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PREMIER
ACCUMULATION LIFE-TM-
INDIVIDUAL FLEXIBLE
PREMIUM VARIABLE LIFE
INSURANCE POLICY
issued by
SAFECO SEPARATE
ACCOUNT SL
and
SAFECO LIFE INSURANCE
COMPANY
This prospectus describes the PREMIER Accumulation Life Individual Flexible
Premium Variable Life Insurance Policy and contains important information.
Please read it before investing and keep it on file for future reference.
This prospectus has been filed with the Securities and Exchange Commission
(SEC). The SEC maintains a website (http:\\www.sec.gov) that contains material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. Copies of the complete registration and other
documents are available for review at the SEC Public Reference Room located at
SEC Headquarters Office, 405 5th Street NW, Room 1024, Washington DC 20549.
(202) 942-8090.
You may request a free paper copy of this prospectus if you have received it in
an electronic format, by calling us at (800) 426-7355 or writing us at:
PO Box 34690
Seattle, WA 98124-1690.
VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Managed by Fidelity Management & Research Company
- VIP Money Market Portfolio
- VIP High Income Portfolio
- VIP Equity-Income Portfolio
- VIP Growth Portfolio
- VIP Overseas Portfolio
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")
Managed by Fidelity Management & Research Company
- VIP II Investment Grade Bond Portfolio
- VIP II Asset Manager Portfolio
- VIP II Index 500 Portfolio
- VIP II Asset Manager: Growth Portfolio
- VIP II Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III ("VIP III")
Managed by Fidelity Management & Research Company
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
- VIP III Balanced Portfolio
LEXINGTON NATURAL RESOURCES TRUST
Managed by Lexington Management Corporation
- Lexington Natural Resources Trust
LEXINGTON EMERGING MARKETS FUND, INC.
Managed by Lexington Management Corporation
- Lexington Emerging Markets Fund, Inc.
SAFECO RESOURCE SERIES TRUST
Managed by SAFECO Asset Management Company
- RST Equity Portfolio
- RST Growth Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Small Company Portfolio
WANGER ADVISORS TRUST
Managed by Wanger Asset Management, L.P.
- Wanger U.S. Small Cap Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Managed by American Century Investment Management, Inc.
- VP Balanced
- VP International
INVESTMENT IN A VARIABLE LIFE INSURANCE POLICY IS SUBJECT TO RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE POLICIES ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
NEITHER THE SEC OR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DATED: APRIL 30, 1999
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TABLE OF CONTENTS PAGE
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SUMMARY 1
FEE TABLE 3
PART I 4
1. THE POLICY 4
Owner 4
Insured 4
Beneficiary 4
Assignment 4
2. PREMIUMS 4
Allocation of Premium and Cash Value 4
Accumulation Units 4
Policy Lapse and Grace Period 5
Reinstatement 5
Right to Examine 5
3. INVESTMENT OPTIONS 5
Variable Investment Options 5
Fixed Account 6
Transfers 6
Scheduled Transfers 6
Substitution 6
4. EXPENSES 6
Insurance Charge 6
Monthly Charges 6
Surrender Charge 7
Premium Tax Charge 7
Income or Other Taxes 7
Portfolio Expenses 7
5. INSURANCE BENEFITS 7
Changes in the Face Amount of 8
Insurance and/or the Death Benefit
Options
Guaranteed Death Benefit Endorsement 8
Extended Maturity Benefit Endorsement 8
6. TAXES 9
Life Insurance In General 9
Diversification 9
Tax Withholding 9
7. ACCESS TO YOUR MONEY 9
Loans 9
Withdrawals 10
SMART-TM- Distributions 10
Surrender 10
Maturity Date 11
Minimum Value 11
8. OTHER INFORMATION 11
SAFECO Life 11
Separate Account 11
General Account 11
Distribution (Principal Underwriter) 11
Legal Proceedings 11
Right to Suspend Payments, Transfers, 11
Loans, or Withdrawals
Voting Rights 11
Disregard of Voting Instructions 12
Reduction of Charges or Additional 12
Amounts Credited
Reports to Policy Owners 12
Year 2000 12
Internet Information 12
Experts 12
Financial Statements 12
PART II 13
Executive Officers and Directors of SAFECO 13
Life
Misstatement of Age or Sex 13
SAFECO Life's Right to Contest 13
Federal Tax Status 13
Advertising 15
Appendix A -- Financial Statements A-1
Appendix B -- Hypothetical Illustrations B-1
Appendix C -- Illustrations C-1
Appendix D -- Standard and Poor's 500 D-1
Appendix E -- Intentionally Omitted
Appendix F -- Policy Diagram F-1
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SUMMARY
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This Prospectus is divided into three parts, the Summary, Part I and Part II.
The topics in this Summary correspond to sections in Part I of the Prospectus
which discuss the topics in detail. Other important information is contained in
Part II.
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THE POLICY
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The life insurance policy is an agreement between you, the owner, and SAFECO
Life Insurance Company, ("SAFECO Life", "we" and "us"). In the policy we promise
to pay a death benefit to the named beneficiary when the insured dies. The
insured is the person covered under the policy. The owner can, but does not have
to be, the same as the insured.
The policy can be used for insurance protection and estate planning, as well as
to save for retirement and other long term financial goals. You should consider
the policy in conjunction with other insurance you own. The policy is not
suitable as a short-term investment.
You can choose among 23 variable investment portfolios and 1 fixed account. At
any one time you can have money in 17 of these portfolios and the fixed account.
The value of the portfolios can fluctuate up or down based on the performance of
the underlying investments. Your investment in the portfolios is not guaranteed
and you may lose money. The fixed account offers an interest rate guaranteed by
SAFECO Life. Your choices for the various investment options are found in
Section 3.
Your earnings are based on the investment performance of the portfolios you
select and/or the interest rate credited to the fixed account. Your earnings are
generally not taxed unless you take them out.
The amount of money you are able to accumulate in your policy value determines
the amount available for policy charges, loans, withdrawal or surrender, and may
affect the death benefit.
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PREMIUMS
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Premiums are the monies you give us to buy your policy. A medical examination
and other information may be required before we accept premium. The initial
premium is due before or when you receive your policy. You may vary the amount
and the frequency of subsequent premiums as long as total premiums received do
not disqualify the policy as life insurance under federal tax law.
You must pay enough premium or have sufficient money in your policy account to
cover all policy charges or your policy will lapse.
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INVESTMENT OPTIONS
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Not all portfolios listed below may be available for all policies. You can have
money in up to 17 of available portfolios under the policy at any one time. Each
portfolio is fully described in its accompanying prospectus.
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Money Market Portfolio
- VIP High Income Portfolio
- VIP Equity-Income Portfolio
- VIP Growth Portfolio
- VIP Overseas Portfolio
- VIP II Investment Grade Bond Portfolio
- VIP II Asset Manager Portfolio
- VIP II Index 500 Portfolio
- VIP II Asset Manager: Growth Portfolio
- VIP II Contrafund Portfolio
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
- VIP III Balanced Portfolio
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Natural Resources Trust
- Lexington Emerging Markets Fund, Inc.
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Small Company Stock Portfolio
MANAGED BY WANGER ASSET MANAGEMENT, L.P.
- Wanger U.S. Small Cap Portfolio
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC
- VP Balanced
- VP International
Depending upon market conditions, you can make or lose money in any of these
portfolios. You may also allocate money to the fixed account, which credits
guaranteed interest.
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EXPENSES
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The policy has insurance features and investment features, and there are costs
related to each.
We deduct a Mortality and Expense Risk charge which equals .70% annually of the
average daily value of the portion of your policy allocated to the portfolios.
This is not charged on money allocated to the fixed account.
Each policy month we deduct an administration charge. During the first policy
year the monthly administration charge is $25. After the first policy year, the
charge drops to $5 per month.
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Each policy month we deduct a cost of insurance charge from the policy value.
This charge depends on the sex, age and risk classification of the insured, the
amount of insurance coverage, and the cost of any additional benefits provided
by riders to the policy.
If you surrender your policy or reduce the amount of insurance specified in your
policy ("face amount") during the first ten policy years, we will deduct a
surrender charge. The surrender charge will be the lesser of 50% for the first 6
years of the annual level premium required to keep the face amount of insurance
in force, decreasing by 10% each year until it reaches 0% for years 11 or after,
or 30% of the actual premium paid in the first year up to the annual level
premium described above, plus 9% of all other premiums. If you request a
reduction in face amount, the surrender charge applies on a pro rata basis.
We deduct a premium tax of up to 3.5% depending on the state.
There are also annual portfolio charges that vary depending upon the portfolios
you select. In 1998, these expenses ranged from 0.30% to 2.08%.
Your policy could lapse if your surrender value is insufficient to cover any
charges due. See Section 4 -- Expenses for a complete discussion of charges.
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INSURANCE BENEFITS
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The policy has a face amount of insurance. The actual amount paid to the
beneficiary at the insured's death depends on the death benefit option you
select, either face amount or face amount plus policy value, and if there are
any outstanding loans or charges. Withdrawals reduce the face amount of
insurance by the amount of the withdrawal.
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TAXES
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Your policy is designed to qualify as life insurance under applicable tax law.
The death benefit is paid to the beneficiary free of federal income tax. Estate
and other taxes may apply. Investment earnings are not taxed unless you take
them out. Generally, you're allowed to withdraw your investment in the policy
before withdrawing taxable earnings. If your policy is a modified endowment
contract (MEC), loans and withdrawals are treated as distributions of taxable
earnings first. A 10% tax penalty may also apply unless you're over age 59 1/2
or disabled. There are several ways your policy can become a MEC. We monitor the
status of your policy and will advise you when you are about to perform a
transaction that may cause it to become a MEC. You should consult your tax
advisor to determine the impact MEC status will have on you before going forward
with such a transaction.
Other events such as a policy lapse, surrender or reaching the maturity date
during the life of the insured may also cause unintended tax consequences. This
is only a summary. Tax laws are complex and subject to change. You are
encouraged to seek advice from a competent tax advisor prior to purchasing this
policy and periodically throughout your ownership of it.
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ACCESS TO YOUR MONEY
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You may surrender your policy at any time and receive the surrender value.
During the first ten policy years, you will be charged a surrender charge.
You may take some of your policy value as preferred loans, non-preferred loans,
or, after the first policy year, withdrawals. Non-preferred loans are charged
loan interest during the first ten policy years. Withdrawals and loans affect
the policy value, investment performance, and the death benefit.
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OTHER INFORMATION
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RIGHT TO EXAMINE. You may examine the policy and if for any reason you are not
satisfied, you may cancel the policy by returning it to us with a written
request for cancellation by the later of: (a) the 30th day after receipt; or (b)
the 45th day after Part I of the application was signed. If you cancel the
policy, SAFECO Life will refund an amount equal to the premium payments made
under the policy.
TRANSACTIONS. You can initiate transfers or withdrawals as needed or schedule
them in advance under the following strategies:
- Dollar Cost Averaging: You may elect to automatically transfer a set amount
from any investment option to any other investment options on a regular
basis. This feature attempts to achieve a lower average cost per unit over
time.
- Portfolio Rebalancing: You may elect to have each portfolio rebalanced on a
regular basis to maintain your specified allocation percentages.
- SMART-TM- Distributions: After the second policy year, you may elect to take
systematic withdrawals, loans, or a combination of both so that you receive
a level stream of income over a time period you select. There may be tax
consequences.
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INQUIRIES
- ----------------------------------------------
If you need more information, please contact us at:
SAFECO LIFE INSURANCE COMPANY
15411 N.E. 51ST STREET
REDMOND, WA 98052
800-426-7355
http:\\www.SAFECO.com
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SAFECO SEPARATE ACCOUNT SL FEE TABLE
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The purpose of the Fee Table is to show you the various expenses you will incur
directly and indirectly by investing in the policy. The Fee Table reflects the
expenses of the Separate Account as well as the portfolios.
ADMINISTRATION CHARGE
$25.00 each month for the first policy year.
$5.00 each month thereafter.
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COST OF INSURANCE CHARGE
This charge is based on the insured's sex, age and risk classification.
The guaranteed maximum insurance cost rates for standard risks are based
on the 1980 Commissioner's Standard Ordinary Mortality Table.
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SURRENDER CHARGE
This charge is assessed if the policy is surrendered in the first 10
policy years. It will be the lesser of:
- 50% of the required annual level premium for years 1 through 6,
decreasing by 10% per year for years 7 through 10;
or
- 30% of the actual premium paid in the first year, up to the annual
level premium, plus 9% of all other premiums.
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SEPARATE ACCOUNT ANNUAL EXPENSES Mortality and Expense Risk Charge .70%
(as a percentage of average account
value)
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PORTFOLIO EXPENSES Other Expenses
(as a percentage of average net assets) (after expense
Management reimbursement for Total Annual
Fees certain Portfolios) Portfolio Expenses
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Managed by Fidelity Management & Research Company (b)
VIP Money Market Portfolio .20% .10% .30%
VIP High Income Portfolio .58% .12% .70%
VIP Equity-Income Portfolio .49% .09% .58%
VIP Growth Portfolio .59% .09% .68%
VIP Overseas Portfolio .74% .17% .91%
VIP II Investment Grade Bond Portfolio .43% .14% .57%
VIP II Asset Manager Portfolio .54% .10% .64%
VIP II Index 500 Portfolio (a) .24% .11% .35%
VIP II Asset Manager: Growth Portfolio .59% .14% .73%
VIP II Contrafund Portfolio .59% .11% .70%
VIP III Growth Opportunities Portfolio .59% .12% .71%
VIP III Growth & Income Portfolio .49% .12% .61%
VIP III Balanced Portfolio .44% .15% .59%
Managed by Lexington Management Corporation (a)
Lexington Natural Resources Trust 1.00% .29% 1.29%
Lexington Emerging Markets Fund, Inc. .85% 1.23% 2.08%
Managed by SAFECO Asset Management Company (a)
RST Equity Portfolio .74% .04% .78%
RST Growth Portfolio .74% .06% .80%
RST Northwest Portfolio .74% .22% .96%
RST Bond Portfolio .74% .09% .83%
RST Small Company Stock Portfolio .85% .10% .95%
Managed by Wanger Asset Management, L.P. (a)
Wanger U.S. Small Cap Portfolio .96% .06% 1.02%
Managed by American Century Investment Management, Inc. (a)
VP Balanced (c) .90% .00% .90%
VP International (c) 1.50% .00% 1.50%
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(a) In some cases the fund advisers agree to waive or reimburse all or a portion
of the portfolio expenses. For those portfolios where such an agreement exists,
the expenses absent waiver or reimbursement would have been .98% for the RST
Bond Portfolio, .99% for the RST Northwest and 1.18% for the RST Small Company
Stock Portfolio; .28% for the VIP II Index 500 Portfolio. In addition, we have
Fund Participation Agreements with each of the non-SAFECO fund managers that
describe the administrative practices and responsibilities of the parties.
(b) A portion of the brokerage commissions certain funds pay was used to reduce
fund expenses. In addition, certain funds have entered into arrangements with
their custodian whereby credits realized, as a result of uninvested cash
balances were used to reduce custodian expenses. Including these reductions, the
total operating expenses presented in the table would have been .57% for the VIP
Equity-Income Portfolio; .66 % for the VIP Growth Portfolio; .89% for VIP
Overseas Portfolio; .63% for the VIP II Asset Manager Portfolio; .66% for the
VIP II Contrafund Portfolio; .72% for the VIP II Asset Manager: Growth
Portfolio; .70% for the VIP III Growth Opportunities Portfolio; .60% for the VIP
III Growth & Income Portfolio; .58% for the VIP III Balanced Portfolio.
(c) These portfolios charge their management fee based on the assets in the
portfolio. The highest fees are shown in this table. See the portfolio
prospectus for more detailed information
The above portfolio expenses were provided by the portfolios. We have not
independently verified the accuracy of the information.
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1. THE POLICY
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The Flexible Premium Variable Life Insurance Policy described in this prospectus
is a contract between you, the owner, and SAFECO Life Insurance Company,
("SAFECO Life", "we" and "us"). While the policy is in force, we promise to pay
a death benefit to the named beneficiary when the insured dies.
The policy is called "flexible" because you can vary the amount and frequency of
premiums, choose between death benefit options, and increase or decrease the
face amount of insurance.
The policy is called "variable" because you can choose among 23 variable
investment portfolios in which you can make or lose money depending upon market
conditions. The investment performance of the portfolio(s) you choose affects
the value of your policy.
The policy also has a fixed account. Your money earns interest at a rate we set.
The annual effective interest rate will never be less than 4% and is guaranteed
for at least 12 months.
The policy benefits from tax deferral. While the insured is living, you pay no
tax on policy earnings unless you take money out. When the insured dies, the
death benefit is paid to your named beneficiary free from federal income tax.
OWNER
The owner of the policy is as shown on the policy application unless changed.
You, as owner, may exercise all ownership rights under the policy.
INSURED
The insured is the person whose life is covered under the policy. The owner can,
but does not have to be, the same as the insured.
BENEFICIARY
The beneficiary is the person or entity you choose to receive the death benefit
when the insured dies.
ASSIGNMENT
You may assign the policy. The assignment will become effective when we receive
written notification. Your rights and those of any other person under the policy
are subject to the assignment. We are not responsible for the validity of any
assignments. An absolute assignment will be considered a change of ownership.
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2. PREMIUMS
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You may purchase the policy by delivering a check for the full initial premium
made out to SAFECO Life to us directly or to your registered representative. The
initial premium must be sufficient to cover all policy charges for a period of
at least two months. Upon payment of the initial premium, we may provide
temporary insurance, subject to a maximum amount.
The effective date of permanent insurance coverage is dependant upon the
completion of all underwriting requirements, payment of the initial premium, and
delivery of the policy while the insured is still living.
Additional premium payments may be made at any time while the policy is in
force. We reserve the right to require satisfactory evidence of insurability
before accepting any premium payment that would result in an increase in the net
amount of coverage at risk. We will refund any portion of any premium payment we
determine to be in excess of the premium limit established by law to qualify the
policy as life insurance. We may also require any existing policy loans be
repaid prior to accepting any additional premium payments. See "Loans" in
Section 7 -- Access to Your Money. Additional premium payments or other changes
to the policy can jeopardize a policy's non-modified endowment status. We will
monitor premiums paid and other policy transactions and will notify you when the
non-modified endowment contract status is in jeopardy. See Section 6 -- Taxes.
ALLOCATION OF PREMIUM AND CASH VALUE.
You designate how your premiums are to be allocated when you apply for a policy.
You may change the way future premiums are allocated by giving written notice to
us. All percentage allocations must be in whole numbers, and must be at least
1%. The sum of the allocations must equal 100%. At the time a policy is issued,
its cash value will be determined as if the policy had been issued and the
initial premium was invested on the date we received it.
On the date your policy is effective, premiums are invested in the money market
portfolio for 25 days. On the 26th day your money is allocated to the portfolios
and/or the fixed account in accordance with your instructions. Any amounts
allocated to the portfolios are effective and valued as of the next close of the
New York Stock Exchange ("NYSE"). This is usually 4:00 p.m. eastern time. If for
any reason the NYSE has closed for the day prior to our receipt of your money it
will be valued as of the close of the NYSE on its next regular business day.
ACCUMULATION UNITS
The value of the variable portion of your policy will go up or down depending
upon the investment performance of the portfolio(s) you choose. In order to keep
track of this we use a unit of measure called an accumulation unit, which works
like a share of a mutual fund.
We calculate the value of an accumulation unit, for each portfolio, after the
NYSE closes each day by:
1. determining the total value of the particular portfolio;
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2. subtracting from that amount insurance and other charges; and
3. dividing this amount by the number of outstanding accumulation units of
the particular portfolio.
The value of an accumulation unit may go up or down from day to day.
When you make premium payments or transfers into a portfolio, we credit your
contract with accumulation units. Conversely, when you request a withdrawal or a
transfer of money from a portfolio, accumulation units are liquidated. In either
case, the increase or decrease in the number of your accumulation units is
determined by taking the amount of the premium payment, transfer or withdrawal
and dividing it by the value of an accumulation unit on the date the transaction
occurs.
