opinion and Consent of Counsel
99.C6 Consent of Actuary
<PAGE>
Schedule 3A
Variable Universal Life Compensation
SAFECO Life Insurance Company
Individual Department
A. Definitions
1. Servicing Agency: The servicing agency is the agency designated by the
policyholder to service the policy. If a policyholder requests a change of
servicing agency, 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): The annualized production credit awarded to
Insurance Agency when a Flexible Premium Variable Universal Life policy is
issued and paid. Net VPC represents an amount equal to the annualized basic
first-year commissions reduced by the amount of any lapses if appropriate.
3. Commissionable Target Premium (CTP)/Target Premium (TP): The premiums on
which SAFECO Life 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/TP or may change the percentage of commissions paid on the CTP/TP.
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
agency of any policy is or remains an Agent of Insurance Agency as defined in
Section 1(f) of the Sales Agreement. Status as servicing agency shall be
determined in accordance with SAFECO Life's policies and procedures and as
provided herein.
2. SAFECO Life reserves the right to charge Insurance Agency a fee in amounts to
be announced from time to time by SAFECO Life 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 Life by
Insurance Agency. No issue count will be given to servicing agency on policies
deemed by SAFECO Life to be internal replacements.
4. 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. No issue count will be given to servicing agency on
policies issued as conversions.
<PAGE>
5. Service fees if applicable will be payable in those calendar years in which
the Insurance Agency receives a minimum of $1,000.00 in basic first-year
commissions for the sale of flexible premium variable universal life policies.
6. When a policy has additional insurance riders, commissions and fees will be
paid according to the commission schedule below in Section C.
7. If policy holder increases the policy face amount on a flexible premium
variable universal life policy the insurance agency will be paid commissions as
follows:
a. For Premier Accumulation Life:
1. If the increase is handled by adding Universal Life coverage
on the base insured then the insurance agency will receive 60% of
the target premium related to the coverage increase.
2. If the increase is handled by adding additional term insurance
coverage on the base insured then the servicing agent will
receive 60% of the term premiums for that coverage.
b. For Enhanced Accumulation Life:
A one time fee at the rate of $2.00/$1,000 of face amount
increase to a maximum of $300.00 will be paid to the insurance
agency.
8. When a policy holder requests a face amount decrease on a Premier
Accumulation Life policy a portion of the commissions previously paid to
Insurance Agency on the portion of the policy that is being decreased must be
repaid to SAFECO Life. The amount to be repaid to SAFECO life will be calculated
by determining the percentage of the face amount decrease and then multiplying
that amount by the commissions already paid to the Insurance Agency as follows:
a. If the face amount decrease occurs during the first 12 policy
months then 100% of the amount calculated will be charged back.
b. If the face amount decrease occurs during the second policy
year (policy months 13 through 24) then 50% of the amount
calculated will be charged back.
9. In the event of a policy lapse a repayment to SAFECO Life of the commission
previously paid to Insurance Agency on such policy will be required and will be
calculated as follows:
a. For Premier Accumulation Life:
1) if the policy is in the first policy year (months 1 through
12) when it lapses then 100% of all of the commission paid to the
insurance agency will charged back.
<PAGE>
2) if the policy is in its second policy year (policy months 13
through 24) 50% of all of the commission paid to the insurance agency
will be charged back.
b. For Enhanced Accumulation Life policies:
If the policy was issued less than 13 months prior to the policy lapse
then the commission charged back to the insurance agency is the
commission previously paid times the number of months remaining in the
first policy year, divided by twelve.
10. 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 Life 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.
11. For Premier Accumulation Life: Insurance agency will not receive any
commission on the portion of a 1035 Exchange premium that is a loan.
12. 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
PREMIER ACCUMULATION LIFE - Premium up to the Target Premium: 60%
ENHANCED ACCUMULATION LIFE - Premium up to the Commissionable
Target Premium received in the first 12 months: 60%
2. Riders
PREMIER ACCUMULATION LIFE -
Annual Renewable Term Rider: Same First-Year Rate as Base Policy
Level Premium Term Rider Same First-Year Rate as Base Policy
ENHANCED ACCUMULATION LIFE - Policy Term
Riders issued simultaneously with
base policy: Same First-Year Rate as Base Policy
3. Basic Renewal Commissions
<PAGE>
PREMIER ACCUMULATION LIFE - Premium in excess of the
Target Premium received in the first 12 months: 3%
PREMIER ACCUMULATION LIFE - Premium in excess of the
Target Premium received in policy years 2 through 6: 2%
ENHANCED ACCUMULATION LIFE - Premium in excess of the
Commissionable Target in received in first 12 months or
received in 2nd through 6th policy years: 3%
4. Service Fees
Are only payable on Enhanced Accumulation Life and
Accumulation Life policies to servicing agencies on premiums
received in 7th and subsequent policy years: 2%
<PAGE>
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>
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:
Current Year Percent of Paid Basic
Net VPC First-Year Commissions
------------ ----------------------
15,000-29,999 7.5%
30,000-49,000 12.5%
50,000 or more 15.0%
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-Record.
The provisions of this Schedule 3C supersede any prior Product Bonus
Endorsement(s).
<PAGE>
SCHEDULE 3D
SAFECO LIFE INSURANCE COMPANY
INDIVIDUAL LIFE VARIABLE TRAIL COMMISSION PRODUCTION BONUS ENDORSEMENT
DEFINITIONS:
1. Net VPC for each agent is the production credit issued by SAFECO Life on
Flexible Premium Variable Universal life business and which is issued 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 production credit issued by SAFECO Life on the new
production for the previous 12 months. Lapsed VPC means the production
credit issued by SAFECO Life on business for which in the first 13 months a
monthly deduction was due and not paid.
2. Net Accumulation value with respect to a policy is accumulation value less
any policy loans, loan interest and charges. Accumulation value also called
policy account is the sum of the value of the Policy assets both in the
Guaranteed Interest Division and the Separate Account.
3. For purposes of this Schedule 3D Insurance Agency production is production
for which Insurance Agency is Broker-of-Record.
INITIAL QUALIFICATIONS:
Insurance Agency will receive a Trail Commission Production Bonus on the
business of each agent with the Insurance Agency who produce 15,000 or more in
net VPC in two consecutive calendar years beginning with the 1993 calendar year.
Insurance Agency and each agent must represent SAFECO Life on the last day of
the calendar year for which the Trail Commission Production Bonus will be
calculated.
SUBSEQUENT QUALIFICATIONS:
Insurance Agency will receive a Trail Commission Production Bonus on the
business of each agent with the Insurance Agency who continues to qualify by
producing 15,000 or more in net VPC in 2 out of any 3 consecutive years.
Insurance Agency and each agent must represent SAFECO Life on the last day of
the calendar year for which the Trail Commission Production Bonus will be
calculated.
VESTED QUALIFICATION:
Insurance Agency will receive a Trail Commission Production Bonus on the
business of each agent with the Insurance Agency who after producing 15,000 or
more of net VPC in 3 out of 4 consecutive years maintains a $1,000,000 or more
of net accumulation value in all SAFECO Variable universal life policies.
Insurance Agency and each agent must represent SAFECO Life on the last day of
the calendar year for which the Trail Commission Production Bonus will be
calculated.
PAYMENT:
The Trail Commission Production Bonus will be paid at the end of the first
quarter of the year following the year in which bonus was earned.
CALCULATION:
The Trail Commission Production Bonus will be calculated as 25 basis points of
the net policy accumulation values. Policy net accumulation values will be
calculated on each agent's business as of December 31 each year.
<PAGE>
EXHIBIT A (5)
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<PAGE>
Primary Insured:
Owner:
Policy Number:
Class:
Face Amount:
Effective Date:
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE PLAN
SAFECO Life Insurance Company will pay the insurance benefits and provide the
other rights and benefits of this policy in accordance with its provisions.
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 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 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 investment performance of the
corresponding portfolio of a designated investment company, and there are no
minimum guarantees.
The amount of death benefit, or the duration of insurance coverage, or both, may
be variable or fixed as described in Section 9 of this policy.
This is a nonparticipating policy.
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 Home Office or to the agent through whom it was purchased by
the later of: (a) the 30th 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.
IF YOU HAVE ANY QUESTIONS, COMMENTS OR COMPLAINTS:
PLEASE CONTACT SAFECO LIFE AT 1-800-426-7355
<PAGE>
TABLE OF CONTENTS
Page
Coverage Description
Table of Guaranteed Maximum Insurance Cost Rates
Table of Surrender Charges
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Owner and Beneficiary Provision
3.1 Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Changing Owner or Beneficiary. . . . . . . . . . . . . . . . . 2
3.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Premium Provisions
4.1 Initial Premium. . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Subsequent Premiums. . . . . . . . . . . . . . . . . . . . . . 2
4.3 Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.4 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Policy Account Provisions
5.1 Premium Payments . . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . 3
5.4 Cost of Insurance Rate . . . . . . . . . . . . . . . . . . . . 3
5.5 Transfers Among Investment Options . . . . . . . . . . . . . . 4
6. Policy Values Provisions
6.1 Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 Loan Interest. . . . . . . . . . . . . . . . . . . . . . . . . 4
6.3 Preferred Loans. . . . . . . . . . . . . . . . . . . . . . . . 5
6.4 Loan Repayment . . . . . . . . . . . . . . . . . . . . . . . . 5
6.5 Net Cash Surrender Value . . . . . . . . . . . . . . . . . . . 5
6.6 Surrender Charges. . . . . . . . . . . . . . . . . . . . . . . 5
6.7 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.8 Deductions from Policy Account . . . . . . . . . . . . . . . . 6
7. Valuation
7.1 Guaranteed Interest Division (GID) . . . . . . . . . . . . . . 6
7.2 Separate Account (SA) Investment Divisions . . . . . . . . . . 6
8. Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . 7
9. Insurance Coverage Provisions
9.1 Payment of Death Benefit . . . . . . . . . . . . . . . . . . . 8
9.2 Amount of Death Benefit. . . . . . . . . . . . . . . . . . . . 8
9.3 Changing Face Amount or Death Benefit Option . . . . . . . . . 8
<PAGE>
10. Benefit Payment Provisions
10.1 Optional Methods of Payment. . . . . . . . . . . . . . . 9
10.2 Option 1 . . . . . . . . . . . . . . . . . . . . . . . . .10
10.3 Option 2 . . . . . . . . . . . . . . . . . . . . . . . . .10
10.4 Option 3 . . . . . . . . . . . . . . . . . . . . . . . . .10
11. General Provisions
11.1 The Contract . . . . . . . . . . . . . . . . . . . . . . .11
11.2 Change of Contract . . . . . . . . . . . . . . . . . . . .11
11.3 Applicable Tax Law . . . . . . . . . . . . . . . . . . . .11
11.4 Policy Cost Factors. . . . . . . . . . . . . . . . . . . .11
11.5 Incontestability . . . . . . . . . . . . . . . . . . . . .11
11.6 Misstatement of Age or Sex . . . . . . . . . . . . . . . .11
11.7 Suicide Exclusion . . . . . . . . . . . . . . . . . . . .11
11.8 Policy Expiration . . . . . . . . . . . . . . . . . . . .12
11.9 Postponement of Payments . . . . . . . . . . . . . . . . .12
<PAGE>
POLICY NUMBER: SL00000000
COVERAGE DESCRIPTION------------------------------------------------------------
PRIMARY INSURED: JOHN DOE INITIAL PREMIUM: $120.00
OWNER: JOHN DOE PLANNED PERIODIC PREMIUM: $925.00
BENEFICIARY: JANE DOE MONTHLY ANNIVERSARY: 1ST DAY OF MONTH
FACE AMOUNT: $100,000 PREMIUM PAYABLE: ANNUAL
EFFECTIVE DATE: JAN 1, 1997
DEATH BENEFIT: FIXED - FACE AMOUNT INCLUDES THE AMOUNT IN YOUR POLICY ACCOUNT
- --------------------------------------------------------------------------------
AMOUNT OF
COVERAGE COVERAGE MATURITY/EXPIRATION
- --------------------------------------------------------------------------------
PRIMARY INSURED: JOHN DOE
ISSUE AGE: 35
CLASS: STANDARD MALE NON-SMOKER
$100,000 JAN 01, 2057
MATURITY DATE: This policy provides life insurance coverage on the Primary
Insured until 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 may 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>
POLICY NUMBER: SL00000000
COVERAGE DESCRIPTION------------------------------------------------------------
The Guideline Single Premium for this policy is $ . The
Guideline Annual Premium is $ . The sum of the premiums paid at
any date for this policy should not exceed the greater of (A) The guideline
single premium, or (B) The sum of the guideline annual premiums to such date. If
the coverages under this policy are increased or decreased, the guideline
premiums will change.
The Guideline 7-Pay Premium as defined by the Tax and Miscellaneous Revenue Act
of 1988 (TAMRA) is $ . (Note: If this policy is a replacement of
another policy, the amount shown will need to be adjusted.) To maintain the most
favorable tax status of this policy, premiums paid during each of the first
seven years cannot exceed the 7-pay premium.
These limitations are to assure that the death benefits paid under this policy
are not includable in the gross income of the beneficiary for federal income tax
purposes. See Section 11.3.
For information about this or other tax matters relating to life insurance
taxation, consult your attorney, accountant or other qualified tax advisor.
TABLE OF EXPENSE CHARGES
The Premium Tax Charge is % 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.
