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As filed with the Securities and Exchange Commission on December 5,1997
Registration Nos. 333-35159; 811-08347
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact name of Trust: KILICO VARIABLE SEPARATE ACCOUNT-2
B. Name of depositor: KEMPER INVESTORS LIFE INSURANCE COMPANY
C. Complete address of depositor's principal executive offices:
1 Kemper Drive
Long Grove, Illinois 60049
D. Name and complete address of agent for service:
DEBRA P. REZABEK, ESQ.
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
Copies To:
Kurt W. Bernlohr, Esq. Joan E. Boros, Esq.
Kemper Investors Life Insurance Company Katten Muchin & Zavis
1 Kemper Drive 1025 Thomas Jefferson Street, N.W.
Long Grove, Illinois 60049 Washington, D.C. 20007
E. Title of securities being registered:
Units of Interests in the Separate Account under Flexible Premium
Variable Life Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of the Registration
Statement.
================================================================================
No filing fee is due because an indefinite amount of securities is deemed to
have been registered in reliance on Section 24(f) of the Investment Company Act
of 1940.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
ITEM NO.
OF
FORM N-8B-2 CAPTION IN PROSPECTUS
----------- ---------------------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of Policies
5. KILICO and the Separate Account; State Regulation of KILICO
6. KILICO and the Separate Account
7. Not Applicable
8. Experts
9. Legal Proceedings; Legal Matters
10. KILICO and the Separate Account; The Funds; The Policy; Policy
Benefits and Rights; General Provisions; Voting Interests;
Dollar Cost Averaging; Systematic Withdrawal Plan; Federal Tax
Matters
11. Cover Page; Summary; KILICO and the Separate Account; The
Funds
12. Not Applicable
13. Charges and Deductions
14. The Policy
15. The Policy; Policy Benefits and Rights
16. Summary; The Policy
17. The Policy; Policy Benefits and Rights
18. The Funds
19. General Provisions
20. The Funds; General Provisions
21. Policy Benefits and Rights
22. Not Applicable
23. Not Applicable
24. General Provisions
25. KILICO and the Separate Account
26. Not Applicable
27. KILICO and the Separate Account
28. Directors and Officers of KILICO
29. KILICO and the Separate Account
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. KILICO and the Separate Account; Distribution of Policies
36. Not Applicable
37. Not Applicable
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ITEM NO.
OF
FORM N-8B-2 CAPTION IN PROSPECTUS
----------- ---------------------
38. Distribution of Policies
39. KILICO and the Separate Account; Distribution of Policies
40. Not Applicable
41. KILICO and the Separate Account; Distribution of Policies
42. Not Applicable
43. Not Applicable
44. KILICO and the Separate Account; Charges and Deductions
45. Not Applicable
46. The Policy; Policy Benefits and Rights; Charges and Deductions
47. Summary; KILICO and the Separate Account; The Policy
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Cover Page; Summary; KILICO and the Separate Account; The
Policy; Policy Benefits and Rights; Charges and Deductions;
General Provisions; Distribution of Policies
52. Summary; KILICO and the Separate Account; The Funds; General
Provisions
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements
103466.2
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PROSPECTUS--_____________, 1997
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
(INDIVIDUAL LIFE AND SURVIVORSHIP)
ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT-2
HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (847) 550-5500
This Prospectus describes variable life insurance policies (the "Policy" or
"Policies") offered by Kemper Investors Life Insurance Company ("KILICO") which
provide insurance coverage on either the life of one Insured ("Individual
Policy") or two Insureds ("Survivorship Policy"). The Survivorship Policy
provides life insurance with the Death Benefit payable on the second death as
long as the Policy is in force. Premiums under the Policy are flexible,
subject to certain restrictions. The Death Benefit and Cash Value of the
Policy may vary to reflect the investment experience of the KILICO Variable
Separate Account-2 (the "Separate Account").
An Owner may allocate premiums under a Policy to one or more of the Subaccounts
of the Separate Account and the Fixed Account. Each Subaccount invests in
shares of one portfolio of an underlying mutual fund. The underlying mutual
funds and the portfolios of the underlying mutual funds (the "Portfolios")
currently available under the Policy are: (a) Investors Fund Series
(portfolios--Money Market, Total Return, High Yield, Growth, Government
Securities, International, Small Cap Growth, Investment Grade Bond, Value,
Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+, and Horizon 5 (each, a
"Horizon Portfolio" and collectively, the "Horizon Portfolios"), Blue Chip, and
Global Income); and (b) Evergreen Variable Trust (portfolios--Evergreen VA,
Evergreen VA Growth and Income, Evergreen VA Foundation, Evergreen VA Global
Leaders, Evergreen VA Strategic Income, and Evergreen VA Aggressive Growth).
The accompanying prospectuses for the Funds describe the investment objectives
and the attendant risks of the Portfolios. The Cash Value in the Fixed Account
will accrue interest at a rate that is guaranteed by KILICO.
The Policy meets the definition of "life insurance" under Section 7702 of the
Internal Revenue Code. The Policy may be issued as or become a modified
endowment contract under Section 7702A of the Internal Revenue Code. For a
Policy treated as a modified endowment contract, certain distributions will be
includable in gross income for Federal income tax purposes. See "Federal Tax
Matters" for a discussion of laws that affect the tax treatment of the Policy.
The Owner will make two elections to determine the Death Benefit under the
Policy. First, the Owner will choose one of two Death Benefit options offered
under the Policy. In general, under Death Benefit Option A, the Death Benefit
is the Specified Amount stated in the Policy Specifications. Under Option B,
the Death Benefit is the Specified Amount stated in the Policy Specifications
plus the Cash Value. Second, the Owner will choose the Death Benefit
qualification test, which is the method of qualifying the Policy as a life
insurance contract for purposes of Federal tax law. The Owner may not change
the Death Benefit qualification test once selected, but may, subject to certain
restrictions, change from one Death Benefit option to the other after the
Policy has been issued. KILICO guarantees that the Death Benefit payable for a
Policy will never be less than the Death Benefit stated in the Policy
Specifications, less Debt, as long as the Policy is in force. KILICO reserves
the right to limit the Death Benefit under certain circumstances. There is no
guaranteed Cash Value. If the Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse.
The Owner may examine the Policy and return it to KILICO for a refund during
the Free-Look Period.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance policy, or to obtain additional insurance protection if
a flexible premium variable life insurance policy is already owned.
This Prospectus generally describes only that portion of the Policy allocated
to the Separate Account. For a brief summary of the Fixed Account option see
"The Fixed Account Option."
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR THE APPLICABLE UNDERLYING FUND. ALL PROSPECTUSES SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE.
________________
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THE POLICY IS NOT INSURED BY THE FDIC, IS NOT A DEPOSIT OR OTHER OBLIGATION OF,
OR GUARANTEED BY, THE DEPOSITORY INSTITUTION; AND IS SUBJECT TO INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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TABLE OF CONTENTS
Page
DEFINITIONS.....................................................................
SUMMARY.........................................................................
KILICO AND THE SEPARATE ACCOUNT.................................................
THE FUNDS.......................................................................
FIXED ACCOUNT OPTION............................................................
THE POLICY......................................................................
POLICY BENEFITS AND RIGHTS......................................................
CHARGES AND DEDUCTIONS..........................................................
GENERAL PROVISIONS..............................................................
DOLLAR COST AVERAGING...........................................................
SYSTEMATIC WITHDRAWAL PLAN......................................................
DISTRIBUTION OF POLICIES........................................................
FEDERAL TAX MATTERS.............................................................
LEGAL CONSIDERATIONS............................................................
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS....................................
VOTING INTERESTS................................................................
STATE REGULATION OF KILICO......................................................
DIRECTORS AND OFFICERS OF KILICO................................................
LEGAL MATTERS...................................................................
LEGAL PROCEEDINGS...............................................................
EXPERTS.........................................................................
REGISTRATION STATEMENT..........................................................
FINANCIAL STATEMENTS............................................................
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS........................................
APPENDIX A......................................................................
APPENDIX B......................................................................
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DEFINITIONS
ACCOUNT MAINTENANCE CHARGE-A charge deducted in the calculation of the
Accumulation Unit Value for maintaining the Separate Account and Owner records.
ACCUMULATION UNIT--An accounting unit of measure used to calculate the value of
each Subaccount.
AGE--An Insured's age on his or her nearest birthday.
BENEFICIARY--The person to whom the proceeds due on the Insured's (or last
surviving Insured's) death are paid.
CASH VALUE--The sum of the value of Policy assets in the Separate Account,
Fixed Account and Loan Account.
DATE OF RECEIPT--Date of receipt means the Valuation Date during which a
request, form or payment is received at KILICO's Home Office. KILICO is deemed
to have received any request, form or payment on the date it is actually
received at the Home Office, provided that it is received before the close of
the New York Stock Exchange (which is normally 3:00 p.m. Long Grove time) on
any date when the New York Stock Exchange is open. Otherwise, it will be
deemed to be received on the next such day.
DEBT--Debt means (1) the principal of any outstanding loan, plus (2) any loan
interest due or accrued to KILICO.
FIXED ACCOUNT--The amount of assets held in the General Account attributable to
the fixed portion of the Policy.
FIXED ACCOUNT VALUE-The portion of the Cash Value in the General Account,
excluding the Loan Account.
FREE-LOOK PERIOD--The period of time in which an Owner may cancel the Policy
and receive a refund. The applicable period of time will depend on the state
in which the Policy is issued; however, it will be at least 10 days from the
date the Policy is received by the Owner.
FUNDS--The underlying mutual funds in which the Subaccounts of the Separate
Account invest.
GENERAL ACCOUNT--The assets of KILICO other than those allocated to the
Separate Account or any other separate account.
INSURED(S)--The person(s) whose life is/are covered by the Policy and who
is/are named in the Policy Specifications.
ISSUE DATE--The date shown in the Policy Specifications. Incontestability and
suicide periods for the initial Specified Amount are measured from the Issue
Date.
LOAN ACCOUNT--The amount of assets transferred from the Separate Account and
the Fixed Account and held in the General Account as collateral for Policy
Loans.
MATURITY DATE--The Policy Date anniversary nearest the Insured's (or last
surviving Insured's) 100th birthday.
MONTHLY PROCESSING DATE--The same day in each month as the Policy Date.
MORTALITY AND EXPENSE RISK CHARGE--A charge deducted in the calculation of the
Accumulation Unit Value for the assumption of mortality risks and expense
guarantees.
OWNER--The person designated on the application who may exercise all rights and
privileges under the Policy.
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PLANNED PREMIUM--The scheduled premium specified by the Owner in the
application.
POLICY DATE--The date shown in the Policy Specifications. The Policy Date is
the date used to determine Policy Years and Monthly Processing Dates. The
Policy Date is the date that insurance coverage takes effect subject to any
principles of conditional receipt under applicable law.
POLICY YEAR--Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
SEPARATE ACCOUNT VALUE--The portion of the Cash Value in the Subaccount(s).
SPECIFIED AMOUNT--The amount chosen by the Owner and used to calculate the
Death Benefit. The Specified Amount is shown in the Policy Specifications.
SUBACCOUNT--A subdivision of the Separate Account.
SURRENDER VALUE--The surrender value of a Policy is (1) the Cash Value minus
(2) any Debt.
TRADE DATE--For Policies issued in those jurisdictions that require a return of
the initial premium during the Free-Look Period, including Policies which
replace an existing insurance policy issued in certain jurisdictions, the
Valuation Date which is generally 30 days following the date all requirements
for coverage have been completed by the Owner and coverage under the Policy is
recorded by KILICO as in force.
VALUATION DATE--Each business day on which valuation of the assets of the
Separate Account is required by applicable law, which currently is each day
that the New York Stock Exchange is open for trading.
VALUATION PERIOD--The period that starts at the close of a Valuation Date and
ends at the close of the next succeeding Valuation Date.
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SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE DETAILED
INFORMATION IN THIS PROSPECTUS. YOU SHOULD REFER TO THE HEADING "DEFINITIONS"
FOR THE MEANING OF CERTAIN TERMS. VARIATIONS FROM THE INFORMATION APPEARING IN
THIS PROSPECTUS DUE TO INDIVIDUAL STATE REQUIREMENTS ARE DESCRIBED IN
SUPPLEMENTS WHICH ARE ATTACHED TO THIS PROSPECTUS, OR IN ENDORSEMENTS TO THE
POLICY, AS APPROPRIATE. UNLESS OTHERWISE INDICATED, THE DESCRIPTION OF THE
POLICY CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE, THAT
THERE IS NO INDEBTEDNESS, AND THAT CURRENT FEDERAL INCOME TAX LAWS APPLY.