EXAMPLE: On Monday we receive a $1,000 premium payment from you before the
NYSE closes. You have told us you want this to go to the RST Growth
Portfolio. When the NYSE closes on that Monday, we determine that the value
of an accumulation unit for the RST Growth Portfolio is $34.12. We then
divide $1,000 by $34.12 and credit your policy on Monday night with 29.31
accumulation units for the RST Growth Portfolio.
POLICY LAPSE AND GRACE PERIOD
You must have enough money in your policy to cover the monthly deductions and
any surrender charges. These are described in Section 4 -- Expenses. If you
don't have enough money to cover these charges, we will send written notice to
you and any assignee of record. A grace period of 61 days has begun as of the
date notice was sent. We will tell you how much money (either a loan repayment
or a premium payment) you need to send us to keep your policy in force. The
amount will be enough to cover all the policy charges for three months.
If we don't receive this amount before the end of the grace period, we will send
written notice to you and any assignee of record that your policy ended without
value ("lapsed"). If the insured dies during the grace period, we will pay the
death benefit to the beneficiary. The grace period provisions don't apply if the
Guaranteed Death Benefit Endorsement is in effect. See Section 5 --
Insurance Benefits.
REINSTATEMENT
If your policy lapses, you have five years from the end of the grace period and
while the insured is living, to request reinstatement of your policy.
Reinstatement allows you to keep your original policy anniversary date and may
or may not result in lower policy charges than you would incur under a new
policy. To reinstate your policy you must:
- provide us satisfactory evidence of insurability;
- pay enough premium to cover policy charges for three months after the
reinstatement date;
- pay any indebtedness that existed at the end of the grace period; and
- pay enough premium to cover the monthly deductions that were due during the
grace period.
Unlike many companies, we do not ask you to pay premium for the period after the
policy lapsed and before reinstatement, nor is there insurance coverage for this
period. Coverage will be effective on the first policy monthly anniversary to
occur on or after the date we approve your reinstatement application.
You may not reinstate a policy that you surrendered for policy value.
RIGHT TO EXAMINE
You may examine the policy and if for any reason you are not satisfied, you may
cancel the policy by returning it to us with a written request for cancellation
by the later of: (a) the 30th day after receipt; or (b) the 45th day after Part
I of the application was signed. If you cancel the policy, SAFECO Life will
refund an amount equal to the premium payments made under the policy.
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3. INVESTMENT OPTIONS
- ----------------------------------------------
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Money Market Portfolio
- VIP High Income Portfolio
- VIP Equity-Income Portfolio
- VIP Growth Portfolio
- VIP Overseas Portfolio
- VIP II Investment Grade Bond Portfolio
- VIP II Asset Manager Portfolio
- VIP II Index 500 Portfolio
- VIP II Asset Manager: Growth Portfolio
- VIP II Contrafund Portfolio
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
- VIP III Balanced Portfolio
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Natural Resources Trust
- Lexington Emerging Markets Fund, Inc.
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Small Company Stock Portfolio
MANAGED BY WANGER ASSET MANAGEMENT, L.P.
- Wanger U.S. Small Cap Portfolio
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
- VP Balanced
- VP International
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Not all portfolios listed above may be available for all policies. You can have
money in up to 17 of these available portfolios and the fixed account at any one
time. Additional portfolios may be available in the future. The portfolios are
not offered directly to the public but are available to life insurance companies
as investment options for variable annuity and variable life insurance
contracts. The performance for these portfolios may differ substantially from
publicly traded mutual funds with similar names and objectives.
EACH PORTFOLIO HAS ITS OWN INVESTMENT OBJECTIVE. YOU SHOULD READ THE
PROSPECTUSES FOR THESE PORTFOLIOS CAREFULLY BEFORE INVESTING. COPIES OF THESE
PROSPECTUSES ACCOMPANY THIS PROSPECTUS AND MAY INCLUDE INFORMATION ON OTHER
PORTFOLIOS NOT AVAILABLE UNDER THIS POLICY.
FIXED ACCOUNT
The policy also offers a fixed account with interest rates that are set and
guaranteed by SAFECO Life for at least 12 months. Annual effective guaranteed
interest rates will never be less than 4%.
TRANSFERS
You can transfer money among the 23 portfolios and the fixed account free of
charge. You can have money in a maximum of 17 portfolios at any one time.
Transfers to or from the portfolios will take effect on the next close of the
NYSE after we receive the request. Amounts equal to loans and loan interest are
not available for transfer.
We will accept transfers by signed written request or by telephone. Each
transfer must identify:
- your policy;
- the amount of the transfer; and
- which investment options are affected.
Transfers by telephone will be accepted if we have properly signed authorization
on record. You may authorize someone else to make transfers by telephone on your
behalf. We will use reasonable procedures to confirm that instructions given to
us by telephone are genuine. If we do not use such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions. We tape record
all telephone instructions.
We reserve the right to limit transfers from the fixed account in the following
manner:
- postpone the transfer for 30 days;
- reduce the amount of the transfer to not more than 25% of the amount
available for transfer in the fixed account; and
- limit the total number of transfers to one per policy year. If limited, the
transfer will be effective on the policy anniversary after the date we
receive it.
We reserve the right to modify, suspend or terminate transfer privileges at any
time.
SCHEDULED TRANSFERS
You can initiate the following scheduled transfers among your investment options
free of charge. Once started, these scheduled transfers will continue until you
instruct us to stop or all money has been transferred out of the "source"
investment option.
DOLLAR COST AVERAGING. This strategy is designed to achieve a lower average
cost per unit over time. It does not assure a profit nor protect against a loss.
Investing should continue at a consistent level in both market ups and downs.
You can systematically transfer set amounts each month or quarter from any
portfolio or the fixed account to any of the other portfolios.
PORTFOLIO REBALANCING. After your money has been invested, the performance of
the portfolios may cause the percentage in each portfolio to change from your
original allocations. You can instruct us to adjust your investment in the
portfolios to maintain a predetermined mix on a quarterly, semi-annual or annual
basis. Portfolio Rebalancing can be used with Dollar Cost Averaging.
SUBSTITUTION
If any shares of the portfolios are no longer available, or if in our view no
longer meet the purpose of the policy, it may be necessary to substitute shares
of another portfolio. We will seek prior approval of the SEC and give you notice
before doing this.
- ---------------------------------------------------
4. EXPENSES
- ----------------------------------------------
There are charges and other expenses associated with the policy that reduce the
return on your investment in the policy. These charges and expenses are:
INSURANCE CHARGE
We make a daily deduction for the mortality and expense risk charge. This is
done as a part of our calculation of accumulation unit value. This charge is
equal, on an annual basis, to .70% of the average daily net asset value of each
portfolio. This charge helps pay for insurance benefits (the death benefit) and
for the risk (expense risk) that the current charges will not be sufficient in
the future to cover the cost of administering the policy. If the charges under
the policy are not sufficient, then we will bear the loss. If the charges are
more than sufficient, we will retain the excess. The rate of the mortality and
expense risk charge will not be increased.
MONTHLY CHARGES
We deduct the following charges from your policy value monthly:
- the monthly cost of insurance;
- the monthly cost of additional benefits provided by riders; plus
- the monthly administration charge.
MONTHLY COST OF INSURANCE. The monthly cost of insurance charge varies from
policy to policy and from
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month to month. We determine the charge by multiplying the monthly cost of
insurance rate times the amount of the death benefit that is covered by
insurance. The monthly cost of insurance rate is based on:
- the insured's age;
- gender, if permitted by law;
- risk classification; and
- the policy's duration.
Monthly cost of insurance rates will not exceed those guaranteed in the policy
and will not be increased more than once in any 12-month period. The guaranteed
maximum insurance cost rates for standard risks are based on the Commissioner's
Standard Ordinary Mortality Table.
The risk class of an insured, including age and gender, may affect the cost of
insurance rate. A preferred risk class is available to smokers and non-smokers
who we determine have a better than average mortality.
For a better understanding of how the cost of insurance and other charges affect
policy values, you should request a personalized illustration from your
registered representative.
MONTHLY COST OF ADDITIONAL BENEFITS. The monthly cost of any additional
benefits provided by riders under this policy is shown in the policy.
MONTHLY ADMINISTRATION CHARGE. During the first policy year the administration
charge is $25 per month. For policy years after the first, the charge drops to a
current charge of $5 per month. The maximum administrative charge will not
exceed $8.00 per month. We do not expect to profit from this charge.
SURRENDER CHARGE
Unlike many other life insurance policies, there is no charge on withdrawals
while this policy remains in force. There is a surrender charge during the first
ten policy years if you:
- request a reduction in the face amount of insurance;
- surrender the policy for value; or
- allow the policy to lapse.
If you increase your face amount, a new surrender charge and a new ten-year
period will apply to the amount of the increase. If you request a reduction in
face amount, we will deduct a pro rata surrender charge from your policy value.
The surrender charge will be the lesser of:
a) 50% during the first six policy years of an amount equal to one annual
premium (calculated as if you paid level premiums until the insured age 95
and assuming an annual effective return of 5%), decreasing by 10% each year
until there is no surrender charge for years eleven and later; or
b) 30% of actual premiums received during the first policy year up to an amount
equal to the annual level premium described above, plus 9% of all other
premium paid and less the amount of any pro rata surrender charge previously
made under the policy.
A table of the surrender charge amount you would pay under the method described
in (a) above, is shown in the "Table of Surrender Charges" in the policy. Your
surrender charge would be less than this amount if the surrender charge
calculated under the method described in (b) were less. In some cases you can
minimize the amount of the surrender charge by limiting the amount of premium
you pay in the first year. However, this could affect the death benefit, reduce
policy values, and increase the risk of lapse. Your registered representative
can provide you with a hypothetical illustration of policy values based on
planned premiums and which includes the surrender charge.
The surrender charge is for expenses incurred in connection with the promotion,
sale and distribution of the policies. If the surrender charge is insufficient,
excess amounts resulting from the mortality and expense risk charge may be used
to recover these expenses. We may reduce or eliminate the amount of the
surrender charge when the policy is sold under circumstances which reduce our
sales expense. See Section 8 -- Other Information.
PREMIUM TAX CHARGE
States and other governmental entities (e.g., municipalities) may charge premium
taxes ranging from 0% to 3.5%. These taxes vary by state and are subject to
change. Based on your state of residence, we deduct the applicable tax from your
premium before allocating amounts to the portfolios or to the fixed account in
accordance with your instructions. Generally, references to allocations of
premiums in this prospectus reflect the deductions made to cover this tax.
INCOME OR OTHER TAXES
Currently we do not pay income or other taxes on earnings attributable to your
policy. However, if we ever incur such taxes, we reserve the right to deduct
them from your policy.
PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
portfolios. These expenses are summarized in the Fee Table of this prospectus.
For more detailed information, you should refer to the enclosed portfolio
prospectuses.
- ---------------------------------------------------
5. INSURANCE BENEFITS
- ----------------------------------------------
The primary purpose of the policy is to provide death benefit protection on the
life of the insured. You select the face amount of insurance and death benefit
option "A" or "B" on your policy application. Face amount of insurance is the
fixed portion of a death benefit that you want the beneficiary to receive. Under
option "A" the
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death benefit equals the face amount on your insurance policy. Gains in your
policy value reduce the amount of insurance coverage you pay for without
changing the amount of the death benefit. Under option "B" the death benefit
equals the face amount on your insurance policy, plus your policy value. The
amount of insurance coverage you pay for stays the same, but the death benefit
may be greater than the face amount, depending on performance.
Upon receipt of proof that the insured died while the policy was in force, we
will pay the death proceeds to the beneficiary in a lump sum or under an
optional method of payment provided by the policy and that you or the
beneficiary select. The death proceeds equal:
- the death benefit under the policy; plus
- any benefits due from riders; less
- any loans and loan interest; and less
- any overdue charges if the insured dies during the grace period.
Whether you choose the death benefit under "A" or "B", we guarantee that the
death benefit under the option you select will never be less than the applicable
percentage of your policy value. Sample ages and percentages are shown below.
<TABLE>
<CAPTION>
- -----------------------------------
<S> <C>
Insured's age at
the beginning of Percentage of
the policy year policy value as
in which insured of the date of
dies. death.
- -----------------------------------
40 and under 250%
- -----------------------------------
45 215%
- -----------------------------------
50 185%
- -----------------------------------
55 150%
- -----------------------------------
60 130%
- -----------------------------------
65 120%
- -----------------------------------
70 115%
- -----------------------------------
75-90 105%
- -----------------------------------
95 100%
- -----------------------------------
</TABLE>
CHANGES IN THE FACE AMOUNT OF INSURANCE AND/OR THE DEATH BENEFIT OPTIONS
After the first policy year you can request changes in the face amount of
insurance or the death benefit option by writing to us. Increases in the face
amount of insurance must be at least $10,000. The insured must be under age 80
and provide proof of insurability. Decreases in the face amount of insurance
during the first ten policy years have a surrender charge. See Section 4 --
Expenses. Changes take effect on the first monthly anniversary on or after we
approve the change. We may decline to make a change that would decrease your
face amount of insurance to less than the minimum amount that we would issue on
a new policy or if it would disqualify your policy as life insurance under tax
law. See Section 6 -- Taxes.
GUARANTEED DEATH BENEFIT ENDORSEMENT
You receive a Guaranteed Death Benefit Endorsement with your policy if:
- the endorsement is approved by your state;
- your policy is issued with standard or preferred rates; and
- your policy does not have an increasing premium additional term rider.
The endorsement guarantees that your policy will not lapse prior to the end of
the policy year that the insured turns age 80, as long as premium requirements
are met. This protects your insurance coverage if your policy value drops below
the amount normally required to keep your policy in force. There is no charge
for this endorsement, but a minimum level of monthly premium is required to keep
the endorsement in force. This minimum is shown in your policy and will not
change unless your policy changes.
The endorsement will lapse if the total premiums paid, less any withdrawals,
loan, and loan interest, is less than the sum of monthly guaranteed death
benefit premiums required since policy issue. You will then have 61 days to pay
the required premium or the endorsement will terminate and cannot be reinstated.
If you choose not to pay the minimum required premium and the endorsement
terminates, your policy will continue in force as long as you have enough money
in the policy to cover the monthly deductions and any surrender charges. See
"Policy Lapse and Grace Period" in Section 2 -- Premiums.
EXTENDED MATURITY BENEFIT ENDORSEMENT
The policy matures on the policy anniversary following the insured's 95th
birthday. See Section 7 -- Access to Your Money for a discussion of the Maturity
Date. You can extend the maturity date of your policy until the death of the
insured if the Extended Maturity Benefit Endorsement was approved for use in
your state at the time your policy was issued. There is no charge for this
endorsement. The endorsement is not effective unless we receive your irrevocable
election to use the benefit in writing and prior to the maturity date.
Under the endorsement and as of the maturity date:
- we transfer money in the portfolios to the fixed account as of the next
close of the NYSE;
- all riders on the policy terminate; and
- cost of insurance charges are no longer deducted.
On the death of the insured, the death benefit under the endorsement is equal to
the policy value less existing loans, and loan interest. The tax consequences of
extending the maturity date past age 95 are unclear. You should consult your
personal tax advisor before extending the policy maturity date.
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<PAGE>
- ---------------------------------------------------
6. TAXES
- ----------------------------------------------
This section discusses how federal income tax applies to life insurance policies
in general. This information is not complete and is not intended as tax advice.
Tax laws and their interpretations are complex and subject to change. No attempt
is made to discuss state or other tax laws. SAFECO Life does not guarantee the
tax treatment of any policy or any transaction involving a policy. You should
consult a competent tax adviser about your individual circumstances.
LIFE INSURANCE IN GENERAL
If your policy meets certain tests under the Internal Revenue Code of 1986, as
amended ("Code"), it will be treated as life insurance for federal tax purposes.
Death proceeds payable under a life insurance policy when the insured dies are
not taxed to the beneficiary. We will monitor compliance of your policy with
these tests.
If your life insurance policy is also a modified endowment contract (you have a
higher ratio of cash value to insurance protection), amounts you take out while
the insured is living, including loans and collateral assignments, may be
subject to income tax. There may be a 10% tax penalty on the taxable amount
taken before age 59 1/2 unless you are disabled as defined by the Code or
another exception applies.
A surrender or termination of the policy by lapse may have tax consequences if
the surrender value plus outstanding loans and loan interest is greater than
premiums paid into the policy. If the insured is alive on the maturity date and
you have not elected the extended maturity option in writing, you may have to
pay federal income tax on the policy value (including outstanding loan amounts)
that are attributable to earnings in the portfolios or interest in the fixed
account.
Ownership of a life insurance policy or receipt of policy proceeds before or
after the death of the insured, may result in federal taxes such as income,
estate, gift, or generation - skipping transfer tax, as well as state and local
taxes such as inheritance or income tax. Tax consequences depend on your or your
beneficiary's individual circumstances. You should consult your personal tax
advisor regarding the tax treatment of a life insurance policy that you own.
Changes in federal and state tax law or in the interpretation of current tax law
could adversely affect the tax treatment of your policy and policy proceeds.
DIVERSIFICATION
Variable life insurance policies receive tax deferral while the insured is
living as long as investment in the portfolios meet diversification standards
set by Treasury Regulations. This favorable tax treatment allows you to select
and make transfers among portfolios without paying income tax unless you take
money out.
We believe the portfolios offered under this policy are being managed to comply
with existing standards. To date, neither Treasury Regulations nor the Code give
specific guidance as to the circumstances under which your policy might lose its
tax favored status as life insurance because of the number and type of
portfolios you can select from, and the extent to which you can make transfers.
If issued, such guidance could be applied either prospectively or retroactively.
Due to the uncertainty in this area, we reserve the right to modify the policy
in an attempt to maintain favorable tax treatment.
TAX WITHHOLDING
Generally, while the insured is living, federal income tax is withheld from the
taxable portion of proceeds at a rate of 10%. Typically, you may elect not to
have income taxes withheld or to have withholding done at a different rate.
- ---------------------------------------------------
7. ACCESS TO YOUR MONEY
- ----------------------------------------------
You can access money in your policy in the following ways:
- by taking loans against your policy value;
- by requesting withdrawals after the first policy year;
- by taking SMART-TM- distributions (beginning after the second policy year);
- by surrendering your policy for value;
- by receiving the surrender value if the insured is alive on the maturity
date; or
- when a death benefit is paid to your beneficiary. See Section 5 -- Insurance
Benefits.
LOANS
You may take loans in any amount up to 90% (or other maximum required by your
state), of your policy surrender value by writing to us. Loaned amounts do not
participate in earnings from the portfolios or receive higher interest rate
guarantees in the fixed account. For this reason loans, whether or not repaid,
have a permanent affect on the amount of money you are able to accumulate in
your policy. Unless you tell us differently, we will deduct loan amounts from
the portfolios and the fixed account in the same proportion as we take monthly
deductions. If this is not possible, we deduct loan amounts on a pro rata basis
from the investment options. Once we receive your request, the loan will be
effective as of the next close of the NYSE. Loan amounts are not available for
withdrawal or surrender.
Loan amounts are credited with interest at a minimum annual effective rate of
4%. Loan amounts are also charged interest. The interest rate charged on new and
existing loans is set each policy anniversary, subject to a maximum rate that is
the greater of:
- Moody's Corporate Bond Yield Average for the calendar month that ends two
months before your policy anniversary date; or
- 5%.
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<PAGE>
The cost of a loan is equal to the difference, if any, between the interest rate
we credit and the interest rate we charge on the loan amount. Loans that are
credited and charged at the same interest rate have no cost. There is no cost to
you on new and existing loans that do not exceed the total investment gain in
your policy, less policy charges and existing loan amounts, or on any new or
existing loans after the tenth policy year. During the first ten policy years,
we call these no-cost loans "preferred". To determine what loan amount is
currently available to you on a preferred basis, add the amount of any
withdrawals you have taken to your current policy value and then subtract all
premiums paid.