The Administration Expense during the first policy year will be $25.00 per
month. This amount will be deducted monthly from your Policy Account.
The Administration expense for each month after the first policy year will be
$5.00. This amount will be 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.
02
<PAGE>
POLICY NUMBER: SL00000000
TABLE OF GUARANTEED MAXIMUM INSURANCE COST RATES------------------------
MONTHLY RATES PER $1,000 OF NET AMOUNT AT RISK
TABLE FOR PRIMARY INSURED: JOHN DOE
$100,000 LIFE INSURANCE
- --------------------------------------------------------------------------------
AT LIFE
BEGINNING ON INSURANCE
OF POLICY JAN 1 RATE
YEAR
- --------------------------------------------------------------------------------
01 1997 $.144
02 1998 $.151
03 1999 $.161
04 2000 $.173
05 2001 $.184
06 2002 $.199
07 2003 $.214
08 2004 $.229
09 2005 $.246
10 2006 $.265
11 2007 $.288
12 2008 $.310
13 2009 $.335
14 2010 $.364
15 2011 $.394
16 2012 $.429
17 2013 $.468
18 2014 $.513
19 2015 $.565
20 2016 $.623
21 2017 $.688
22 2018 $.758
23 2019 $.833
24 2020 $.915
25 2021 $1.010
26 2022 $1.114
27 2023 $1.230
28 2024 $1.365
29 2025 $1.518
30 2026 $1.686
31 2027 $1.873
32 2028 $2.075
33 2029 $2.286
34 2030 $2.528
35 2031 $2.790
<PAGE>
POLICY NUMBER: SL00000000
TABLE OF GUARANTEED MAXIMUM INSURANCE COST RATES------------------------
TABLE FOR PRIMARY INSURED: JOHN DOE
MONTHLY RATES PER $1,000 OF NET AMOUNT AT RISK
(Continued)
- --------------------------------------------------------------------------------
AT LIFE
BEGINNING ON INSURANCE
OF POLICY JAN 1 RATE
YEAR
- --------------------------------------------------------------------------------
36 2032 $3.089
37 2033 $3.430
38 2034 $3.825
39 2035 $4.275
40 2036 $4.771
41 2037 $5.305
42 2038 $5.873
43 2039 $6.469
44 2040 $7.100
45 2041 $7.785
46 2042 $8.546
47 2043 $9.410
48 2044 $10.391
49 2045 $11.495
50 2046 $12.699
51 2047 $13.980
52 2048 $15.326
53 2049 $16.718
54 2050 $18.150
55 2051 $19.648
56 2052 $21.233
57 2053 $22.950
58 2054 $24.870
59 2055 $27.200
60 2056 $27.250
<PAGE>
POLICY NUMBER: SL00000000
TABLE OF SURRENDER CHARGES------------------------------------------------------
COVERAGE AMOUNT: $100,000
EFFECTIVE DATE: 01/01/97
SURRENDER CHARGE SURRENDER CHARGE
EFFECTIVE DATES PER THOUSAND
01/01/97 - 12/31/97 $5.16
01/01/98 - 12/31/98 $5.16
01/01/99 - 12/31/99 $5.16
01/01/00 - 12/31/00 $5.16
01/01/01 - 12/31/01 $5.16
01/01/02 - 12/31/02 $5.16
01/01/03 - 12/31/03 $4.12
01/01/04 - 12/31/04 $3.09
01/01/05 - 12/31/05 $2.06
01/01/06 - 12/31/06 $1.03
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 30% of the first
$1,031.00 in premium payments received during the first policy year,
plus 9% 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 will be
deducted from the Policy Account.
If there is an increase in Face Amount, a new surrender charge and surrender
period of ten years will apply to the amount of the increase.
<PAGE>
1. DEFINITIONS
Deductions from Your Policy Account-includes one or more of the following:
loans, loan interest, monthly deductions or withdrawals.
Effective Date-the date insurance coverage begins under this policy. It is shown
in the Coverage Description. Policy years and months are measured from the
Effective Date.
Face Amount-shown in the Coverage Description.
General Account-the account which holds all of our assets other than those held
in any Separate Account.
Guaranteed Interest Division (GID)-the non-variable portion of your Policy
Account of this policy.
Home Office-Our main office, 15411 N.E. 51st Street, Redmond, WA 98052. You
should send all payments, notices, correspondence and complaints to our Home
Office.
Insured-Primary Insured and Rider Insured(s) identified in the Coverage
Description.
Maturity Date-the Policy Anniversary following the Primary Insured's 95th
birthday. On the Maturity Date, the Net Cash Surrender Value will be paid to
you.
Monthly Anniversary-the same day as the Effective Date for each succeeding
month.
Net Premium- the premium paid, less the premium tax charge that varies by state
or subdivision.
Policy Account- the sum of the value of policy assets both in the Guaranteed
Interest Division and the Separate Account.
Policy Anniversary-the same month and day as the Effective Date for each
succeeding year.
Primary Insured-identified in the Coverage Description.
Separate Account (SA)-the variable portion of your Policy Account of this
policy.
Unit Value-the unit of measure used to determine the value of the investment
divisions in the Separate Account.
Valuation Day-a valuation day is each day that the NYSE is open for trading.
Valuation Period-is the interval of time between a Valuation Day and the next
Valuation Day. It is measured from the closing of the NYSE.
"we", "our" and "us"-refer to SAFECO Life Insurance Company.
"you" and "your"-refer to the owner of the policy at the time an owner's right
is exercised.
2. SUMMARY
This is a flexible premium variable life insurance policy. You can:
increase or decrease the Face Amount of insurance;
<PAGE>
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 among your investment options.
The premiums you pay, after deduction of the premium tax charge shown in the
Table of Expense Charges in the Coverage Description, 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.
For premiums allocated to the SA, there is no guarantee of principal or
investment experience.
Our GID earns interest at rates we declare. For premiums allocated to the GID,
the rates are guaranteed to be not less than 4% and the principal, after
deductions, is guaranteed.
The duration of life insurance coverage depends upon the amount in your Policy
Account. The death benefit will be determined under either Option A or Option B,
as discussed in Section 9.2.
We make monthly Deductions from Your Policy Account to cover policy expenses,
the cost of the benefits and riders provided by this policy. If you surrender
this policy or reduce the Face Amount during the first ten policy years, we
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.
3. OWNER AND BENEFICIARY PROVISIONS
3.1 Owner
The owner of this policy is the Primary Insured unless named otherwise in the
application, or later changed.
You are entitled to exercise all the rights of this policy while the Primary
Insured is living. If you designate an irrevocable beneficiary or assign the
policy, your rights are limited.
3.2 Beneficiary
The original beneficiary is stated in the application. The beneficiary is
entitled to the death benefits of this policy. If there are two or more
beneficiaries, those who survive the Insured will share the death benefits
equally, unless you have made other arrangements with us.
If there is no designated beneficiary living at the death of the Insured, we
will pay the death benefits to you, or your estate. If a beneficiary dies within
60 days after the Insured dies, and before payment of any death benefits, we
will make payments as though the beneficiary had died before the Insured. The
beneficiary designation may include provisions that replace these provisions.
3.3 Changing Owner or Beneficiary
While the Primary Insured is living and this policy is in force, you may change
the owner or beneficiary by sending a written notice to our Home Office. The
written notice must have the name of the new beneficiary or name and notarized
signature of the new owner, and be signed by you. If acceptable to
<PAGE>
us, changes related to beneficiaries and ownership will take effect as of the
date received in our Home Office.
3.4 Assignment
You may assign this policy. We will not accept or be bound by an assignment
unless we receive in our Home Office a written assignment that is signed by you.
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. We will consider an absolute
assignment as a change of ownership.
4. PREMIUM PROVISIONS
4.1 Initial Premium
The initial premium shown in the Coverage Description is due on or before
delivery of the policy. No insurance will take effect before the initial premium
is paid.
4.2 Subsequent Premiums
Premiums may be paid at any time while the policy is in force. We will send
premium reminder notices to you for the planned periodic premium shown in the
Coverage Description unless you request otherwise.
Premiums must be paid to us at our Home Office. You may skip planned premium
payments or change their frequency and amount. Each premium payment is subject
to our minimum payment requirements.
4.3 Grace Period
The duration of insurance coverage depends upon the Net Cash Surrender Value
being sufficient to cover the monthly deductions as described in Section 5.3. If
the Net Cash Surrender Value on any Monthly Anniversary 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
three monthly deductions and premium tax, if applicable.
If we do not receive the amount stated in the notice at our Home Office before
the end of the grace period, we will 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 Section 9.
4.4 Reinstatement
If this policy has ended without value, you may reinstate it while the Primary
Insured is alive if you:
1. apply for reinstatement within 5 years after the end of the grace period;
2. provide evidence of insurability satisfactory to us;
3. make a premium payment in an amount sufficient to keep the policy in force
for at least three months after the effective date of the reinstated policy;
<PAGE>
4. pay or reinstate any indebtedness against the policy which existed at the
end of the grace period; and
5. pay the monthly deductions for the insurance coverage during the grace
period.
The effective date of the reinstated policy will be the Monthly Anniversary
following the date we approve your reinstatement application. There is no
coverage from the end of the grace period to the effective date of the
reinstated policy.
5. POLICY ACCOUNT PROVISIONS
5.1 Premium Payments
When we receive your premium payments, we subtract the premium tax charge shown
in the Table of Expense Charges in the Coverage Description. We put the balance
(the Net Premium) in your Policy Account before any Deductions from Your Policy
Account are made.
5.2 Allocations
For the first 25 days after we establish your Policy Account we will allocate
your Policy Account to the Money Market Division of our SA. At the end of this
25 day period we will allocate the Policy Account and
Deductions from Your Policy Account, as specified by your original premium and
deduction allocations in your application for this policy. A copy of your
application is at the back of this policy. Unless you change these allocations,
such percentages shall 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 Home Office. The change will take effect
on the date of receipt.
5.3 Monthly Deductions
On each Monthly Anniversary, we make Deductions from Your Policy Account to
cover monthly administration expense and to provide insurance coverage. Such
deduction for any Monthly Anniversary is determined as follows:
1. the cost of insurance as calculated below; plus
2. the monthly administration expense shown in the Table of Expense Charges in
the Coverage Description; plus
3. the monthly cost of any benefits and riders provided by this contract.
5.4 Cost of Insurance Rate
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) on the Monthly Anniversary. For this purpose the amount in your
Policy Account is determined before the monthly cost of insurance deduction but
after all other Deductions from Your Policy Account due on that date have been
made.
<PAGE>
The current and guaranteed monthly cost of insurance rates are based on issue
age, policy duration and rating class of the Insured. The guaranteed rates are
shown in the Table of Guaranteed Maximum Insurance
Cost Rates.
After the first policy year, we may increase or decrease the current monthly
cost of insurance rates. We may not increase these rates above the guaranteed
monthly cost of insurance rates. We may increase current rates only once in any
12 month period, but can decrease them at any time. We will notify you of any
change in the current rates.
We cannot change the current rates for this policy to recover our losses or
gains realized prior to the date of change. Any change will be based on our
expected future experience with regard to investment earnings, mortality,
terminations and expenses. The rates for any supplemental benefits included in
this policy will not be changed.
Any change in rates will apply to all Insureds of the same issue age, policy
duration and rating class. No changes in premiums will discriminate against any
Insured for any reason, including changes in insurability.
5.5 Transfers Among Investment Options
At your request, we will transfer amounts from your value in any investment
division of our SA to one or more other investment divisions of our SA or to our
GID. This transfer will take effect on the date we receive your request in our
Home Office.
At your request, we will transfer an amount from your unloaned value in our GID
to one or more investment divisions of our SA. In no event will we transfer more
than such unloaned value.
Your unloaned value in our GID is equal to:
1. your policy assets in our GID; minus
2. any loan and loan interest.
However, we have the right to exercise any of the following limitations when you
request such a transfer:
(1) postpone the transfer for 30 days from the date we receive your request; (2)
reduce the amount of transfer so it does not exceed 25% of your unloaned value
in our GID; and (3) limit the total number of transfers to one per policy year
with the transfer being effective on the Policy Anniversary following the date
we receive your request.
You must make all such requests in writing (or by telephone request, if you so
authorized) to our Home Office.
6. POLICY VALUES PROVISIONS
6.1 Policy Loans
You may borrow money from us on the sole security of this policy. The maximum
loan amount is 90% of the Net Cash Surrender Value of this policy less loan
interest payable in advance.
You may request a policy loan by sending a written loan request to our Home
Office. We have the right to postpone making a policy loan for the period
permitted by law. We will not postpone a policy loan for more than six months
after we receive the written loan request in our Home Office.
<PAGE>
The loaned portion of your Policy Account will be maintained as a part of our
GID. Thus, when a loaned amount is deducted from an investment division of our
SA, we will redeem units of that investment division sufficient to cover the
amount of the loan, as described above, and transfer that amount to our GID. See
Section 6.8.
6.2 Loan Interest
Interest is payable in advance and will be charged on any policy loan from the
date of the loan. At the time a loan is made, we will inform you of the initial
loan interest rate. Interest will again be due and payable on each Policy
Anniversary. If the interest is not paid, it will be treated as part of the
loaned amount and will bear interest at the loan rate.
For the first 10 policy years, the loan interest rate will be 2 percent greater
than the rate credited to that part of our GID that is security for the loan.