The Owner of a Policy pays a premium for life insurance coverage on the
person or persons insured. The Policy is a flexible premium policy, so subject
to certain limitations, an Owner may choose the amount and frequency of premium
payments. The Policy provides for a Surrender Value which is payable if the
Policy is terminated during an Insured's lifetime. The Death Benefit and Cash
Value of the Policy may increase or decrease to reflect investment experience.
There is no guaranteed Cash Value. If the Surrender Value is insufficient to
pay charges under the Policy, the Policy will lapse unless an additional
premium payment or loan repayment is made. (See "The Policy--Premiums and
Allocation of Premiums and Separate Account Value," page ___; "Charges and
Deductions," and "Policy Benefits and Rights," page ___.)
Under certain circumstances, a Policy may be issued as or become a
modified endowment contract as a result of a material change or reduction in
benefits as defined by the Internal Revenue Code. Excess premiums paid may also
cause the Policy to become a modified endowment contract. For a Policy treated
as a modified endowment contract, certain distributions will be included in the
Owner's gross income for purposes of Federal income tax (See "Federal Tax
Matters," page ___.)
The purpose of the Policy is to provide insurance protection for the named
beneficiary. No claim is made that the Policy is in any way similar or
comparable to a systematic investment plan of a mutual fund.
POLICY BENEFITS
CASH VALUE. The Policy provides for a Cash Value. The Cash Value will
reflect the amount and frequency of premium payments, the investment experience
of the selected Subaccounts, any values in the Fixed Account and Loan Account,
and charges imposed in connection with the Policy. The Owner bears the entire
investment risk on that portion of the net premiums and Cash Value allocated to
the Separate Account. KILICO does not guarantee a minimum Separate Account
Value. (See "Policy Benefits and Rights--Cash Value," page ___.)
An Owner may surrender a Policy at any time and receive the Surrender
Value, which equals the Cash Value less any outstanding Debt. Partial
withdrawals are also available subject to restrictions. (See "Policy Benefits
and Rights--Surrender Privilege," page ___.)
POLICY LOANS. An Owner may borrow up to 90% of the Policy's Cash Value,
subject to the requirements of the Internal Revenue Code. (See "Federal Tax
Matters," page ___.) The minimum amount of a loan is $500. Interest at a rate
not to exceed the greater of the interest rate set forth in the Policy and a
published monthly average, currently Moody's Corporate Bond Yield
Average-Monthly Average Corporates ("Adjustable Loan Interest Rate") will be
charged on outstanding loan amounts.
When a loan is made, a portion of the Policy's Cash Value equal to the
amount of the loan will be transferred from the Separate Account and the Fixed
Account (proportionately, unless the Owner requests otherwise) to the Loan
Account. Cash Values within the Loan Account will earn interest at a rate
equal to Adjustable Loan Interest Rate reduced by not more than 1%. Such
earnings will be allocated to the Loan Account. (See "Policy Benefits and
Rights--Policy Loans," page ___.)
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If the Policy is treated as a modified endowment contract, a loan will be
treated as a distribution for Federal income tax purposes and may be subject to
tax, withholding and penalties. (See "Federal Tax Matters," page ___.)
DEATH BENEFITS. As long as the Policy remains in force, the Policy
provides a Death Benefit payment upon the death of the Insured (or upon the
death of the last surviving Insured if the Policy is issued as a Survivorship
Policy). The Owner will make two elections to determine the Death Benefit
under the Policy. First, the Owner will choose one of two Death Benefit
options. Under Option A, the Death Benefit is the Specified Amount stated in
the Policy Specifications. Under Option B, the Death Benefit is the Specified
Amount stated in the Policy Specifications plus the Cash Value. In either case,
the Death Benefit will not be less than a specified multiple of the Cash Value.
KILICO reserves the right to limit the Death Benefit under certain
circumstances. Second, the Owner will choose the Death Benefit qualification
test, which is the method for qualifying the Policy as a life insurance
contract for purposes of Federal tax law. The Owner may not change the Death
Benefit qualification test once selected, but may, subject to certain
restrictions, change from Death Benefit Option A to Death Benefit Option B, and
vice versa, after the Policy has been issued. The Death Benefit payable will
be reduced by any Debt. (See "Policy Benefits and Rights--Death Benefits,"
page ___.)
PREMIUMS
The Owner has flexibility concerning the amount and frequency of premium
payments. At the time of application, the Owner will determine a Planned
Premium. However, the Owner will not be required to adhere to the schedule
and, subject to certain restrictions, may make premium payments in any amount
and at any frequency. The amount, frequency, and period of time over which an
Owner pays premiums may affect whether the Policy will be classified as a
modified endowment contract. The minimum monthly premium payment is $50.
Other minimums apply for other payment modes.
Payment of the Planned Premium will not guarantee that a Policy will
remain in force. Instead, the duration of the Policy depends on the Policy's
Surrender Value. (See "The Policy--Premiums," page ___.)
THE SEPARATE ACCOUNT
ALLOCATION OF PREMIUMS. The portion of the premium available for
allocation equals the premium paid less applicable charges. An Owner indicates
in the application for the Policy the percentages of premium to be allocated
among the Subaccounts and the Fixed Account. The Separate Account currently
consists of twenty-two Subaccounts, each of which invests in shares of a
designated portfolio of the Investors Fund Series or Evergreen Variable Trust.
For Policies issued in those jurisdictions that require a return of
premium, including Policies which replace an existing insurance policy issued
in certain jurisdictions, the initial premium less applicable charges will be
allocated to the Money Market Subaccount. On the Trade Date, which is thirty
days from the Issue Date, the Separate Account Value in the Money Market
Subaccount will be allocated among the Subaccounts and the Fixed Account in
accordance with the Owner's instructions in the application. For all other
jurisdictions, on the Issue Date the initial premium less applicable charges
will generally be allocated to the Subaccounts and the Fixed Account as elected
by the Owner in the application for a Policy. (See "The Policy -- Policy
Issue," page ___.)
TRANSFERS. Separate Account Value may be transferred among the
Subaccounts. One transfer of all or part of the Separate Account Value may be
made within a fifteen (15) day period. Transfers are also permitted between
the Fixed Account and the Subaccounts, subject to restrictions. (See
"Allocation of Premiums and Separate Account Value," page ___.)
THE FUNDS
The following portfolios of the Investors Fund Series are currently
available for investment by the Separate Account:
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MONEY MARKET PORTFOLIO, TOTAL RETURN PORTFOLIO, HIGH YIELD PORTFOLIO,
GROWTH PORTFOLIO, GOVERNMENT SECURITIES PORTFOLIO, INTERNATIONAL PORTFOLIO,
SMALL CAP GROWTH PORTFOLIO, INVESTMENT GRADE BOND PORTFOLIO, VALUE PORTFOLIO,
SMALL CAP VALUE PORTFOLIO, VALUE+GROWTH PORTFOLIO, HORIZON 20+ PORTFOLIO,
HORIZON 10+ PORTFOLIO, HORIZON 5 PORTFOLIO, BLUE CHIP PORTFOLIO, AND GLOBAL
INCOME PORTFOLIO.
The following portfolios of Evergreen Variable Trust are currently
available for investment by the Separate Account:
EVERGREEN VA FUND, EVERGREEN VA GROWTH AND INCOME FUND, EVERGREEN VA
FOUNDATION FUND, EVERGREEN VA GLOBAL LEADERS FUND, EVERGREEN VA STRATEGIC
INCOME FUND, AND EVERGREEN VA AGGRESSIVE GROWTH FUND.
For a more detailed description of the Funds, see "The Funds", the Funds'
prospectuses, and statements of additional information available upon request.
CHARGES
A state and local premium tax charge equal to the actual state tax rate
may be deducted from each premium payment under the Policy prior to allocation
of the net premium. State and local premium tax rates range from .75% to 5%.
In addition, a charge of 1% of each premium payment will be deducted to
compensate KILICO for higher corporate income tax liability resulting from
changes in the tax law made by the Omnibus Budget Reconciliation Act of 1990.
(See "Charges and Deductions--Deductions from Premiums," page ___.)
No other charges are currently made from premium or the Separate Account
for Federal, state or other taxes. Should KILICO determine that such taxes may
be imposed, it may make deductions from the Separate Account to pay those
taxes. (See "Federal Tax Matters," page ___.)
Deductions will be made from the Policy's Cash Value in each Subaccount
and the Fixed Account on the Policy Date and on each Monthly Processing Date
for the cost of providing life insurance coverage for the Insured(s). In
addition, KILICO deducts an asset charge from each Subaccount on a daily basis
for the assumption by KILICO of certain mortality and expense risks incurred in
connection with the Policy, at an effective annual rate guaranteed not to
exceed 0.90%. (See "Charges and Deductions--Cost of Insurance Charge and
Mortality and Expense Risk Charge.")
KILICO also deducts a Monthly Administrative Charge and an Account
Maintenance Fee to compensate it for expenses related to Policy administration
and maintenance of the Separate Account. The Monthly Administrative Charge is
deducted from the Policy's Cash Value on each Monthly Processing Date in the
amount of $20 per month during the first Policy Year and the first 12 months
following an increase in Specified Amount, and $5 per month at all other times.
The Account Maintenance Fee is taken as a daily asset charge, at an effective
annual rate of 0.45%, from each Subaccount. (See "Charges and
Deductions--Policy and Separate Account Administration Charges," page ___.)
The Subaccounts purchase shares of the Funds. Each Portfolio of the Funds
incurs annual fund operating expenses which consist of management fees and
other expenses. See "Charges and Deductions--Other Charges" in this
Prospectus and the prospectuses for the Funds for the other expenses for each
Portfolio and for additional information about the fees and expenses of the
Funds.
The Policy is available for distribution through entities or persons that
provide separate trust or consultative services for which they charge a fee.
The fees are not part of the Policy and KILICO is not responsible for the
payment of the fees. Under special circumstances with KILICO's consent, the
Policy may be distributed through entities or persons that do not provide such
additional services. Although KILICO does not charge any explicit sales load,
it will compensate broker-dealers for the sale of the Policies. Expenses
incurred in the distribution of the
5
<PAGE> 12
Policies, including commissions and marketing allowances, printing, and
preparing sales literature may be covered from other sources, including profits
from other charges, including the Mortality and Expense Risk Charge,
administrative charges and cost of insurance charges.
TAX TREATMENT UNDER CURRENT FEDERAL TAX LAW
The Cash Value, while it remains in the Policy, and the Death Benefit
should be subject to the same Federal income tax treatment as the cash value
under a conventional fixed benefit life insurance policy. Under existing tax
law, if the Policy is not treated as a modified endowment contract, the Owner
is generally not deemed to be in receipt of the Cash Value under a Policy until
a distribution occurs through a withdrawal or surrender. If the Policy is
treated as a modified endowment contract, a loan will also be treated as a
distribution subject to immediate taxation. A change of Owners, an assignment,
a loan or a surrender of the Policy may have tax consequences.
Death Benefits payable under the Policy should be completely excludable
from the gross income of the Beneficiary. As a result, the Beneficiary
generally will not be subject to income tax on the Death Benefit. (See
"Federal Tax Matters," page ___.)
FREE-LOOK PERIOD
The Owner is granted a period of time to examine a Policy and return it
for a refund. The applicable period of time will depend on the state in which
the Policy is issued; however, it will be at least 10 days from the date the
Policy is received by the Owner. (See "Policy Benefits and Rights--Free-Look
Period and Exchange Rights," page ___.)
ILLUSTRATIONS OF CASH VALUES, SURRENDER VALUES, DEATH BENEFITS
Tables in Appendix A illustrate the Cash Values, Surrender Values and
Death Benefits based upon certain hypothetical assumed rates of return for the
Separate Account and the charges deducted under the Policy.
KILICO AND THE SEPARATE ACCOUNT
KEMPER INVESTORS LIFE INSURANCE COMPANY
Kemper Investors Life Insurance Company ("KILICO"), 1 Kemper Drive, Long
Grove, Illinois 60049, was organized in 1947 and is a stock life insurance
company organized under the laws of the State of Illinois. KILICO is a
wholly-owned subsidiary of Kemper Corporation, a nonoperating holding company.