The current loan interest rate charged on non-preferred loans under the policy
is an annual effective rate of 6%. The annual effective interest rate credited
on the loan amount is 4%. This results in an annualized cost to you of 2% for
non-preferred loans. Changes in the loan interest rate we charge will never be
less than 0.5% up or down. We will notify you in advance of any change in the
cost of your loan.
Loan interest is payable in advance on the date of the loan and on each
subsequent policy anniversary until the loan is repaid. Loan interest that is
not paid on the date due increases your loan amount and is charged loan
interest. During the first ten policy years, loans will be reallocated as
preferred or non-preferred once a year on the policy anniversary. If the
unloaned portion of your policy value experienced gains during the 12-month
period prior to your policy anniversary, a greater portion of existing loan
amounts may be preferred during the next policy year. If your policy value
experienced losses during this period, a greater portion of existing loans may
be non-preferred and result in a cost to you if you do not repay the loan.
Loan payments of $50 or more may be made at anytime while the insured is living
and the policy is in force. When a loan is outstanding, we consider any money
you give us, other than by electronic funds transfer, to be a loan payment
unless clearly marked otherwise. Unless you tell us differently, loan payments
are allocated to the portfolios and/or the fixed account in accordance with your
current premium allocations on file. Non-preferred loans are repaid first. Loan
payments are not considered additional premium under the policy.
Loans allow you to access money in your policy at little or no cost and are
tax-free, unless your policy is a modified endowment contract. See Section 6 --
Taxes. However, loans reduce the number of accumulation units in the portfolios
and/or the value in the fixed account. Loans increase your risk that:
- you will not accumulate enough policy value to meet your future financial
needs;
- your policy will lapse;
- the Guaranteed Death Benefit Endorsement will terminate;
- your beneficiary will receive less money.
WITHDRAWALS
After the first policy year, you can take money out by writing to us. There is
no minimum withdrawal amount. The maximum withdrawal amount is equal to your
policy surrender value less policy charges for three months.
Unless you tell us differently, we will take withdrawals from the portfolios and
the fixed account in the same proportion as we take monthly deductions or, if
this is not possible, on a pro rata basis from the investment options. Once we
receive your request, withdrawals from the portfolios will be effective as of
the next close of the NYSE.
Unlike many other policies, there is no charge on withdrawals as long as your
policy remains in force. However, withdrawals reduce the number of accumulation
units in the portfolios and/or the value of the fixed account and may have tax
consequences. See Section 6 -- Taxes. Withdrawals lower the face amount of
insurance on your policy dollar for dollar and increase the risk that:
- you will not accumulate enough policy value to meet your future financial
needs;
- your policy will lose its current tax status;
- your policy will lapse;
- the Guaranteed Death Benefit Endorsement will terminate;
- your beneficiary will receive less money.
We may refuse any withdrawal request that reduces the face amount below the
minimum we require for policy issue or that would disqualify the policy as life
insurance under tax law.
SMART-TM- DISTRIBUTIONS
After the second policy year, you can take money out electronically through
systematic withdrawals, loans or a combination of both so that you receive a
level stream of income over a period of time you select. The distributions must
satisfy applicable requirements for taking withdrawals or loans and may be
modified to ensure that insurance coverage remains in force. These distributions
have the same risks as random loans and withdrawals. All or some of these
distributions may be subject to current tax and tax penalties. See Section 6 --
Taxes.
SURRENDER
You may end the insurance coverage under this policy and receive the surrender
value at any time by sending written instruction and the policy to us while the
insured is living. A surrender charge will apply during the first ten policy
years and for ten years following any increase in face amount. See Section 4 --
Expenses. The surrender value may be subject to current tax and tax penalties.
See Section 6 -- Taxes.
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<PAGE>
MATURITY DATE
The policy matures on the policy anniversary following the insured's 95th
birthday. If the insured is alive on the maturity date, the policy terminates
and you receive the policy surrender value in a lump sum or alternate payment
option provided by your policy and that you select. Current tax may apply. Under
some circumstances the maturity date may be extended until the death of the
insured. See Section 5 -- Insurance Benefits for a discussion of the Extended
Maturity Benefit Endorsement.
MINIMUM VALUE
If the surrender value of your policy (policy value less surrender charges and
outstanding loan amounts), is too low to pay the monthly policy charges or loan
interest that is due, insurance coverage will end and your policy will lapse
without value. See Section 2 -- Premiums for information on policy lapse and
reinstatement.
- ---------------------------------------------------
8. OTHER INFORMATION
- ----------------------------------------------
SAFECO LIFE
SAFECO Life was incorporated as a stock life insurance company under Washington
law on January 23, 1957. We provide individual and group life, accident and
health insurance, and annuity products and are licensed to do business in the
District of Columbia and all states except New York. We are a wholly owned
subsidiary of SAFECO Corporation which is a holding company whose subsidiaries
are primarily engaged in insurance and financial service businesses.
SEPARATE ACCOUNT
We adopted a Board Resolution to establish SAFECO Separate Account SL ("Separate
Account") under Washington law on November 6, 1986. The Separate Account holds
the assets that underlie policy values invested in the portfolios. The Separate
Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
Under Washington law, the assets in the Separate Account are the property of
SAFECO Life. However, assets in the Separate Account that are attributable to
policies are not chargeable with liabilities arising out of any other business
we may conduct. Income, gains and losses (realized and unrealized), resulting
from assets in the Separate Account are credited to or charged against the
Separate Account without regard to other income, gains or losses of SAFECO Life.
Promises we make in the policy are general corporate obligations of SAFECO Life
and are not dependent on assets in the Separate Account.
GENERAL ACCOUNT
If you put your money into the fixed account, it goes into SAFECO Life's general
account. The general account is made up of all of SAFECO Life's assets other
than those attributable to separate accounts. All of the assets of the general
account are chargeable with the claims of any of our policy owners as well as
our creditors. The general account invests its assets in accordance with state
insurance law.
We are not required to register the fixed account or any interests therein, with
the SEC. For this reason, SEC staff has not reviewed disclosure relating to the
fixed account. However, such disclosure may be subject to general provisions in
federal securities laws that relate to accuracy and completeness of statements
made in the prospectus.
DISTRIBUTION (PRINCIPAL UNDERWRITER)
The policies are underwritten by SAFECO Securities, Inc. ("SSI"). They are sold
by individuals who, in addition to being licensed to sell variable life
insurance for SAFECO Life, are also registered representatives of broker-dealers
who have a current sales agreement with SSI. SSI is an affiliate of SAFECO Life
and is located at 10865 Willows Road NE, Redmond, Washington 98052. It is
registered as a broker-dealer with the SEC under the Securities Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. No amounts
are retained by SSI for acting as principal underwriter for SAFECO Life
policies.
The commissions paid to registered representatives on the sale of policies are
not more than 60% of premiums paid during the first year nor more than 2% during
years after the first. In addition, commissions, allowances and bonuses may be
paid to registered representatives and/or other distributors of the policies. A
bonus dependent upon persistency is one type of bonus that may be paid.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or its principal
underwriter SSI is a party. SAFECO Life is engaged in various kinds of
litigation which, in the opinion of SAFECO Life, are not of material importance
in relation to the total capital and surplus of SAFECO Life.
RIGHT TO SUSPEND TRANSFERS, LOANS, WITHDRAWAL, OR SURRENDER
We may be required to suspend or postpone payment of transfers, loans,
withdrawals or surrender from the portfolios for any period of time when:
- the NYSE is closed (other than customary weekend or holiday closings);
- trading on the NYSE is restricted;
- an emergency exists such that disposal of or determination of the value of
the portfolio shares is not reasonably practicable; or
- the SEC, by order, so permits for your protection.
Additionally, we reserve the right to defer payment of transfers, loans,
withdrawals, or surrender from the fixed account for the period permitted by
law, but not for more than six months.
VOTING RIGHTS
SAFECO Life is the legal owner of the portfolios' shares. However, when a
portfolio solicits proxies in conjunction with a shareholder vote, we are
required to ask you for
11
<PAGE>
instructions as to how to vote those shares. All shares are voted in the same
proportion as the instructions we received. Should we determine that we are no
longer required to comply with the above, we will vote the shares in our own
right.
DISREGARD OF VOTING INSTRUCTIONS
SAFECO Life may, when required to do so by state insurance authorities, vote
shares of the funds without regard to instructions from owners if such
instructions would require the shares to be voted to cause any portfolio to make
(or refrain from making), investments which would result in changes in the
sub-classification or investment objectives of the portfolio. SAFECO Life 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 Life that the change would violate state or
federal law or the change would not be consistent with the investment objectives
of the 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 variable policies offered by SAFECO Life
or of an affiliated life insurance company. In the event that SAFECO Life does
disregard voting instructions, a summary of this action and the reasons for such
action will be included in the next semi-annual report to owners.
REDUCTION OF CHARGES OR ADDITIONAL AMOUNTS CREDITED
Under some circumstances we may expect to experience lower costs or higher
revenues associated with issuing and administering certain policies. For
example, sales expenses are expected to be less when policies are sold to a
large group of individuals. Under such circumstances we may pass a portion of
these anticipated savings on to you by reducing certain policy charges
(including the surrender charge) or crediting additional fixed account interest.
We may also take such action in connection with policies sold to our officers,
directors, and employees and their family members, employees of our affiliates
and their family members, and registered representatives and employees of
broker-dealers that have a current selling agreement with us. In each
circumstance such actions will be reasonably related to the savings or revenues
anticipated and will be applied in a non-discriminatory manner. These actions
may be withdrawn or modified by us at any time.
REPORTS TO POLICY OWNERS
We send you semi-annual and annual reports of the portfolios. We also send you
quarterly statements about your policy which, taken together, provide you with
an annual statement of your policy each policy year. Statements include
information about:
- the death benefit;
- policy values including surrender value;
- policy charges;
- loan amounts including loan interest;
- premiums paid during the year; and
- investment performance.
YEAR 2000
Like other insurance, mutual fund, financial and business organizations, and
individuals around the world, SAFECO Life and the Separate Account could be
adversely affected if the computer systems used by SAFECO Life, its principal
underwriter, underlying mutual fund managers and investment advisers, or other
companies that provide services to the Separate Account do not properly process
and calculate date related information from and after January 1, 2000. This is
commonly called the "year 2000 problem." SAFECO Life is taking steps it believes
are reasonably designed to address the year 2000 problem with respect to the
computer systems that each of them uses and to obtain satisfactory assurances
that comparable steps are being taken by each of SAFECO Life's other major
service providers. It is not anticipated that the Separate Account will incur
any charges or that there will be any difficulties in accurate and timely
reporting resulting from the change in year from 1999 to 2000. However, with
approximately 90% of its systems year 2000 ready, SAFECO Life is currently
developing business continuity plans for year 2000 contingencies.
INTERNET INFORMATION
You can find more information about the PREMIER Accumulation Life Flexible
Premium Variable Life Insurance Policy as well as other products and financial
services offered by SAFECO companies on the Internet at http://www.SAFECO.com.
This website is frequently updated with new information and can help you locate
a representative near you. If you already own a PREMIER Accumulation Life policy
you can obtain specific information about your policy and additional online
services.
The SEC also maintains a website at
http://www.sec.gov, which contains a copy of the
Separate Account's most recent registration statement
and general consumer information.
EXPERTS
The financial statements of SAFECO Separate Account SL and SAFECO Life Insurance
Company and Subsidiaries, appearing in Appendix A to this prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
FINANCIAL STATEMENTS
The financial statements of SAFECO Separate Account SL and SAFECO Life Insurance
Company and Subsidiaries, should be considered only as bearing upon our ability
to meet our obligations under the policy. They should not be considered as
bearing upon the investment experience of the portfolios.
12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
MORE INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS OF SAFECO LIFE
<TABLE>
<S> <C>
OFFICERS:
Roger H. Eigsti Chairman of the Board
Randall H. Talbot President
James T. Flynn Vice President,
Controller and Assistant
Secretary
Roger F. Harbin Executive Vice President
and Actuary
Michael J. Kinzer Vice President and Chief
Actuary
Rod A. Pierson Senior Vice President and
Secretary
DIRECTORS:
Donald S. Chapman Director
Boh A. Dickey Director
Roger H. Eigsti Director
Rod A. Pierson Director
James W. Ruddy Director
Ronald L. Spaulding Director
Randall H. Talbot Director
W. Randall Stoddard Director
Dale E. Lauer Director
</TABLE>
*The business address for Messrs. Talbot, Flynn, Harbin, and Kinzer is 15411
N.E. 51st Street, Redmond, Washington 98052. The business address for Messr.
Spaulding is 601 Union Street, Suite 2500, Seattle, Washington 98101. The
business address for Messr. Lauer is 500 N. Meridian Street, Indianapolis, IN
46204. The business address for all other individuals listed is SAFECO Plaza,
Seattle, Washington 98185.
All of the officers and directors listed above have acted in the capacities
shown above for at least the last five years except Messer's Talbot, Harbin, and
Lauer. Mr. Talbot was president and chief executive officer of Talbot Financial
Corporation from 1994 until accepting his current position. Talbot Financial
Corporation, an affiliate of SAFECO Life, is a holding company for insurance
agencies marketing insurance products and other financial services. Mr. Harbin
previously held the positions of senior vice president for SAFECO Life's
annuities division since 1992 and has been executive vice president of SAFECO
Life's broker dealer since 1998. Mr. Lauer has held the position of vice
president of commercial lines underwriting for SAFECO Property and Casualty
Companies since 1992 and senior vice president since 1997.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the insured has been incorrectly stated, the death benefit
and any benefits provided by riders will be adjusted to reflect the death
benefit that would have been purchased at the correct age or sex using the cost
of insurance rate in effect when the policy was issued.
SAFECO LIFE'S RIGHT TO CONTEST
SAFECO Life cannot contest the validity of the policy except in the case of
fraud after it has been in effect during the insured's lifetime for two years
from the policy date or, with regard to an increase in insurance coverage, two
years from the effective date of that increase. If the policy is reinstated, the
two-year period is measured from the date of reinstatement. If the insured
commits suicide within two years of the policy date, or such period as specified
in state law, the benefit is limited to a return of premiums adjusted for loans,
withdrawals, and investment experience, gain or loss, in the portfolios.
FEDERAL TAX STATUS
NOTE: The following description is based upon SAFECO Life's understanding of
current federal income tax law applicable to life insurance in general. SAFECO
Life 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 Life believes that the policies to be issued will qualify as "life
insurance contracts" under Section 7702. SAFECO Life 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 Life'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 Life 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
Life and its operations form a part of SAFECO Life.
13
<PAGE>
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 Life intends that each investment portfolio underlying the policies will
be managed by the managers in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which owner control of the
investments of the Separate Account will cause the owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of owner control which may be exercised under the policy is different
in some respects from the situations addressed in published rulings issued by
the Internal Revenue Service in which it was held that the policy owner was not
the owner of the assets of the Separate Account. It is unknown whether these
differences, such as the owner's ability to transfer among investment choices or
the number and type of investment choices available, would cause the owner to be
considered as the owner of the assets of the Separate Account.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, SAFECO Life 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 Life 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 Life 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 Life'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 withdrawals
or surrenders from the policies will depend on whether the policy is considered
to be a modified endowment contract. Otherwise, SAFECO Life believes that the
policy should receive the
14
<PAGE>
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, WITHDRAWALS, AND SURRENDERS: Section 7702A of the Code
sets forth the rules for determining when a life insurance policy will be deemed
to be a Modified Endowment Contract. A modified endowment contract is a contract
which is entered into or materially changed on or after June 21, 1988 and fails
to meet the 7-pay test. A policy fails to meet the 7-pay test when the
cumulative amount paid under the policy at any time during the first seven
policy years exceeds the sum of the net level premiums which would have been
paid on or before such time if the policy provided for paid-up future benefits
after the payment of seven level annual premiums. A material change would
include any increase in the future benefits or addition of qualified additional
benefits provided under a policy unless the increase is attributable to: (1) the
payment of premiums necessary to fund the lowest death benefit and qualified
additional benefits payable in the first seven policy years; or (2) the
crediting of interest or other earnings (including policyholder dividends) with
respect to such premiums.
Furthermore, any policy received in exchange for a policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. The status of an exchange of a
contract issued before June 21, 1988 is unclear; however, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988 will be considered as entered
into as of the date of the exchange and therefore subject to Section 7702A. Due
to the flexible premium nature of the policy, the determination of whether it
qualifies for treatment as a modified endowment contract depends on the
individual circumstances of each policy.
If the policy is classified as a modified endowment contract, then withdrawals
and 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
withdrawals 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, withdrawals or surrendering any policy.
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.