However, the loan interest rate charged on Preferred Loans, as defined in
Section 6.3, and on any new or existing loans after the 10th Policy Anniversary
will be equal to the rate credited to that part of our GID that is security for
the loan.
We will determine the loan interest rate from time to time. If we change the
rate we will inform you. 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 the loan; 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, 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.
6.3 Preferred Loans
During the first 10 policy years, the amount available as a Preferred Loan is:
1. the amount in your Policy Account; minus
2. the sum of premiums paid; plus
3. withdrawals. See Section 6.7.
On each of the first 9 Policy Anniversaries, loans will be reallocated as
Preferred or nonpreferred in accordance with the preceding formula.
6.4 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. This does not apply to automatic payments.
We will allocate repayments according to your premium allocation percentages in
effect when we receive your repayment at our Home Office.
If both Preferred and nonpreferred loans are outstanding, loan repayments will
be applied first to nonpreferred loans.
6.5 Net Cash Surrender Value
<PAGE>
The Net Cash Surrender Value is equal to:
1. the amount in your Policy Account; minus
2. any applicable surrender charge; minus
3. 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 and this policy to our Home Office.
We will compute the Net Cash Surrender Value as of the date we receive your
surrender request in our Home Office. 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 the written surrender request. All insurance coverage
under this policy ends on such date.
6.6 Surrender Charges
We will subtract a surrender charge from your Policy Account during the first
ten policy years or within ten years of any Face Amount increase if:
1. you surrender your policy for its Net Cash Surrender Value; or
2. your policy terminates at the end of the grace period; or
3. you decrease the Face Amount.
If you increase the Face Amount and subsequently apply for a decrease, the
decrease will be taken against the coverage increases first, starting with the
most recent increase.
The surrender charge for each applicable coverage increase or original Face
Amount is described in the Coverage Description.
The total surrender charge for the policy is the sum of all coverage surrender
charges in effect at the time of surrender.
A pro rata surrender charge will be deducted from your Policy Account for a
requested decrease in the Face Amount of this Policy.
6.7 Withdrawals
After the first Policy Anniversary, you may surrender a portion of the Net Cash
Surrender Value of this policy by sending a written request to our Home Office.
The withdrawal amount may not exceed:
1. the Net Cash Surrender Value; minus
2. the amount required to keep this policy in force for three months.
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 the written
withdrawal request. The Primary Insured's death benefit will be reduced by the
amount of the withdrawal. The withdrawal will be allocated to your Policy
Account as described in Section 6.8.
<PAGE>
We reserve the right to decline a request for a withdrawal of the Net Cash
Surrender Value if:
1. the death benefit would be reduced below our minimum policy issue amount; or
2. we determine that the withdrawal would cause this policy to fail to qualify
as life insurance under applicable tax law. See Section 11.3.
6.8 Deductions from Your Policy Account
You may tell us how much of the Deduction from Your Policy Account is to be
allocated to your unloaned value in our GID and your value in each investment
division of our SA. For the purpose of loans and withdrawals, such values will
be determined as of the date we receive your request in our Home Office.
If you do not tell us how to allocate the Deductions from Your Policy Account,
we will make the deduction on the basis of your deduction allocation percentages
then in effect.
If we cannot allocate the Deductions from Your Policy Account according to the
deduction allocation percentages then in effect or on the basis of your request,
we will take the applicable deduction from your unloaned value in our GID and
your values in the investment divisions of our SA in the same proportion that
these values bear to the total unloaned value in your Policy Account.
7. VALUATION
7.1 Guaranteed Interest Division (GID)
The amount you have in our GID at any time is equal 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
determine such interest rates for unloaned and loaned amounts in our GID. Such
interest rates will not be less than 4%.
7.2 Separate Account (SA) Investment Divisions
The amount you have in an investment division of our 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. Unit Values for the
investment divisions will be determined at the end of each Valuation Period.
The Unit Value for an investment division of our SA in the current Valuation
Period is equal to (1) multiplied by (2) where:
(1) is the Unit Value of the investment division of our SA for the preceding
Valuation Period; and
(2) is the net investment factor for the investment division of our SA for the
current Valuation Period.
The net investment factor for an investment division of our SA for a Valuation
Period is (a) divided by (b), minus (c), where:
(a) is the net asset value of the shares in that investment division before any
policy transactions are made plus the per share amount of any dividend or
capital gain distribution paid by the investment companies at the end of the
current Valuation Period;
(b) is the net asset value of the shares in that investment division after all
policy transactions were made at the end of the immediately preceding Valuation
Period;
<PAGE>
(c) is a charge not exceeding .70% per year for mortality and expense risks,
plus any charge for taxes or amounts set aside as a reserve for taxes, for the
current Valuation Period.
The net asset value of an investment company's shares held in each investment
division shall be the value reported to us by that investment company.
8. SEPARATE ACCOUNT
We established a Separate Account and 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 the SA without regard to our other income,
gains, or losses.
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.
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. We may from time to time make other
investment divisions available to you. We will provide you with written notice
of all 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.
The investment policy of our SA may not be changed without the approval of the
Insurance Commissioner of the State of Washington. The approval process has been
filed with the Commissioner.
We have the right to:
1. register or deregister the Separate Account under the Investment Company
Acts 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 any other investments, including direct investments. 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.
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 and you wish, we will
transfer it at your written direction from that division to another division of
our SA or to
<PAGE>
the unloaned portion of our GID at no charge to you. You may then change your
premium and deduction allocation percentages.
9. INSURANCE COVERAGE PROVISIONS
9.1 Payment of Death Benefit
We will pay the insurance benefits of this policy to the beneficiary when we
receive at our Home Office (1) proof that the Insured died while this policy was
in force; and (2) all other requirements deemed necessary before such payment
may be made. These insurance benefits include the following amounts for the
Primary Insured, which we will determine as of the date of the Primary Insured's
death:
1. the death benefit described below; plus
2. any other benefits then due from riders to this policy; minus
3. any loan and loan interest on the policy; minus
4. any overdue deductions if the Primary Insured dies during the grace period.
9.2 Amount of Death Benefit
If the Primary Insured dies while the policy is in force, this policy will
provide a death benefit. The death benefit will be determined 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:
1. the Face Amount on the date of death, or
2. the applicable percentage of the Policy Account on the date of death (see
below).
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:
1. the Face Amount plus the amount in your Policy Account on the date of death,
or
2. the applicable percentage of the Policy Account on the date of death (see
below).
Under this option the amount of death benefit is variable.
The applicable percentage depends upon the attained age, last birthday of the
Primary Insured at the beginning of the policy year, as follows:
(Table Omitted)
9.3 Changing Face Amount or Death Benefit Option
You may make the following changes, as indicated below, in this policy after the
first Policy Anniversary. You must submit a written request to our Home Office.
We will send to you a new Coverage Description and, if applicable, a new Table
of Surrender Charges, when a change occurs. We reserve the right to refuse to
make any change that we determine would cause this policy to fail to qualify as
life insurance under applicable tax law. See Section 11.3. We may require that
you return the policy to our Home Office to make a policy change.
<PAGE>
Increase in Face Amount:
You must submit a new application for an increase in the Face Amount prior to
the Primary Insured's 80th birthday. We will require evidence of insurability
satisfactory to us. Any increase you ask for must be at least $10,000. The
effective date of any increase will be the Monthly Anniversary following the
date we approve the application. A new surrender charge and surrender period of
ten years will apply to the amount of the increase.
Decrease in Face Amount:
For a decrease in the Face Amount, the effective date will be the Monthly
Anniversary following the date on which we receive the written request in our
Home Office. You may not decrease the Face Amount below the minimum amount for
which we would then issue this policy under our rules. If you have increased the
Face Amount in the past and are now applying for a decrease, the decrease will
be taken against the coverage increases first, starting with the most recent
increase. If a surrender charge applies at the time of the decrease, we will
deduct a surrender charge from the Policy Account.
Change in Death Benefit Option:
A change from one Death Benefit Option to the other will take effect on the
Monthly Anniversary following the date on which we receive the written request
in our Home Office. No evidence of insurability will be required. A surrender
charge will not apply to a change in Death Benefit Option.
If you ask us to change from Option A to Option B, we will decrease the Face
Amount 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 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 by the amount in your Policy Account on the date of change.
10. BENEFIT PAYMENT PROVISIONS
10.1 Optional Methods of Payment
We will pay the following in a lump sum, unless you choose one of the options
described in Section 10.2, 10.3 or 10.4:
1. surrenders;
2. withdrawals;
3. the Policy Account payable on the Maturity Date; and
4. the insurance benefits payable on the death of an Insured.
If you do not choose an option before the Primary Insured dies, the beneficiary
will have this right when the Primary Insured dies. If you have selected an
option, the beneficiary cannot change it after the Primary Insured dies.
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
<PAGE>
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.
Your payment choice (or any later changes) will take effect when written notice
is received in our Home Office, and will control payments made after that time.
To the extent permitted by law, amounts applied under these options will not be
subject to the claims of creditors or to legal process.
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.
10.2 Option 1
You or the beneficiary may leave the death benefit on deposit with us. It will
earn interest at a rate not less than 4% per year compounded and credited
annually. You or the beneficiary must submit a written request to our Home
Office to make a withdrawal. You or the beneficiary may withdraw the entire
amount, or an amount of $250 or more, 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 the
written request in our Home Office.
10.3 Option 2
The death benefit may be paid in equal installments for a fixed period of up to
30 years. We show the amount of monthly installments for each $1,000 of death
benefit in the Table Of Monthly Payments Under Option 2 Per $1,000 Of Proceeds.
(Table Omitted)
10.4 Option 3
The death benefit 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 death benefit will depend upon the age of the payee.
We show the values in the Table Of Monthly Payments Under Option 3 Per $1,000 Of
Proceeds.
(Table Omitted)
11. GENERAL PROVISIONS
11.1 The Contract
This policy is issued in consideration of the application and the initial
premium payment shown in the Coverage Description.
The entire contract consists of this policy, any riders, supplementary benefits,
endorsements or amendments, the attached copy of the initial and all subsequent
applications, and all additional Coverage Descriptions.
11.2 Change of Contract
Only our President, Secretary or one of our Vice Presidents or Assistant
Secretaries 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.
11.3 Applicable Tax Law
For you and the beneficiary to receive the tax treatment accorded to life
insurance under Federal law,
<PAGE>
this policy must qualify initially and continue to qualify as life insurance
under the Internal Revenue Code or successor law. Therefore, to secure this
qualification, we reserve the right to decline to accept, make or process any in
force policy transaction 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 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 written notice of such changes.
11.4 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.
11.5 Incontestability
We have the right to contest the validity of this policy based on material
misrepresentations made in the application, subsequent applications or any
amendment or endorsement to an application. 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. We will not contest any
policy change that requires an application, or any reinstatement of the policy,
after the change or reinstatement has been in effect for two years during the
lifetime of the Primary Insured.
We will not use a statement to contest a claim unless it is contained in an
application or an amendment to an application. All statements made in an
application are representations and not warranties. See any supplementary
benefits and riders for modifications of this provision that apply to them.
11.6 Misstatement of Age or Sex
If any Insured's age or sex has been misstated on any application, we will
adjust the death benefit and benefits provided by any supplementary benefits and
riders to this policy. The adjustment will be to an amount that would have been
purchased at the correct age or sex using the cost of insurance rates in effect
on the Effective Date.
11.7 Suicide Exclusion
If the Insured dies by suicide, while sane or insane, within two years from the
Effective Date, the proceeds payable will be limited to (1) minus (2) where:
(1) the sum of:
a. premiums paid;
b. your values in the investment divisions of our SA;
c. the monthly deductions that have been deducted from your values in the
investment divisions of our SA;
d. any unearned loan interest paid in advance.
(2) the sum of:
<PAGE>
a. amounts allocated to our SA;
b. the loaned portion of your Policy Account;
c. the value of any withdrawals transferred from your unloaned value in our
GID.
If the Insured dies by suicide, while sane or insane, more than two years from
the Effective Date, but within two years from the date we issue any increase in
coverage, we will pay:
1. the Death Benefit for any coverage in effect more than two years from the
Effective Date; plus
2. the monthly deductions for the increase in coverage.
All amounts will be calculated as of the date of death.
11.8 Policy Expiration
This policy will expire upon the death of the Primary Insured, the Maturity Date
or surrender.
11.9 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 divisions of our SA, we may defer:
1. determination and payment of surrenders or withdrawals of the Net Cash
Surrender Value;
2. determination and payment of any death benefit in excess of the Face Amount;
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 our SA; and
6. use of insurance benefits under the payment options.
We may defer payment of any loan, surrender or withdrawal of the Net Cash
Surrender Value allocated to our GID for up to six months.
<PAGE>
A Stock Life Insurance Company
SAFECO Life Insurance Company
(A Stock Company)
1-800-426-7355
TT/TTY 1-800-833-6388 (Deaf/HH)
Home Office:
15411 N.E. 51st Street
Redmond, WA 98052
Mailing Address:
P.O. Box 34690
Seattle, WA 98124-1690
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
SAFECO LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 15th day of August, 1997
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 III, 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 representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual agreement of
the parties hereto (each such series hereinafter referred to as a "Portfolio");
and
WHEREAS, the Fund has obtained an 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
1
<PAGE>
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
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
insurance 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 the aforesaid variable 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 ("SEC") 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. SALE 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.