Zurich Insurance Company ("Zurich"), and Insurance Partners L.P. and Insurance
Partners Offshore (Bermuda), L.P. indirectly and directly own 84 percent and 16
percent, respectively, of Kemper Corporation. KILICO offers life insurance and
annuity products and is admitted to do business in the District of Columbia and
all states except New York.
SEPARATE ACCOUNT
KILICO Variable Separate Account-2 (the "Separate Account") was
established by KILICO as a separate investment account on June 17, 1997. The
Separate Account will receive and invest net premiums under the Policy. In
addition, the Separate Account may receive and invest net premiums for other
variable life insurance policies offered by KILICO.
The Separate Account is administered and accounted for as part of the
general business of KILICO, but the income, capital gains or capital losses of
the Separate Account are credited to or charged against the assets held in the
Separate Account, without regard to any other income, capital gains or capital
losses of any other separate
6
<PAGE> 13
account or arising out of any other business which KILICO may conduct. The
benefits provided under the Policy are obligations of KILICO.
The Separate Account has been registered with the Securities and Exchange
Commission ("Commission") as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"). Such registration does not involve
supervision by the Commission of the management, investment practices or
policies of the Separate Account or KILICO.
The Separate Account is currently divided into twenty-two Subaccounts.
Each Subaccount invests exclusively in shares of one of the corresponding
portfolios of the Funds. Income and both realized and unrealized gains or
losses from the assets of each Subaccount generally are credited to or charged
against that Subaccount without regard to income, gains or losses from any
other Subaccount or arising out of any business KILICO may conduct.
THE FUNDS
The Separate Account invests in shares of the Investors Fund Series and
Evergreen Variable Trust, series type mutual funds registered with the
Commission as open-end management investment companies. A series mutual fund
has two or more separate series or portfolios with differing investment
objectives. Registration of the Funds does not involve supervision of their
management, investment practices or policies by the Commission. The Funds are
designed to provide investment vehicles for variable life insurance and
variable annuity contracts. Shares of the Funds currently are sold only to
insurance company separate accounts and, with respect to Evergreen Variable
Trust, certain qualified retirement plans. In addition to the Separate
Account, shares of the Funds may be sold to variable life insurance and
variable annuity separate accounts of insurance companies not affiliated with
KILICO. It is conceivable that in the future it may be disadvantageous for
variable life insurance separate accounts of companies unaffiliated with
KILICO, or for variable life insurance separate accounts, variable annuity
separate accounts and qualified retirement plans to invest simultaneously in
the Funds. Currently neither KILICO nor the Funds foresees any such
disadvantages to variable life insurance owners, variable annuity owners or
qualified retirement plans. Management of the Funds has an obligation to
monitor events to identify material conflicts between such owners and determine
what action, if any, should be taken. In addition, if KILICO believes that a
Fund's response to any of those events or conflicts insufficiently protects the
Owners, it will take appropriate action on its own.
The Separate Account invests in several series of the Funds
("Portfolios"). The assets of each Portfolio are held separate from the assets
of the other Portfolios, and each Portfolio has its own distinct investment
objective and policies. Each Portfolio operates as a separate investment fund,
and the income, gains or losses of one Portfolio generally have no effect on
the investment performance of any other Portfolio.
INVESTORS FUND SERIES
The Portfolios of Investors Fund Series in which the Separate Account
invests are summarized below:
MONEY MARKET PORTFOLIO: Seeks maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments that mature in twelve months or less.
TOTAL RETURN PORTFOLIO: Seeks a high total return, a combination of
income and capital appreciation, by investing in a combination of debt
securities and common stocks.
HIGH YIELD PORTFOLIO: Seeks a high level of current income by investing
in fixed-income securities.
GROWTH PORTFOLIO: Seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
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<PAGE> 14
GOVERNMENT SECURITIES PORTFOLIO: Seeks high current return consistent
with preservation of capital from a portfolio composed primarily of U.S.
Government securities.
INTERNATIONAL PORTFOLIO: Seeks total return, a combination of capital
growth and income, principally through an internationally diversified portfolio
of equity securities.
SMALL CAP GROWTH PORTFOLIO: Seeks maximum appreciation of investors'
capital from a portfolio primarily of growth stocks of smaller companies.
INVESTMENT GRADE BOND PORTFOLIO: Seeks high current income by investing
primarily in a diversified portfolio of investment grade debt securities.
VALUE PORTFOLIO: Seeks to achieve a high rate of total return from a
portfolio primarily of value stocks of larger companies.
SMALL CAP VALUE PORTFOLIO: Seeks long-term capital appreciation from a
portfolio primarily of value stocks of small companies.
VALUE+GROWTH PORTFOLIO: Seeks growth of capital through professional
management of a portfolio of growth and value stocks.
HORIZON 20+ PORTFOLIO: Designed for investors with approximately a 20+
year investment horizon, seeks growth of capital, with income as a secondary
objective.
HORIZON 10+ PORTFOLIO: Designed for investors with approximately a 10+
year investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.
HORIZON 5 PORTFOLIO: Designed for investors with approximately a 5 year
investment horizon, seeks income consistent with preservation of capital, with
growth of capital as a secondary objective.
BLUE CHIP PORTFOLIO: Seeks growth of capital and of income.
GLOBAL INCOME PORTFOLIO: Seeks to provide high current income consistent
with prudent total return asset management.
8
<PAGE> 15
Zurich Kemper Investments, Inc. ("ZKI"), an affiliate of KILICO, is the
investment adviser to each portfolio of the Investors Fund Series specified
above, other than the Value and Small Cap Value Portfolios. Dreman Value
Advisors, Inc. ("DVA"), a wholly owned subsidiary of ZKI, is the investment
manager for the Value and Small Cap Value Portfolios.
Zurich has entered into a definitive agreement with Scudder, Stevens &
Clark, Inc. ("Scudder") pursuant to which Zurich will acquire approximately 70%
of Scudder. Upon completion of the transaction, Scudder will change its name
to Scudder Kemper Investments, Inc. ("SKI"), and ZKI will be operated either as
a subsidiary of SKI or as part of SKI. Consummation of the transaction is
subject to a number of contingencies. Because the transaction would, under the
1940 Act, constitute an assignment of the Fund's investment management
agreements with ZKI and its affiliate, DVA, it is anticipated that ZKI would
seek approval of new agreements by the Fund's board and shareholders. If the
contingencies are timely met, the transaction is expected to close in the
fourth quarter of 1997. Zurich will own 69.5% of SKI and senior employees of
SKI will hold the remaining 30.5%. SKI will be headquartered in New York City,
and the chief executive officer of SKI will be Edmond D. Villani, Scudder's
president and chief executive officer. Mr. Villani will also join Zurich's
Corporate Executive Board. A transition team comprised of representatives from
ZKI, Zurich, and Scudder has been formed to make recommendations regarding
combining the operations of Scudder and ZKI.
EVERGREEN VARIABLE TRUST
The Portfolios of the Evergreen Variable Trust in which the Separate
Account invests are summarized below:
EVERGREEN VA FUND: Seeks to achieve capital appreciation by investing in
the securities of little-known or relatively small companies, or companies
undergoing changes which the Fund's investment adviser believes will have
favorable consequences. Income will not be a factor in the selection of
portfolio investments.
EVERGREEN VA GROWTH AND INCOME FUND: Seeks to achieve a return composed of
capital appreciation in the value of its shares and current income. The Fund
will attempt to meet its objective by investing in the securities of companies
which are undervalued in the marketplace relative to those companies' assets,
breakup value, earnings, or potential earnings growth.
EVERGREEN VA FOUNDATION FUND: Seeks, in order of priority, reasonable
income, conservation of capital and capital appreciation. The Fund invests
principally in income-producing common and preferred stocks, securities
convertible into or exchangeable for common stocks and fixed income securities.
EVERGREEN VA GLOBAL LEADERS FUND: Seeks to achieve capital appreciation by
investing primarily in a diversified portfolio of U.S. and non-U.S. equity
securities of companies located in the world's major industrialized countries.
The Fund's investment adviser will attempt to screen the largest companies in
the world's major industrialized countries and cause the Fund to invest, in the
opinion of the Fund's investment adviser, in the 100 best based on certain
qualitative and quantitative criteria.
EVERGREEN VA STRATEGIC INCOME FUND: Seeks high current income from
interest on debt securities and, secondarily, considers potential for growth of
capital in selecting securities.
EVERGREEN VA AGGRESSIVE GROWTH FUND: Seeks long-term capital appreciation
by investing primarily in common stocks of emerging growth companies and in
larger, more well established companies, all of which are viewed by the Fund's
investment adviser as having above average appreciation potential.
Evergreen Asset Management Corp. ("Evergreen Asset") is the investment
adviser to Evergreen VA Fund, Evergreen VA Growth and Income Fund, Evergreen VA
Foundation Fund, and Evergreen VA Global Leaders Fund. Keystone Investment
Management Company is the investment adviser to Evergreen VA Strategic Income
Fund. The Capital Management Group of First Union National Bank of North
Carolina ("CMG") is the investment adviser to Evergreen VA Aggressive Growth
Fund.
9
<PAGE> 16
There is no assurance that any of the Portfolios of the Investors Fund
Series or the Evergreen Variable Trust will achieve its stated objective. More
detailed information, including a description of risks involved in investing in
each of the Portfolios may be found in the prospectus for each Fund and each
Fund's statement of additional information. (Also see "Charges and Deductions
- --Other Charges").
CHANGE OF INVESTMENTS
KILICO reserves the right, subject to applicable law, to make additions
to, deletions from, or substitutions for the shares held by the Separate
Account or that the Separate Account may purchase. KILICO reserves the right
to eliminate the shares of any of the Portfolios and to substitute shares of
another series of the Funds or of another investment company, if the shares of
a Portfolio are no longer available for investment, or if in its judgment
further investment in any Portfolio becomes inappropriate in view of the
purposes of the Policy or the Separate Account. KILICO may also eliminate or
combine one or more subaccounts, transfer assets, or it may substitute one
subaccount for another subaccount, if, in its sole discretion, marketing, tax
or investment conditions warrant. KILICO will not substitute any shares
attributable to an Owner's interest in a Subaccount without notice to the Owner
and prior approval of the Commission, to the extent required by the 1940 Act or
other applicable law. Nothing contained in this Prospectus shall prevent the
Separate Account from purchasing other securities for other series or classes
of policies, or from permitting a conversion between series or classes of
policies on the basis of requests made by Owners.
KILICO also reserves the right to establish additional subaccounts of the
Separate Account, each of which would invest in a new portfolio of the Funds,
or in shares of another investment company, with a specified investment
objective. New subaccounts may be established when, in the sole discretion of
KILICO, marketing needs or investment conditions warrant, and any new
subaccounts may be made available to existing Owners as determined by KILICO.
If deemed by KILICO to be in the best interests of persons having
interests under the Policy, the Separate Account may be: (a) operated as a
management company under the 1940 Act; (b) deregistered under that Act in the
event such registration is no longer required; or (c) combined with other
KILICO separate accounts. To the extent permitted by law, KILICO may also
transfer the assets of the Separate Account associated with the Policy to
another separate account, or to the General Account.
FIXED ACCOUNT OPTION
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<PAGE> 17
NET PREMIUMS ALLOCATED BY POLICY OWNERS TO THE FIXED ACCOUNT OF THE POLICY
AND TRANSFERS TO THE FIXED ACCOUNT BECOME PART OF THE GENERAL ACCOUNT OF
KILICO, WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE
AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") NOR IS THE FIXED
ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS
THEREIN GENERALLY ARE SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND
KILICO HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO
THE FIXED PORTION. DISCLOSURES REGARDING THE FIXED ACCOUNT, HOWEVER, MAY BE
SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN
PROSPECTUSES.
Under the Fixed Account Option offered under the Policies, KILICO
allocates payments to its General Account and pays a fixed interest rate for
stated periods. This Prospectus describes only the element of the Policy
pertaining to the Separate Account except where it makes specific reference to
fixed accumulation and settlement elements.
The Policies guarantee that payments allocated to the Fixed Account will
earn a minimum fixed interest rate of 3%. KILICO, at its discretion, may
credit interest in excess of 3%. KILICO reserves the right to change the rate
of excess interest credited as provided under the terms of the Policy. KILICO
also reserves the right to declare separate rates of excess interest for net
premiums or amounts transferred at designated times, with the result that
amounts at any given designated time may be credited with a higher or lower
rate of excess interest than the rate or rates of excess interest previously
credited to such amounts and net premiums or amounts transferred at any other
designated time. Pursuant to state insurance law, KILICO may defer payment of
any surrender proceeds, withdrawal amounts, or loan amounts from the Fixed
Account for a period up to six (6) months.