ADVERTISING
SAFECO Life is ranked and rated by independent financial rating services,
including Moody's, Standard and Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
SAFECO Life. The ratings are not intended to reflect the investment experience
or financial strength of the Separate Account. From time to time we may
advertise the ratings of SAFECO Life and may include a comparison of currently
taxable and tax deferred investments, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
15
<PAGE>
SAFECO LIFE
SEPARATE ACCOUNT SL
AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
A-1
<PAGE>
SEPARATE ACCOUNT SL
DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
Statement of Assets and Liabilities.................................................................. A-3
Statement of Operations and Changes in Assets........................................................ A-5
Notes to Financial Statements........................................................................ A-15
</TABLE>
A-2
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS SHARES COST MARKET VALUE
----------- ------------ -------------
<S> <C> <C> <C>
Investments in Variable Insurance Products Fund
("VIP"):
Fidelity VIP Growth Portfolio 568,807 $ 18,350,620 $ 25,522,380
Fidelity VIP Money Market Portfolio 5,181,744 5,181,744 5,181,744
Fidelity VIP Equity-Income Portfolio 451,119 9,623,978 11,467,450
Fidelity VIP Overseas Portfolio 273,762 5,056,320 5,488,943
Fidelity VIP High Income Portfolio 200,415 2,469,672 2,310,781
Investments in Variable Insurance Products Fund II
("VIP II"):
Fidelity VIP II Investment Grade Bond Portfolio 75,740 945,111 981,594
Fidelity VIP II Asset Manager Portfolio 589,903 9,301,715 10,712,639
Fidelity VIP II Index 500 Portfolio 67,685 7,191,763 9,560,550
Fidelity VIP II Contrafund Portfolio 284,807 5,202,850 6,960,696
Fidelity VIP II Asset Manager: Growth Portfolio 105,887 1,661,553 1,803,252
Investments in Variable Insurance Products Fund
III ("VIP III"):
Fidelity VIP III Growth Opportunities Portfolio 8,627 174,766 197,385
Fidelity VIP III Growth & Income Portfolio 11,073 163,670 178,830
Fidelity VIP III Balanced Portfolio 2,493 37,293 40,168
Investments in Lexington Natural Resources Trust:
Lexington Natural Resources Portfolio 36,866 495,702 406,629
Investments in Lexington Emerging Markets Fund,
Inc.:
Lexington Emerging Markets Portfolio 80,869 687,422 458,306
Investments in SAFECO Resource Series Trust
("SAFECO RST"):
SAFECO RST Equity Portfolio 186,037 5,306,730 5,575,516
SAFECO RST Growth Portfolio 433,253 10,494,925 9,228,287
SAFECO RST Northwest Portfolio 16,527 251,876 258,481
SAFECO RST Bond Portfolio 17,706 210,656 202,019
SAFECO RST Small Company Stock Portfolio 37,989 457,600 374,950
Investments in Wanger Advisors Trust:
Wanger U.S. Small Cap Portfolio 23,790 534,139 527,655
Investments in American Century Variable
Portfolios, Inc.:
American Century VP International Portfolio 102,088 737,609 777,907
American Century VP Balanced Portfolio 6,397 50,358 53,354
-------------
Total Invested Assets 98,269,516
Dividends Receivable 536,605
------------ -------------
TOTAL ASSETS $ 84,588,072 98,806,121
------------ -------------
------------ -------------
LIABILITIES
Payable To SAFECO LIFE (43,438)
-------------
TOTAL LIABILITIES (43,438)
-------------
NET ASSETS $ 98,762,683
-------------
-------------
</TABLE>
See Notes to Financial Statements
A-3
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Net Assets represented in units: UNITS UNIT VALUE EQUITY
------------ ------------ ------------
<S> <C> <C> <C>
Accumulation Life:
Fidelity VIP Growth Division 68,548.908 $ 357.747 $ 24,523,166
Fidelity VIP Money Market Division 24,250.817 130.583 3,166,744
Fidelity VIP Equity-Income Division 33,577.079 327.998 11,013,215
Fidelity VIP Overseas Division 28,937.215 186.091 5,384,955
Fidelity VIP High Income Division 13,646.668 157.485 2,149,146
Fidelity VIP II Investment Grade Bond Division 6,322.069 153.575 970,912
Fidelity VIP II Asset Manager Division 45,144.308 230.667 10,413,302
Fidelity VIP II Index 500 Division 25,956.076 291.281 7,560,512
Fidelity VIP II Contrafund Division 27,483.167 227.549 6,253,767
Fidelity VIP II Asset Manager: Growth Division 7,217.982 198.197 1,430,582
Lexington Natural Resources Division 3,133.828 97.384 305,185
Lexington Emerging Markets Division 6,695.520 59.164 396,134
SAFECO RST Equity Division 20,184.661 180.395 3,641,212
SAFECO RST Growth Division 33,011.655 166.591 5,499,445
SAFECO RST Northwest Division 852.846 131.402 112,066
SAFECO RST Bond Division 1,625.357 116.708 189,692
Premier Accumulation Life:
Fidelity VIP Growth Division 66,558.000 14.531 967,154
Fidelity VIP Money Market Division 191,240.000 10.560 2,019,494
Fidelity VIP Equity-Income Division 38,141.000 11.845 451,780
Fidelity VIP Overseas Division 9,115.000 11.253 102,571
Fidelity VIP High Income Division 16,682.000 9.681 161,498
Fidelity VIP II Investment Grade Bond Division 1,158.000 10.963 12,695
Fidelity VIP II Asset Manager Division 24,915.000 11.936 297,385
Fidelity VIP II Index 500 Division 145,573.000 13.719 1,997,116
Fidelity VIP II Contrafund Division 52,951.000 13.257 701,971
Fidelity VIP II Asset Manager: Growth Division 30,206.000 12.317 372,047
Fidelity VIP III Growth Opportunities Division 14,810.000 13.320 197,269
Fidelity VIP III Growth & Income Division 13,186.000 13.555 178,736
Fidelity VIP III Balanced Division 3,249.000 12.355 40,141
Lexington Natural Resources Division 13,643.000 7.429 101,354
Lexington Emerging Markets Division 8,873.000 7.002 62,129
SAFECO RST Equity Division 153,633.000 13.200 2,027,956
SAFECO RST Growth Division 385,662.000 10.812 4,169,778
SAFECO RST Northwest Division 13,583.000 10.733 145,786
SAFECO RST Bond Division 1,178.000 10.975 12,929
SAFECO RST Small Company Stock Division 47,002.000 7.973 374,747
Wanger U.S. Small Cap Division 48,429.000 10.889 527,343
American Century VP International Division 63,346.000 12.273 777,445
American Century VP Balanced Division 4,527.000 11.779 53,324
------------
Total $ 98,762,683
------------
------------
</TABLE>
See Notes to Financial Statements
A-4
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
TOTAL FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
SEPARATE GROWTH MONEY MARKET EQUITY-INCOME OVERSEAS
ACCOUNT DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 7,333,005 $ 2,485,709 $ 193,713 $ 647,083 $ 402,027
Mortality and Expense Charge (726,178) (180,752) (30,955) (95,832) (47,177)
------------- ------------- ------------- ------------- -------------
Net Investment Income (Loss) 6,606,827 2,304,957 162,758 551,251 354,850
------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments 3,312,133 1,049,451 -- 704,584 204,791
Net Change in Unrealized Appreciation
(Depreciation) of Investments 3,735,865 3,546,576 -- (189,086) 23,485
------------- ------------- ------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on
Investments 7,047,998 4,596,027 -- 515,498 228,276
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 13,654,825 6,900,984 162,758 1,066,749 583,126
------------- ------------- ------------- ------------- -------------
CHANGES IN NET ASSETS FROM POLICY RELATED
TRANSACTIONS:
Transfers in from Net Premiums 42,849,529 3,484,290 13,123,309 2,181,767 854,534
Transfers out for Policy Related Transactions (26,773,821) (2,233,231) (10,523,380) (1,423,862) (825,729)
Transfers between Separate Account SL's
Divisions and (to) from Guaranteed Interest
Division, Net (14,901) (502,110) 268,805 (319,227) (315,447)
Transfers in (out) -- Operational Seed Money (5,157) (234) (206) (232) (234)
Gain (Loss) Attributable to SAFECO Life (23,180) (11,481) (4,699) (977) (928)
------------- ------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 16,032,470 737,234 2,863,829 437,469 (287,804)
------------- ------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS 29,687,295 7,638,218 3,026,587 1,504,218 295,322
NET ASSETS, BEGINNING OF PERIOD 69,075,388 17,852,102 2,159,651 9,960,777 5,192,204
------------- ------------- ------------- ------------- -------------
NET ASSETS, END OF PERIOD $ 98,762,683 $ 25,490,320 $ 5,186,238 $ 11,464,995 $ 5,487,526
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See Notes To Financial Statements
A-5
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP II INVESTMENT II ASSET FIDELITY VIP FIDELITY VIP
HIGH INCOME GRADE BOND MANAGER II INDEX 500 II CONTRAFUND
DIVISION DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 233,158 $ 45,775 $ 1,213,779 $ 230,001 $ 298,912
Mortality and Expense Charge (18,000) (8,290) (88,748) (64,689) (50,790)
------------- ------------- ------------- ------------- -------------
Net Investment Income (Loss) 215,158 37,485 1,125,031 165,312 248,122
------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments (3,521) 50,399 303,309 502,189 447,457
Net Change in Unrealized Appreciation
(Depreciation) of Investments (276,760) (14,859) (117,869) 1,173,102 815,400
------------- ------------- ------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on
Investments (280,281) 35,540 185,440 1,675,291 1,262,857
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS (65,123) 73,025 1,310,471 1,840,603 1,510,979
------------- ------------- ------------- ------------- -------------
CHANGES IN NET ASSETS FROM POLICY RELATED
TRANSACTIONS:
Transfers in from Net Premiums 603,952 220,145 1,686,930 3,018,871 1,667,039
Transfers out for Policy Related Transactions (289,852) (252,135) (1,263,527) (1,027,350) (1,350,348)
Transfers between Separate Account SL's
Divisions and (to) from Guaranteed Interest
Division, Net 372,830 71,048 (519,228) (5,909) (154,621)
Transfers in (out) -- Operational Seed Money (213) (208) (223) (243) (226)
Gain (Loss) Attributable to SAFECO Life 209 50 (5,220) (1,123) (1,671)
------------- ------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 686,926 38,900 (101,268) 1,984,246 160,173
------------- ------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS 621,803 111,925 1,209,203 3,824,849 1,671,152
NET ASSETS, BEGINNING OF PERIOD 1,688,841 871,682 9,501,484 5,732,779 5,284,586
------------- ------------- ------------- ------------- -------------
NET ASSETS, END OF PERIOD $ 2,310,644 $ 983,607 $ 10,710,687 $ 9,557,628 $ 6,955,738
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See Notes To Financial Statements
A-6
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------------------------
FIDELITY VIP
II FIDELITY VIP FIDELITY VIP
ASSET III III FIDELITY VIP LEXINGTON LEXINGTON
MANAGER: GROWTH GROWTH & III NATURAL EMERGING
GROWTH OPPORTUNITIES INCOME BALANCED RESOURCES MARKETS
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 184,834 $ 372 $ 43 $ 13 $ 45,816 $ 43,066
Mortality and Expense Charge (14,785) (846) (365) (102) (6,506) (4,708)
------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income (Loss) 170,049 (474) (322) (89) 39,310 38,358
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on
Investments 145,875 476 3,200 (1,075) (121,653) (113,830)
Net Change in Unrealized Appreciation
(Depreciation) of Investments (45,666) 22,603 15,150 2,864 (108,322) (103,112)
------------ ------------ ------------ ------------ ------------ ------------
Net Realized and Unrealized Gain
(Loss) on Investments 100,209 23,079 18,350 1,789 (229,975) (216,942)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 270,258 22,605 18,028 1,700 (190,665) (178,584)
------------ ------------ ------------ ------------ ------------ ------------
CHANGES IN NET ASSETS FROM POLICY
RELATED TRANSACTIONS:
Transfers in from Net Premiums 846,128 211,017 172,802 42,432 566,994 244,164
Transfers out for Policy Related
Transactions (1,005,156) (36,333) (12,081) (3,969) (873,355) (201,912)
Transfers between Separate Account
SL's Divisions and (to) from
Guaranteed Interest Division, Net 169,711 -- -- -- (119,848) (24,774)
Transfers in (out) -- Operational Seed
Money (228) (232) (232) (229) (188) (180)
Gain (Loss) Attributable to SAFECO
Life (191) (3) 9 (3) 18 (108)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM POLICY
TRANSACTIONS 10,264 174,449 160,498 38,231 (426,379) 17,190
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS 280,522 197,054 178,526 39,931 (617,044) (161,394)
NET ASSETS, BEGINNING OF PERIOD 1,522,107 215 210 210 1,023,583 619,657
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS, END OF PERIOD $ 1,802,629 $ 197,269 $ 178,736 $ 40,141 $ 406,539 $ 458,263
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
See Notes To Financial Statements
A-7
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------
SAFECO RST SAFECO RST SAFECO RST SAFECO RST
EQUITY GROWTH NORTHWEST BOND
DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 266,692 $ 1,007,156 $ -- $ 10,342
Mortality and Expense Charge (35,770) (65,928) (1,754) (1,891)
------------- ------------- ------------- -------------
Net Investment Income (Loss) 230,922 941,228 (1,754) 8,451
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments 274,182 (37,493) (2,449) 9,580
Net Change in Unrealized Appreciation
(Depreciation) of Investments 317,102 (1,286,634) 11,712 (3,998)
------------- ------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on
Investments 591,284 (1,324,127) 9,263 5,582
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 822,206 (382,899) 7,509 14,033
------------- ------------- ------------- -------------
CHANGES IN NET ASSETS FROM POLICY RELATED
TRANSACTIONS:
Transfers in from Net Premiums 3,824,372 7,423,669 199,565 50,851
Transfers out for Policy Related Transactions (1,621,311) (3,202,030) (41,393) (16,042)
Transfers between Separate Account SL's
Divisions and (to) from Guaranteed Interest
Division, Net 137,357 1,038,809 (79,825) (32,472)
Transfers in (out) -- Operational Seed Money (237) (248) (218) (209)
Gain (Loss) Attributable to SAFECO Life (410) 3,441 (20) (47)
------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 2,339,771 5,263,641 78,109 2,081
------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS 3,161,977 4,880,742 85,618 16,114
NET ASSETS, BEGINNING OF PERIOD 2,507,191 4,788,481 172,234 186,507
------------- ------------- ------------- -------------
NET ASSETS, END OF PERIOD $ 5,669,168 $ 9,669,223 $ 257,852 $ 202,621
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes To Financial Statements
A-8
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------
AMERICAN
SAFECO RST WANGER CENTURY AMERICAN
SMALL COMPANY U.S. SMALL VP CENTURY
STOCK CAP INTERNATIONAL VP BALANCED
DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ -- $ 19,006 $ 4,473 $ 1,035
Mortality and Expense Charge (2,566) (3,289) (2,260) (175)
------------- ------------- ------------- -------------
Net Investment Income (Loss) (2,566) 15,717 2,213 860
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments (60,083) (31,262) (11,470) (524)
Net Change in Unrealized Appreciation
(Depreciation) of Investments (82,579) (6,518) 40,283 2,991
------------- ------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on
Investments (142,662) (37,780) 28,813 2,467
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS (145,228) (22,063) 31,026 3,327
------------- ------------- ------------- -------------
CHANGES IN NET ASSETS FROM POLICY RELATED
TRANSACTIONS:
Transfers in from Net Premiums 703,545 868,265 796,205 58,683
Transfers out for Policy Related Transactions (186,179) (321,453) (54,523) (8,670)
Transfers between Separate Account SL's
Divisions and (to) from Guaranteed Interest
Division, Net -- -- -- --
Transfers in (out) -- Operational Seed Money (236) (225) (256) (220)
Gain (Loss) Attributable to SAFECO Life 11 (15) (21) (1)
------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 517,141 546,572 741,405 49,792
------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS 371,913 524,509 772,431 53,119
NET ASSETS, BEGINNING OF PERIOD 2,834 2,834 5,014 205
------------- ------------- ------------- -------------
NET ASSETS, END OF PERIOD $ 374,747 $ 527,343 $ 777,445 $ 53,324
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes To Financial Statements
A-9
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------
TOTAL FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
SEPARATE GROWTH MONEY MARKET EQUITY-INCOME OVERSEAS
ACCOUNT DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 4,111,948 $ 516,357 $ 123,914 $ 730,426 $ 374,033
Mortality and Expense Charge (530,007) (142,564) (20,204) (78,115) (44,562)
------------- ------------- ------------- ------------- ------------
Net Investment Income (Loss) 3,581,941 373,793 103,710 652,311 329,471
------------- ------------- ------------- ------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Investments 2,916,978 827,060 -- 370,199 184,852
Net Change in Unrealized Appreciation
(Depreciation) of Investments 4,556,931 1,838,335 -- 1,005,276 (59,527)
------------- ------------- ------------- ------------- ------------
Net Realized and Unrealized Gain (Loss) on Investments 7,473,909 2,665,395 -- 1,375,475 125,325
------------- ------------- ------------- ------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 11,055,850 3,039,188 103,710 2,027,786 454,796
------------- ------------- ------------- ------------- ------------
CHANGES IN NET ASSETS FROM POLICY RELATED TRANSACTIONS:
Transfers in from Net Premiums 18,502,688 3,258,766 3,453,897 2,034,589 1,054,250
Transfers out for Policy Related Transactions (7,729,946) (1,806,612) (304,339) (1,045,252) (621,451)
Transfers between Separate Account SL's Divisions and
(to) from Guaranteed Interest Division, Net 14,439 (447,640) (3,046,340) 38,834 79,895
Transfers in (out) -- Operational Seed Money 4,600 200 200 200 200
Gain (Loss) Attributable to SAFECO Life (368) (4,554) 4,200 (555) (47)
------------- ------------- ------------- ------------- ------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 10,791,413 1,000,160 107,618 1,027,816 512,847
------------- ------------- ------------- ------------- ------------
NET CHANGE IN NET ASSETS 21,847,263 4,039,348 211,328 3,055,602 967,643
NET ASSETS, BEGINNING OF PERIOD 47,228,125 13,812,754 1,948,323 6,905,175 4,224,561
------------- ------------- ------------- ------------- ------------
NET ASSETS, END OF PERIOD $ 69,075,388 $ 17,852,102 $ 2,159,651 $ 9,960,777 $ 5,192,204
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
</TABLE>
See Notes To Financial Statements
A-10
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP II INVESTMENT II ASSET FIDELITY VIP FIDELITY VIP
HIGH INCOME GRADE BOND MANAGER II INDEX 500 II CONTRAFUND
DIVISION DIVISION DIVISION DIVISION DIVISION
------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 118,089 $ 41,932 $ 990,660 $ 112,819 $ 104,398
Mortality and Expense Charge (14,472) (6,857) (80,822) (38,183) (38,914)
------------ ------------- -------------- ------------- -------------
Net Investment Income (Loss) 103,617 35,075 909,838 74,636 65,484
------------ ------------- -------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Investments 106,691 (2,286) 264,306 212,725 264,916
Net Change in Unrealized Appreciation (Depreciation)
of Investments 37,852 26,567 415,386 805,228 553,496
------------ ------------- -------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on Investments 144,543 24,281 679,692 1,017,953 818,412
------------ ------------- -------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 248,160 59,356 1,589,530 1,092,589 883,896
------------ ------------- -------------- ------------- -------------
CHANGES IN NET ASSETS FROM POLICY RELATED TRANSACTIONS:
Transfers in from Net Premiums 515,592 154,794 1,536,942 1,624,150 1,401,808
Transfers out for Policy Related Transactions (211,691) (105,048) (1,463,169) (516,224) (551,232)
Transfers between Separate Account SL's Divisions and
(to) from Guaranteed Interest Division, Net (308,488) 42,724 (246,774) 400,922 359,783
Transfers in (out) -- Operational Seed Money 200 200 200 200 200
Gain (Loss) Attributable to SAFECO Life (104) 134 1,610 (318) (3,460)
------------ ------------- -------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS (4,491) 92,804 (171,191) 1,508,730 1,207,099
------------ ------------- -------------- ------------- -------------
NET CHANGE IN NET ASSETS 243,669 152,160 1,418,339 2,601,319 2,090,995
NET ASSETS, BEGINNING OF PERIOD 1,445,172 719,522 8,083,145 3,131,460 3,193,591
------------ ------------- -------------- ------------- -------------
NET ASSETS, END OF PERIOD $1,688,841 $ 871,682 $ 9,501,484 $ 5,732,779 $ 5,284,586
------------ ------------- -------------- ------------- -------------
------------ ------------- -------------- ------------- -------------
</TABLE>
See Notes To Financial Statements
A-11
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
II ASSET III III FIDELITY VIP LEXINGTON
MANAGER: GROWTH GROWTH & III NATURAL
GROWTH OPPORTUNITIES INCOME BALANCED RESOURCES
DIVISION DIVISION* DIVISION* DIVISION* DIVISION
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 1,396 $ -- $ 6 $ -- $ 28,016
Mortality and Expense Charge (11,707) -- -- -- (8,036)
------------- ----- ----- ----- -------------
Net Investment Income (Loss) (10,311) -- 6 -- 19,980
------------- ----- ----- ----- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments 136,339 -- -- -- 67,477
Net Change in Unrealized Appreciation
(Depreciation) of Investments 146,598 15 10 10 (39,627)
------------- ----- ----- ----- -------------
Net Realized and Unrealized Gain (Loss) on
Investments 282,937 15 10 10 27,850
------------- ----- ----- ----- -------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 272,626 15 16 10 47,830
------------- ----- ----- ----- -------------
CHANGES IN NET ASSETS FROM POLICY RELATED
TRANSACTIONS:
Transfers in from Net Premiums 403,875 -- -- -- 311,597
Transfers out for Policy Related Transactions (309,588) -- -- -- (116,998)
Transfers between Separate Account SL's
Divisions and (to) from Guaranteed Interest
Division, Net 345,415 -- -- -- 98,814
Transfers in (out) -- Operational Seed Money 200 200 200 200 200
Gain (Loss) Attributable to SAFECO Life 699 -- (6) -- (1,273)
------------- ----- ----- ----- -------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 440,601 200 194 200 292,340
------------- ----- ----- ----- -------------
NET CHANGE IN NET ASSETS 713,227 215 210 210 340,170
NET ASSETS, BEGINNING OF PERIOD 808,880 -- -- -- 683,413
------------- ----- ----- ----- -------------
NET ASSETS, END OF PERIOD $ 1,522,107 $ 215 $ 210 $ 210 $ 1,023,583
------------- ----- ----- ----- -------------
------------- ----- ----- ----- -------------
</TABLE>
- ------------------------
* For the period from October 30, 1997 (date of inception) to December 31, 1997.