2
<PAGE>
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 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 Section 2.5 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 that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A 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 (a
3
<PAGE>
list of such funds appearing on Schedule C to 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.
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 (normally by 6:30 p.m. Boston time)
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 Section 48.18A 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
4
<PAGE>
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.
2.4. The Company represents that the Contracts are currently treated as
annuities 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.
5
<PAGE>
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.
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 covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $3 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 The Underwriter shall provide the Company with as many printed copies
of the Fund's current prospectus and Statement of Additional Information as the
Company may reasonably request. If requested by the Company in lieu thereof, the
Fund shall provide camera-ready film containing the Fund's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Fund is amended
during the year) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Fund and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Fund's prospectus and/or its Statement of Additional Information
in combination with other fund companies' prospectuses and statements of
additional information. Except as provided in the following three sentences, all
expenses of printing and distributing Fund prospectuses and Statements of
Additional Information shall be the expense of the Company. For prospectuses and
Statements of Additional Information provided by the Company to its existing
owners of Contracts in order to update disclosure annually as required by the
1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Fund.
If the Company chooses to receive camera-ready film in lieu of receiving printed
copies of the Fund's prospectus, the Fund will reimburse the Company in an
amount equal to the product of A and B where A is the number of such
prospectuses distributed to owners of the Contracts, and B is the
6
<PAGE>
Fund's per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders 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
a particular separate account in the same proportion as Fund
shares of such portfolio for which instructions have been
received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting 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 B
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.
7
<PAGE>
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 reasonably objects 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 reasonably objects 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.
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 SEC or
other regulatory authorities.
8
<PAGE>
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the Fund or any affiliate of the Fund: 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.
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
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, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
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 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any
9
<PAGE>
amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
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 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
10
<PAGE>
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
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
11
<PAGE>
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
(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
12
<PAGE>
(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.l(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.
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
13
<PAGE>
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 repect 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
(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
14
<PAGE>
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 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
15
<PAGE>
(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 Indemninfied 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 or 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 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.
16
<PAGE>
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio'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
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio 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
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice to
the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
17
<PAGE>
(h) termination by the Fund or the Underwriter by written notice to the
Company, 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(h) shall be effective forty five (45) days
after the notice specified in Section 1.6(b) was given.
10.2. 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 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Aritcle VII of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
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,
execept 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:
Safeco Life Insurance Company
15411 N.E. 51st Street
18
<PAGE>
Redmond, WA 98052
Attention: William E. Crawford
--------------------
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XlI. 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.
l2.3 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.
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 SEC, 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 insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
19
<PAGE>
12.7. 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.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after
the end of each quarterly period;
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical
after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
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.
SAFECO LIFE INSURANCE COMPANY
By:
---------------------
20
<PAGE>
Name:
---------------------
Title:
---------------------
VARIABLE INSURANCE PRODUCTS FUND III
By:
---------------------
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By:
---------------------
Paul J. Hondros
President
21
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- ---------------------------------------
Separate Account SL L-9450 10/86
Nov. 6, 1986 L-9728/EP 11/96
22
<PAGE>
SCHEDULE B
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 no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
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.)
23
<PAGE>
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.
24
<PAGE>
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.
25
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company
FUND MANAGER PORTFOLIO'S
Lexington Natural Resources Trust Lexington Natural Resources
Lexington Emerging Markets Fund Lexington Emerging Markets
SAFECO Resource Series Trust SAFECO RST Equity
("SAFECO RST") SAFECO RST Growth
SAFECO RST Northwest
SAFECO RST Bond
SAFECO RST Small Company
Wanger Advisors Trust Wanger U.S. Small Cap
American Century Variable Portfolios, Inc. American Century VP International
("ACVP") American Century VP Balanced
26
<PAGE>
[LETTERHEAD]
September 27, 1995
SAFECO Life Insurance Company
P.O. Box 34690
Seattle, Washington 98124-1690
Gentlemen:
This letter sets forth the agreement between Wanger Asset Management, L.P.
(the "Adviser") and SAFECO Life Insurance Company (the "Company") concerning
certain administration services.
1 . ADMINISTRATION SERVICES AND EXPENSES. Administration services for
SAFECO Life Insurance Company Separate Account C (the "Separate Account"), which
invests in Wanger Advisors Trust (the "Trust") pursuant to the Participation
Agreement between the Company and the Trust dated September 27, 1995 (the
"Participation Agreement"), and for purchasers of variable annuity contracts
issued through the Separate Account, are the responsibility of the
Company. Administration services for the Trust, in which the Separate Account
invests, and for purchasers of Trust shares, are the responsibility of the Trust
or of the Adviser.
The Adviser recognizes the Company as the sole shareholder of Trust
shares purchased under the Participation Agreement on behalf of the Separate
Account. The Adviser further recognizes that it will derive a substantial
savings in administration expenses by virtue of having a sole shareholder of
record of Trust shares purchased under the Participation Agreement,
rather than multiple shareholders having record ownership of such Trust shares.
The administration expenses for which the Adviser will derive such savings are
set forth in Schedule A to this letter agreement.
2 . ADMINISTRATION EXPENSE PAYMENTS. In consideration of the anticipated
administration expense savings resulting to the Adviser from the arrangements
set forth in the Participation Agreement, the Adviser agrees to pay to the
Company on a monthly basis, from the BONA FIDE profits of the Adviser, an amount
equal to 15 basis points (0.15%) per annum of the average aggregate amount
invested by the Company under the Participation Agreement.
For purposes of computing the payment to the Company contemplated under
this Paragraph 2, the average aggregate amount invested by the Company over a
one-month period shall be computed by totalling the Company's aggregate
investment (share net asset value
<PAGE>
multiplied by total number of shares held by the Company) on each business day
during the month, and dividing by the total number of business days during such
month.
The payment contemplated by this Paragraph 2 shall be calculated by
the Adviser at the end of each month and will be paid to the Company within
thirty (30) business days thereafter. Payment will be accompanied by a statement
showing the calculation of the monthly amount payable by the Adviser and such
other supporting data as may be reasonably requested by the Company.
3. NATURE OF PAYMENTS. The parties to this letter agreement recognize
and agree that the Adviser's payments to the Company relate to administration
services only and do not constitute payment in any manner for investment
advisory services or for costs of distribution of Contracts or of Trust shares;
and that these payments are not otherwise related to investment advisory or
distribution services or expenses. The amount of administration expense payments
made by the Adviser to the Company pursuant to Paragraph 2 of this letter
agreement shall not be deemed to be conclusive with respect to actual
administration expenses or savings of the Adviser.
4. TERM. This letter agreement shall remain in full force and effect for
so long as assets of the Trust are attributable to amounts invested by the
Company under the Participation Agreement, unless terminated in accordance with
Paragraph 5 of this letter agreement.
5. TERMINATION. This letter agreement will be terminated upon mutual
agreement of the parties hereto in writing.
6. AMENDMENT. This letter agreement may be amended only upon mutual
agreement of the parties hereto in writing.
7. COUNTERPARTS. This letter agreement may be executed in counterparts,
each of which shall be deemed an original but all of which shall together
constitute one and the same instrument.
If this letter agreement is consistent with your understanding of the
matters we discussed concerning administration expense payments, kindly sign
below and return a signed copy to us.
Very truly yours,
Wanger Asset Management, L.P.
By: /s/ Ralph Wanger
Name: Ralph Wanger
----------------------
Title: President
----------------------
<PAGE>
Acknowledged and Agreed:
SAFECO LIFE INSURANCE COMPANY
By: /s/ Gregory Clarke
-------------------------
Name: Gregory Clarke
-----------------------
Title: Vice President
----------------------
Attachment: Schedule A
<PAGE>
SCHEDULE A
Maintenance of books and records
- - Record issuance of shares
- - Record transfers (via net purchase orders)
- - Reconciliation and balancing of the separate account at the fund level in
the general ledger, at various banks and within systems interface
Purchase orders
- - Determination of net amount available for investment by the fund
- - Deposit of receipts at fund's custodian by fund (wire order)
- - Notify custodian of estimated amount required to pay dividend or
distribution
Redemption orders
- - Determination of net amount required for redemptions by fund
- - Notification of custodian and fund of cash required to meet payments
- - Cost of share redemptions
Reports
- - Periodic information reporting to the fund
- - Preparation of annual and semi-annual shareholder reports; printing and
mailing (to existing contract owners)
Fund-related contract owner services
- - Printing and mailing costs associated with dissemination of fund prospectus
to existing contract owners
- - Telephonic support for contract owners with respect to inquiries about the
fund (not including information about performance or related to sales)
- - Fund proxies (preparation of materials, inclusive of printing,
distribution, tabulation, and reporting)
Other administrative support
- - Sub-accounting services
- - Providing other administrative support to the fund as mutually agreed
between insurer and the fund
- - Relieving the fund of other usual or incidental administrative services
provided to individual shareholders
Coordination of relationships between participating funds
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 27th day of September, 1995 by
and between WANGER ADVISORS TRUST, an unincorporated business trust formed under
the laws of Massachusetts (the "Trust"), and SAFECO LIFE INSURANCE COMPANY, a
Washington life insurance company (the "Company"), on its own behalf and on
behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended.
1.4. "Contracts" -- the class or classes of variable annuity contracts or
variable life insurance contracts issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Investment Adviser" -- the investment manager of the Trust.
<PAGE>
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.9. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts investing assets attributable
thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each version of
the definitive prospectus or supplement thereto filed with the SEC pursuant to
Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect to Trust
shares, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act with respect to a series of
the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus"). With
respect to any provision of this Agreement requiring a party to take action in
accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares ("Trust
Registration Statement") or a class of Contracts ("Contracts Registration
Statement"), the registration statement filed with the SEC to register the
securities issued thereby under the 1933 Act, or the most recently filed
amendment thereto, in either case in the form in which it was declared or became
effective. The Contracts Registration Statement is described more specifically
on Schedule 2 to this Agreement. The Trust Registration Statement was filed on
Form N-1A (File No. 33-83548).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or the
Account, the registration statement filed with the SEC to register such entity
as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust 1940 Act Registration
Statement was filed on Form N-1A (File No. 811-8748).
-2-
<PAGE>
1.15. "Statement of Additional Information" -- with respect to the Trust or
a class of Contracts, each version of the definitive statement of additional
information or supplement thereto filed with the SEC pursuant to Rule 497 under
the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust shall make shares of those Series listed on Schedule 3 to
this Agreement available for purchase by the Company on behalf of the Account,
such purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Notwithstanding the foregoing, (i) Trust Series in existence
now or that may be established in the future and not listed on Schedule 3 will
be made available to the Company only as the Trust and the Company may agree
pursuant to Article XI hereof, and (ii) the Board of Trustees of the Trust (the
"Trust Board") may suspend or terminate the offering of Trust shares of any
Series in any jurisdiction, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trust Board
acting in good faith and in light of its fiduciary duties under Federal and any
applicable state laws, suspension or termination is necessary or in the best
interests of the shareholders of any Series (it being understood that
"shareholders" for this purpose shall mean Product Owners and Qualified
Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, or as described in the Trust
Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for
the limited purpose of receiving purchase and redemption requests from
the Account based on allocations of net amounts to the Account or
subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Purchase and redemption
requests shall be processed by the Trust at the net asset value per
share next calculated after the Trust receives and accepts such
request. The Trust shall calculate its net asset value per share at
the Trust's close of business on each Business Day (as defined from
time to time in the Trust
-3-
<PAGE>
Prospectus, and which as of the date of execution of this Agreement is
the time of the close of regular session trading on the New York Stock
Exchange, which is generally 4:00 p.m. Eastern Time). Receipt of any
such request on any Business Day by the Company as designee of the
Trust prior to the Trust's close of business shall constitute receipt
by the Trust on that same Business Day, provided that the Trust
receives notice of such request by 10:30 a.m. Eastern Time on the next
following Business Day.
(b) The Company shall pay for shares of each Series on the same
day that it notifies the Trust of a purchase request for such shares.
Payment for Series shares shall be made in Federal funds transmitted
to the Trust by wire to be received by the Trust by 1:00 p.m. Eastern
Time on the day the Trust is notified of the purchase request for
Series shares (unless the Trust determines and so advises the Company
that sufficient proceeds are available from redemption of shares of
other Series effected pursuant to redemption requests tendered by the
Company on behalf of the Account). If payment in Federal funds for any
purchase is not received, or is received by the Trust after 3:00 p.m.
Eastern Time on such Business Day, the Company shall promptly, upon
the Trust's request, reimburse the Trust for any charges, costs, fees,
interest or other expenses incurred by the Trust in connection with
any advances to, or borrowings or overdrafts by, the Trust, or any
similar expenses incurred by the Trust, as a result of non-payment or
late payment.
(c) Payment for Series shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the
Company or any other designated person by 3:00 p.m. Eastern Time on
the next Business Day after the Trust is properly notified of the
redemption order of Series shares (unless redemption proceeds are to
be applied to the purchase of Trust shares of other Series in
accordance with Section 2.3(b) of this Agreement), except that (i) if
payment of the redemption proceeds would require the Trust to dispose
of portfolio securities or otherwise incur additional costs, proceeds
shall be wired to the Company within seven days and the Trust shall
notify the Company of such delay by 3 p.m. Eastern Time on such
Business Day; and (ii) the Trust reserves the right to delay payment
of redemption proceeds to the extent permitted under Section 22(e) of
the 1940 Act; and (iii) the Trust reserves the right to effect payment
of redemptions in kind, but only to the extent described in the Trust
Prospectus. The Trust shall not bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds by the
Company; the Company alone shall be responsible for such action.