THE POLICY
POLICY ISSUE
Before KILICO will issue a Policy, it must receive a completed application
and a full initial premium at its Home Office. A Policy ordinarily will be
issued only for Insureds Age up through 85 who supply satisfactory evidence of
insurability to KILICO. Acceptance of an application is subject to
underwriting by KILICO.
After underwriting is complete and the Policy is delivered to the Owner,
insurance coverage under the Policy will be deemed to have begun as of the
Policy Date. (See "Premiums.") If the Policy is a Survivorship Policy, the
Owner of the Policy will be the Insureds jointly or the surviving Owner, unless
a different Owner is named in the application. If the Policy is jointly owned,
rights under the Policy must be exercised by the Owners jointly.
PREMIUMS
Premiums are to be paid to KILICO at its Home Office. (See "Distribution
of Policies.") Checks ordinarily must be made payable to KILICO.
PLANNED PREMIUMS. When applying for a Policy, an Owner will specify a
Planned Premium payment that provides for the payment of level premiums over a
specified period of time. However, the Policy Owner is not required to pay
Planned Premiums.
The minimum monthly premium that will be accepted by KILICO is $50. For
modes other than monthly the minimums are: single premium $5,000; annual $600;
semi-annual $300; quarterly $150; and unscheduled $150. The maximum amount of
premium that may be paid at any time is that which is permitted under
applicable tax law to qualify the Policy as a life insurance contract. The
amount, frequency and period of time over which an Owner pays premiums may
affect whether the Policy will be classified as a modified endowment contract,
which is a type
11
<PAGE> 18
of life insurance contract subject to different tax treatment than conventional
life insurance contracts for certain pre-death distributions. Accordingly,
variations from the Planned Premiums on a Policy that is not otherwise a
modified endowment contract may result in the Policy becoming a modified
endowment contract for tax purposes.
Payment of the Planned Premium will not guarantee that a Policy will
remain in force. Instead, the duration of the Policy depends upon the Policy's
Surrender Value. Even if Planned Premiums are paid, the Policy will lapse any
time Surrender Value is insufficient to pay the current monthly deductions and
a Grace Period expires without sufficient payment. (See "Policy Lapse and
Reinstatement.")
KILICO may reject or limit any premium payment that is below the current
minimum premium amount requirements, or that would increase the Death Benefit
by more than the amount of the premium. All or a portion of a premium payment
will be rejected and returned to the Owner if it would disqualify the Policy as
life insurance under the Internal Revenue Code. In no event will KILICO reject
a premium payment which is required to keep a Policy in force. (See "Policy
Lapse and Reinstatement.")
Certain charges will be deducted from each premium payment. (See "Charges
and Deductions.") The remainder of the premium, known as the net premium, will
be allocated as described below under "Allocation of Premiums and Separate
Account Value."
POLICY DATE. The Policy Date is the date used to determine Policy Years
and Monthly Processing Dates. The Policy Date will be the date that coverage
on the Insured(s) takes effect. If such date is the 29th, 30th, or 31st of a
month, the Policy Date will be the first of the following month.
In the event an application is declined by KILICO, the Cash Value in the
Money Market Subaccount plus the total amount of monthly deductions and
deductions against premiums will be refunded.
The full initial premium is the only premium required to be paid under a
Policy. However, additional premiums may be necessary to keep the Policy in
force. (See "The Policy--Policy Lapse and Reinstatement.")
ALLOCATION OF PREMIUMS AND SEPARATE ACCOUNT VALUE
ALLOCATION OF PREMIUMS. For Policies issued in those jurisdictions that
require a return of premium, including Policies which replace an existing
insurance policy issued in certain jurisdictions, the initial premium less
applicable charges will be allocated to the Money Market Subaccount. The
Separate Account Value will remain in the Money Market Subaccount until the
Trade Date. On the Trade Date, the Separate Account Value in the Money Market
Subaccount will be allocated among the Subaccounts and the Fixed Account as
elected by the Owner in the application for the Policy. The initial premium
less applicable charges in other jurisdictions will be allocated on the Issue
Date to the Subaccounts and the Fixed Account as elected by the Owner in the
application for a Policy. Additional premiums received will continue to be
allocated in accordance with the Owner's instructions in the application unless
contrary written instructions are received. Once a change in allocation is
made, all future premiums will be allocated in accordance with the new
allocation, unless contrary written instructions are received. The minimum
amount of any premium that may be allocated to a Subaccount is $50. Cash Value
may be allocated to a total of ten (10) accounts at any given time.
The Separate Account Value will vary with the investment experience of the
chosen Subaccounts. The Owner bears the entire investment risk.
TRANSFERS. After the Trade Date if the initial premium is allocated to
the Money Market Subaccount or the Issue Date if the initial net premium has
been allocated to the Subaccounts, Separate Account Value may be transferred
among the Subaccounts and into the Fixed Account. One transfer of all or a
part of the Separate Account Value may be made within a fifteen (15) day
period. All transfers made during a business day will be treated as one
request.
12
<PAGE> 19
Fixed Account Value may be transferred to one or more Subaccounts. One
transfer of up to 30% of the Fixed Account Value may be made once each Policy
Year in the thirty day period following the end of a Policy Year.
Transfer requests must be in writing in a form acceptable to KILICO, or by
telephone authorization under forms authorized by KILICO. (See "General
Provisions--Written Notices and Requests.") The minimum partial transfer
amount is $500. No partial transfer may be made if the value of the Owner's
remaining interest in a Subaccount or the Fixed Account, from which amounts are
to be transferred, would be less than $500 after such transfer. These minimums
may be waived for reallocations under established third party asset allocation
programs. Transfers will be based on the Accumulation Unit values next
determined following receipt of valid, complete transfer instructions by
KILICO. The transfer provision may be suspended, modified or terminated at any
time by KILICO. KILICO disclaims all liability for acting in good faith in
following instructions which are given in accordance with procedures
established by KILICO, including requests for personal identifying information,
that are designed to limit unauthorized use of the privilege. Therefore, an
Owner would bear this risk of loss in the event of a fraudulent telephone
transfer.
If an Owner authorizes a third party to transact transfers on the Policy
Owner's behalf, KILICO will reallocate the Cash Value pursuant to the asset
allocation program determined by such third party. However, KILICO does not
offer or participate in any asset allocation program and takes no
responsibility for any third party asset allocation program. KILICO may
suspend or cancel acceptance of a third party's instructions at any time and
may restrict the investment options that will be available for transfer under
third party authorizations.
AUTOMATIC ASSET REALLOCATION. An Owner may elect to have transfers made
automatically among the Subaccounts of the Separate Account on an annual,
semi-annual, quarterly, or monthly basis so that Cash Value is reallocated to
match the percentage allocations in the Policy Owner's predefined premium
allocation elections. Transfers under this program will not be subject to the
$500 minimum transfer amounts. An election to participate in the automatic
asset reallocation program must be in writing in the form prescribed by
KILICO and returned to KILICO at its home office.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Lapse will occur when the Surrender Value of a Policy is
insufficient to cover the monthly deductions, and a grace period expires
without a sufficient payment being made. (See "Charges and Deductions.")
A grace period of 61 days will be given to the Owner. It begins when
notice is sent that the Surrender Value of the Policy is insufficient to cover
the monthly deductions. Failure to make a premium payment or loan repayment
during the grace period sufficient to keep the Policy in force for three months
will cause the Policy to lapse and terminate without value.
If payment is received within the grace period, the premium or loan
repayment will be allocated to the Subaccounts and the Fixed Account in
accordance with the most current allocation instructions, unless otherwise
requested. Amounts over and above the amounts necessary to prevent lapse may
be paid as additional premiums, however, to the extent otherwise permitted.
(See "The Policy--Premiums.")
KILICO will not accept any payment that would cause the total premium
payment to exceed the maximum payment permitted by the Internal Revenue Code
for life insurance. However, the Owner may voluntarily repay a portion of Debt
to avoid lapse. (See "Federal Tax Matters.")
If premium payments have not exceeded the maximum payment permitted by the
Code, the Owner may choose to make a larger payment than the minimum required
payment to avoid the recurrence of the potential lapse of coverage. The Owner
may also combine premium payments with Debt repayments.
13
<PAGE> 20
The Death Benefit payable during the grace period will be the Death
Benefit in effect immediately prior to the grace period, less any Debt and any
unpaid monthly deductions.
REINSTATEMENT. If a Policy lapses because of insufficient Surrender Value
to cover the monthly deductions, and it has not been surrendered for its
Surrender Value, it may be reinstated at any time within three years after the
date of lapse. Tax consequences may affect the decision to reinstate.
Reinstatement is subject to:
(1) receipt of evidence of insurability satisfactory to KILICO
(if the Policy is a Survivorship Policy, KILICO must receive
satisfactory evidence of insurability for both Insureds or evidence
for the last surviving Insured and due proof of the first death
prior to the date of lapse);
(2) payment of a minimum premium sufficient to cover monthly
deductions for the grace period and to keep the Policy in force
three months; and
(3) payment or reinstatement of any Debt against the Policy which
existed at the date of termination of coverage.
The effective date of reinstatement of a Policy will be the Monthly
Processing Date that coincides with or next follows the date the application
for reinstatement is approved by KILICO. Suicide and incontestability
provisions will apply from the effective date of reinstatement.
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<PAGE> 21
POLICY BENEFITS AND RIGHTS
DEATH BENEFITS
While the Policy is in force (see "Policy Lapse and Reinstatement--Lapse,"
above), the Death Benefit is based on the Death Benefit option, the Death
Benefit qualification test, the Specified Amount and the table of Death Benefit
percentages applicable at the time of death. The Death Benefit proceeds will
be equal to the Death Benefit minus any Debt and minus any monthly deductions
due during any grace period.
An Owner will make in the application two elections to determine the Death
Benefit under the Policy. First, the Owner will choose one of two Death
Benefit options--Option A or Option B--offered under the Policy. Second, the
Owner will choose the Death Benefit qualification test: the cash value
accumulation test or guideline premium test. The Death Benefit qualification
test is the method for qualifying the Policy as a life insurance contract for
purposes of Federal tax law. If no Death Benefit option or qualification test
is designated, KILICO will assume that Option A under the guideline premium
test as described below, has been selected. Subject to certain restrictions,
the Owner can change the Death Benefit option selected. So long as the Policy
remains in force, the Death Benefit under either option will never be less than
the Specified Amount.
The Specified Amount is chosen by the Owner on the application and is
stated in the Policy Specifications. The minimum Specified Amount permitted
under an Individual Policy is $50,000 (or a lower amount which is based upon a
single premium payment and which satisfies the requirements of applicable tax
law to qualify the Policy as a life insurance contract), and the minimum
Specified Amount permitted under a Survivorship Policy is $1,000,000.
KILICO reserves the right in circumstances where it cannot obtain
reinsurance coverage to reduce the death benefits arising from application of
the required Death Benefit Factors. The reductions will be effected by
requiring Partial Withdrawals of Cash Value. Such right will be exercised
consistent with administrative procedures to insure that the right is exercised
in a non-discriminatory manner. Such Partial Withdrawals may be taxable in
whole or in part to the Owners. (See "Federal Tax Matters")
OPTION A. Under Option A, for Policies issued pursuant to the cash value
accumulation test, as described below, the Death Benefit will be equal to the
Specified Amount or, if greater, the Cash Value (determined as of the end of
the Valuation Period during which the Insured or last surviving Insured dies)
multiplied by a Death Benefit percentage. For Policies issued pursuant to the
guideline premium test, as described below, the Death Benefit will be equal to
the Specified Amount or, if greater, the Cash Value (determined as of the end
of the Valuation Period during which the Insured or last surviving Insured
dies) multiplied by the appropriate Death Benefit Factor. The Death Benefit
percentages vary according to the age(s) of the Insured(s) and will be at least
equal to the cash value corridor in Section 7702 of the Internal Revenue Code.
Death Benefit percentage is 250% for an Insured at Age 40 or under, and it
declines for older Insureds. A table showing the Death Benefit percentages
(Death Benefit Factors) is in Appendix B to this Prospectus and in the Policy.