See Notes To Financial Statements
A-12
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
LEXINGTON
EMERGING SAFECO RST SAFECO RST SAFECO RST
MARKETS EQUITY GROWTH NORTHWEST SAFECO RST
DIVISION DIVISION DIVISION DIVISION BOND DIVISION
---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 403 $ 181,882 $ 770,267 $ 7,403 $ 9,834
Mortality and Expense Charge (6,227) (11,138) (26,851) (695) (658)
---------- ------------- ------------- ------------- -------------
Net Investment Income (Loss) (5,824) 170,744 743,416 6,708 9,176
---------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) on Investments 41,428 59,430 370,229 11,705 1,907
Net Change in Unrealized Appreciation (Depreciation) of
Investments (122,637) (36,494) (4,000) (5,253) (4,286)
---------- ------------- ------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on Investments (81,209) 22,936 366,229 6,452 (2,379)
---------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS (87,033) 193,680 1,109,645 13,160 6,797
---------- ------------- ------------- ------------- -------------
CHANGES IN NET ASSETS FROM POLICY RELATED TRANSACTIONS:
Transfers in from Net Premiums 276,890 974,116 1,424,172 61,727 15,523
Transfers out for Policy Related Transactions (70,244) (179,705) (413,515) (8,104) (6,724)
Transfers between Separate Account SL's Divisions and (to)
from Guaranteed Interest Division, Net (13,442) 1,198,913 1,242,542 96,599 162,638
Transfers in (out) -- Operational Seed Money 200 200 200 200 200
Gain (Loss) Attributable to SAFECO Life 536 (216) 3,115 (164) 35
---------- ------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 193,940 1,993,308 2,256,514 150,258 171,672
---------- ------------- ------------- ------------- -------------
NET CHANGE IN NET ASSETS 106,907 2,186,988 3,366,159 163,418 178,469
NET ASSETS, BEGINNING OF PERIOD 512,750 320,203 1,422,322 8,816 8,038
---------- ------------- ------------- ------------- -------------
NET ASSETS, END OF PERIOD $ 619,657 $ 2,507,191 $ 4,788,481 $ 172,234 $ 186,507
---------- ------------- ------------- ------------- -------------
---------- ------------- ------------- ------------- -------------
</TABLE>
See Notes To Financial Statements
A-13
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
SAFECO RST WANGER AMERICAN CENTURY AMERICAN CENTURY
SMALL COMPANY U.S. SMALL CAP VP INTERNATIONAL VP BALANCED
STOCK DIVISION* DIVISION* DIVISION* DIVISION*
--------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends $ 113 $ -- $ -- $ --
Mortality and Expense Charge -- -- (2) --
------ ------ ------ -----
Net Investment Income (Loss) 113 -- (2) --
------ ------ ------ -----
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net Realized Gain (Loss) on Investments -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) of Investments (71) 34 15 4
------ ------ ------ -----
Net Realized and Unrealized Gain (Loss) on
Investments (71) 34 15 4
------ ------ ------ -----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 42 34 13 4
------ ------ ------ -----
CHANGES IN NET ASSETS FROM POLICY RELATED
TRANSACTIONS:
Transfers in from Net Premiums -- -- -- --
Transfers out for Policy Related Transactions -- -- (50) --
Transfers between Separate Account SL's
Divisions and (to) from Guaranteed Interest
Division, Net 2,592 2,601 4,851 --
Transfers in (out) -- Operational Seed Money 200 200 200 200
Gain (Loss) Attributable to SAFECO Life -- (1) -- 1
------ ------ ------ -----
NET CHANGE IN NET ASSETS FROM POLICY TRANSACTIONS 2,792 2,800 5,001 201
------ ------ ------ -----
NET CHANGE IN NET ASSETS 2,834 2,834 5,014 205
NET ASSETS, BEGINNING OF PERIOD -- -- -- --
------ ------ ------ -----
NET ASSETS, END OF PERIOD $2,834 $2,834 $5,014 $205
------ ------ ------ -----
------ ------ ------ -----
</TABLE>
- ------------------------
* For the period from October 30, 1997 (date of inception) to December 31, 1997.
See Notes To Financial Statements
A-14
<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 registered as a unit investment trust 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 associated with the Policies will not be chargeable with
liabilities arising out of any other business SAFECO may conduct.
On October 30, 1997, a new policy type was introduced with an additional seven
investment divisions to the existing sixteen investment divisions. These
divisions invest in the Growth Opportunities, Growth and Income Opportunities,
and Balanced Portfolios of Fidelity Variable Insurance Products Fund III, the
Small Company Stock Portfolio of SAFECO Resource Series Trust, the Wanger U.S.
Small Cap Portfolio of Wanger Advisors Trust, and the American Century VP
International and American Century VP Balanced Portfolios of American Century
Variable Portfolios, Inc.
Policyholders are permitted to transfer their funds among investment divisions
in Account SL available under their policy, and to the Guaranteed Interest
Division, which is not part of Account SL. Available investment divisions vary
by policy type.
2) SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION. Investments in portfolio 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 policies on a pro rata basis.
ESTIMATES. The financial statements of Account SL are prepared in conformity
with generally accepted accounting principles, which permit management to make
certain estimates and assumptions at the date of the financial statements.
Actual results could differ from those estimates.
FEDERAL INCOME TAXES. The operations of Account SL are included in the
Federal income tax return of SAFECO. Under the provisions of the policies,
SAFECO has the right to charge Account SL for any taxes incurred. 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.
A-15
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 to cover these
risks. The daily charge varies by policy type and is equal to an annual rate
of .70% to .90% of average net assets of Account SL.
SAFECO also deducts state premium taxes and administrative expenses from
premiums before they are allocated to Account SL. These charges vary by policy
type and/or by state.
4) INVESTMENT TRANSACTIONS
Purchase and sales activity in underlying portfolio shares for the year ended
December 31, 1998 was as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Fidelity VIP Growth Division $ 6,037,342 $ (3,016,814)
Fidelity VIP Money Market 14,496,764 (11,487,759)
Fidelity VIP Equity Income Division 3,158,226 (2,199,761)
Fidelity VIP Overseas Division 1,160,469 (1,129,538)
Fidelity VIP High Income Division 1,975,878 (1,073,169)
Fidelity VIP II Investment Grade Bond Division 911,448 (835,108)
Fidelity VIP II Asset Manager Division 2,852,898 (1,861,156)
Fidelity VIP II Index 500 Division 3,527,628 (1,375,812)
Fidelity VIP II Contrafund Division 1,894,917 (1,484,557)
Fidelity VIP II Asset Manager: Growth Division 1,708,122 (1,527,407)
Fidelity VIP III Growth Opportunities Division 192,969 (18,879)
Fidelity VIP III Growth & Income Division 190,359 (30,095)
Fidelity VIP III Balanced Division 68,610 (30,442)
Lexington Natural Resources Division 783,282 (1,170,275)
Lexington Emerging Markets Division 381,608 (325,941)
SAFECO RST Equity Division 6,491,647 (4,013,686)
SAFECO RST Growth Division 11,224,354 (5,455,121)
SAFECO RST Northwest Division 226,511 (150,056)
SAFECO RST Bond Division 508,417 (498,490)
SAFECO RST Small Company Stock Division 709,985 195,206
Wanger U.S. Small Cap Advisor Division 908,391 (345,791)
American Century VP International Division 879,254 (135,176)
American Century VP Balanced Division 57,137 (6,456)
------------- -------------
$ 60,346,216 $ (38,426,778)
------------- -------------
------------- -------------
</TABLE>
A-16
<PAGE>
SAFECO LIFE SEPARATE ACCOUNT SL
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5) HISTORICAL UNIT VALUES
The following are unit values attributable to unitholders as of the date
indicated:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Accumulation Life:
Fidelity VIP Growth Division $ 357.747 $ 258.785 $ 211.469 $ 186.039 $ 138.673
Fidelity VIP Money Market Division 130.583 124.936 119.360 114.270 108.907
Fidelity VIP Equity-Income Division 327.998 296.489 233.528 206.203 154.013
Fidelity VIP Overseas Division 186.091 166.539 150.638 134.264 123.521
Fidelity VIP High Income Division 157.485 166.098 142.436 126.046 105.455
Fidelity VIP II Investment Grade Bond Division 153.575 142.369 131.721 128.816 110.786
Fidelity VIP II Asset Manager Division 230.667 202.303 169.192 148.977 128.527
Fidelity VIP II Index 500 Division 291.281 229.037 174.160 143.089 105.239
Fidelity VIP II Contrafund Division 227.549 176.648 143.581 119.439 --
Fidelity VIP II Asset Manager: Growth Division 198.197 170.101 137.235 115.467 --
Lexington Natural Resources Division 97.384 122.254 115.129 -- --
Lexington Emerging Markets Division 59.164 82.854 94.523 -- --
SAFECO RST Equity Division 180.395 145.745 117.794 -- --
SAFECO RST Growth Division 166.591 165.079 115.231 -- --
SAFECO RST Northwest Division 131.402 128.860 99.237 -- --
SAFECO RST Bond Division 116.708 108.135 100.648 -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Premier Accumulation Life:
Fidelity VIP Growth Division $ 14.531 $ 10.474 $ -- $ -- $ --
Fidelity VIP Money Market Division 10.560 10.083 -- -- --
Fidelity VIP Equity-Income Division 11.845 10.688 -- -- --
Fidelity VIP Overseas Division 11.253 10.049 -- -- --
Fidelity VIP High Income Division 9.681 10.191 -- -- --
Fidelity VIP II Investment Grade Bond Division 10.963 10.129 -- -- --
Fidelity VIP II Asset Manager Division 11.936 10.443 -- -- --
Fidelity VIP II Index 500 Division 13.719 10.764 -- -- --
Fidelity VIP II Contrafund Division 13.257 10.274 -- -- --
Fidelity VIP II Asset Manager: Growth Division 12.317 10.554 -- -- --
Fidelity VIP III Growth Opportunities Division 13.320 10.765 -- -- --
Fidelity VIP III Growth & Income Division 13.555 10.494 -- -- --
Fidelity VIP III Balanced Division 12.355 10.512 -- -- --
Lexington Natural Resources Division 7.429 9.316 -- -- --
Lexington Emerging Markets Division 7.002 9.820 -- -- --
SAFECO RST Equity Division 13.200 10.643 -- -- --
SAFECO RST Growth Division 10.812 10.693 -- -- --
SAFECO RST Northwest Division 10.733 10.504 -- -- --
SAFECO RST Bond Division 10.975 10.134 -- -- --
SAFECO RST Small Company Stock Division 7.973 10.031 -- -- --
Wanger U.S. Small Cap Division 10.889 10.089 -- -- --
American Century VP International Division 12.273 10.406 -- -- --
American Century VP Balanced Division 11.779 10.236 -- -- --
</TABLE>
A-17
<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, Fidelity VIP
III Growth Opportunities, Fidelity VIP III Growth & Income, Fidelity VIP III
Balanced, Lexington Natural Resources, Lexington Emerging Markets, SAFECO RST
Equity, SAFECO RST Growth, SAFECO RST Northwest, SAFECO RST Bond, SAFECO RST
Small Company Stock, Wanger U.S. Small Cap, American Century VP International,
and American Century VP Balanced Investment Divisions) as of December 31, 1998,
and the related statements of operations and changes in net assets, and the
historical unit values for each of the periods indicated therein. These
financial statements and historical 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 historical 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 historical unit values. Our procedures included confirmation of portfolio
shares owned as of December 31, 1998, by correspondence with the underlying
portfolio of each Investment Division. 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 historical 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, 1998, the results of their operations, the changes
in their net assets, and their historical unit values for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
Seattle, Washington /s/ Ernst & Young LLP
February 26, 1999
A-18
<PAGE>
Audited Consolidated Financial Statements
SAFECO Life Insurance Company
and Subsidiaries
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Financial Statements
Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . . . . . 2
Statement of Consolidated Income. . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Shareholder's Equity . . . . . . 5
Statement of Consolidated Comprehensive Income. . . . . . . . . . . . 5
Statement of Consolidated Cash Flows. . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 8
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SAFECO Life Insurance Company
We have audited the accompanying consolidated balance sheets of SAFECO Life
Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the
related statements of consolidated income, changes in shareholder's equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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
1998 as required by the Financial Accounting Standards Board.
Seattle, Washington /s/Ernst & Young LLP
February 12, 1999
1
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
December 31
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1998-$9,718,627; 1997-$8,901,583) . . . . . $10,281,711 $ 9,401,886
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1998-$3,259,194; 1997-$3,159,888) . . . . . . 2,720,883 2,708,558
Marketable Equity Securities, at Market Value
(Cost: 1998-$14,665; 1997-$10,651) . . . . . . . . . . . . . 18,737 15,552
First Mortgage Loans on Real Estate:
Nonaffiliates (At cost, less allowance for losses:
1998-$11,173; 1997-$11,609). . . . . . . . . . . . . . . . 503,734 475,975
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 160,693 175,183
Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . 2,942 3,399
Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . 62,359 60,249
Short-Term Investments (At cost which approximates market) . . 54,164 56,374
Other Invested Assets. . . . . . . . . . . . . . . . . . . . . 5,211 250
----------- -----------
Total Investments. . . . . . . . . . . . . . . . . . . . . 13,810,434 12,897,426
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,321 244,512
Accrued Investment Income. . . . . . . . . . . . . . . . . . . . 190,887 181,757
Accounts and Notes Receivable (At cost, less allowance
for doubtful accounts: 1998-$107; 1997-$78). . . . . . . . . . 110,850 48,204
Reinsurance Recoverables (Note 6). . . . . . . . . . . . . . . . 32,354 28,515
Deferred Policy Acquisition Costs (Net of valuation allowance:
1998-$45,108; 1997-$35,349). . . . . . . . . . . . . . . . . . 213,022 239,843
Present Value of Future Profits. . . . . . . . . . . . . . . . . 12,362 13,239
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 61,510 63,544
Current Income Taxes Recoverable (Note 10) . . . . . . . . . . . 17,169 --
Assets Held in Separate Accounts . . . . . . . . . . . . . . . . 1,201,135 905,417
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . $15,658,044 $14,622,457
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
December 31
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policy and Contract Liabilities (Note 6):
Future Policy Benefits . . . . . . . . . . . . . . . . . . . $ 158,949 $ 151,675
Policy and Contract Claims . . . . . . . . . . . . . . . . . 38,391 37,688
Premiums Paid in Advance . . . . . . . . . . . . . . . . . . 8,161 9,145
Funds Held Under Deposit Contracts . . . . . . . . . . . . . 12,364,937 11,539,473
Other Policyholders' Funds . . . . . . . . . . . . . . . . . 61,029 166,759
----------- -----------
Total Policy and Contract Liabilities. . . . . . . . . . . 12,631,467 11,904,740
Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . 149,684 125,247
Federal Income Taxes (Note 10):
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 19,192
Deferred (Includes tax on unrealized appreciation of
investment securities: 1998-$182,717; 1997-$164,449) . . . 199,744 179,296
Liabilities Related to Separate Accounts . . . . . . . . . . . 1,201,135 905,417
----------- -----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . 14,182,030 13,133,892
----------- -----------
Shareholder'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 8) . . . . . . . . . . . . . . . . . . 1,046,572 1,093,048
Accumulated Other Comprehensive Income . . . . . . . . . . . . 339,442 305,517
----------- -----------
Total Shareholder's Equity . . . . . . . . . . . . . . . . 1,476,014 1,488,565
----------- -----------
Total Liabilities and Shareholder's Equity . . . . . . . $15,658,044 $14,622,457
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 254,410 $ 240,595 $ 240,100
Investment Income:
Interest on Fixed Maturities . . . . . . . . . . . . . . . . 925,827 830,837 767,309
Interest on Mortgage Loans . . . . . . . . . . . . . . . . . 56,313 56,232 52,127
Interest on Short-Term Investments . . . . . . . . . . . . . 4,898 3,419 2,935
Dividends from Marketable Equity Securities. . . . . . . . . 693 1,044 843
Dividends from Redeemable Preferred Stock. . . . . . . . . . 17,088 16,026 12,654
Other Investment Income. . . . . . . . . . . . . . . . . . . 4,446 3,843 3,879
------------ ------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,009,265 911,401 839,747
Less Investment Expenses . . . . . . . . . . . . . . . . . . 3,804 3,485 3,709
------------ ------------ ------------
Net Investment Income. . . . . . . . . . . . . . . . . . . . . 1,005,461 907,916 836,038
------------ ------------ ------------
Other Revenue. . . . . . . . . . . . . . . . . . . . . . . . . 28,069 21,751 12,933
Realized Investment Gain (Note 3). . . . . . . . . . . . . . . 13,612 6,807 10,439
------------ ------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,301,552 1,177,069 1,099,510
------------ ------------ ------------
Benefits and Expenses:
Policy Benefits. . . . . . . . . . . . . . . . . . . . . . . . 994,081 844,926 782,213
Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . 95,250 93,681 74,724
Personnel Costs. . . . . . . . . . . . . . . . . . . . . . . . 53,814 48,503 43,609
Taxes Other Than Payroll and Income Taxes. . . . . . . . . . . 12,980 11,817 15,512
Other Operating Expenses . . . . . . . . . . . . . . . . . . . 54,815 46,639 45,224
Amortization of Deferred Policy Acquisition Costs. . . . . . . 39,076 36,946 35,652
Deferral of Policy Acquisition Costs . . . . . . . . . . . . . (65,944) (53,068) (42,426)
Amortization of Present Value of Future Profits. . . . . . . . 3,790 -- --
------------ ------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,187,862 1,029,444 954,508
------------ ------------ ------------
Income before Write-off of
Deferred Policy Acquisition Costs. . . . . . . . . . . . . . . 113,690 147,625 145,002
Write-off of Deferred Policy Acquisition Costs . . . . . . . . . (46,800) -- --
------------ ------------ ------------
Income before Federal Income Taxes . . . . . . . . . . . . . . . 66,890 147,625 145,002
------------ ------------ ------------
Provision (Benefit) for Federal Income Taxes (Note 10):
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,725 54,705 57,417
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,359) (4,689) (6,471)
------------ ------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 23,366 50,016 50,946
------------ ------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,524 $ 97,609 $ 94,056
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<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 . . . . . . . . . . . . . . . 1,093,048 1,011,439 921,383
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 43,524 97,609 94,056
Dividends to Parent. . . . . . . . . . . . . . . . . . . . . . (90,000) (16,000) (4,000)
------------ ------------ ------------
Balance at the End of Year . . . . . . . . . . . . . . . . . . 1,046,572 1,093,048 1,011,439
------------ ------------ ------------
Accumulated Other Comprehensive Income:
Unrealized Appreciation of Investment
Securities, Net of Tax (Note 3):
Balance at the Beginning of Year . . . . . . . . . . . . . 305,517 160,045 320,452
Change in Unrealized Appreciation, Net of Deferred
Policy Acquisition Costs Valuation Allowance . . . . . . 33,925 145,472 (160,407)
------------ ------------ ------------
Balance at the End of Year . . . . . . . . . . . . . . . . 339,442 305,517 160,045
------------ ------------ ------------
Shareholder's Equity . . . . . . . . . . . . . . . . . . $ 1,476,014 $ 1,488,565 $ 1,261,484
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,524 $ 97,609 $ 94,056
Other Comprehensive Income, Net of Tax (Note 3):
Unrealized Appreciation (Depreciation) of Investment
Securities Arising During the Year (Net of tax:
1998-$21,842; 1997-$81,029; 1996-($81,469)). . . . . . . . . 40,563 150,482 (151,300)
Less: Reclassification Adjustment for Realized Gains
Included in Net Income (Net of tax: 1998-$3,574;
1997-$2,697; 1996-$4,904). . . . . . . . . . . . . . . . . (6,638) (5,010) (9,107)
------------ ------------ ------------
Other Comprehensive Income (Loss). . . . . . . . . . . . . . .. 33,925 145,472 (160,407)
------------ ------------ ------------
Comprehensive Income (Loss). . . . . . . . . . . . . . . . . . . $ 77,449 $ 243,081 $ (66,351)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received. . . . . . . . . . . . . . . . . .. $ 224,293 $ 216,089 $ 216,801
Dividends and Interest Received. . . . . . . . . . . . . . . .. 919,236 819,433 754,878
Other Operating Receipts . . . . . . . . . . . . . . . . . . .. 27,498 19,299 12,948
Insurance Claims and Policy Benefits Paid. . . . . . . . . . .. (402,118) (353,227) (302,955)
Underwriting, Acquisition and Insurance
Operating Costs Paid . . . . . . . . . . . . . . . . . . . .. (221,294) (202,077) (172,251)
Income Taxes Paid. . . . . . . . . . . . . . . . . . . . . . .. (61,086) (36,140) (71,255)
------------ ------------ ------------
Net Cash Provided by Operating Activities. . . . . . . . .. 486,529 463,377 438,166
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale. . . . . . . . . . . . .. (2,117,938) (1,891,778) (1,544,998)
Fixed Maturities Held-to-Maturity. . . . . . . . . . . . . .. (1,691) (199,589) (473,206)
Purchase of Subsidiary, Net of Cash Acquired . . . . . . . .. -- 116,122 --
Other Investments. . . . . . . . . . . . . . . . . . . . . .. (7,345) (5,788) (287)
Policy and Nonaffiliated Mortgage Loans. . . . . . . . . . .. (103,602) (96,019) (85,485)
Affiliated Mortgage Loans. . . . . . . . . . . . . . . . . .. -- (40,000) (34,650)
Options. . . . . . . . . . . . . . . . . . . . . . . . . . .. (168,554) (13,977) --
Maturities of Fixed Maturities Available-for-Sale. . . . . . .. 732,377 435,788 466,509
Maturities of Fixed Maturities Held-to-Maturity. . . . . . . .. 7,280 8,907 21,694
Sales of:
Fixed Maturities Available-for-Sale. . . . . . . . . . . . .. 643,539 869,091 721,229
Fixed Maturities Held-to-Maturity. . . . . . . . . . . . . .. 18,235 -- 13,316
Other Investments. . . . . . . . . . . . . . . . . . . . . .. 7,522 13,824 12,580
Policy and Nonaffiliated Mortgage Loans. . . . . . . . . . .. 65,797 61,159 48,341
Affiliated Mortgage Loans. . . . . . . . . . . . . . . . . .. 14,491 5,560 31,730
Options. . . . . . . . . . . . . . . . . . . . . . . . . . .. 141,302 -- --
Net (Increase) Decrease in Short-Term Investments. . . . . . .. 2,013 11,519 (1,250)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. (1,163) (36,164) (747)
------------ ------------ ------------
Net Cash Used in Investing Activities. . . . . . . . . . . .. (767,737) (761,345) (825,224)
------------ ------------ ------------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts . . . . . . . . . . . .. 1,198,147 1,392,517 1,148,590
Return of Funds Held Under Deposit Contracts . . . . . . . . .. (1,091,965) (861,221) (765,480)
Dividends to Parent. . . . . . . . . . . . . . . . . . . . . .. (94,000) (13,000) (4,000)
Net Proceeds from (Repayment of) Short-Term Borrowings . . . .. 32,835 5,048 (7,802)
------------ ------------ ------------
Net Cash Provided by Financing Activities. . . . . . . . . .. 45,017 523,344 371,308
------------ ------------ ------------
Net Increase (Decrease) in Cash. . . . . . . . . . . . . . . . .. (236,191) 225,376 (15,750)
Cash at Beginning of Year. . . . . . . . . . . . . . . . . . . .. 244,512 19,136 34,886
------------ ------------ ------------
Cash at End of Year. . . . . . . . . . . . . . . . . . . . . . .. $ 8,321 $ 244,512 $ 19,136
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
For pruposes of reporting cash flows, cash consists of balances on hand and on
deposit in banks and financial institutions.