-4-
<PAGE>
2.4. The Trust shall use reasonable efforts to make the net asset value per
share for each Series available to the Company by 6:00 p.m. Eastern Time each
Business Day and shall use its best efforts to make the net asset value
available to the Company by 7:00 p.m. Eastern Time each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share for
such Series is calculated, and shall calculate such net asset value in
accordance with the Trust Prospectus. Neither the Trust, any Series, the
Investment Adviser, nor any of their affiliates shall be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company or any other
Participating Company to the Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as reasonably
practicable of any income dividends or capital gain distributions payable on any
Series shares. The Trust shall notify the Company promptly of the number of
Series shares so issued as payment of such dividends and distributions. The
Company, on its behalf and on behalf of the Account, hereby elects to receive
all such dividends and distributions as are payable on any Series shares in the
form of additional shares of that Series. The Company reserves the right, on its
behalf and on behalf of the Account, to revoke this election and to receive all
such dividends in cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment
under the Contracts in the Series of the Trust specified in Schedule 3
in accordance with allocation instructions received from Contract
Owners, it being understood that no changes shall be made to Schedule
3 without the prior written consent of the Trust and the Investment
Adviser. The Company may withdraw the Account's investment in the
Trust or a Series of the Trust only: (i) as necessary to facilitate
Contract Owner requests; (ii) upon a determination by a majority of
the Trust Board, or a majority of disinterested Trust Board members,
that an irreconcilable material conflict exists among the interests of
(x) some or all Product Owners or (y) the interests of some or all of
the Participating Insurance Companies and/or Qualified Entities
investing in the Trust; or (iii) in the event that the shares of
another investment company are substituted for series shares in
accordance with the terms of the Contracts upon the (x) requisite vote
of the Contract Owners having an interest in the affected Series and
the written consent of the Trust (unless otherwise required by
applicable law); (y) upon issuance of an SEC exemptive order pursuant
to Section 26(b) of the 1940 Act permitting such substitution; or (z)
as may otherwise be permitted under applicable law.
-5-
<PAGE>
(b) The Company shall not, without the prior written consent of
the Trust (unless otherwise required by applicable law), take any
action to operate the Account as a management investment company under
the 1940 Act.
(c) The Trust shall not, without the prior written consent of
the Company (unless otherwise required by applicable law), take any
action to operate the Trust as a unit investment trust under the 1940
Act.
(d) The Company shall not, without the prior written consent of
the Trust (unless otherwise required by applicable law), solicit,
induce or encourage Contract Owners to change or modify the Trust or
change the Trust's investment adviser.
(e) The Company and the Trust acknowledge that the arrangement
contemplated by this Agreement is not exclusive; Trust shares may be
sold to other insurance companies; and the cash value of the Contracts
may be invested in other investment companies, provided, however, that
(a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the
investment objectives and policies of the Trust; or (b) the Company
gives the Trust 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 Trust prior to the execution of this
Agreement; or (d) the Trust consents to the use of such other
investment company, such consent not to be unreasonably withheld.
2.8. The Trust shall sell Trust shares only to Participating Insurance
Companies and their separate accounts and to Qualified Entities. The Trust shall
not sell Trust shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales.
2.9. The Trust shall provide to the Company within 5 business days after
the end of each month a monthly statement of account reflecting all transactions
by the Company during that month.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under applicable law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v)
-6-
<PAGE>
the Contracts will be issued in compliance in all material respects with all
applicable Federal and state laws; and (vi) the Contracts currently are and at
the time of issuance will be treated as annuity contracts under applicable
provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed under Massachusetts law; (ii) the
Trust 1940 Act Registration Statement has been filed with the SEC in accordance
with the provisions of the 1940 Act and the Trust is duly registered as an
open-end management investment company thereunder; (iii) the Trust Registration
Statement has been declared effective by the SEC; (iv) Trust shares sold
pursuant to this Agreement have been duly authorized for issuance in accordance
with applicable law; (v) the Trust believes that it (x) currently qualifies as a
"regulated investment company" under Subchapter M of the Code and (y) currently
complies with Section 817(h) of the Code and regulations thereunder; and (vi)
the Trust's investment policies are in material compliance with any investment
restrictions set forth on Schedule 4 to this Agreement. The Trust, however,
makes no representation as to whether any aspect of its operations (including,
but not limited to, fees and expenses and investment policies) otherwise
complies with the insurance laws or regulations of any state.
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1. The Trust shall amend the Trust Registration Statement and the Trust
1940 Act Registration Statement from time to time as required in order to effect
the continuous offering of Trust shares and to maintain the Trust's registration
under the 1940 Act for so long as Trust shares are sold.
4.2. The Company shall amend the Contracts Registration Statement and the
Account 1940 Act Registration Statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company
-7-
<PAGE>
meets the terms and conditions of, and is relying on, GREAT WEST LIFE & ANNUITY
INSURANCE COMPANY (pub. avail. Oct. 23, 1990), and any subsequent no-action
letter released by the staff of the SEC addressing the same subject matter. The
Company shall file, register, qualify and obtain approval of the Contracts for
sale to the extent required by applicable insurance and securities laws of the
various states.
4.3 The Trust shall provide the Company with as many copies of the Trust
Prospectus as the Company may reasonably request. If requested by the Company in
lieu thereof, the Trust shall provide such documentation (including a final copy
of the Trust Prospectus as set in type at the Trust's expense) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the Trust Prospectus is more frequently amended) to have
the Contracts Prospectus and Trust Prospectus printed together in one document.
4.4 The Company shall deliver Contracts, Contracts and Trust Prospectuses,
Contracts and Trust Statements of Additional Information, and all amendments or
supplements to any of the foregoing to Contract Owners and prospective Contract
Owners, as required by applicable federal securities laws.
4.5. The Company shall:
(a) inform the Trust of any state in which the Trust is required
under such state's securities laws to register the offering of its
shares pursuant to this participation agreement; and
(b) inform the Trust of any investment restrictions imposed by
state insurance law that may become applicable to the Trust from time
to time as a result of the Account's investment therein (including,
but not limited to, restrictions with respect to fees and expenses and
investment policies), other than those set forth on Schedule 4 to this
Agreement.
4.6. Upon receipt of information from the Company pursuant to Section
4.5(b), the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust determines that it is not in the best interests of
shareholders, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply
with such restrictions, the Trust and the Company shall amend Schedule 4 to this
Agreement to reflect such restrictions.
4.7. All expenses incident to each party's performance under this Agreement
(including expenses expressly assumed by such party pursuant to this Agreement)
shall be paid by the such party to the extent permitted by law.
-8-
<PAGE>
(a) Expenses assumed by the Trust include, but are not limited
to, the costs of: registration and qualification of the Trust shares
under the federal securities laws; preparation and filing with the SEC
of the Trust Prospectus, Trust Registration Statement, Trust proxy
materials and shareholder reports; the printing and mailing of all
proxy statements and periodic reports; the preparation of Trust
Prospectuses and Statements of Additional Information required to be
provided by the Trust to its then-current shareholders; preparation of
all statements and notices required by any Federal or state securities
law; all taxes on the issuance or transfer of Trust shares; and any
expenses permitted to be paid or assumed by the Trust pursuant to a
plan, if any, under Rule 12b-1 under the 1940 Act. The Trust shall pay
no fee or other compensation to the Company under this Agreement, and
shall not be charged for the costs of printing and mailing to
prospective Contract Owners copies of the Trust Prospectus, Trust
Statement of Additional Information, notices, proxy statements,
periodic reports, or other printed materials.
(b) Expenses assumed by the Company include, but are not limited
to, the costs of: registration and qualification of the Contracts
under the federal securities laws; preparation and filing with the SEC
of the Contracts Prospectus, Contracts Registration Statement, and
Contract Owner reports; and the printing and mailing of all periodic
reports, Contracts Prospectuses, Statements of Additional
Information, and notices to current and prospective Contract Owners
required by any Federal or state insurance law other than those paid
for by the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust for
such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Company shall no longer
use the material subject to such revocation. The Trust may delegate its rights
and responsibilities under this provision to the Investment Adviser. However,
should the Trust or its delegate revoke such consent, it agrees to reimburse the
Company for all costs of producing, printing and filing of such material
incurred prior to notification that consent has been revoked.
4.9. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust other than the
information or representations contained in the Trust Registration Statement or
Trust Prospectus or in reports or
-9-
<PAGE>
proxy statements for the Trust which are in the public domain or approved in
writing by the Trust for distribution to Contract Owners, or in sales literature
or other promotional material approved in accordance with Section 4.8 of this
Agreement, except with the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus or in reports of the Account
which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in writing by the Company, except with the prior written
consent of the Company.
4.11. Each party shall provide to the other at least one complete copy of
all Registration Statements, Prospectuses, Statements of Additional Information,
periodic and other shareholder or Contract Owner reports, proxy statements,
solicitations of voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, that relate to the Trust, the
Contracts or the Account, as the case may be, promptly after the filing by or on
behalf of such party of such document with the SEC or other regulatory
authorities.
4.12. Each party shall provide to the other upon request copies of draft
versions of any Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, to the extent
that the other party reasonably needs such information for purposes of preparing
a report or other filing to be filed with or submitted to a regulatory agency.
If a party requests any such information before it has been filed, the other
party will provide the requested information if then available and in the
version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and 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. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
-10-
<PAGE>
4.15. The Trust agrees to provide the Company within ten (10) days after
the end of each month (i) performance information consisting of (x) the total
return of each Series then listed in Schedule 3 hereto through the end of that
month, and (y) the average annual total return of each such Series for the one-,
five-, and ten-year periods ended as of the most recent calendar quarter, or the
life of such Series, if shorter, in each case calculated in accordance with the
methods of calculation described in the Trust Prospectus; (ii) a listing of the
10 portfolio companies in which each such Series had its largest investments at
the end of that month; and (iii) a summary of the allocation of each such
Series' investments among industry groups.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares or
Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such
Contract Owners;
(c) unless permitted under applicable law, vote Voting Shares of each
Series attributable to Contract Owners for which no instructions have been
received in the same proportion as Voting Shares of such Series for which
instructions have been timely received; and
(d) unless permitted under applicable law, vote Voting Shares of each
Series held by the Company on its own behalf or on behalf of the Account
that are not attributable to Contract Owners in the same proportion as
Voting Shares of such Series for which instructions have been timely
received.
The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust undertakes to comply with Section 817(h) of the Code, and
all regulations issued thereunder.
6.2. The Trust undertakes to maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and undertakes to 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.
-11-
<PAGE>
6.3. The Company undertakes to maintain the treatment of the Contracts as
annuity contracts or life insurance policies, whichever is appropriate, under
applicable provisions of the Code and shall notify the Trust 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.
6.4. The Trust undertakes to provide the Company within fifteen (15) days
after the end of each calendar quarter a letter from an appropriate Trust
officer certifying to the continued accuracy of the Trust's representations in
sections 6.1 and 6.2 of this Agreement with respect to any Series then listed on
Schedule 3 to this Agreement, and providing a detailed listing of the individual
securities and other assets, if any, held by each such Series as of the end of
such calendar quarter.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls or is associated with the Trust within the meaning of such
terms under the federal securities laws (but not any Participating Insurance
Companies or Qualified Entities) and any officer, trustee, 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:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to
-12-
<PAGE>
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 in light
of the circumstances in which they were made; provided that this obligation
to indemnify shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing to the Company by the Trust for use
in the Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature or promotional material for the Contracts (or
any amendment or supplement to any of the foregoing) or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), 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 in light
of the circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Trust by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of the Company
or persons under its control (or subject to its authorization or
supervision) with respect to the sale or distribution of the Contracts or
Trust shares; or
(d) arise as a result of any failure by the Company to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertaking
specified in Article VI of this Agreement, unless such failure is a result
of the Trust's material breach of this Agreement); or
(e) arise out of any material breach by the Company of this Agreement,
including but not limited to any failure to transmit a request for
redemption or purchase of Trust shares on a timely basis in accordance with
the procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
-13-
<PAGE>
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls or is associated with the Company 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:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Trust
Registration Statement, Trust Prospectus or sales literature or other
promotional material of the Trust (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 in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Trust for use in the Trust Registration
Statement, Trust Prospectus or sales literature or promotional
material for the Trust (or any amendment or supplement to any of the
foregoing); or
(b) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of the
foregoing), 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 in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Trust to the
Company; or
(c) arise out of or are based upon wrongful conduct of the Trust
with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to comply with
the undertakings specified in Article VI of this Agreement, unless
such failure is a result of the Company's material breach of this
Agreement); or
(e) arise out of any material breach by the Trust of this
Agreement.
-14-
<PAGE>
This indemnification will be in addition to any liability that the Trust may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action,
if a claim in respect thereof is to be made by the indemnified party against
any person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable
thereafter, provided that the failure to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this Article
VIII, 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 settled with such
consent, or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
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, without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
-15-
<PAGE>
ARTICLE X. TERMINATION
10.1 This Agreement shall not terminate until the Trust is dissolved,
liquidated, or merged into another entity, or, as to any Series of the Trust, an
Account no longer invests in that Series. However, certain obligations of, or
restrictions on, the parties to this Agreement may terminate as provided in
Sections 10.2 and 10.3.