OPTION B. Under Option B, the Death Benefit will be equal to the
Specified Amount plus the Cash Value (determined as of the end of the Valuation
Period during which the Insured or last surviving Insured dies). For Policies
issued pursuant to the cash value accumulation test, the Death Benefit will not
be less that the Cash Value (determined as of the end of the Valuation Period
during which the Insured or last surviving Insured dies) multiplied by the
appropriate Death Benefit Factor. For Policies issued pursuant to the
guideline premium test, the Death Benefit will not be less than the Cash Value
multiplied by the appropriate Death Benefit Factor. The specified percentage
is the same as that used in connection with Option A and as stated in Appendix
B. The Death Benefit under Option B will always vary as Cash Value varies.
The Owner will also choose from two Death Benefit qualification tests
available under the Policy. Once selected, the Death Benefit qualification
test cannot be changed for the duration of the Policy.
CASH VALUE ACCUMULATION TEST. Generally, the cash value accumulation test
requires that under the terms of a Policy, the Death Benefit must be sufficient
so that the cash surrender value, as defined in Section 7702 of the Internal
Revenue Code, does not at any time exceed the net single premium required to
fund the future benefits under the Policy. If the Cash Value under a Policy is
at any time greater than the net single premium at the Insured's age and sex
for the proposed Death Benefit, the Death Benefit will be increased
automatically by multiplying the Cash Value by the corridor percentage computed
in compliance with the Internal Revenue Code. The corridor percentages
15
<PAGE> 22
under the Policy vary according to the age, sex, and underwriting
classification of the Insured(s), and the resulting Death Benefit determined by
using the corridor percentage will be at least equal to the amount required for
the Policy to be deemed life insurance under Section 7702 of the Internal
Revenue Code. The corridor percentage is calculated using a four percent (4%)
interest rate or, if greater, the contractually guaranteed interest rate and
using mortality charges specified in the prevailing Commissioner's standard
table as of the time the Policy is issued.
GUIDELINE PREMIUM TEST. The guideline premium test limits the amount of
premiums payable under a Policy to a certain amount for an Insured of a
particular age and sex. The test also applies a prescribed corridor percentage
to determine a minimum ratio of Death Benefit to Cash Value.
There are two main differences between the guideline premium test and the
cash value accumulation test. First, the guideline premium test limits the
amount of premium that may be paid into a Policy. No such limits apply under
the cash value accumulation test. (However, any premium that would increase
the net amount at risk is subject to evidence of insurability satisfactory to
KILICO.) Second, the factors that determine the minimum Death Benefit relative
to the Policy's Cash Value are different. Required increases in the minimum
Death Benefit due to growth in Cash Value will generally be greater under the
cash value accumulation test than under the guideline premium test. Owners who
desire to pay premiums in excess of the guideline premium test limitations
should select the cash value accumulation test. Owners who do not desire to
pay premiums in excess of the guideline premium test limitations should
consider the guideline premium test. Applicants for a Policy should consult a
qualified tax adviser in making their Death Benefit selections.
EXAMPLES OF OPTIONS A AND B. The following examples demonstrate the
determination of Death Benefits under Options A and B for the cash value
accumulation test and the guideline premium test. The examples show an
Individual Policy and a Survivorship Policy, with the same Specified Amounts
and Cash Values. The Individual Policy example assumes a male, non-smoker
Insured who is Age 50 and Age 70 at the time of death and that there is no
outstanding Debt. The Survivorship Policy example assumes one male Age 55 and
one female Insured Age 50, and one male Age 75 and one female Insured Age 70,
both non-smokers. The Policy is in its tenth (10th) Policy Year with both
Insureds having attained Age 55 at the time of death, and there is no
outstanding Debt.
<TABLE>
<CAPTION>
INDIVIDUAL POLICY - AGE 50
Cash Value Accumulation Guideline
Test Premium Test
------------------------------------------
<S> <C> <C>
Specified Amount................... $250,000 $250,000
Cash Value......................... $150,000 $150,000
Death Benefit (corridor) percentage 262% 185%
Death Benefit Option A............. $393,000 $277,500
Death Benefit Option B............. $400,000 $400,000
</TABLE>
<TABLE>
<CAPTION>
INDIVIDUAL POLICY - ATTAINED AGE 70
Cash Value Accumulation Guideline
Test Premium Test
------------------------------------------
<S> <C> <C>
Specified Amount................... $1,000,000 $1,000,000
Cash Value......................... $ 700,000 $ 700,000
Death Benefit (corridor) percentage 152% 115%
</TABLE>
16
<PAGE> 23
<TABLE>
<S> <C> <C>
Death Benefit Option A............. $1,064,000 $1,000,000
Death Benefit Option B............. $1,700,000 $1,700,000
</TABLE>
<TABLE>
<CAPTION>
SURVIVORSHIP POLICY - AGES MALE 55 AND FEMALE 50
Cash Value Accumulation Guideline
Test Premium Test
------------------------------------------
<S> <C> <C>
Specified Amount................... $1,000,000 $1,000,000
Cash Value......................... $ 500,000 $ 500,000
Death Benefit (corridor) percentage 337% 185%
Death Benefit Option A............. $1,685,000 $1,000,000
Death Benefit Option B............. $1,685,000 $1,500,000
</TABLE>
<TABLE>
<CAPTION>
SURVIVORSHIP POLICY - ATTAINED AGES MALE 75 AND FEMALE 70
Cash Value Accumulation Guideline
Test Premium Test
------------------------------------------
<S> <C> <C>
Specified Amount................... $2,000,000 $2,000,000
Cash Value......................... $1,500,000 $1,500,000
Death Benefit (corridor) percentage 170% 115%
Death Benefit Option A............. $2,550,000 $2,000,000
Death Benefit Option B............. $3,500,000 $3,500,000
</TABLE>
The Cash Values shown in these examples are illustrative only and not
based on any specific assumed investment return.
All calculations of Death Benefit will be made as of the end of the
Valuation Period during which the Insured or last surviving Insured dies.
Death Benefit proceeds may be paid to a Beneficiary in a lump sum or under a
payment plan offered under the Policy. The Policy should be consulted for
details.
Death Benefits under the Policy will ordinarily be paid within seven days
after KILICO receives all documentation required for such a payment. If the
Policy is a Survivorship Policy, documentation required for payment of the
Death Benefit includes due proof of the first death. Payments may be postponed
in certain circumstances. (See "General Provisions -- Postponement of
Payments").
CHANGES IN DEATH BENEFIT OPTION
After the first Policy Year, an Owner may request that the Death Benefit
under the Policy be changed from Option A to Option B, or from Option B to
Option A. Changes in the Death Benefit option may be made only once per Policy
Year and should be made in writing to KILICO's Home Office. The effective date
of any such change is the next Monthly Processing Date after the change is
accepted.
17
<PAGE> 24
A change in the Death Benefit from Option A to Option B will result in a
reduction in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the Death Benefit payable under Option B at
the time of the change will equal that which would have been payable under
Option A immediately prior to the change. The change in option will affect the
determination of the Death Benefit since Cash Value will then be added to the
new Specified Amount, and the Death Benefit will then vary with Cash Value.
A change in the Death Benefit from Option B to Option A will result in an
increase in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the Death Benefit payable under Option A at
the time of the change will equal that which would have been payable under
Option B immediately prior to the change. However, the change in option will
affect the determination of the Death Benefit since the Cash Value will no
longer be added to the Specified Amount in determining the Death Benefit. From
that point on, the Death Benefit will equal the new Specified Amount (or, if
higher, the Cash Value times the applicable specified percentage).
A change in Death Benefit option may affect the future monthly cost of
insurance charge since this charge varies with the net amount at risk, which
generally is the amount by which the Death Benefit exceeds Cash Value. (See
"Charges and Deductions--Cost of Insurance Charge.") Assuming that the
Policy's Death Benefit would not be equal to Cash Value times a Death Benefit
percentage under either Option A or B, changing from Option B to Option A will
generally decrease the future net amount at risk, and therefore decrease the
future cost of insurance charges. Changing from Option A to Option B will
generally result in a net amount at risk that remains level. Such a change,
however, will result in an increase in the cost of insurance charges over time,
since the cost of insurance rates increase with an Insured's Age.
CHANGES IN SPECIFIED AMOUNT
After the first Policy Year, an Owner may request an increase or decrease
in the Specified Amount under a Policy subject to approval from KILICO. A
change in Specified Amount may only be made once per Policy Year and must be in
an amount at least equal to $25,000 for an Individual Policy and $100,000 for a
Survivorship Policy. Increases are not allowed after an Insured attains age
85. Increasing the Specified Amount could increase the Death Benefit under a
Policy, and decreasing the Specified Amount could decrease the Death Benefit.
(See "Federal Tax Matters.") The amount of change in the Death Benefit will
depend, among other things, upon the Death Benefit option chosen by the Owner
and the degree to which the Death Benefit under a Policy exceeds the Specified
Amount prior to the change. Changing the Specified Amount could affect the
subsequent level of the Death Benefit while the Policy is in force and the
subsequent level of Policy values. An increase in Specified Amount may
increase the net amount at risk under a Policy, which will increase an Owner's
cost of insurance charge. Separate cost of insurance rates apply to increases
in Specified Amount. Conversely, a decrease in Specified Amount may decrease
the net amount at risk, which will decrease an Owner's cost of insurance
charge.
INCREASES. Additional evidence of insurability satisfactory to KILICO
will be required for an increase in Specified Amount. Suicide and
incontestability provisions will apply from the effective date of any increase
in Specified Amount.
DECREASES. Any decrease in Specified Amount will first be applied to the
most recent increases successively, then to the original Specified Amount. A
decrease will not be permitted if the Specified Amount would fall below the
lesser of the initial Specified Amount or $50,000 for an Individual Policy or
$1,000,000 for a Survivorship Policy. If a decrease in the Specified Amount
would result in total premiums paid exceeding the premium limitations
prescribed under tax law to qualify the Policy as a life insurance contract,
KILICO will refund the Policy Owner the amount of such excess above the premium
limitations.
KILICO reserves the right to disallow a requested decrease, and will not
permit a requested decrease, among other reasons, (1) if compliance with the
guideline premium limitations under tax law resulting from the requested
decrease would result in immediate termination of the Policy, or (2) if, to
effect the requested decrease,
18
<PAGE> 25
payments to the Owner would have to be made from Cash Value for compliance with
the guideline premium limitations, and the amount of such payments would
exceed the Surrender Value under the Policy.
Any request for an increase or decrease in Specified Amount must be made
by written application to KILICO's Home Office. It will become effective on
the Monthly Processing Date on or next following KILICO's acceptance of the
request. If the Owner is not the Insured, KILICO will also require the consent
of the Insured(s) before accepting a request.
BENEFITS AT MATURITY
If the Insured is living on the Policy Date anniversary nearest the
Insured's 100th birthday (or, if the Policy is a Survivorship Policy, the last
surviving Insured is living on the Policy Date anniversary nearest the last
surviving Insured's 100th birthday), KILICO will pay the Owner the Surrender
Value of the Policy. On the Maturity Date, the Policy will terminate and
KILICO will have no further obligations under the Policy.
CASH VALUE
The Policy's Cash Value will reflect the investment experience of the
selected Subaccounts, the frequency and amount of premiums paid, transfers
between Subaccounts, withdrawals, any Fixed Account or Loan Account values, and
any charges assessed in connection with the Policy. An Owner may make partial
withdrawals of Cash Value or surrender the Policy and receive the Policy's
Surrender Value, which equals the Cash Value less Debt. (See "Surrender
Privilege.") There is no minimum guaranteed Cash Value.
CALCULATION OF CASH VALUE. The Cash Value of the Policy is the total of
the Policy's Separate Account Value, Fixed Account Value and Loan Account
value. The Cash Value is determined on each Valuation Date. It will first be
calculated on the Policy Date. On that date, the Cash Value equals the initial
premium, less the monthly deductions for the first Policy month. (See "Charges
and Deductions.")