See Notes to Consolidated Financial Statements
6
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS -
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,524 $ 97,609 $ 94,056
------------ ------------ ------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment Gain . . . . . . . . . . . . . . . . . . (13,612) (6,807) (10,439)
Amortization of Fixed Maturity Investments . . . . . . . . . (26,774) (24,929) (26,811)
Deferred Federal Income Tax Benefit. . . . . . . . . . . . . (1,359) (4,689) (6,471)
Interest Expense on Deposit Contracts. . . . . . . . . . . . 633,437 501,230 484,962
Mortality and Expense Changes and Administrative Fees. . . . (29,753) (27,379) (24,368)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,535 (7,877) 574
Changes in:
Future Policy Benefits . . . . . . . . . . . . . . . . . . 7,274 1,855 (4,466)
Policy and Contract Claims . . . . . . . . . . . . . . . . 703 2,830 2,748
Premiums Paid in Advance . . . . . . . . . . . . . . . . . (984) 299 637
Deferred Policy Acquisition Costs. . . . . . . . . . . . . 17,062 (15,688) (6,198)
Accrued Investment Income. . . . . . . . . . . . . . . . . (9,130) (11,451) (8,893)
Accrued Interest on Accrual Bonds. . . . . . . . . . . . . (50,440) (48,354) (44,015)
Other Receivables. . . . . . . . . . . . . . . . . . . . . (9,979) (5,467) (8,639)
Current Federal Income Taxes . . . . . . . . . . . . . . . (36,361) 18,565 (13,839)
Other Assets and Liabilities . . . . . . . . . . . . . . . (42,225) (2,350) 4,668
Other Policyholders' Funds . . . . . . . . . . . . . . . . (389) (4,020) 4,660
------------ ------------ ------------
Total Adjustments. . . . . . . . . . . . . . . . . . . . 443,005 365,768 344,110
------------ ------------ ------------
Net Cash Provided by Operating Activities. . . . . . . . . . . . $ 486,529 $ 463,377 $ 438,166
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
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 directly owns three
subsidiaries, SAFECO National Life Insurance Company, First SAFECO National
Life Insurance Company of New York, and Empire Life Insurance Company. The
Company acquired WM Life Insurance Company and Empire Life Insurance
Company on December 31, 1997 (see Note 2). WM Life Insurance Company was
merged into the Company on July 1, 1998. 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 1998
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. 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 shareholder's equity (comprehensive
income), 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 shareholder's equity (comprehensive income), 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.
8
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
REAL ESTATE AND DEPRECIATION. Income-producing real estate is classified
as an investment. The Company provides straight-line depreciation on its
buildings based upon their estimated useful lives.
Investment real estate that has declined in market value below cost and for
which the decline is judged to be other than temporary is written down to
estimated realizable value. Writedowns reduce realized investment gains in
the Statement of Consolidated Income.
DEFERRED POLICY ACQUISITION COSTS. 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. In
1998, a $46.8 million write-off of deferred acquisition costs was charged
to current operations. This charge is primarily tied to two blocks of
annuity business, the equity-indexed product and a declared rate fixed
annuity product, and to the universal life business, all of which have been
adversely affected by market conditions. Approximately $28 million of the
write-off relates to the equity-indexed annuity product. The cost of the
options purchased to fund the obligation under these contracts increased
significantly, adversely affecting the projected recoverability of deferred
acquisition costs. There were no significant revisions made in 1997 or
1996.
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.
PRESENT VALUE OF FUTURE PROFITS. The present value of future profits
represents the actuarially determined present value of anticipated profits
to be realized from annuity and life insurance business purchased. The
present value was determined using a discount rate of 12.5%. For annuity
contracts, amortization of the present value of future profits is in
relation to the present value of the expected gross profits on the
contracts, discounted using the interest rate credited to the underlying
policies. The present value of future profits is reviewed periodically to
determine that the unamortized portion does not exceed expected recoverable
amounts. No impairment adjustments were recorded in 1998 or 1997.
OTHER ASSETS. Call options on the S&P 500 index are purchased by the
Company to hedge the growth in interest credited on equity indexed
annuities sold. Premiums paid to purchase these call options are
capitalized and included in other assets. Call option premiums are
amortized as an expense over the term of the option on a straight-line
basis. Gains and losses on these instruments are recorded in income when
realized. See Note 5 for additional information.
The Financial Accounting Standards Board (FASB) issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1998
addressing accounting and disclosure requirements for derivative financial
instruments. The Company's accounting treatment for options will change
when guidance in this Statement is adopted. See page 11 for additional
information.
On December 31, 1997, the Company acquired Washington Mutual, Inc.'s life
insurance subsidiaries, WM Life Insurance Company and Empire Life Insurance
Company, and Washington Mutual, Inc. agreed to
9
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
distribute the Company's annuity products through the Washington Mutual,
Inc. multi-state banking network. The portion of this transaction relating
to the distribution agreement was valued at $35,000 and will be amortized
on a straight-line basis over 15 years. The unamortized balance of $32,667
is included in other assets. See Note 2 for additional information.
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, except for Empire
Life Insurance Company, 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. In June of 1997, the FASB issued Statement 130,
"Reporting Comprehensive Income." Statement 130 is effective for fiscal
years beginning after December 15, 1997 and the Company adopted it in the
first quarter of 1998. The Statement has no effect on net income but
requires the reporting of "comprehensive income," which includes net income
and certain items currently reported in shareholder's equity. See the
Statement of Consolidated Comprehensive Income on page 5 of this report.
The FASB issued Statement 131, "Disclosures about Segments of an Enterprise
and Related Information," in June of 1997. Statement 131 changes the way
information about business segments is reported in financial statements.
This Statement is effective for financial statements for periods beginning
after December 15, 1997. The required segment information is presented in
Note 11. This Statement has no effect on net income.
10
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
The FASB issued Statement 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," in February 1998. Statement 132 revises
employers' disclosures about pension and other postretirement benefit
plans. This Statement is effective for financial statements for periods
beginning after December 15, 1997. This Statement has no effect on net
income.
The FASB issued Statement 133, "Accounting for Derivative Instruments and
Hedging Activities," in June 1998. The Statement is effective for fiscal
years beginning after June 15, 1999. It may also be adopted early, as of
the beginning of any fiscal quarter that begins after June 1998. The
Company will adopt the new Statement no later than the first quarter of
2000. The Statement amends or supercedes several previous FASB statements
and requires recognizing all derivatives as either assets or liabilities in
the statement of financial position and measuring those instruments at fair
value. The impact of the Statement is currently being studied, and the
effect of the new Statement on the financial statements has not yet been
determined.
2. ACQUISITION
On December 31, 1997, the Company acquired Washington Mutual, Inc.'s life
insurance subsidiaries, WM Life Insurance Company and Empire Life Insurance
Company for $105,800. The fair value of assets acquired, excluding cash of
$221,122, was $766,921, and the fair value of liabilities assumed was
$882,226. The acquisition has been treated as a purchase for accounting
purposes, and allocation of purchase price resulted in no goodwill. The
transaction was financed through internal sources.
11
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
3. INVESTMENT SUMMARY
A summary of fixed maturities and marketable equity securities classified
as available-for-sale at December 31, 1998 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities . . . . . $ 592,137 $ 85,453 $ (6) $ 85,447 $ 677,584
States, municipalities and political
subdivisions. . . . . . . . . . . . . . . . . 126,136 16,784 (3,191) 13,593 139,729
Foreign governments . . . . . . . . . . . . . . 101,106 9,730 -- 9,730 110,836
Public utilities. . . . . . . . . . . . . . . . 1,509,636 113,446 (1,957) 111,489 1,621,125
All other corporate bonds . . . . . . . . . . . 4,504,120 225,765 (21,633) 204,132 4,708,252
Mortgage-backed securities. . . . . . . . . . . 2,885,492 142,633 (3,940) 138,693 3,024,185
----------- ----------- ---------- ----------- -----------
Total fixed maturities classified as
available-for-sale. . . . . . . . . . . . . . 9,718,627 593,811 (30,727) 563,084 10,281,711
Marketable equity securities. . . . . . . . . . 14,665 4,166 (94) 4,072 18,737
----------- ----------- ---------- ----------- -----------
Total investment securities classified as
available-for-sale. . . . . . . . . . . . . . $ 9,733,292 $ 597,977 $ (30,821) 567,156 $10,300,448
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Deferred policy acquisition costs valuation allowance . . . . . . . . . . . . . . . . . . . . (45,108)
Applicable federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182,606)
-----------
Unrealized appreciation of investment securities,
net of tax, included in shareholder's equity (accumulated other comprehensive income) . . . $ 339,442
-----------
-----------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at
December 31, 1998 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities . . . . . $ 272,104 $ 102,409 $ -- $ 102,409 $ 374,513
States, municipalities and political
subdivisions. . . . . . . . . . . . . . . . . 127,180 26,403 -- 26,403 153,583
Foreign governments . . . . . . . . . . . . . . 149,558 48,523 -- 48,523 198,081
Public utilities. . . . . . . . . . . . . . . . 416,495 81,036 (239) 80,797 497,292
All other corporate bonds . . . . . . . . . . . 1,447,436 243,657 (4,159) 239,498 1,686,934
Mortgage-backed securities. . . . . . . . . . . 308,110 40,682 (1) 40,681 348,791
----------- ----------- ---------- ----------- -----------
Total fixed maturities classified as
held-to-maturity. . . . . . . . . . . . . . . $ 2,720,883 $ 542,710 $ (4,399) $ 538,311 $ 3,259,194
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
</TABLE>
12
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
A summary of fixed maturities and marketable equity securities classified as
available-for-sale at December 31, 1997 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities . . . . . $ 604,305 $ 61,328 $ (47) $ 61,281 $ 665,586
States, municipalities and political
subdivisions. . . . . . . . . . . . . . . . . 134,160 13,439 (720) 12,719 146,879
Foreign governments . . . . . . . . . . . . . . 102,053 6,674 (7) 6,667 108,720
Public utilities. . . . . . . . . . . . . . . . 1,467,168 100,208 (1,175) 99,033 1,566,201
All other corporate bonds . . . . . . . . . . . 3,803,982 186,502 (1,174) 185,328 3,989,310
Mortgage-backed securities. . . . . . . . . . . 2,789,915 139,056 (3,781) 135,275 2,925,190
----------- ----------- ---------- ----------- -----------
Total fixed maturities classified as
available-for-sale. . . . . . . . . . . . . . 8,901,583 507,207 (6,904) 500,303 9,401,886
Marketable equity securities. . . . . . . . . . 10,651 4,906 (5) 4,901 15,552
----------- ----------- ---------- ----------- -----------
Total investment securities classified as
available-for-sale. . . . . . . . . . . . . . $ 8,912,234 $ 512,113 $ (6,909) 505,204 $ 9,417,438
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Deferred policy acquisition costs valuation allowance . . . . . . . . . . . . . . . . . . . . . (35,349)
Applicable federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (164,338)
-----------
Unrealized appreciation of investment securities,
net of tax, included in shareholder's equity (accumulated other comprehensive income) . . . . $ 305,517
-----------
-----------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December 31,
1997 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities . . . . . $ 257,881 $ 74,238 $ -- $ 74,238 $ 332,119
States, municipalities and political
subdivisions. . . . . . . . . . . . . . . . . 120,345 14,917 -- 14,917 135,262
Foreign governments . . . . . . . . . . . . . . 148,903 40,306 -- 40,306 189,209
Public utilities. . . . . . . . . . . . . . . . 417,519 78,330 -- 78,330 495,849
All other corporate bonds . . . . . . . . . . . 1,462,968 208,201 (142) 208,059 1,671,027
Mortgage-backed securities. . . . . . . . . . . 300,942 35,574 (94) 35,480 336,422
----------- ----------- ---------- ----------- -----------
Total fixed maturities classified as
held-to-maturity. . . . . . . . . . . . . . . $ 2,708,558 $ 451,566 $ (236) $ 451,330 $ 3,159,888
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
</TABLE>
13
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The amortized cost and estimated market value of fixed maturities at December
31, 1998, 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
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . $ 323,572 $ 327,416 $ -- $ --
Due after one year through five years . . . . . . . . . 2,275,991 2,364,579 3 4
Due after five years through ten years. . . . . . . . . 1,223,284 1,281,865 48,691 57,164
Due after ten years . . . . . . . . . . . . . . . . . . 3,010,288 3,283,666 2,364,079 2,853,235
Mortgage-backed securities. . . . . . . . . . . . . . . 2,885,492 3,024,185 308,110 348,791
----------- ----------- ----------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 9,718,627 $10,281,711 $ 2,720,883 $ 3,259,194
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
At December 31, 1998 and 1997, the Company held below investment grade
fixed maturities of $438 million and $316 million at amortized cost,
respectively. The respective market values of these investments were
approximately $444 million and $329 million. These holdings amounted to
3.3% and 2.6% of the Company's investments in fixed maturities at market
value at December 31, 1998 and 1997, respectively.
Certain fixed maturity securities with an amortized cost of $7,596 and
$7,543 at December 31, 1998 and 1997, respectively, were on deposit with
various regulatory authorities to meet requirements of insurance and
financial codes.
At December 31, 1998 and 1997, mortgage loans constituted approximately
4.2% and 4.5% of total assets, respectively, and are secured by first
mortgage liens on income-producing commercial real estate, primarily in the
retail, industrial and office building sectors. The majority of the
properties are located in the western United States, with 39% of the total
in California. Individual loans generally do not exceed $10 million.
The carrying value of investments in fixed maturities and mortgage loans
that did not produce income during the year ended December 31, 1998 is less
than one percent of the total of such investments.
14
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1998 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- ------------------
<S> <C> <C> <C>
Proceeds from sales . . . . . . . . . . . $ 643,539 $ 18,235 $ 665
------------------ ---------------- ------------------
------------------ ---------------- ------------------
Gross realized gains on sales . . . . . . $ 12,350 $ 3,384 $ 335
Gross realized losses on sales. . . . . . (480) -- (3)
------------------ ---------------- ------------------
Realized gains on sales. . . . . . . 11,870 3,384 332
Other (Including net gain on calls
and redemptions). . . . . . . . . . . . (1,557) -- --
Writedowns (Including writedowns
on securities subsequently sold). . . . (433) -- --
------------------ ---------------- ------------------
Total realized gain .. . . . . . . . . . $ 9,880 $ 3,384 $ 332
------------------ ---------------- ------------------
------------------ ---------------- ------------------
</TABLE>
One fixed maturity security, classified as held-to-maturity, was sold
during 1998 due to restructuring by the bond issuer and the expected
significant downgrade resulting from it. This transaction meets the
"allowable sale" criteria of FASB Statement 115. The amortized cost of
this security was $14,851, and the gain realized on this sale was $3,384.
The proceeds from sales of investment securities and related gains and
losses for 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- ------------------
<S> <C> <C> <C>
Proceeds from sales . . . . . . . . . . $ 869,091 $ -- $ 11,185
------------------ ---------------- ------------------
------------------ ---------------- ------------------
Gross realized gains on sales . . . . . $ 5,805 $ -- $ 6,832
Gross realized losses on sales. . . . . (9,410) -- (397)
------------------ ---------------- ------------------
Realized gains (losses)
on sales . . . . . . . . . . . . (3,605) -- 6,435
Other (Including net gain on calls
and redemptions). . . . . . . . . . . 5,074 -- --
Writedowns (Including writedowns
on securities subsequently sold). . . (197) -- --
------------------ ---------------- ------------------
Total realized gain . . . . . . . . . . $ 1,272 $ -- $ 6,435
------------------ ---------------- ------------------
------------------ ---------------- ------------------
</TABLE>
15
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1996 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- ------------------
<S> <C> <C> <C>
Proceeds from sales $ 721,229 $ 13,316 $ 10,394
------------------ ---------------- ------------------
------------------ ---------------- ------------------
Gross realized gains on sales $ 19,779 $ -- $ 4,847
Gross realized losses on sales (18,837) (1,328) --
------------------ ---------------- ------------------
Realized gains (losses) on sales 942 (1,328) 4,847
Other (Including net gain or loss on calls
and redemptions) 13,687 (141) --
Writedowns (Including writedowns on
securities subsequently sold) (5,465) -- --
------------------ ---------------- ------------------
Total realized gain (loss) $ 9,164 $ (1,469) $ 4,847
------------------ ---------------- ------------------
------------------ ---------------- ------------------
</TABLE>
Two fixed maturity securities 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, and the
losses realized on these sales were $1,328.