10.2 The obligation of the Trust to sell shares to the Company pursuant to
Article II of this Agreement shall terminate at the option of the Trust:
(a) upon six months' notice to the Company;
(b) upon 30 days' notice to the Company:
(1) upon institution of formal proceedings against the
Company by the NASD, the SEC, the insurance commission of
any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale
of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Trust
shares, or an expected or anticipated ruling, judgment or
outcome which would, in the Trust's reasonable judgment,
materially impair the Company's ability to meet and perform
the Company's obligations and duties hereunder;
(2) in the event any of the Contracts are not
registered, issued or sold in accordance with applicable
Federal and/or state law;
(3) if the Contracts cease to qualify as annuity
contracts under the Code, or if the Trust reasonably
believes that the Contracts may fail to so qualify;
(4) if the Trust shall determine, in its sole judgment
exercised in good faith, that either (1) the Company shall
have suffered a material adverse change in its business or
financial condition or (2) the Company shall have been the
subject of material adverse publicity which is likely to
have a material adverse impact upon the business and
operations of the Trust;
(5) upon the Company's assignment of this Agreement
(including, without limitation, any transfer of the
Contracts or the Account to another insurance company
pursuant to an assumption reinsurance agreement) unless the
Trust consents thereto; or
-16-
<PAGE>
(6) upon termination pursuant to Section 10.1 or notice
from the Company pursuant to Section 10.3.
In exercising its option to terminate its obligation to sell Shares to the
Company, the Trust shall continue to make its shares available to the extent
required by applicable law and may elect to continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. The Trust shall promptly notify the Company
whether the Trust is electing to make Trust shares so available after
termination.
10.3. The restrictions on the Company under Section 2.7 of this Agreement
shall terminate at the option of the Company:
(a) upon six months' notice to the Trust;
(b) upon 30 days' notice to the Trust:
(1) if shares of any Series are not reasonably
available to meet the requirements of the Contracts as
determined by the Company, and the Trust, after receiving
written notice from the Company of such non-availability,
fails to make available a sufficient number of Trust shares
to meet the requirements of the Contracts within 5 days
after receipt thereof;
(2) upon institution of formal proceedings against the
Trust by the NASD, the SEC or any state securities or
insurance commission or any other regulatory body;
(3) if the Trust 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 based on an opinion of counsel
satisfactory to the Trust that the Trust may fail to so
qualify, and the Trust upon written request, fails to
provide reasonable assurance that it will take action to
cure or correct such failure;
(4) if the Trust fails to meet the diversification
requirements specified in Section 817(h) of the Code and any
regulations thereunder and the Trust, upon written request,
fails to provide reasonable assurance that it will take
action to cure or correct such failure; or
-17-
<PAGE>
(5) if the Trust informs the Company pursuant to
Section 4.6 that the Trust will not comply with investment
restrictions as requested by the Company and the Trust and
the Company are unable to agree upon any reasonable
alternative accommodations.
10.4. This Article X shall not apply to any termination made pursuant to
Article VII or any conditions or undertakings incorporated by reference in
Article VII, and the effect of such Article VII termination shall be governed by
the provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts or Series, or additions of new classes of Contracts to be issued by
the Company through separate accounts investing in the Trust. The provisions of
this Agreement shall be equally applicable to each such class of Contracts,
Series and Accounts, effective as of the date of amendment of such Schedule,
unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the
assets of the Trust (or applicable Series thereof) and shall not be binding upon
any trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. 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 Trust:
Name: Merrillyn J. Kosier
Title: Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
-18-
<PAGE>
If to the Company:
Name: Gregory Clarke
Title: Vice President
SAFECO Life Insurance Company
P.O. Box 34690
Seattle, Washington 98124-1690
ARTICLE XIV. MISCELLANEOUS
14.1. 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.
14.2. This Agreement may be executed simultaneously in two or more
counterparts each of which together shall constitute one and the same
instrument.
14.3. 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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
SAFECO LIFE INSURANCE COMPANY
(COMPANY)
Date: September 30, 1995
---------------------
By: /s/ Gregory Clarke
----------------------------------
Name: Gregory Clarke
Title: Vice President
WANGER ADVISORS TRUST
(TRUST)
Date: September 27, 1995
--------------------
By: /s/ Ralph Wanger
----------------------------------
Name: Ralph Wanger
Title: President
-19-
<PAGE>
SCHEDULE 1
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
- --------------------------------------------------------------------------------
Name of Account Date Established by SEC 1940 Act Type of Product
and Subaccounts Board of Directors of Registration Number Supported by
the Company Account
- --------------------------------------------------------------------------------
SAFECO Life
Insurance Company
Separate Account C 9/14/93 811-8052 Variable Annuity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective as of August 1, 1997, the following separate accounts are hereby added
to this Schedule 1 and made subject to the Agreement:
- --------------------------------------------------------------------------------
Name of Account Date Established by SEC 1940 Act Type of Product
and Subaccounts Board of Directors of Registration Number Supported by
the Company Account
- --------------------------------------------------------------------------------
SAFECO Life
Insurance
Company Separate 11/6/86 811-04909 Variable
Account SL Universal Life
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
- ------------------------------------- -------------------------------------
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE>
SCHEDULE 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
- --------------------------------------------------------------------------------
Contract Marketing Name SEC 1933 Act Name of Supporting
Registration Number Account
- --------------------------------------------------------------------------------
SAFECO Life Insurance
Company Separate
MainSail 33-60331 Account C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective as of August 1, 1997, the following classes of Contracts are hereby
added to this Schedule 2 and made subject to the Agreement:
- --------------------------------------------------------------------------------
Contract Marketing Name SEC 1933 Act Name of Supporting
Registration Number Account
- --------------------------------------------------------------------------------
Premier Variable 333-30329 SAFECO Life Insurance
Universal Life Company Separate
Account SL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
- ------------------------------------- -------------------------------------
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE>
SCHEDULE 3
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
-------------------------------------------------------------------------
Contract Marketing Name Trust Series
-------------------------------------------------------------------------
Mainsail Wanger U.S. Small Cap Advisor
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Effective as of August 1, 1997, this Schedule 3 is hereby amended to reflect the
following changes in Trust Series:
-------------------------------------------------------------------------
Contract Marketing Name Trust Series
-------------------------------------------------------------------------
Premier Variable Universal Life Wanger U.S. Small Cap Advisor
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
- ------------------------------------- -------------------------------------
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE>
[LETTERHEAD]
January 15, 1997
SAFECO Life Insurance Company
P.O. Box 34690
Seattle, Washington 98124-1690
AMENDMENT NO. 1 TO LETTER DATED SEPTEMBER 27, 1995
CONCERNING CERTAIN ADMINISTRATION SERVICES
Ladies and Gentlemen:
This letter amends the agreement between Wanger Asset Management, L.P. (the
"Adviser") and SAFECO Life Insurance Company (the "Company"), dated September
27, 1995, concerning certain administration services for the separate accounts
of the Company that invest in Wanger Advisors Trust (the "Trust") pursuant to
the Participation Agreement dated September 27, 1995, as amended December 18,
1996 (the "Letter Agreement").
The Trust has filed an application with the SEC requesting exemptive relief
from various provisions of the 1940 Act and the rules thereunder to the extent
necessary to permit Trust shares to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
insurance companies, as well as by certain qualified pension and retirement
plans outside of the separate account context.
Therefore, Paragraph 1 of the Letter Agreement is hereby amended to read as
follows:
"1. ADMINISTRATION SERVICES AND EXPENSES. Administration services for
the separate accounts of the Company that invest in Wanger Advisors Trust
(the "Separate Accounts") pursuant to the Participation Agreement between
the Company and Wanger Advisors Trust (the "Trust") dated September 27,
1995, as amended by Amendment No. 1 dated December 18, 1996 (the
"Participation Agreement"), and for purchasers of variable annuity
contracts and variable life insurance issued through the Separate Accounts,
are the responsibility of the Company. Administration services for the
Trust, in which the Separate Accounts invest, and for purchasers of Trust
shares, are the responsibility of the Trust or of the Adviser.
The Adviser recognizes the Company as the sole shareholder of Trust
shares purchased under the Participation Agreement on behalf of each
Separate Account. The Adviser further recognizes that it will derive a
substantial savings in administration expenses by virtue of having a sole
shareholder of record of Trust shares purchased by each Separate Account
under the Participation Agreement, rather than multiple
[Logo] INVESTMENT ADVISOR TO ACORN INVESTMENT TRUST AND WANGER ADVISORS TRUST
<PAGE>
shareholders having record ownership of such Trust shares. The
administration expenses for which the Adviser will derive such savings are
set forth in Schedule A to this letter agreement."
If you agree to the above changes, please sign below and return a signed
copy of this letter to us.
Very truly yours,
Wanger Asset Management, L.P.
By its General Partner, Wanger Asset
Management, Ltd.
By: /s/ Charles P. McQuaid
----------------------------------
Name: Charles P. McQuaid
--------------------------------
Title: Senior Vice President
-------------------------------
Acknowledged and Agreed:
SAFECO Life Insurance Company
By: /s/ Gregory Clarke
----------------------------------
Name: Gregory Clarke
--------------------------------
Title: Vice President
-------------------------------
Date: January 27, 1997
--------------------------------
<PAGE>
SHAREHOLDER SERVICES AGREEMENT
THIS SHAREHOLDER SERVICES AGREEMENT is made and entered into as of__________,
1997 by and between___________________ (the "Company"), and AMERICAN CENTURY
INVESTMENT SERVICES, INC. (the "Distributor").
WHEREAS, the Company offers to the public certain group and individual
variable annuity contracts (the "Contracts"); and
WHEREAS, the Company wishes to make available as investment options under
the Contracts, VP Balanced and VP International (the "Funds"), each of which is
a series of mutual fund shares registered under the Investment Company Act of
1940, as amended, and issued by American Century Variable Portfolios, Inc. (the
"Issuer"); and
WHEREAS, on the terms and conditions hereinafter set forth, Distributor
desires to make shares of the Funds available as investment options under the
Contracts and to retain the Company to perform certain administrative services
on behalf of the Funds, and the Company is willing and able to furnish such
services;
NOW, THEREFORE, the Company and Distributor agree as follows:
1. TRANSACTIONS IN THE FUNDS. Subject to the terms and conditions of this
Agreement, the Distributor will cause the Issuer to make shares of the Funds
available to be purchased, exchanged, or redeemed, by or on behalf of the
Accounts (defined in SECTION 7(a) below) through a single account per Fund at
the net asset value applicable to each order. The Funds' shares shall be
purchased and redeemed on a net basis in such quantity and at such time as
determined by the Company to satisfy the requirements of the Contacts for which
the Funds serve as underlying investment media. Dividends and capital gains
distributions will be automatically reinvested in full and fractional shares of
the Funds.
2. ADMINISTRATIVE SERVICES. The Company agrees to provide all
administrative services for the Contract owners, including but not limited to
those services specified in EXHIBIT A (the "Administrative Services").
Distributor shall not be required to provide Administrative Services for the
benefit of Contract owners. The Company agrees that it will maintain and
preserve all records as required by law to be maintained and preserved in
connection with providing the Administrative Services, and will otherwise
comply with all laws, rules and regulations applicable to the marketing of
the Contracts and the provision of the Administrative Services. Upon request,
the Company will provide the Distributor or its representatives reasonable
information regarding the quality of the Administrative Services being
provided and its compliance with the terms of this Agreement.
1
<PAGE>
3. TIMING OF TRANSACTIONS. Distributor hereby appoints the Company as
its agent and/or agent for the Funds for the limited purpose of accepting
purchase and redemption orders for Fund shares from the Contract owners. On
each day the New York Stock Exchange (the "Exchange") is open for business
(each, a "Business Day"), the Company may receive instructions from the
Contract owners for the purchase or redemption of shares of the Funds
("Orders"). Orders received and accepted by the Company prior to the close of
regular trading on the Exchange (the "Close of Trading") on any given
Business Day (currently, 4:00 p.m. Eastern time) and transmitted to the
Issuer by 8:00 p.m. Eastern time on such Business Day will be executed at the
net asset value determined as of the Close of Trading on such Business Day.
Any Orders received by the Company on such day but after the Close of
Trading, and all Orders that are transmitted to the Issuer after 8:00 p.m.
Eastern time on such Business Day, will be executed at the net asset value
determined as of the Close of Trading on the next Business Day following the
day of receipt of such Order. The day as of which an Order is executed by the
Issuers pursuant to the provisions set forth above is referred to herein as
the "Trade Date".
4. PROCESSING OF TRANSACTIONS.
(a) If transactions in Fund shares are to be settled through the National
Securities Clearing Corporation's Mutual Fund Settlement, Entry, and
Registration Verification (Fund/SERV) system, the terms of the FUND/SERV
AGREEMENT, dated of even date, between the parties shall apply.
(b) If transactions in Fund shares are to be settled directly with the
Funds' transfer agent, the following provisions shall apply:
(1) By 6:30 p.m. Eastern time on each Business Day, Distributor (or
one of its affiliates) will provide to the Company via facsimile or other
electronic transmission acceptable to the Company the Funds' net asset value,
dividend and capital gain information and, in the case of income funds, the
daily accrual for interest rate factor (mil rate), determined at the Close of
Trading.