On any Valuation Date during the Policy Year, the Policy's Separate
Account Value in any Subaccount will equal:
(1) The Policy's Separate Account Value in the Subaccount at the
end of the preceding Valuation Period, multiplied by the Investment
Experience Factor (defined below) for the current Valuation Period;
plus
(2) Any net premiums received during the current Valuation Period
which are allocated to the Subaccount; plus
(3) All amounts transferred to the Subaccount, either from another
Subaccount or the Fixed Account or from the Loan Account in
connection with the repayment of a Policy Loan (see "Policy Benefits
and Rights--Policy Loans") during the current Valuation Period;
minus
(4) The pro rata portion of the monthly cost of insurance charge and any
other charges assessed to the Subaccount (see "Charges and
Deductions--Cost of Insurance Charge"); minus
(5) All amounts transferred from the Subaccount during the current
Valuation Period; minus
(6) All amounts withdrawn from the Subaccount during the current
Valuation Period; minus
(7) All amounts loaned from the Subaccount during the current Valuation
Period.
19
<PAGE> 26
There will also be Cash Value in the Loan Account if there is a Policy
Loan outstanding. The Loan Account is credited with amounts transferred from
Subaccounts in connection with Policy Loans. The Loan Account balance accrues
daily interest at a rate equal to the Adjustable Loan Interest Rate reduced by
not more than 1%. (See "Policy Benefits and Rights--Policy Loans.")
The Cash Value in the Fixed Account is credited with interest at the
annual rate declared by KILICO. The annual rate will never be less than 3%.
ACCUMULATION UNIT VALUE. Each Subaccount has a distinct Accumulation Unit
Value. When net premiums or other amounts are allocated to a Subaccount, a
number of units are purchased based on the Accumulation Unit Value of the
Subaccount at the end of the Valuation Period during which the allocation is
made. When amounts are transferred out of, or deducted from, a Subaccount,
units are redeemed in a similar manner.
For each Subaccount, the Accumulation Unit Value was initially set at the
same unit value as the net asset value of a share of the underlying Fund. The
Accumulation Unit Value for each subsequent Valuation Period is the Investment
Experience Factor for that Valuation Period multiplied by the Accumulation Unit
Value for the immediately preceding period. Each Valuation Period has a single
Accumulation Unit Value which applies for each day in the period. The number
of Accumulation Units will not change as a result of investment experience.
The Investment Experience Factor may be greater or less than one; therefore,
the Accumulation Unit Value may increase or decrease.
INVESTMENT EXPERIENCE FACTOR. The investment experience of the Separate
Account is calculated by applying the Investment Experience Factor to the
Separate Account Value in each Subaccount during a Valuation Period. Each
Subaccount has its own distinct Investment Experience Factor. The Investment
Experience Factor of a Subaccount for any Valuation Period is determined by
dividing (1) by (2) and subtracting (3) and (4) from the result, where:
(1) is the net result of:
a. The net asset value per share of the investment held in the
Subaccount determined at the end of the current Valuation
Period; plus
b. the per share amount of any dividend or capital gain
distributions made by the investment held in the Subaccount
division, if the "ex-dividend" date occurs during the
current Valuation Period; plus or minus
c. a credit or charge for any taxes reserved for the current
Valuation Period which KILICO determines to have resulted
from the investment operations of the Subaccount;
(2) is the net asset value per share of the investment held in the
Subaccount, determined at the end of the last prior Valuation
Period;
(3) is the factor representing the Mortality and Expense Risk Charge.
(See "Charges and Deductions--Mortality and Expense Risk Charge.")
(4) is the factor representing the Account Maintenance Fee (See
"Charges and Deductions--Policy and Separate Account Administration
Charges.")
POLICY LOANS
After the first Policy Year, an Owner may by written request to KILICO
borrow all or part of the maximum loan amount of the Policy. The maximum loan
amount is 90% of the Policy's Cash Value, subject to
20
<PAGE> 27
the requirements of the Internal Revenue Code. The amount of any new loan may
not exceed the maximum loan amount less Debt on the date a loan is granted.
The minimum amount of a loan is $500. Any amount due an Owner under a Policy
Loan ordinarily will be paid within 7 days after KILICO receives a loan request
at its Home Office, although payments may be postponed under certain
circumstances. (See "Postponement of Payments," and "Federal Tax Matters.")
On the date a Policy Loan is made, an amount equal to the loan amount will
be transferred from the Separate Account and Fixed Account to the Loan Account.
Unless the Owner directs otherwise, the loaned amount will be deducted from
the Subaccounts and the Fixed Account in proportion to the values that each
bears to the Separate Account Value of the Policy in all of the Subaccounts
plus the Fixed Account Value at the end of the Valuation Period during which
the request is received.
The loan interest will be assessed at an adjustable rate determined by
KILICO at the beginning of each Policy Year. The Policy guarantees that the
loan interest rate will not exceed the greater of the interest rate set forth
in the Policy and a published monthly average, currently Moody's Corporate Bond
Yield Average-Monthly Average Corporates, as published by Moody's Investors
Service, Inc., or any successor to that service, for the calendar month that
ends two months before the loan interest rate is determined by KILICO (the
"Adjustable Loan Interest Rate"). Interest not paid when due will be added to
the loan amount due upon the earlier of the next Policy Date anniversary or
when coverage ceases upon lapse, surrender, death or maturity and bear interest
at the same rate. When interest is added to the loan amount, a transfer in
this amount will be made from the Separate Account and the Fixed Account to the
Loan Account.
Cash Value in the Loan Account will earn interest at a declared rate equal
to the Adjustable Loan Interest Rate reduced by not more than 1%. Such
earnings will be allocated to the Loan Account.
LOAN REPAYMENT. While the Policy is in force, Policy Loans may be repaid
at any time, in whole or in part. At the time of repayment, Cash Value in the
Loan Account equal to the amount of the repayment which exceeds the difference
between interest due and interest earned will be allocated to the Subaccounts
and the Fixed Account according to the Owner's current allocation instructions,
unless otherwise requested by the Owner. Transfers from the Loan Account to
the Separate Account or the Fixed Account as a result of the repayment of Debt
will be allocated at the end of the Valuation Period during which the repayment
is received. Such transfers will not be counted in determining the transfers
made within a 15 day period.
EFFECTS OF POLICY LOAN. Policy Loans decrease Surrender Value and,
therefore, the amount available to pay the charges necessary to keep the Policy
in force. If Surrender Value on the day immediately preceding a Monthly
Processing Date is less than the monthly deductions for the next month, KILICO
will notify the Owner. (See "General Provisions--Written Notices and
Requests.") The Policy will lapse and terminate without value, unless a
sufficient payment is made to KILICO within 61 days of the date such notice is
sent to the Owner. (See "The Policy--Policy Lapse and Reinstatement.")
EFFECT ON INVESTMENT EXPERIENCE. A Policy Loan will have an effect on the
Cash Value of a Policy. The collateral for the loan (the amount held in the
Loan Account) does not participate in the experience of the Subaccounts or the
current interest rate of the Fixed Accounts while the loan is outstanding. If
the interest credited to the Loan Account is more than the amount that would
have been earned in the Subaccounts or the Fixed Account, the Cash Value will,
and the Death Benefit may, be higher as a result of the loan. Conversely, if
the amount credited to the Loan Account is less than would have been earned in
the Subaccounts or the Fixed Account, the Cash Value, as well as the Death
Benefit, may be less.
TAX TREATMENT. If the Policy is treated as a modified endowment contract,
a loan will be taxed in the same way as a loan from an annuity. Therefore, a
loan may be subject to Federal income tax and a 10% tax penalty may apply.
(See "Federal Tax Matters.")
21
<PAGE> 28
SURRENDER PRIVILEGE
While the Insured is living (or, if the Policy is a Survivorship Policy,
at any time prior to the earlier of the death of the last surviving Insured and
the Maturity Date) and provided the Policy is in force, the Owner may surrender
the Policy for its Surrender Value. To surrender the Policy, the Owner must
make written request to KILICO at its Home Office and return the Policy to
KILICO. The Surrender Value is equal to the Cash Value less any Debt.
PARTIAL WITHDRAWALS. After the first Policy Year, an Owner may make
withdrawals of amounts less than the Surrender Value. The minimum amount of
each withdrawal is $500. A withdrawal will decrease the Cash Value by the
amount of the withdrawal and, if Death Benefit Option A is in effect, will
reduce the Specified Amount by the amount of the withdrawal.
FREE-LOOK PERIOD AND EXCHANGE RIGHTS
The Owner may, until the end of the period of time specified in the
Policy, examine the Policy and return it for a refund. The applicable period
of time will depend on the state in which the Policy is issued; however, it
will be at least 10 days from the date the Policy is received by the Owner, or,
45 days after the Owner completes the application for insurance, whichever is
later. The amount of the refund will depend on the state in which the Policy
is issued, but will generally be the sum of the Cash Value in the Subaccounts
and the Fixed Account. An Owner seeking a refund should return the Policy to
KILICO at its Home Office or to the agent who sold the Policy.
In certain states, at any time during the first two years after the Issue
Date, the Owner may exchange the Policy for a non-variable permanent fixed
benefit life insurance policy then currently being offered by KILICO or an
affiliate on the life of the Insured(s). No evidence of insurability will be
required. The amount of the new policy may be, at the election of the Owner,
either the initial Death Benefit or the same net amount at risk as the Policy
on the exchange date. All Debt under the Policy must be repaid and the
surrender of the Policy is required before the exchange is made. The Policy
Date and issue age will be the same as existed under the Policy.
CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUMS
A state and local premium tax charge equal to the actual state tax rate
may be deducted from each premium payment under the Policy prior to allocation
of the net premium. This charge is to reimburse KILICO for the payment of
state premium taxes. State and local premium tax rates range from .75% to 5%.
KILICO expects to pay an average state premium tax rate of approximately 2.5%,
but the actual premium tax attributable to a Policy may be more or less. This
charge may be increased or decreased to reflect any changes in state and local
premium tax rates. In addition, a charge for federal taxes equal to 1% of each
premium payment will be deducted to compensate KILICO for a higher corporate
income tax liability resulting from changes made to the Internal Revenue Code
by the Omnibus Budget Reconciliation Act of 1990.
COST OF INSURANCE CHARGE
A monthly deduction is made from the Subaccounts and the Fixed Account for
the cost of insurance to cover KILICO's anticipated mortality costs. The cost
of insurance charge is deducted monthly in advance and, unless otherwise
requested, is allocated among the Subaccounts and the Fixed Account in
proportion each bears to the Cash Value of the Policy less Debt.
The cost of insurance will be deducted on the Policy Date and on each
Monthly Processing Date thereafter by the cancellation of units. If the
Monthly Processing Date falls on a day other than a Valuation Date, the charge
will be determined on the next Valuation Date. The cost of insurance charge is
determined by multiplying the
22
<PAGE> 29
applicable cost of insurance rate (see below) by the "net amount at risk" for
each Policy month. The net amount at risk is equal to the Death Benefit
divided by 1.0024663 minus the Cash Value on the Monthly Processing Date.
COST OF INSURANCE RATE. The monthly cost of insurance rates are based on
the issue age (or attained age in the case of increases in Specified Amount),
sex, rate class of the Insured(s) and Policy Year. The monthly cost of
insurance rates will be determined by KILICO based on its expectations as to
future mortality experience. Any change in the schedule of rates will apply to
all individuals of the same class as the Insured(s). The cost of insurance
rate may never exceed those shown in the table of guaranteed maximum cost of
insurance rates in the Policy. The guaranteed maximum cost of insurance rates
are based on the 1980 Commissioner's Standard Ordinary Smoker and Non-Smoker
Mortality Tables, Age Nearest Birthday, published by the National Association
of Insurance Commissioners. Separate costs of insurance rates apply to any
increases in Specified Amount.
RATE CLASS. The rate class of an Insured will affect the cost of
insurance rate. KILICO currently places Insureds in premier and preferred rate
classes and rate classes involving a higher mortality risk. The cost of
insurance rates for rate classes involving a higher mortality risk are
multiples of the premier and preferred rates. (See "Charges and
Deductions--Cost of Insurance Rate," above.)
MORTALITY AND EXPENSE RISK CHARGE
A daily charge is deducted from the Subaccounts of the Separate Account
for mortality and expense risks assumed by KILICO. The mortality and expense
risk assumed is that KILICO's estimates of longevity and of the expenses
incurred over the lengthy period the Policy may be in effect--which estimates
are the basis for the level of other charges KILICO makes under the
Policy--will not be correct.
The amount of the mortality and expense risk charge will be determined
based upon the cumulative amount of premiums paid with respect to a Policy,
prior to any deduction for state and local premium tax and federal taxes, and
net of any partial withdrawals or Policy Loans. The following table reflects
the effective annual rates at which the mortality and expense risk charge is
currently deducted. These current rates are subject to change, but the
mortality and expense risk charge is guaranteed never to exceed an effective
annual rate of 0.90% of the average net assets of the Subaccounts of the
Separate Account. The mortality and expense risk charge will be assessed daily
against the average net assets of the Subaccounts of the Separate Account at a
daily rate of the effective annual rate divided by 365. The effects of simple
compounding may result in charges slightly in excess of the effective annual
rate.