The following summarizes the realized gain before federal income taxes and
the net change in unrealized appreciation:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . $ 13,264 $ 1,272 $ 7,695
Marketable equity securities . . . . . . . . . . . . . . . . . 332 6,435 4,847
First mortgage loans on real estate. . . . . . . . . . . . . . -- (900) (2,050)
Real estate. . . . . . . . . . . . . . . . . . . . . . . . . . 16 -- (114)
Other invested assets. . . . . . . . . . . . . . . . . . . . . -- -- 61
------------ ------------ ------------
Realized gain before federal income taxes . . . . . . . . . $ 13,612 $ 6,807 $ 10,439
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale. . . . . . . $ 62,781 $ 244,483 $ (268,956)
Marketable equity securities . . . . . . . . . . . . . . . . . (829) (4,372) (1,599)
Deferred policy acquisition costs valuation allowance. . . . . (9,759) (16,309) 23,775
Applicable federal income tax. . . . . . . . . . . . . . . . . (18,268) (78,330) 86,373
------------ ------------ ------------
Net change in unrealized appreciation. . . . . . . . . . . . . $ 33,925 $ 145,472 $ (160,407)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
16
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The following table summarizes the Company's allowance for credit losses on
non-affiliated mortgage loans:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Allowance at beginning of year. . . . . . . . . . . . . . . $ 11,609 $ 10,943 $ 9,633
Provision for credit losses . . . . . . . . . . . . . . . . -- 900 2,050
Loans charged off as uncollectible. . . . . . . . . . . . . (436) (234) (740)
------------ ------------ ------------
Allowance at end of year. . . . . . . . . . . . . . . . . . $ 11,173 $ 11,609 $ 10,943
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The allowance includes specific reserves, as well as general reserve
amounts. The total investment in impaired loans before any reserve for
losses is $2.5 million and $3.3 million at December 31, 1998 and 1997,
respectively. A specific loan loss reserve has been established for each
impaired loan, the total of which is $250 and $550 and is included in the
overall allowance of $11.2 million and $11.6 million at December 31, 1998
and 1997, respectively.
4. 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 were $2,443 at December 31, 1998.
At December 31, 1998, unfunded mortgage loan commitments approximated
$77,266. The Company had no other material commitments or contingencies at
December 31, 1998.
5. 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.
17
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 5 (continued)
The fair value of investment contracts with defined maturities is estimated
by discounting projected cash flows using rates that would be offered for
similar contracts with the same remaining maturities. For investment
contracts with no defined maturity, fair value is estimated to be the
present surrender value. These investment contracts are included in Funds
Held Under Deposit Contracts.
Estimated fair values of financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale. . . $ 10,281,711 $ 10,281,711 $ 9,401,886 $ 9,401,886
Fixed maturities held-to-maturity. . . . 2,720,883 3,259,194 2,708,558 3,159,888
Marketable equity securities . . . . . . 18,737 18,737 15,552 15,552
Mortgage loans . . . . . . . . . . . . . 664,427 692,000 651,158 677,000
Financial liabilities:
Funds held under deposit contracts . . . 12,364,937 12,874,000 11,539,473 12,021,000
</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 $3.4 billion and $3.3 billion, at market
values, at December 31, 1998 and 1997, 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., principal only, inverse
floaters, etc.) has been intentionally limited to only a small amount,
approximately 1% of total CMOs at both December 31, 1998 and 1997.
In 1997, the Company introduced an equity-indexed annuity product that
credits the policyholder based on a percentage of the gain in the S&P 500
index. S&P 500 call options are purchased to hedge the growth in interest
credited to the customers. Premiums paid to purchase the S&P 500 call
options are capitalized and included in other assets on the balance sheet
and expensed over the term of the option on a straight line basis. Any
gain or loss on the call options purchased is included in income when
realized. On December 31, 1998, futures contracts were entered into
requiring an initial margin deposit of $4,961. Futures combined with call
options will be used to hedge the Company's 1999 exposure to changes in the
S&P 500 index.
The balance in other assets for call options purchased was $23,985 and
$21,232 at December 31, 1998 and 1997, respectively. The balance in other
invested assets for futures contracts at December 31, 1998 was $4,961. The
estimated fair value of call options purchased and futures contracts is the
same as their carrying value at December 31, 1998 or 1997.
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 interest rate swaps on bond investments,
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.
18
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
6. POLICY AND CONTRACT LIABILITIES
REINSURANCE. The Company protects itself from excessive losses by ceding
reinsurance to other companies, using automatic and facultative treaties.
The availability and cost of reinsurance are subject to prevailing market
conditions, both in terms of price and available capacity. Although the
reinsurer is liable to the Company to the extent of the reinsurance ceded,
the Company remains primarily liable to the policyholder as the direct
insurer on all risks reinsured. The Company evaluates the financial
condition of its reinsurers to minimize its exposure to losses from
reinsurer insolvencies. To the Company's knowledge, none of its reinsurers
is experiencing financial difficulties.
The balance sheet caption "Reinsurance Recoverables" is comprised of the
following amounts:
<TABLE>
<CAPTION>
December 31
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Unpaid losses and adjustment expense. . . . . . . . . . . . $ 248 $ 906
Paid claims . . . . . . . . . . . . . . . . . . . . . . . . 1,347 770
Life policy liabilities . . . . . . . . . . . . . . . . . . 30,677 26,756
Other reinsurance recoverables. . . . . . . . . . . . . . . 82 83
----------- -----------
Total reinsurance recoverables . . . . . . . . . . . . . . $ 32,354 $ 28,515
----------- -----------
----------- -----------
</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
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,479) $ (13,305) $ (13,679)
------------ ------------ ------------
------------ ------------ ------------
Policy benefits. . . . . . . . . . . . . . . . . . . . . . $ (7,162) $ (7,853) $ (4,039)
------------ ------------ ------------
------------ ------------ ------------
Reinsurance Assumed:
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . $ 876 $ 180 $ 175
------------ ------------ ------------
------------ ------------ ------------
Policy benefits. . . . . . . . . . . . . . . . . . . . . . $ 3,487 $ 2,902 $ 2,500
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
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.
19
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
7. 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. The net income reported in the Statement of
Consolidated Income for the year ended December 31, 1997, does not include
the net income of either WM Life Insurance Company or Empire Life Insurance
Company, as their acquisition was effective December 31, 1997.
Statutory net income and shareholder's equity, by company, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company. . . . . . . . . . . . . . . $ 64,599 $ 95,012 $ 95,676
SAFECO National Life Insurance Company . . . . . . . . . . 1,012 1,322 1,249
First SAFECO National Life Insurance Company of New York . 576 314 318
Empire Life Insurance Company. . . . . . . . . . . . . . . 1,799 -- --
------------ ------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 67,986 $ 96,648 $ 97,243
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory Shareholder's Equity:
SAFECO Life Insurance Company and Subsidiaries . . . . . . . $ 576,791 $ 672,230 $ 587,658
------------ ------------ ------------
------------ ------------ ------------
</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, 1998.
8. 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. Under insurance regulations of the state of
Washington, the 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
$57,679 at December 31, 1998.
20
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
9. EMPLOYEE BENEFIT PLANS
SAFECO Corporation and subsidiary companies (the Companies) sponsor 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. A cash balance defined
benefit plan covering substantially all employees provides benefits for
each year of service after 1988, based on the employee's compensation level
plus a stipulated rate of return on the benefit balance. It is SAFECO
Corporation's policy to fund the defined benefit plan on a current basis to
the full extent deductible under federal income tax regulations. The cost
of these plans to the Company was $6,070, $7,531 and $7,901 for the years
ended December 31, 1998, 1997 and 1996, 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. Net periodic other postretirement benefit costs for the
Company were $510, $392 and $474 in 1998, 1997 and 1996, respectively. The
accrued postretirement benefit cost recorded in the balance sheet was
$5,544 and $5,168 at December 1998 and 1997, respectively.
10. INCOME TAXES
The Company uses the liability method of accounting for income taxes under
which 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 not material.
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
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Discounting of loss and adjustment expense reserves. . . . . . . . . . . . $ 340 $ 77
Uncollected premium adjustment . . . . . . . . . . . . . . . . . . . . . . 2,963 2,607
Adjustment to life policy liabilities. . . . . . . . . . . . . . . . . . . 37,821 51,176
Capitalization of policy acquisition costs . . . . . . . . . . . . . . . . 46,046 40,354
Postretirement benefits. . . . . . . . . . . . . . . . . . . . . . . . . . 1,940 1,809
Realized capital losses. . . . . . . . . . . . . . . . . . . . . . . . . . 3,461 3,534
Guarantee fund assessments . . . . . . . . . . . . . . . . . . . . . . . . 2,696 4,163
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,105 2,031
--------- ---------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . 98,372 105,751
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . 90,346 96,317
Present value of future profits . . . . . . . . . . . . . . . . . . . . . . 4,327 3,084
Bond discount accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,587 19,631
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1998-$15,788; 1997-$12,372) . . 182,717 164,449
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,139 1,566
--------- ---------
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . 298,116 285,047
--------- ---------
Net deferred tax liability. . . . . . . . . . . . . . . . . . . . . . $ 199,744 $ 179,296
--------- ---------
--------- ---------
</TABLE>
21
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 10 (continued)
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 for the
year ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . $ (1,359) $ (4,689) $ (6,471)
Net deferred tax liability acquired in acquisitions. . . . . . . 3,539 2,008 --
Deferred tax changes reported in shareholder's equity:
Increase (decrease) in liability related to unrealized
appreciation or depreciation of investment securities. . . . 21,684 84,037 (94,694)
(Increase) decrease in liability related to deferred
policy acquisition costs valuation allowance . . . . . . . . (3,416) (5,708) 8,321
------------ ------------ ------------
Increase (decrease) in net deferred tax liability. . . . . . . . $ 20,448 $ 75,648 $ (92,844)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
22
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
11. SEGMENT DATA
The Company's reportable business segments are strategic business units that
offer distinctive products marketed through independent agents in four
distribution channels.
The Company has five reportable segments: Individual, Retirement Services,
Settlement Annuities, Group and Corporate. Individual issues traditional,
term and universal life insurance policies. Retirement Services issues fixed
and variable deferred annuity products. Settlement Annuities issues immediate
annuities for structured pay out situations. Group issues excess loss health
insurance to companies that have self-insured medical plans. The Corporate
segment is used to retain profits from the four product lines and pay
dividends to the parent company, SAFECO Corporation.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Company management evaluates
performance based on operating profit or loss before income taxes.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums. . . . . . . . . . . . . . $ 50,563 $ 698 $ - $ 203,149 $ - $ 254,410
Net Investment Income . . . . . . . 69,267 411,661 449,313 2,695 72,525 1,005,461
Other Revenue . . . . . . . . . . . 3,509 24,483 77 - - 28,069
---------- ---------- ---------- ---------- ---------- ----------
Total Revenue . . . . . . . . . 123,339 436,642 449,390 205,844 72,525 1,287,940
Expenses
Policy Benefits . . . . . . . . . . 84,004 349,834 399,130 161,113 - 994,081
Commissions . . . . . . . . . . . . 10,864 46,236 12,211 25,639 300 95,250
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits. . . . . . . . . . 8,438 30,576 - 3,852 - 42,866
Deferral of Policy Acquisition
Costs . . . . . . . . . . . . . . (18,610) (42,788) - (4,546) - (65,944)
Other Expenses. . . . . . . . . . . 37,782 40,177 7,398 33,919 2,333 121,609
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses and
Policy Benefit. . . . . . . . 122,476 424,035 418,739 219,977 2,633 1,187,862
---------- ---------- ---------- ---------- ---------- ----------
Write-off of Deferred Policy
Acquisition Costs and
Other Write-offs. . . . . . . . . 11,500 32,300 - - 3,000 46,800
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) From
Insurance Operations . . . . . . . . (10,639) (19,493) 30,651 (14,133) 66,892 53,278
Realized Investment Gain . . . . . . . 828 4,304 - - 8,480 13,612
---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) before
Federal Income Tax . . . . . . . . . $ (9,811) $ (15,189) $ 30,651 $ (14,133) $ 75,372 $ 66,890
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments . . . . . . . . . $ 1,075,256 $ 5,761,722 $ 5,877,496 $ 39,918 $ 1,056,042 $13,810,434
Assets Held in
Separate Accounts . . . . . . . . 98,715 1,102,420 - - - 1,201,135
Total Assets. . . . . . . . . . . . 1,307,561 7,195,140 5,971,534 90,125 1,093,684 15,658,044
</TABLE>
23
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 11 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums. . . . . . . . . . . . . . $ 46,873 $ - $ - $ 193,722 $ - $ 240,595
Net Investment Income . . . . . . . 55,431 355,550 420,095 2,737 74,103 907,916
Other Revenue . . . . . . . . . . . 3,531 18,102 117 1 - 21,751
---------- ---------- ---------- ---------- ---------- ----------
Total Revenue . . . . . . . . . 105,835 373,652 420,212 196,460 74,103 1,170,262
Expenses
Policy Benefits . . . . . . . . . . 69,611 278,525 368,854 127,936 - 844,926
Commissions . . . . . . . . . . . . 9,979 38,337 20,060 24,855 450 93,681
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits. . . . . . . . . . 6,615 26,613 - 3,718 - 36,946
Deferral of Policy Acquisition
Costs . . . . . . . . . . . . . . (15,275) (33,452) - (4,341) - (53,068)
Other Expenses. . . . . . . . . . . 32,494 36,677 5,803 31,985 - 106,959
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses and
Policy Benefit. . . . . . . . 103,424 346,700 394,717 184,153 450 1,029,444
---------- ---------- ---------- ---------- ---------- ----------
Income From
Insurance Operations . . . . . . . . 2,411 26,952 25,495 12,307 73,653 140,818
Realized Investment Gain (Loss). . . . (472) 1,601 - - 5,678 6,807
---------- ---------- ---------- ---------- ---------- ----------
Income before Federal
Income Tax . . . . . . . . . . . . . $ 1,939 $ 28,553 $ 25,495 $ 12,307 $ 79,331 $ 147,625
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
December 31, 1997
-------------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments . . . . . . . . . $ 903,487 $ 5,503,066 $ 5,516,799 $ 38,107 $ 935,967 $12,897,426
Assets Held in
Separate Accounts . . . . . . . . 69,071 836,346 - - - 905,417
Total Assets. . . . . . . . . . . . 1,110,541 6,833,146 5,610,901 83,293 984,576 14,622,457
</TABLE>
24
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 11 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums. . . . . . . . . . . . . . $ 41,322 $ - $ - $ 198,778 $ - $ 240,100
Net Investment Income . . . . . . . 38,797 341,375 386,884 2,840 66,142 836,038
Other Revenue . . . . . . . . . . . 3,273 9,515 143 2 - 12,933
---------- ---------- ---------- ---------- ---------- ----------
Total Revenue . . . . . . . . . 83,392 350,890 387,027 201,620 66,142 1,089,071
Expenses
Policy Benefits . . . . . . . . . . 53,104 258,500 339,580 131,029 - 782,213
Commissions . . . . . . . . . . . . 8,308 24,384 18,276 23,756 - 74,724
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits. . . . . . . . . . 5,080 26,539 - 4,033 - 35,652
Deferral of Policy Acquisition
Costs . . . . . . . . . . . . . . (19,132) (19,323) - (3,971) - (42,426)
Other Expenses. . . . . . . . . . . 31,859 32,148 6,171 34,167 - 104,345
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses and
Policy Benefit. . . . . . . . 79,219 322,248 364,027 189,014 - 954,508
---------- ---------- ---------- ---------- ---------- ----------
Income From
Insurance Operations . . . . . . . . 4,173 28,642 23,000 12,606 66,142 134,563
Realized Investment Gain (Loss). . . . (2,360) 3,002 4,615 - 5,182 10,439
---------- ---------- ---------- ---------- ---------- ----------
Income before Federal
Income Tax . . . . . . . . . . . . . $ 1,813 $ 31,644 $ 27,615 $ 12,606 $ 71,324 $ 145,002
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments . . . . . . . . . $ 654,339 $ 4,542,976 $ 4,894,996 $ 42,016 $ 947,206 $11,081,533
Assets Held in
Separate Accounts . . . . . . . . 47,236 443,976 - - - 491,212
Total Assets. . . . . . . . . . . . 839,134 5,179,574 4,978,972 85,693 963,837 12,047,210
</TABLE>
25
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
12. IMPACT OF YEAR 2000 (UNAUDITED)
SAFECO Corporation (SAFECO), like most other companies, is faced with the
fact that some of its computer programs have time sensitive logic that
typically recognizes a date using "00" as the year 1900 rather than the year
2000. SAFECO is highly dependent on automated systems and systems
applications that use computer programs to conduct ongoing operations. Such
systems are used to process claims, bill and collect premiums from customers,
manage investments and many other activities. If these systems were unable
to process data accurately because of Year 2000-related failures, these
activities would be interrupted and could have a material adverse effect on
SAFECO's results of operations.
SAFECO has completed an assessment of Year 2000 issues in connection with its
computer systems and the technology embedded in the equipment it uses.
SAFECO has been modifying and replacing portions of its software since 1995
so that its systems will function properly with respect to dates in the year
2000 and thereafter. In addition, SAFECO is engaged in a regular program of
testing and running the systems once Year 2000 programming changes have been
made. This testing includes trials at SAFECO's hot site, a location provided
and maintained by a third party separate from any SAFECO facility. SAFECO
believes that its program to address Year 2000 issues is comprehensive and on
schedule.
The total Year 2000 compliance cost for SAFECO is currently estimated at
approximately $17 million and as of December 31, 1998 SAFECO has incurred
approximately $16 million of that amount. These estimated amounts include
both modification costs, which are expensed as incurred, and certain
replacement systems costs, some of which are capitalized and amortized.
Approximately 90% of SAFECO's existing systems have been internally verified
as being Year 2000 ready at January 31, 1999. SAFECO's objective is to have
substantially all of its systems Year 2000 ready by March 31, 1999, with the
last mission-critical system expected to be Year 2000 ready in August 1999.
The program of testing and running the systems after Year 2000 programming
changes have been made is currently in process and expected to continue
through 1999. SAFECO also intends to bring all of its mainframe systems down
on December 31, 1999 and bring them back up on January 1, 2000. This will
preserve information contained in those systems at December 31, 1999 and
permit SAFECO to retrieve and use that information should an unanticipated
Year 2000 problem occur. In addition, as a contingency against unanticipated
problems on and after January 1, 2000, SAFECO's Information Systems
department will be prepared to address on an expedited basis any problems
that should arise. Although absolute assurance is not possible, based on our
current progress and continuing modifications, SAFECO believes that by
January 1, 2000 it will be Year 2000 ready and that Year 2000 issues will not
pose significant operational problems for its computer systems.
SAFECO is also working with its third-party partners and vendors, e.g., its
independent insurance agents, local and long distance telephone companies,
banks and securities trading firms, to assure that they are on schedule to
detect and fix any Year 2000 problems which might affect SAFECO's systems or
business processes. SAFECO will assess and attempt to mitigate risks with
respect to the failure of any mission-critical third-party partners and
vendors to be Year 2000 ready. Failure of such parties to be Year 2000 ready
could have a material adverse effect on SAFECO's results of operations.
26
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
OF DEATH BENEFIT, POLICY ACCOUNT VALUE, AND CASH SURRENDER VALUE
The Death Benefit, Policy Account Value and Cash Surrender Value of a policy may
change with the investment experience of the portfolios. The following tables
show how these amounts might vary over time if the gross annual rate of return
on the investments in each portfolio is 0%, 6%, or 12%. The Death Benefit,
Policy Account Value and Cash Surrender Value would be different from those
shown if the gross annual investment returns averaged 0%, 6% and 12% over a
period of years, but fluctuated above and below those averages for individual
policy years. Results will also differ from what is shown in the tables
depending on premium allocations and actual rates of return and actual expenses
for the portfolios you selected.