(2) By 10:00 p.m. Eastern time on each Business Day, the Company will
provide to Distributor via facsimile or other electronic transmission acceptable
to Distributor a report stating whether the instructions received by the Company
from Contract owners by the Close of Trading on such Business Day resulted in
the Accounts being a net purchaser or net seller of shares of the Funds. As used
in this Agreement, the phrase "other electronic transmission acceptable to
Distributor" includes the use of remote computer terminals located at the
premises of the Company, its agents or affiliates, which terminals may be linked
electronically to the computer system of Distributor, its agents or affiliates
(hereinafter, "Remote Computer Terminals").
(3) Upon the timely receipt from the Company of the report described
in (2) above, the Funds' transfer agent will execute the purchase or redemption
transactions (as the case
2
<PAGE>
may be) at the net asset value computed as of the Close of Trading on the
Trade Date. Payment for net purchase transactions shall be made by wire
transfer to the applicable Fund custodial account designated by the
Distributor on the Business Day next following the Trade Date. Such wire
transfers shall be initiated by the Company's bank prior to 4:00 p.m. Eastern
time and received by the Funds prior to 6:00 p.m. Eastern time on the
Business Day next following the Trade Date ("T+1"). If payment for a purchase
Order is not timely received, such Order will be executed at the net asset
value next computed following receipt of payment. Payments for net redemption
transactions shall be made by wire transfer by the Issuers to the account(s)
designated by the Company an T+1; PROVIDED HOWEVER, the Issuers reserve the
right to settle redemption transactions within the time period set forth in
the applicable Fund's then-current prospectus. On any Business Day when the
Federal Reserve Wire Transfer System is closed, all communication and
processing rules will be suspended for the settlement of Orders. Orders will
be settled on the next Business Day on which the Federal Reserve Wire
Transfer System is open and the original Trade Date will apply.
5. PROSPECTUS AND PROXY MATERIALS
(a) Distributor shall provide the Company with copies of the Issuer's proxy
materials, periodic fund reports to shareholders and other materials that are
required by law to be sent to the Issuer's shareholders. In addition,
Distributor shall provide the Company with a sufficient quantity of prospectuses
of the Funds to be used in conjunction with the transactions contemplated by
this Agreement, together with such additional copies of the Issuer's
prospectuses as may be reasonably requested by Company. If the Company provides
for pass-through voting by the Contract owners, or if the Company determines
that pass-through voting is required by law, Distributor will provide the
Company with a sufficient quantity of proxy materials for each, as directed by
the Company.
(b) The cost of preparing, printing and shipping of the prospectuses,
proxy materials, periodic fund reports and other materials of the Issuer to
the Company shall be paid by Distributor or its agents or affiliates;
PROVIDED, HOWEVER that if at any time Distributor or its agent reasonably
deems the usage by the Company of such items to be excessive, it may, prior
to the delivery of any quantity of materials in excess of what is deemed
reasonable, request that the Company demonstrate the reasonableness of such
usage. If Distributor believes the reasonableness of such usage has not been
adequately demonstrated, it may request that the party responsible for such
excess usage pay the cost of printing (including press time) and delivery of
any excess copies of such materials. Unless the Company agrees to make such
payments, the Distributor may refuse to supply such additional materials and
Distributor shall be deemed in compliance with this SECTION 5 if it delivers
to the Company at least the number of prospectuses and other materials as may
be required by the Issuer under applicable law.
(c) The cost of any distribution of prospectuses, proxy materials, periodic
fund reports and other materials of the Issuer to the Contract owners shall be
paid by the Company and shall not be the responsibility of Distributor or the
Issuer.
3
<PAGE>
6. COMPENSATION AND EXPENSES.
(a) The Accounts shall be the sole shareholder of Fund shares purchased
for the Contract owners pursuant to this Agreement (the "Record Owner"). The
Record Owner shall properly complete any applications or other forms required by
Distributor or the Issuer from time to time.
(b) Distributor acknowledges that it will derive a substantial savings in
administrative expenses, such as a reduction in expenses related to postage,
shareholder communications and recordkeeping, by virtue of having a single
shareholder account per Fund for the Accounts rather than having each Contract
owner as a shareholder. In consideration of the Administrative Services and
performance of all other obligations under this Agreement by the Company,
Distributor will pay the Company a fee (the "Administrative Services Fee") equal
to 20 basis points (0.20%) per annum of the average aggregate amount invested by
the Company under this Agreement.
(c) The payments received by the Company under this Agreement are for
administrative and shareholder services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution.
(d) For the purposes of computing the payment to the Company contemplated
by this SECTION 6, the average aggregate amount invested by the Company on
behalf of the Accounts in the Funds over a one month period shall be computed by
totaling the Company's aggregate investment (share net asset value multiplied by
total number of shares of the Funds held by the Company) on each Business Day
during the month and dividing by the total number of Business Days during such
month.
(e) Distributor will calculate the amount of the payment to be made
pursuant to this SECTION 6 at the end of each calendar quarter and will make
such payment to the Company within 30 days thereafter. The check for such
payment will be accompanied by a statement showing the calculation of the
amounts being paid by Distributor for the relevant months and such other
supporting data as may be reasonably requested by the Company and shall be
mailed to:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Attention:
-------------------------
Fax No.:
---------------------------
4
<PAGE>
7. REPRESENTATIONS.
(a) The Company represents and warrants that (i) this Agreement has been
duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has established the
________ and the______________(the "Accounts"), each of which is a duly
authorized and established separate account under ____________ Insurance law,
and has registered each Account as a unit investment trust under the Investment
Company Act of 1940 (the " 1940 Act") to serve as an investment vehicle for the
Contracts; (iii) each Contract provides for the allocation of net amounts
received by the Company to an Account for investment in the shares of one or
more specified investment companies selected among those companies available
through the Account to act as underlying investment media; (iv) selection of a
particular investment company is made by the Contract owner under a particular
Contract, who may change such selection from time to time in accordance with the
terms of the applicable Contract; and (v) the activities of the Company
contemplated by this Agreement comply in all material respects with all
provisions of federal and state securities laws applicable to such activities.
(b) Distributor represents that (i) this Agreement has been duly
authorized by all necessary corporate action and, when executed and delivered,
shall constitute the legal, valid and binding obligation of Distributor,
enforceable in accordance with its terms; (ii) the prospectus of each Fund
complies in all material respects with federal and state securities laws, and
(iii) shares of the Issuer are registered and authorized for sale in accordance
with all federal and state securities laws.
8. ADDITIONAL COVENANTS AND AGREEMENTS.
(a) Each party shall comply with all provisions of federal and state laws
applicable to its respective activities under this Agreement. All obligations of
each party under this Agreement are subject to compliance with applicable
federal and state laws.
(b) Each party shall promptly notify the other parties in the event that
it is, for any reason, unable to perform any of its obligations under this
Agreement.
(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to each Account on any Business Day
will be based upon instructions that it received from the Contract owners, in
proper form prior to the Close of Trading of the Exchange on that Business Day.
The Company shall time stamp all Orders or otherwise maintain records that will
enable the Company to demonstrate compliance with SECTION 8(c) hereof.
(d) The Company covenants and agrees that all Order transmitted to the
Issuers, whether by telephone, telecopy, or other electronic transmission
acceptable to Distributor, shall be sent by or under the authority and direction
of a person designated by the Company as being duly
5
<PAGE>
authorized to act on behalf of the owner of the Accounts. Distributor shall be
entitled to rely on the existence of such authority and to assume that any
person transmitting Orders for the purchase, redemption or transfer of Fund
shares on behalf of the Company is "an appropriate person" as used in Sections
8-107 and 8-401 of the Uniform Commercial Code with respect to the transmission
of instructions regarding Fund shares on behalf of the owner of such Fund
shares. The Company shall maintain the confidentiality of all passwords and
security procedures issued, installed or otherwise put in place with respect to
the use of Remote Computer Terminals and assumes full responsibility for the
security therefor. The Company further agrees to be responsible for the
accuracy, propriety and consequences of all data transmitted to Distributor by
the Company by telephone, telecopy or other electronic transmission acceptable
to Distributor.
(e) The Company agrees that, to the extent it is able to do so, it will
use its best efforts to give equal emphasis and promotion to shares of the Funds
as is given to other underlying investments of the Accounts, subject to
applicable Securities and Exchange Commission rules. In addition, the Company
shall not impose any fee, condition, or requirement for the use of the Funds as
investment options for the Contracts that operates to the specific prejudice of
the Funds VIS-A-VIS the other investment media made available for the Contracts
by the Company.
(f) The Company shall not, without the written consent of Distributor,
make representations concerning the Issuer or the shares of the Funds except
those contained in the then-current prospectus and in current printed sales
literature approved by Distributor or the Issuer.
(g) Advertising and sales literature with respect to the Issuer or the
Funds prepared by the Company or its agents, if any, for use in marketing shares
of the Funds as underlying investment media to Contract owners shall be
submitted to Distributor for review and approval before such material is used.
9. USE OF NAMES. Except as otherwise expressly provided for in this
Agreement, neither Distributor nor any of its affiliates of the Funds shall use
any trademark, trade name, service mark or logo of the Company, or any variation
of any such trademark, trade name, service mark or logo, without the Company's
prior written consent, the granting of which shall be at the Company's sole
option. Except as otherwise expressly provided for in this Agreement, the
Company shall not use any trademark, trade name, service mark or logo of the
Issuer, Distributor or any of Distributor's affiliates or any variation of any
such trademarks, trade names, service marks, or logos, without the prior written
consent of either the Issuer or Distributor, as appropriate, the granting of
which shall be at the sole option of Distributor and/or the Issuer.
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other Participating
6
<PAGE>
Companies (as defined in SECTION 12(a) below) participating in any Fund
calculate voting privileges in a consistent manner.
(b) The Company will distribute to Contract owners all proxy material
furnished by Distributor and will vote shares in accordance with instructions
received from such Contract owners. The Company shall vote Fund shares for which
no voting instructions are received in the same proportion as shares for which
such instructions have been received. The Company and its agents shall not
oppose or interfere with the solicitation of proxies for Fund shares held for
such Contract owners.
11. INDEMNITY.
(a) Distributor agrees to indemnify and hold harmless the Company and its
officers, directors, employees, agents, affiliates and each person, if any, who
controls the Company within the meaning of the Securities Act of 1933
(collectively, the "Indemnified Parties" for purposes of this SECTION 11(a))
against any losses, claims, expenses, damages or liabilities (including amounts
paid in settlement thereof) or litigation expenses (including legal and other
expenses) (collectively, "Losses"), to which the Indemnified Parties may become
subject, insofar as such Losses result from a breach by Distributor of a
material provision of this Agreement. Distributor will reimburse any legal or
other expenses reasonably incurred by the Indemnified Parties in connection with
investigating or defending any such Losses. Distributor shall not be liable for
indemnification hereunder if such Losses are attributable to the negligence or
misconduct of the Company in performing its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless Distributor and the
Issuers, and their respective officers, directors, employees, agents, affiliates
and each person, if any, who controls each Issuer or Distributor within the
meaning of the Securities Act of 1933 (collectively, the "Indemnified Parties"
for purposes of this SECTION 11(b)) against any Losses to which the Indemnified
Parties may become subject, insofar as such Losses result from a breach by the
Company of a material provision of this Agreement or the use by any person of
the Remote Computer Terminals. The Company will reimburse any legal or other
expenses reasonably incurred by the Indemnified Parties in connection with
investigating or defending any such Losses. The Company shall not be liable for
indemnification hereunder if such Losses are attributable to the negligence or
misconduct of Distributor or the Issuers in performing their obligations under
this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this SECTION 11. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the
7
<PAGE>
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish to, assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this SECTION 11 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such action, the
indemnifying party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of the
indemnified parties in such action, or permit a default or consent to the entry
of any judgment in respect thereof, unless in connection with such settlement,
compromise or consent, each indemnified party receives from such claimant an
unconditional release from all liability in respect of such claim.
12. POTENTIAL CONFLICTS
(a) The Company has received a copy of an application for exemptive relief,
as amended, filed by Distributor on December 21, 1987, with the SEC and the
order issued by the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the requested relief set
forth in such application for exemptive relief. As set forth in such
application, the Board of Directors of the Issuer (the "Board") will monitor
the Issuer for the existence of any material irreconcilable conflict between
the interests of the contract owners of all separate accounts ("Participating
Companies") investing in funds of the Issuer. An irreconcilable material
conflict may arise for a variety of reasons, including: (i) an action by any
state insurance regulatory authority; (ii) 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
actions by insurance, tax or securities regulatory authorities; (iii) an
administrative or judicial decision in any relevant proceeding; (iv) the manner
in which the investments of any portfolio are being managed; (v) a difference
in voting instructions given by variable annuity contract owners and variable
life insurance contract owners; or (vi) 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.
(b) 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.
(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with regard
to contract owner investments in
8
<PAGE>
a Fund, the Board shall give prompt notice to all Participating Companies. If
the Board determines that the Company is responsible for causing or creating
said conflict, the Company shall at its sole cost and expense, and to the extent
reasonably practicable (as determined by a majority of the disinterested Board
members), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may include but shall
not be limited to:
(i) withdrawing the assets allocable to the Accounts from
the Fund and reinvesting such assets in a different
investment medium or submitting the question of 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 Companies) that votes in favor of such
segregation, or offering to the affected contract
owners the option of making such a change; and/or
(ii) establishing a new registered management investment company
or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a decision
by the Company to disregard its contract owner voting instructions and said
decision represents a minority position or would preclude a majority vote by all
of its contract owners having an interest in the Issuer, the Company at its sole
cost, may be required, at the Board's election, to withdraw an Account's
investment in the Issuer and terminate this Agreement; 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.