<TABLE>
<CAPTION>
CUMULATIVE MORTALITY AND EXPENSE
PREMIUMS PAID RISK CHARGE
------------- -----------
<S> <C>
Up to $100,000 0.65%
$100,001 - $250,000 0.50%
$250,001 - $500,000 0.40%
$500,001 and higher 0.30%
</TABLE>
For the purpose of determining the amount of cumulative premiums paid in
connection with any Policy, KILICO reserves the right to aggregate cumulative
premiums paid in connection with one or more Policies which have a common
grantor, Owner, sponsor (such as in split dollar arrangements), or which
involve some other group arrangement.
POLICY AND SEPARATE ACCOUNT ADMINISTRATION CHARGES
KILICO performs or delegates all administrative functions relative to the
Policies and the Separate Account. Expenses of Policy administration include
those associated with preparing the Policies and confirmations, maintenance of
Owner records, and the cost of other services necessary for Owner servicing.
Separate Account
23
<PAGE> 30
administration expenses include those related to preparation of annual reports
and statements, maintenance of Subaccount records, and filing fees. In
addition, certain expenses, such as administrative personnel costs, mailing
costs, data processing costs, legal fees, accounting fees, and costs
associated with accounting, valuation, regulatory and reporting requirements,
are attributable to both the Policies and maintenance of the Separate Account.
MONTHLY ADMINISTRATIVE CHARGE. The Monthly Administrative Charge is
deducted from the Policy's Cash Value on each Monthly Processing Date in the
amount of $20 per month during the first Policy Year and the first 12 months
following an increase in Specified Amount, and $5 per month at all other times.
ACCOUNT MAINTENANCE FEE. To further defray the costs of the
administrative functions described above, KILICO deducts a daily charge from
the Subaccount of the Separate Account. This charge will be at an effective
annual rate of 0.45% of the average net assets of the Subaccount of the
Separate Account. The Account Maintenance Fee will be assessed daily against
the average net assets of the Subaccount of the Separate Account at a daily
rate of the effective annual rate divided by 365. The effects of simple
compounding may result in fees slightly in excess of the effective annual rate.
Pursuant to its administrative services agreement with KILICO, Bancorp
Services L.L.C. ("BSC") provides certain services to KILICO in connection with
the Policy and management of the Separate Account. BSC receives a fee from
KILICO based on the services it renders. KILICO is solely responsible for
payment of the fee.
In addition, KILICO and its affiliates have other business relationships
with unaffiliated service providers who may have business relationships with
prospective purchasers of the Policy. Thus, for example, KILICO and its
affiliates have certain significant financial arrangements with BSC relating to
the development and implementation of administrative and informational systems,
product design, and the development of marketing materials for the Policy and
other insurance and investment products. BSC may be called upon to perform
other services for KILICO and its affiliates in connection with the sale of the
Policy. KILICO and its affiliates also may enter into other business and
investment arrangements with BSC.
OTHER CHARGES
TAXES. Currently, no charges are made against the Separate Account for
Federal, state or other taxes that may be attributable to the Separate Account.
KILICO may, however, in the future impose charges for Federal income taxes
attributable to the Separate Account. Charges for other taxes, if any,
attributable to the Policy may also be made. (See "Federal Tax Matters.")
CHARGES AGAINST THE FUND. Under the investment advisory agreements
between each Fund, on behalf of the Portfolios, and the investment manager
and/or adviser, such entities provide investment advisory and/or management
services for the Portfolios. The Funds are responsible for the advisory fees
and various other expenses. The investment advisory fees differ with respect
to each of the Portfolios. (See "The Funds.")
Zurich Kemper Investments, Inc. manages the daily investments and business
affairs of each portfolio of the Investors Fund Series specified above, other
than the Value and Small Cap Value Portfolios, subject to the policies
established by the trustees of the Investors Fund Series. For its advisory
services to the Portfolios, ZKI receives compensation monthly at annual rates
equal to .50 of 1%, .55 of 1%, .60 of 1%, .60 of 1%, .55 of 1%, .75 of 1%, .65
of 1%, .60 of 1%, .75 of 1%, .60 of 1%, .60 of 1%, .60 of 1%, .65 of 1%, and
.75% of 1% of the average daily net asset values of the Money Market Portfolio,
the Total Return Portfolio, the High Yield Portfolio, the Growth Portfolio, the
Government Securities Portfolio, the International Portfolio, the Small Cap
Growth Portfolio, the Investment Grade Bond Portfolio, the Value+Growth
Portfolio, the Horizon 20+ Portfolio, the Horizon 10+ Portfolio, the Horizon 5
Portfolio, the Blue Chip Portfolio, and the Global Income Portfolio,
respectively. Dreman Value Advisors, Inc. is the investment manager for the
Value and Small Cap Value Portfolios, for which it is paid a management fee at
an annual rate of .75 of 1% of the average daily net assets value of these
Portfolios. DVA also serves as sub-adviser for the Value+Growth Portfolio
and the Horizon Portfolios. ZKI pays DVA for its services as sub-adviser for
the Value+Growth Portfolio and the Horizon Portfolios a sub-advisory fee,
payable monthly, at an annual rate of .25 of 1% of the average daily net assets
of the Value+Growth Portfolio and at an annual rate of .25 of 1% of the portion
of the average daily net assets of each Horizon Portfolio allocated by ZKI to
DVA for management. ZKI uses the services of Zurich Investment Management
Limited ("ZIML"), an affiliate of ZKI, as a sub-adviser for the Total Return,
High Yield, Growth, International, Small Cap Growth, Investment Grade Bond,
Value+Growth, Horizon, Blue Chip, and Global Income Portfolios. ZKI pays ZIML
for its services a sub-advisory fee, payable monthly at the following annual
rates applied to the portion of the average daily net assets of the applicable
Portfolio allocated by ZKI to ZIML for management: .35 of 1% for the Total
Return, Growth, International, Small Cap Growth, Value+Growth, Horizon and Blue
Chip Portfolios and .30 of 1% for the High Yield, Investment Grade Bond and
Global Income Portfolios.
Evergreen Asset Management Corp. has entered into a sub-advisory
agreement with Lieber & Company for the Evergreen VA Fund, Evergreen VA Growth
and Income Fund, Evergreen VA Foundation Fund, and Evergreen VA Global Leaders
Fund Portfolios of the Evergreen Variable Trust, as described in the
prospectus for the Evergreen Variable Trust. Evergreen Asset is solely
responsible for compensating Lieber & Company. For its services as investment
adviser, Evergreen Asset receives an annual fee equal to the following
percentages of average daily net asset values: Evergreen VA Fund 0.95 of 1%;
Evergreen VA Growth and Income Fund 0.95 of 1%; Evergreen VA Foundation Fund
0.825 of 1%; and Evergreen VA Global Leaders Fund 0.95 of 1%. For its services
as investment adviser to Evergreen VA Strategic Income Fund, Keystone
Investment Management Company receives a fee consisting of 2% of gross
dividend and interest income earned by the Portfolio during each fiscal period,
plus a maximum percentage of 0.45 of 1% of average daily net assets. The
Capital Management Group of First Union National Bank of North Carolina
receives an annual fee equal to 0.60 of 1% of average daily net assets of the
Evergreen VA Aggressive Growth Fund Portfolio for its services as investment
adviser.
Other Expenses range between .04 of 1% and .30 of 1% of average daily
net asset values for the Money Market Portfolio, Total Return Portfolio, High
Yield Portfolio, Growth Portfolio, Government Securities Portfolio,
International Portfolio, Small Cap Growth Portfolio, and Global Income
Portfolio of the Investors Fund Series. Other Expenses are estimated to range
between .20 of 1% and .30 of 1% of average daily net asset values for the
Investment Grade Bond Portfolio, Value Portfolio, Small Cap Value Portfolio,
Value+Growth Portfolio, Horizon 20+ Portfolio, Horizon 10+ Portfolio, Horizon 5
Portfolio, and Blue Chip Portfolio of the Investors Fund Series. Other Expenses,
after any expense waivers and reimbursements, range between .05 of 1% and .40
of 1% of average daily net asset values for the Evergreen Variable Trust.
Absent the expense waivers and reimbursements, Other Expenses would be 1.43%,
1.10%, and .77 of 1%, and Total Expenses would be 2.38%, 2.05%, and 1.72%, for
the Evergreen VA Fund, Evergreen VA Growth and Income Fund, and Evergreen VA
Foundation Fund, respectively. Aggregate Operating Expenses (including
investment advisory fees, but excluding interest, brokerage commissions and
extraordinary expenses) are voluntarily limited to 1.00% of average daily net
assets for the Evergreen VA Global Leaders Fund, Evergreen VA Strategic Income
Fund, and Evergreen VA Aggressive Growth Fund.
KILICO may receive compensation from the investment advisers of the Funds
for services related to the Funds. Such compensation will be consistent with
the services rendered or the cost savings resulting from the arrangement and
therefore may differ between Funds. For more information concerning the
investment advisory fees and other charges against the Portfolios, see the
prospectuses for the funds and the statements of additional information
available upon request.
REDUCTION OF CHARGES. KILICO may reduce certain charges and the minimum
initial premium in special circumstances that result in lower maintenance or
mortality expenses. For example, special circumstances may exist in connection
with group or sponsored arrangements, sales to KILICO policy owners, or sales to
employees or clients of members of the Kemper group of companies. The amounts
of any reductions will reflect the reduced maintenance costs resulting from, or
the different mortality experience expected as a result of, the special
circumstances. Reductions will not be unfairly discriminatory against any
person, including the affected Owners and owners of all other policies funded
by the Separate Account.
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<PAGE> 31
GENERAL PROVISIONS
SETTLEMENT OPTIONS
The Owner, or Beneficiary at the death of the Insured (or last surviving
Insured) if no election by the Owner is in effect, may elect to have all of the
Death Benefit or Surrender Value of this Policy paid in a lump sum or have the
amount applied to one of the Settlement Options. Payments under these options
will not be affected by the investment experience of the Separate Account after
proceeds are applied under a Settlement Option. Payment will be made as
elected by the payee on a monthly, quarterly, semi-annual or annual basis. The
option selected must result in a payment that is at least equal to KILICO's
required minimum, according to rules in effect at the time the option is
chosen. If at any time the payments are less than the minimum payment, KILICO
may increase the period between payments to quarterly, semi-annual or annual so
that the payment is at least equal to KILICO's minimum payment or to make the
payment in one lump sum.
The Cash Value on the day immediately preceding the date on which the
first benefit payment is due will first be reduced by any Debt. The Surrender
Value will be used to determine the benefit payment. The payment will be based
on the Settlement Option elected in accordance with the appropriate settlement
option table.
OPTION 1--INCOME FOR SPECIFIED PERIOD. KILICO will pay income for the
period and payment mode elected, but not less than 5 years nor more than 30
years.
OPTION 2--LIFE INCOME. KILICO will pay a monthly income to the payee
during the payee's lifetime. If this Option is elected, annuity payments
terminate automatically and immediately on the death of the payee without
regard to the number or total amount of payments made. Thus, it is possible
for an individual to receive only one payment if death occurred prior to the
date the second payment was due.
OPTION 3--LIFE INCOME WITH INSTALLMENTS GUARANTEED. KILICO will pay a
monthly income for the guaranteed period elected and thereafter for the
remaining lifetime of the payee. The period elected may only be 5, 10, 15 or
20 years.
OPTION 4--JOINT AND SURVIVOR INCOME. KILICO will pay the full monthly
income while both payees are living. Upon the death of either payee, the
income will continue during the lifetime of the surviving payee. The surviving
payee's income shall be the percentage of such full amount chosen at the time
of election of this option. The percentages available are 50%, 66 2/3%, 75%
and 100%. Payments terminate automatically and immediately upon the death of
the surviving payee without regard to the number or total amount of payments
received.
KILICO's consent is necessary for any other payment methods.
The guaranteed monthly payments are based on an interest rate of 2.50% per
year and, where mortality is involved, the "1983 Table a" individual mortality
table developed by the Society of Actuaries, with a 5-year setback.