Daily charges are made against the assets of the portfolios for assuming
mortality and expense risks. The mortality and expense risk charge under the
policy is equivalent to an annual effective rate of .70% of the daily net asset
value of the portfolios in the Separate Account. This rate is guaranteed in the
policy and will not increase. The net investment returns in these tables also
reflect a deduction based on an average for the investment management and other
expenses charged to all the portfolios in the prior year. In 1998, average
expenses were equivalent to an annual effective rate of .67% for investment
management fees and .16% for direct operating expenses. Considering the
mortality and expense risk charge and average portfolio expenses in 1998, gross
annual rates of return of 0%, 6% and 12%, correspond to net investment
experience at constant annual rates of -1.53%, 4.47% and 10.47% respectively.
Actual portfolio expenses may vary from year to year and may be reduced or
partially reimbursed under agreements with portfolios' advisers. These
agreements may be contractual or voluntary. If voluntary, the reimbursement
could be discontinued at any time. This may result in higher expenses, which in
turn adversely affects net investment performance and policy values. (See
Separate Account SL Fee Table in this prospectus and the prospectuses for the
portfolios.)
In addition to expense charges, the tables reflect deductions for cost of
insurance and the monthly administrative charge at both the current rates and
the maximum rates guaranteed in the policies. The tables are for preferred and
standard risk, male non-smokers, age 45. Results would be lower if the insured
were in a substandard risk classification or did not qualify for the non-smoker
rate. Current tables assume that the monthly administrative charge remains
constant at $5.00. Guaranteed tables use the maximum guaranteed monthly
administrative charge of $8.00. The tables also assume deduction of premium tax
based on 2.1% of premiums. Actual premium tax may be higher or lower depending
on your state. The tables assume that planned premium payments are paid at the
beginning of each policy year, no loans or withdrawals have been made, and that
the policy owner has not requested an increase or decrease in the face amount.
The difference between the Policy Account Value and the Cash Surrender Value in
the first ten years reflects the surrender charge.
SAFECO Life does not currently make any charge for federal taxes. If SAFECO Life
charged for those taxes, it would take a higher gross rate of return to produce
net investment returns of 0%, 6% or 12%.
The second column of each table shows what would happen if an amount equal to
the planned premiums were invested outside of the policy at 5% annualized
interest. This assumed rate is neither guaranteed nor a current rate for any
particular investment. These tables show that the cost of surrendering a policy
in the early years is relatively high.
INDIVIDUAL ILLUSTRATIONS. You may request a comparable illustration based on
the proposed insured's age, sex, smoking classification and underwriting
classification for a requested face amount of insurance and planned premiums. An
individual illustration is also provided for any policy you may purchase.
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>
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
0.00% 6.00% 12.00%
------------------------------- ------------------------------- -------------------------------
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,901 1,701 250,000 3,105 1,905 250,000 3,310 2,110
2 8,610 250,000 5,903 4,343 250,000 6,500 4,940 250,000 7,122 5,562
3 13,241 250,000 8,793 6,873 250,000 9,980 8,060 250,000 11,268 9,348
4 18,103 250,000 11,600 9,455 250,000 13,579 11,434 250,000 15,813 13,668
5 23,208 250,000 14,347 12,202 250,000 17,324 15,179 250,000 20,823 18,678
6 28,568 250,000 17,039 14,894 250,000 21,228 19,083 250,000 26,355 24,210
7 34,196 250,000 19,657 17,941 250,000 25,278 23,562 250,000 32,446 30,730
8 40,106 250,000 22,204 20,917 250,000 29,486 28,199 250,000 39,161 37,874
9 46,312 250,000 24,686 23,828 250,000 33,863 33,005 250,000 46,574 45,716
10 52,827 250,000 27,105 26,676 250,000 38,422 37,993 250,000 54,767 54,338
11 59,669 250,000 29,394 29,394 250,000 43,104 43,104 250,000 63,762 63,762
12 66,852 250,000 31,535 31,535 250,000 47,900 47,900 250,000 73,640 73,640
13 74,395 250,000 33,521 33,521 250,000 52,812 52,812 250,000 84,501 84,501
14 82,314 250,000 35,338 35,338 250,000 57,836 57,836 250,000 96,456 96,456
15 90,630 250,000 36,974 36,974 250,000 62,967 62,967 250,000 109,631 109,631
16 99,361 250,000 38,413 38,413 250,000 68,206 68,206 250,000 124,177 124,177
17 108,530 250,000 39,651 39,651 250,000 73,557 73,557 250,000 140,270 140,270
18 118,156 250,000 40,677 40,677 250,000 79,027 79,027 250,000 158,114 158,114
19 128,264 250,000 41,476 41,476 250,000 84,617 84,617 250,000 177,942 177,942
20 138,877 250,000 42,030 42,030 250,000 90,330 90,330 250,000 200,025 200,025
Age 75 297,195 250,000 18,732 18,782 250,000 160,861 160,861 690,596 657,711 657,711
</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>
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
0.00% 6.00% 12.00%
------------------------------- ------------------------------- -------------------------------
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,677 1,477 250,000 2,874 1,674 250,000 3,072 1,872
2 8,610 250,000 5,498 3,938 250,000 6,068 4,508 250,000 6,663 5,103
3 13,241 250,000 8,213 6,293 250,000 9,342 7,422 250,000 10,569 8,649
4 18,103 250,000 10,815 8,670 250,000 12,693 10,548 250,000 14,815 12,670
5 23,208 250,000 13,304 11,159 250,000 16,122 13,977 250,000 19,437 17,292
6 28,568 250,000 15,670 13,525 250,000 19,622 17,477 250,000 24,468 22,323
7 34,196 250,000 17,903 16,187 250,000 23,188 21,472 250,000 29,944 28,228
8 40,106 250,000 19,992 18,705 250,000 26,811 25,524 250,000 35,905 34,618
9 46,312 250,000 21,920 21,062 250,000 30,479 29,621 250,000 42,392 41,534
10 52,827 250,000 23,677 23,248 250,000 34,183 33,754 250,000 49,459 49,030
11 59,669 250,000 25,245 25,245 250,000 37,911 37,911 250,000 57,162 57,162
12 66,852 250,000 26,617 26,617 250,000 41,659 41,659 250,000 65,576 65,576
13 74,395 250,000 27,783 27,783 250,000 45,420 45,420 250,000 74,786 74,786
14 82,314 250,000 28,727 28,727 250,000 49,186 49,186 250,000 84,886 84,886
15 90,630 250,000 29,418 29,418 250,000 52,933 52,933 250,000 95,976 95,976
16 99,361 250,000 29,835 29,835 250,000 56,646 56,646 250,000 108,182 108,182
17 108,530 250,000 29,948 29,948 250,000 60,306 60,306 250,000 121,650 121,650
18 118,156 250,000 29,709 29,709 250,000 63,875 63,875 250,000 136,543 136,543
19 128,264 250,000 29,068 29,068 250,000 67,320 67,320 250,000 153,064 153,064
20 138,877 250,000 27,984 27,984 250,000 70,612 70,612 250,000 171,463 171,463
Age 75 297,195 250,000 80,788 80,788 589,998 561,903 561,903
</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>
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
0.00% 6.00% 12.00%
------------------------------- ------------------------------- -------------------------------
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,725 1,525 250,000 2,923 1,723 250,000 3,122 1,922
2 8,610 250,000 5,580 4,020 250,000 6,156 4,596 250,000 6,757 5,197
3 13,241 250,000 8,331 6,411 250,000 9,472 7,552 250,000 10,712 8,792
4 18,103 250,000 10,990 8,845 250,000 12,889 10,744 250,000 15,035 12,890
5 23,208 250,000 13,600 11,455 250,000 16,454 14,309 250,000 19,811 17,666
6 28,568 250,000 16,165 14,020 250,000 20,177 18,032 250,000 25,092 22,947
7 34,196 250,000 18,663 16,947 250,000 24,045 22,329 250,000 30,914 29,198
8 40,106 250,000 21,102 19,815 250,000 28,072 26,785 250,000 37,342 36,055
9 46,312 250,000 23,483 22,625 250,000 32,267 31,409 250,000 44,445 43,587
10 52,827 250,000 25,806 25,377 250,000 36,639 36,210 250,000 52,300 51,871
11 59,669 250,000 28,003 28,003 250,000 41,129 41,129 250,000 60,926 60,926
12 66,852 250,000 30,040 30,040 250,000 45,712 45,712 250,000 70,385 70,385
13 74,395 250,000 31,908 31,908 250,000 50,386 50,386 250,000 80,770 80,770
14 82,314 250,000 33,595 33,595 250,000 55,148 55,148 250,000 92,190 92,190
15 90,630 250,000 35,088 35,088 250,000 59,995 59,995 250,000 104,767 104,767
16 99,361 250,000 36,370 36,370 250,000 64,920 64,920 250,000 118,640 118,640
17 108,530 250,000 37,441 37,441 250,000 69,933 69,933 250,000 133,984 133,984
18 118,156 250,000 38,282 38,282 250,000 75,032 75,032 250,000 150,991 150,991
19 128,264 250,000 38,882 38,882 250,000 80,220 80,220 250,000 169,888 169,888
20 138,877 250,000 39,223 39,223 250,000 85,498 85,498 250,000 190,937 190,937
Age 75 297,195 250,000 12,240 12,240 250,000 147,596 147,596 661,539 630,037 630,037
</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>
END OF ACCUM POLICY CASH POLICY CASH POLICY CASH
POLICY PREMIUM DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
YEAR (5% INT) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
0.00% 6.00% 12.00%
------------------------------- ------------------------------- -------------------------------
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,200 250,000 2,677 1,477 250,000 2,874 1,674 250,000 3,072 1,872
2 8,610 250,000 5,498 3,938 250,000 6,068 4,508 250,000 6,663 5,103
3 13,241 250,000 8,213 6,293 250,000 9,342 7,422 250,000 10,569 8,649
4 18,103 250,000 10,815 8,670 250,000 12,693 10,548 250,000 14,815 12,670
5 23,208 250,000 13,304 11,159 250,000 16,122 13,977 250,000 19,437 17,292
6 28,568 250,000 15,670 13,525 250,000 19,622 17,477 250,000 24,468 22,323
7 34,196 250,000 17,903 16,187 250,000 23,188 21,472 250,000 29,944 28,228
8 40,106 250,000 19,992 18,705 250,000 26,811 25,524 250,000 35,905 34,618
9 46,312 250,000 21,920 21,062 250,000 30,479 29,621 250,000 42,392 41,534
10 52,827 250,000 23,677 23,248 250,000 34,183 33,754 250,000 49,459 49,030
11 59,669 250,000 25,245 25,245 250,000 37,911 37,911 250,000 57,162 57,162
12 66,852 250,000 26,617 26,617 250,000 41,659 41,659 250,000 65,576 65,576
13 74,395 250,000 27,783 27,783 250,000 45,420 45,420 250,000 74,786 74,786
14 82,314 250,000 28,727 28,727 250,000 49,186 49,186 250,000 84,886 84,886
15 90,630 250,000 29,418 29,418 250,000 52,933 52,933 250,000 95,976 95,976
16 99,361 250,000 29,835 29,835 250,000 56,646 56,646 250,000 108,182 108,182
17 108,530 250,000 29,948 29,948 250,000 60,306 60,306 250,000 121,650 121,650
18 118,156 250,000 29,709 29,709 250,000 63,875 63,875 250,000 136,543 136,543
19 128,264 250,000 29,068 29,068 250,000 67,320 67,320 250,000 153,064 153,064
20 138,877 250,000 27,984 27,984 250,000 70,612 70,612 250,000 171,463 171,463
Age 75 297,195 250,000 80,788 80,788 589,998 561,903 561,903
</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>
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 portfolios. This charge includes a .70% charge against the
Separate Account for mortality and expense risks, the effect on each portfolios
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>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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 53,373 53,373
1997 250,000 67,757 67,757 250,000 57,552 57,552
1998 250,000 73,459 73,459 250,000 61,711 61,711
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP HIGH INCOME DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 86,811 86,811 250,000 77,479 77,479
1998 250,000 85,126 85,126 250,000 75,541 75,541
</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>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 95,230 95,230 250,000 86,038 86,038
1998 250,000 109,053 109,053 250,000 98,178 98,178
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP GROWTH DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 94,805 94,805 250,000 85,954 85,954
1998 250,000 136,030 136,030 250,000 123,013 123,013
</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>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 50,492 50,492 250,000 45,347 45,347
1998 250,000 59,868 59,868 250,000 53,348 53,348
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INVESTMENT GRADE BOND DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 39,059 38,630 250,000 35,344 34,915
1998 250,000 45,439 45,439 250,000 40,719 40,719
</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 II ASSET MANAGER DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 43,644 42,786 250,000 40,047 39,189
1998 250,000 53,378 52,949 250,000 48,679 48,250
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II INDEX 500 DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 30,097 27,952 250,000 28,183 26,038
1998 250,000 42,402 40,686 250,000 39,586 37,870
</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>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 14,106 12,186 250,000 13,268 11,348
1998 250,000 20,086 17,941 250,000 18,873 16,728
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP II CONTRAFUND DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 14,952 13,032 250,000 14,088 12,168
1998 250,000 23,367 21,222 250,000 22,005 19,860
</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>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 12,461 10,541 250,000 11,696 9,776
1998 250,000 18,167 16,022 250,000 17,039 14,894
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP III GROWTH OPPORTUNITIES DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 15,005 13,085 250,000 14,130 12,210
1998 250,000 22,442 20,297 250,000 21,228 18,973
</TABLE>
- --------------------------------------------------------------------------------
FIDELITY'S VIP III GROWTH & INCOME DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C>
1997 250,000 3,958 2,758 250,000 3,697 2,497
1998 250,000 9,215 7,655 250,000 8,664 7,104
</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>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 26,520 24,804 250,000 24,589 22,873
1998 250,000 23,402 22,115 250,000 21,508 20,221
</TABLE>
- --------------------------------------------------------------------------------
LEXINGTON EMERGING MARKETS DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 8,157 6,237 250,000 7,607 5,687
1998 250,000 7,837 5,962 250,000 7,261 5,116
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes the premium shown is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency
or in different amounts.
THESE ILLUSTRATIONS ARE BASED UPON PAST PERFORMANCE AND ARE NOT INDICATIVE OF
FUTURE RESULTS. FUTURE POLICY BENEFITS WILL FLUCTUATE BASED UPON ACTUAL
INVESTMENT RESULTS WHICH MAY BE MORE OR LESS THAN THOSE ACHIEVED IN THE PAST AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER. NO REPRESENTATION CAN BE MADE BY SAFECO OR THE FUNDS THAT THESE RESULTS
CAN BE ACHIEVED IN THE FUTURE.
C-8
<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>
- --------------------------------------------------------------------------------
SAFECO RST BOND DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 43,934 43,934 250,000 39,356 39,356
1998 250,000 50,659 50,659 250,000 44,944 44,944
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST EQUITY DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 90,995 90,995 250,000 83,227 83,227
1998 250,000 116,977 116,977 250,000 106,676 106,676
</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>
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>
- --------------------------------------------------------------------------------
SAFECO RST GROWTH DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 27,876 25,731 250,000 26,249 24,104
1998 250,000 31,269 29,124 250,000 29,362 27,217
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST NORTHWEST DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 18,138 15,993 250,000 16,993 14,848
1998 250,000 21,613 19,468 250,000 20,172 18,027
</TABLE>
- --------------------------------------------------------------------------------
SAFECO RST SMALL COMPANY DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C>
1997 250,000 2,929 1,729 250,000 2,704 1,504
1998 250,000 4,707 3,147 250,000 4,361 2,801
</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>
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>
- --------------------------------------------------------------------------------
WANGER U.S. SMALL CAP DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C>
1996 250,000 4,528 3,328 250,000 4,249 3,049
1997 250,000 9,938 8,378 250,000 9,364 7,804
1998 250,000 14,055 12,135 250,000 13,245 11,325
</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>
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>
- --------------------------------------------------------------------------------
AMERICAN CENTURY VP INTERNATIONAL DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 12,357 10,437 250,000 11,597 9,677
1998 250,000 18,223 16,078 250,000 17,091 14,946
</TABLE>
- --------------------------------------------------------------------------------
AMERICAN CENTURY VP BALANCED DIVISION
<TABLE>
<CAPTION>
POLICY POLICY CASH POLICY CASH
YEAR END DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER
DECEMBER 31ST BENEFIT VALUE VALUE BENEFIT VALUE VALUE
BASED UPON CURRENT CHARGES BASED UPON GUARANTEED CHARGES
<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
1997 250,000 26,484 24,768 250,000 24,535 22,819
1998 250,000 33,967 32,680 250,000 31,298 30,011
</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 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
1997 4.81 16.97 27.41 22.78 10.86
1998 4.76 -5.03 10.93 38.79 12.05
</TABLE>
CALENDAR YEAR AVERAGE NET ANNUAL TOTAL RETURN (%) FOR THE VIP II PORTFOLIOS
<TABLE>
<CAPTION>
VIP II VIP II VIP II VIP II VIP II
INVESTMENT ASSET INDEX ASSET MGR: CONTRA-
YEAR GRADE BOND MANAGER 500 GROWTH FUND
<S> <C> <C> <C> <C> <C>
1989 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
1997 8.36 19.95 32.12 24.37 23.44
1998 8.15 14.35 27.61 16.87 29.28
</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
1997 29.25 21.48 29.39
1998 23.91 16.94 28.89
</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
1997 6.45 -12.25
1998 -20.32 -28.65
</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
1997 28.71
1998 7.98
</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
1997 7.71 24.15 43.85 30.32 n/a
1998 8.20 24.19 1.13 2.19 -20.65
</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
1997 15.11 17.93
1998 15.07 18.06
</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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STANDARD AND POOR'S 500
<S> <C>
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
1997 970.43
1998 1229.23
</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 1984 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>
1984 6.10% 3,137 2,904 250,000
1985 31.57% 8,285 6,725 250,000
1986 18.21% 13,385 11,465 250,000
1987 5.17% 17,150 15,005 250,000
1988 16.50% 23,406 21,261 250,000
1989 31.43% 34,671 32,955 250,000
1990 -3.19% 36,189 34,902 250,000
1991 30.55% 51,008 50,150 250,000
1992 7.68% 57,814 57,385 250,000
1993 10.00% 66,521 66,521 250,000
1994 1.32% 69,908 69,908 250,000
1995 37.51% 99,826 99,826 250,000
1996 23.25% 126,117 126,117 250,000
1997 33.35% 171,586 171,586 250,000
1998 28.58% 223,883 223,883 291,048
</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>
POLICY DIAGRAM
PREMIUM PAYMENTS
- You can vary the amount
and the frequency.
/
PREMIUM ALLOCATION
You direct premium, less state premium
tax if applicable, to be invested in the
fixed account and/or to the portfolios
managed by:
- Fidelity Management & Research Company
- Lexington Management Corporation
- SAFECO Asset Management Company
- Wanger Asset Management Company, L.P.
- American Century Investment
Management, Inc.
/
EXPENSES
- Monthly charge for cost of insurance and cost of any riders.
- Charge for administrative expenses of $25.00 each month for
the first year, $5.00 each month thereafter.
- Daily charge, at an annual rate of 0.70% from the portfolios
for mortality and expense risks. This charge is not deducted
from the fixed account.
- Investment advisory fees and fund expenses are deducted from
each portfolio.
/
BENEFITS
LIVING BENEFITS:
- Policy loans are available during the first 10 policy years
at 2% net interest.
- Preferred policy loans and all loans following the tenth
policy anniversary have a zero net interest rate.
- You can surrender the policy at any time for its value.
- You can make withdrawals after the first policy anniversary
(subject to certain restrictions). The death benefit will be
reduced by the amount of the withdrawal.
RETIREMENT PLANNING:
- You can supplement retirement income by making scheduled
loans and/or withdrawals.
DEATH BENEFITS:
- Death benefits are income tax free to the beneficiary.
- Lifetime income to the beneficiary is available in a variety
of settlement options.
- A Guaranteed Death Benefit Endorsement may be added to
certain policies.
F-1