(e) For the purpose of this SECTION 12, a majority of the disinterested
Board members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the Issuer
be required to establish a new funding medium for any Contract. The Company
shall not be required by this SECTION 12 to establish a new funding medium for
any Contract if an offer to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the irreconcilable material
conflict.
13. TERMINATION; WITHDRAWAL OF OFFERING. This Agreement may be
terminated by either party upon 180 days' prior written notice to the other
parties. Notwithstanding the above, each Issuer reserves the right, without
prior notice, to suspend sales of shares of any Fund, in whole or in part or
to make a limited offering of shares of any of the Funds in the event that
(A) any regulatory body commences formal proceedings against the Company,
Distributor, affiliates of Distributor, or the Issuer, which proceedings
Distributor reasonably believes may have a material adverse impact an the
ability of Distributor, the Issuer or the Company to perform its obligations
under this Agreement or (B) in the judgment of Distributor, declining to
accept any additional instructions for the purchase or sale of shares of any
such Fund is warranted by market, economic
9
<PAGE>
or political conditions. Notwithstanding the foregoing, this Agreement may be
terminated immediately (i) by any party as a result of any other breach of this
Agreement by another party, which breach is not cured within 30 days after
receipt of notice from the other party, or (ii) by any party upon a
determination that continuing to perform under this Agreement would, in the
reasonable opinion of the terminating party's counsel, violate any applicable
federal or state law, rule, regulation or judicial order. Termination of this
Agreement shall not affect the obligations of the parties to make payments under
SECTION 4 for Orders received by the Company prior to such termination and shall
not affect the Issuer's obligation to maintain the Accounts as set forth by this
Agreement. Following termination, Distributor shall not have any Administrative
Services payment obligation to the Company (except for payment obligations
accrued but not yet paid as of the termination date).
14. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that this
Agreement and the arrangement described herein are intended to be non-exclusive
and that each of the parties is free to enter into similar agreements and
arrangements with other entities.
15. SURVIVAL. The provisions of SECTION 9 (use of names) and SECTION 11
(indemnity) of this Agreement shall survive termination of this Agreement.
16. AMENDMENT. Neither this Agreement, nor any provision hereof, may be
amended, waived, discharged or terminated orally, but only by an instrument in
writing signed by all of the parties hereto.
17. NOTICES. All notices and other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to whom they are directed at
the following addresses, or at such other addresses as may be designated by
notice from such party to all other parties.
To the Company:
-------------------------------
-------------------------------
-------------------------------
( ) (office number)
---------
( ) (telecopy number)
---------
10
<PAGE>
To the Issuer or Distributor:
American Century Investment Services, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed in this
SECTION 17 shall be deemed to have been delivered on receipt.
18. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without the
written consent of all parties to the Agreement at the time of such assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
20. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Agreement, including the attachments hereto,
constitutes the entire agreement between the parties with respect to the
matters dealt with herein, and supersedes all previous agreements, written or
oral, with respect to such matters.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
AMERICAN CENTURY INVESTMENT SERVICES, INC.
- ----------------------------
By: By:
------------------------- -----------------------------------------
Name: William M. Lyons
----------------------- Executive Vice President
Title:
-----------------------
11
<PAGE>
EXHIBIT A
ADMINISTRATIVE SERVICES
Pursuant to the Agreement to which this is attached, the Company shall perform
all administrative and shareholder services required or requested under the
Contracts with respect to the Contract owners, including, but not limited to,
the following:
1. Maintain separate records for each Contract owner, which records shall
reflect the shares purchased and redeemed and share balances of such Contract
owners. The Company will maintain a single master account with each Fund on
behalf of the Contract owners and such account shall be in the name of the
Company (or its nominee) as the record owner of shares owned by the Contract
owners.
2. Disburse or credit to the Contract owners all proceeds of redemptions
of shares of the Funds and all dividends and other distributions not reinvested
in shares of the Funds.
3. Prepare and transmit to the Contract owners, as required by law or the
Contracts, periodic statements showing the total number of shares owned by the
Contract owners as of the statement closing date, purchases and redemptions of
Fund shares by the Contract owners during the period covered by the statement
and the dividends and other distributions paid during the statement period
(whether paid in cash or reinvested in Fund shares), and such other information
as may be required, from time to time, by the Contracts.
4. Transmit purchase and redemption orders to the Funds on behalf of the
Contract owners in accordance with the procedures set forth in SECTION 4 to the
Agreement.
5. Distribute to the Contract owners copies of the Funds' prospectus,
proxy materials, periodic fund reports to shareholders and other materials that
the Funds are required by law or otherwise to provide to their shareholders or
prospective shareholders.
6. Maintain and preserve all records as required by law to be maintained
and preserved in connection with providing the Administrative Services for the
Contracts.
A-1
<PAGE>
AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT is made as of this
________ day of ________, 1997 by and between SAFECO LIFE INSURANCE COMPANY
(the "Company"), AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (formerly known as
TCI Portfolios, Inc.) (the "Issuer"), the investment adviser of the Issuer,
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. (formerly known as Investors
Research Corporation) ("Investors Research") and AMERICAN CENTURY INVESTMENT
SERVICES, INC. (the "Distributor"). Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in the Agreement (defined below).
RECITALS
WHEREAS, the Company, the Issuer and Investors Research are parties to a
certain Fund Participation Agreement dated December 19, 1995 (the "Agreement")
whereby shares of the Funds (as defined in the Agreement) were made available to
serve as investment funding options for the Contracts; and
WHEREAS, the Company, the Issuer and Investors Research wish to supplement
the Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the parties hereto agree as follows:
1. PREVIOUS DAY PRICING AMENDMENT. Section 3(a) of the Agreement shall be
amended by deleting the text thereof in its entirety and inserting in lieu
therefor the following:
"(a) The Issuer hereby appoints the Company as its agent for the
limited purpose of accepting purchase and redemption orders for Fund shares
from the Contract owners. On each day the New York Stock Exchange (the
"Exchange") is open for business (each, a "Business Day"), the Company may
receive instructions from the Contract owners for the purchase or
redemption of shares of the Funds ("Orders"). Orders received and accepted
by the Company prior to the close of regular trading on the Exchange (the
"Close of Trading") on any given Business Day (currently, 3:00 p.m. Central
time) and transmitted to the Issuer by 9:00 a.m. Central time on the next
following Business Day will be executed by the Issuer at the net asset
value determined as of the Close of Trading on the previous Business Day
("Day 1"). Any Orders received by the Company after the Close of Trading,
and all Orders that are transmitted to the Issuer after 9:00 a.m. Central
time on the next following Business Day, will be executed by the Issuer at
the net asset value next determined following receipt of such Order. The
day as of which an Order is executed by the Issuer pursuant to the
provisions set forth above is referred to herein as the 'Effective Trade
Date.'"
Section 3(c) of the Agreement is hereby amended by deleting the text
thereof in its entirety and inserting in lieu therefor the following:
"(c) By 9:00 a.m. Central time on each Business Day, the Company will
provide to Investors Research via facsimile or other electronic
transmission acceptable to Investors Research a report stating whether the
Orders received by the Company from Contract owners by the Close of Trading
on the preceding Business Day resulted in the Account being a net purchaser
or net seller of shares of the Funds. As used in this Agreement, the phrase
"other electronic transmission acceptable to Investors Research" includes
the use of remote computer terminals located at the premises of the
<PAGE>
Company, its agents or affiliates, which terminals may be linked
electronically to the computer system of Investors Research, its
agents or affiliates (hereinafter, "Remote Computer Terminals")."
2. COMPENSATION AND EXPENSES. The last sentence of Section 5(b) of the
Agreement is hereby amended by deleting the text thereof in its entirety and
inserting in lieu therefor the following:
"In consideration of the Administrative Services and performance
of all other obligations under this Agreement by the Company,
Investors Research will pay the Company a fee (the "Administrative
Services fee") equal to 20 basis points (0.20%) per annum of the
average aggregate amount invested by the Company under this
Agreement."
3. ASSIGNMENT. Investors Research hereby assigns all of its rights and
obligations under the Agreement to Distributor, and Distributor hereby accepts
such assignment. The Company hereby consents to such assignment. After the date
of this Amendment, all references to "Investors Research" in the Agreement shall
be deemed to refer to the Distributor.
4. RATIFICATION AND CONFIRMATION OF AGREEMENT. In the event of a conflict
between the terms of this Amendment No. 1 and the Agreement, it is the intention
of the parties that the terms of this Amendment No. 1 shall control and the
Agreement shall be interpreted on that basis. To the extent the provisions of
the Agreement have not been amended by this Amendment No. 1, the parties hereby
confirm and ratify the Agreement.
5. COUNTERPARTS. This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.
6. FULL FORCE AND EFFECT. Except as expressly supplemented, amended or
consented to hereby, all of the representations, warranties, terms, covenants
and conditions of the Agreement shall remain unamended and shall continue to be
in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date first above written.
SAFECO LIFE INSURANCE COMPANY AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
By: /s/ Gregory Clarke By:
-------------------------- -------------------------
Name: Gregory Clarke William M. Lyons
Title: Vice President Executive Vice President
AMERICAN CENTURY VARIABLE AMERICAN CENTURY INVESTMENT
PORTFOLIOS, INC. SERVICES, INC.
By: By:
-------------------------- -------------------------
William M. Lyons William M. Lyons
Executive Vice President Executive Vice President
2
<PAGE>
AMENDMENT NO. 2 TO FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 2 TO FUND PARTICIPATION AGREEMENT is made as of this
12th day of September 1997, by and between SAFECO LIFE INSURANCE COMPANY (the
"Company"), AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (the "Issuer"), and
AMERICAN CENTURY INVESTMENT SERVICES, INC. (the "Distributor"). Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in
the Agreement (defined below).
RECITALS
WHEREAS, the Company, the Issuer and the Distributor are parties to a
certain Fund Participation Agreement dated December 19, 1995, as amended on June
26, 1997 (the "Agreement") whereby shares of the Funds were made available to
serve as investment funding options for the Contracts; and
WHEREAS, the Company, the Issuer and the Distributor wish to supplement the
Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the parties hereto agree as follows:
1. ADDITION OF PRODUCT. The first Whereas clause of the Agreement is
hereby amended to read "WHEREAS, the Company offers to the public certain group
and individual variable annuity contracts and variable life insurance contracts
(collectively, the "Contracts").
2. ADDITION OF ACCOUNTS. The definition of "Accounts" contained in
Section 6(a)(ii) of the Agreement is hereby amended to include Separate Account
SL. The Company represents and warrants that each of the Accounts is a separate
account under Washington State Insurance law, each has been registered as a unit
investment trust under the 1940 Act to serve as an investment vehicle for the
Contracts, and that all other representations and warranties contained in the
Agreement are true for all of the Accounts, as that term is now defined.
3. RATIFICATION AND CONFIRMATION OF AGREEMENT. In the event of a conflict
between the terms of is Amendment No. 2 and the Agreement, it is the intention
of the parties that the terms of this Amendment No. 2 shall control and the
Agreement shall be interpreted on that basis. To the extent the provisions of
the Agreement have not been amended by this Amendment No. 2, the parties hereby
confirm and ratify the Agreement.
4. COUNTERPARTS. This Amendment No. 2 may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.
5. FULL FORCE AND EFFECT. Except as expressly supplemented, amended
or consented to hereby, all of the representations, warranties, terms,
covenants and conditions of the Agreement shall remain unamended and shall
continue to be in full force and effect. <PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2 as of the
date first above written.
SAFECO LIFE INSURANCE COMPANY AMERICAN CENTURY INVESTMENT
SERVICES, INC.
By: By:
------------------------------ ------------------------------
Name: William M. Lyons
------------------------- Executive Vice President
Title:
------------------------
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
By:
-----------------------------
William M. Lyons
Executive Vice President
2
<PAGE>
EXHIBIT 99.C1
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report on the financial statements of SAFECO Life Separate
Account SL, dated January 31, 1997, and our report on the consolidated
financial statements of SAFECO Life Insurance Company and subsidiaries, dated
February 14, 1997, in Pre-Effective Amendment No. 1 to the Registration
Statement (Form S-6, No. 333-30329) and related prospectus of SAFECO Life
Separate Account SL.
/s/ ERNST & YOUNG LLP
Seattle, Washington
September 29, 1997
<PAGE>
EXHIBIT 99.2
OPINION AND CONSENT OF COUNSEL
<PAGE>
September 18, 1997
Board of Directors
SAFECO Life Insurance Company
SAFECO Plaza
Seattle, WA 98185
Re: Registration NO. 333-30329
Gentlemen:
I have acted as counsel in connection with the filing with the Securities and
Exchange Commission of Pre-Effective Amendment No. 1 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
<PAGE>
EXHIBIT 99.C6
CONSENT OF ACTUARY
<PAGE>
September 18, 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
Pre-Effective Amendment No. 1 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 Pre-Effective Amendment No. 1.
Sincerely,
James A. Mankin, F.S.A., M.A.A.A.
Actuary