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount due upon: (a) Policy termination at the
Maturity Date, (b) surrender of the Policy, (c) payment of any Policy Loan, or
(d) death of the Insured (or last surviving Insured, may be postponed
whenever:
(1) The New York Stock Exchange is closed other than customary
weekend and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by the Commission;
(2) The Commission by order permits postponement for the
protection of Owners; or
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<PAGE> 32
(3) An emergency exists, as determined by the Commission, as a result
of which disposal of securities of the Funds is not reasonably
practicable or it is not reasonably practicable to determine
the value of the net assets of the Separate Account.
Transfers may also be postponed under these circumstances.
Death Benefit payments are generally not subject to deferral. However,
KILICO may defer for up to six months payments of any surrender proceeds,
withdrawal amounts, or loan amounts from the Fixed Account, unless otherwise
required by law.
PAYMENT NOT HONORED BY BANK. The portion of any payment due under the
Policy which is derived from any amount paid to KILICO by check or draft may be
postponed until such time as KILICO determines that such instrument has been
honored by the bank upon which it was drawn.
THE CONTRACT
The Policy, any endorsements, the application, and any supplemental
application(s) constitute the entire contract between KILICO and the Owner.
All statements made by an Insured or contained in the application and any
supplemental application(s) will, in the absence of fraud or misrepresentation,
be deemed representations and not warranties.
Only the President, the Secretary, or an Assistant Secretary of KILICO is
authorized to change or waive the terms of a Policy. Any change or waiver must
be in writing and signed by one of those persons.
MISSTATEMENT OF AGE OR SEX
If the age or sex of an Insured is misstated, the Death Benefit will be
changed to what the cost of insurance on the previous Monthly Processing Date
would have purchased based on the correct sex and age.
INCONTESTABILITY
KILICO may contest the validity of a Policy if any material
misrepresentations are made in the application or any supplemental
application(s). However, a Policy will be incontestable after it has been in
force during the lifetime of the Insured (or, if the Policy is a Survivorship
Policy, during the lifetimes of both Insureds) for two years from the Issue
Date. A new two-year contestability period will apply to increases in
Specified Amount and to reinstatements beginning with the effective date of the
increase or reinstatement.
SUICIDE
Suicide by an Insured, while sane or insane, within two years from the
Issue Date of the Policy is a risk not assumed under the Policy. KILICO's
liability for such suicide is limited to the premiums paid less any withdrawals
and Debt. When the laws of the state in which a Policy is delivered require
less than a two-year period, the period or amount paid will be as stated in
such laws. If the Policy is a Survivorship Policy and there is a surviving
Insured, KILICO will make a new policy available to the surviving Insured,
without evidence of insurability. The new policy will have the same amount of
insurance coverage, issue age, policy date, and rate class as the Policy when
it was issued. A new two-year period will apply to increases in Specified
Amount and to reinstatements beginning with the effective date of the increase
or reinstatement.
ASSIGNMENT
No assignment of a Policy is binding on KILICO until it is received and
accepted by KILICO at its Home Office. KILICO assumes no responsibility for
the validity of the assignment. Any claim under an assignment is
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<PAGE> 33
subject to proof of the extent of the interest of the assignee. If a Policy is
assigned, the rights of the Owner and Beneficiary are subject to the rights of
the assignee of record.
NONPARTICIPATING
The Policy will not pay dividends. It will not participate in any of
KILICO's surplus or earnings.
OWNER AND BENEFICIARY
The Owner may, at any time during the life of the Insured(s) and while the
Policy is in force, designate a new Owner.
Primary and secondary Beneficiaries may be designated by the Owner in the
application. If changed, the primary or secondary Beneficiary is as shown in
the latest change filed with KILICO. If no Beneficiary survives the Insured,
the Insured's estate will be the Beneficiary. If the Policy is a Survivorship
Policy and no Beneficiary is living upon the death of the last surviving
Insured, the estate of the last surviving Insured will be the Beneficiary. The
interest of any Beneficiary may be subject to that of an assignee.
Any change of Owner or Beneficiary must be made in writing in a form
acceptable to KILICO. The change will take effect as of the date the request
is signed. KILICO will not be liable for any payment made or other action
taken before the notice has been received at KILICO's Home Office.
RECORDS AND REPORTS
KILICO or its designee will maintain all records relating to the Separate
Account. KILICO will send Owners, at their last known address of record, an
annual report stating the Death Benefit, the Accumulation Unit Value, the Cash
Value and Surrender Value under the Policy, and indicating any additional
premium payments, partial withdrawals, transfers, Policy Loans and repayments
and charges made during the Policy Year. In addition, Owners will be sent
confirmations and acknowledgments of various transactions. Owners will also be
sent annual and semi-annual reports for the Fund to the extent required by the
1940 Act.
WRITTEN NOTICES AND REQUESTS
Any written notice or request to be sent to KILICO should be sent to its
Home Office, 1 Kemper Drive, Long Grove, Illinois 60049. The notice or request
should include the Policy number and the full name of the Insured(s). Any
notice sent by KILICO to an Owner will be sent to the address shown in the
application unless an address change has been filed with KILICO.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, an Owner may elect to add one or both of
the following optional insurance benefits to the Policy by a Rider at the time
of application for a Policy. These optional benefits are: continuation of the
Policy under an extended Maturity Date and acceleration of the payment of a
portion of the Death Benefit when an Insured is terminally ill. The cost of
any additional insurance benefits will be deducted as part of the monthly
deductions. Certain restrictions may apply. Restrictions and provisions
related to these benefits are more fully described in the applicable rider.
Samples of the provisions are available from KILICO upon written request.
DOLLAR COST AVERAGING
An Owner may predesignate a portion of the Cash Value under a Policy
attributable to the Fixed Account, the Money Market Subaccount or the
Government Securities Subaccount (the designated account is referred to as the
"DCA Account") to be automatically transferred on a monthly basis to one or
more of the other Subaccounts
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<PAGE> 34
and the Fixed Account. An Owner may enroll in this program at the time the
Policy is issued or anytime thereafter by properly completing the Dollar Cost
Averaging enrollment form and returning it to KILICO at its Home Office at
least five (5) business days prior to the 10th day of a month, which is the
date that all Dollar Cost Averaging transfers will be made ("Transfer Date").
Transfers will commence on the first Transfer Date following the Trade
Date if the initial net premium has been allocated to the Money Market
Subaccount. In all other cases transfers will commence on the first Transfer
Date following the Issue, subject to the requirements stated above. Transfers
will be made in the amounts designated by the Policy Owner and must be at least
$500 per Subaccount or Fixed Account. The total Cash Value in the DCA Account
at the time Dollar Cost Averaging is elected must be at least equal to the
greater of $10,000 or the amount designated to be transferred on each Transfer
Date multiplied by the duration selected. Dollar Cost Averaging will cease
automatically if the Cash Value does not equal or exceed the amount designated
to be transferred on each Transfer Date, and the remaining amount will be
transferred.
Dollar Cost Averaging will terminate when (i) the number of designated
monthly transfers has been completed, (ii) the Cash Value attributable to the
DCA Account is insufficient to complete the next transfer, (iii) the Policy
Owner requests termination in writing and such writing is received by KILICO at
its Home Office at least five (5) business days prior to the next Transfer Date
in order to cancel the transfer scheduled to take effect on such date, or (iv)
the Policy is surrendered. KILICO reserves the right to amend Dollar Cost
Averaging on thirty (30) days notice or terminate it at any time.
An Owner may initiate, reinstate or change Dollar Cost Averaging or change
existing Dollar Cost Averaging terms by properly completing the new enrollment
form and returning it to KILICO at its Home Office at least five (5) business
days, (ten (10) business days for Fixed Account transfers), prior to the next
Transfer Date such transfer is to be made.
When utilizing Dollar Cost Averaging, an Owner must be invested in the DCA
Account and may be invested in the Fixed Account and a maximum of eight (8)
other Subaccounts at any given time.
SYSTEMATIC WITHDRAWAL PLAN
KILICO administers a Systematic Withdrawal Plan ("SWP") which allows
certain Policy Owners to preauthorize periodic withdrawals after the first
Policy Year. Policy Owners entering into a SWP agreement instruct KILICO to
withdraw selected amounts from the Fixed Account or from a maximum of two (2)
Subaccounts on a monthly, quarterly, semi-annual or annual basis. Currently
the SWP is available to Policy Owners who request a minimum $500 periodic
payment. The amounts distributed under the SWP are partial withdrawals. (See
"Policy Benefits and Rights--Surrender Privileges.") Withdrawals taken under
the SWP may be subject to income taxes, withholding and tax penalties. (See
"Federal Tax Matters," below.) Policy Owners interested in the SWP may obtain
an application and full information concerning this program and its
restrictions from their representative or KILICO's Home Office. The right is
reserved to amend the SWP on thirty (30) days' notice. The SWP may be
terminated at any time by the Policy Owner or KILICO.
DISTRIBUTION OF POLICIES
The Policy is sold by licensed insurance representatives who represent
KILICO and who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. The Policy is distributed
through the principal underwriter, Investors Brokerage Services, Inc. ("IBS"),
an affiliate of KILICO. IBS is engaged in the sale and distribution of other
variable life policies and annuities. Pursuant to an Underwriting Agreement
between KILICO and IBS, IBS is authorized to enter into Selling Group
Agreements with broker-dealers that are registered under the 1934 Act and are
members of the NASD. IBS is engaged in the sale and distribution of other
variable life policies and annuities.
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<PAGE> 35
The Policy is available for distribution through entities or persons that
provide separate trust or consultative estate and business planning services
for which they charge a fee. The fees are not a part of the Policy and KILICO
is not responsible for the payment of the fees. Under special circumstances
with KILICO's consent, the Policy may be distributed through entities or
persons that do not provide such additional services.
Notwithstanding that no explicit sales load is imposed under the
Policies, KILICO, through IBS, pays compensation, not to exceed 4% of premiums
paid, to selected broker-dealers. Part of the compensation will be used to
cover the broker-dealer's costs including but not limited to those associated
with the provision of sales, training and other marketing support, record
keeping, compliance oversight, and general office related overhead. KILICO,
through IBS and pursuant to a Product and Marketing Support Agreement, may pay
compensation, including marketing allowances to licensed broker-dealers, both
affiliated and unaffiliated, in recognition of the costs and expenses
associated with any or all of the following: product design, distribution
channel development, advanced underwriting, technology development, preparation
of sales material and other collateral marketing support required for the sale
and distribution of the Policies.
FEDERAL TAX MATTERS
The ultimate effect of Federal income taxes on the Policy, on Settlement
Options and on the economic benefit to the Owner, Beneficiary or payee depends
on KILICO's tax status, and upon the tax status of the individual concerned.
KILICO'S TAX STATUS
Under current interpretations of Federal income tax law, KILICO is taxed
as a life insurance company and the operations of the Separate Account are
treated as part of the total operations of KILICO. The operations of the
Separate Account do not materially affect KILICO's Federal income tax liability
because KILICO is allowed a deduction to the extent that net investment income
of the Separate Account is applied to increase Owners' equity. KILICO may
incur state and local taxes attributable to the Separate Account. At present,
these taxes are not significant. Accordingly, KILICO does not charge or credit
the Separate Account for Federal, state or local taxes. Thus, the Separate
Account may realize net investment income, such as interest, dividends or
capital gains, and reinvest such income all without tax consequences to the
Separate Account.
If there is a material change in applicable Federal, state or local law,
however, charges or credits may be made to the Separate Account for Federal,
state or local taxes, or reserves for such taxes, if any, attributable to the
Separate Account. Such charges or credits will be determined independent of
the taxes actually paid by KILICO.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code ("Code") provides that if
certain tests are met, a Policy will be treated as a life insurance policy for
Federal tax purposes. KILICO will monitor compliance with these tests. The
Policy should thus receive the same Federal income tax treatment as fixed
benefit life insurance. As a result, the Death Benefit payable under a Policy
is excludable from gross income of the Beneficiary under Section 101 of the
Code.
Section 7702A of the Code defines modified endowment contracts as those
policies issued or materially changed on or after June 21, 1988 on which the
total premiums paid during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits after seven level
annual premiums. The Code provides for taxation of surrenders, partial
surrenders, loans, collateral assignments and other pre-death distributions
from modified endowment contracts in the same way annuities are taxed.
Modified endowment contract distributions are defined by the Code as amounts
not received as an annuity and are taxable to the extent the cash value of the
policy exceeds, at the time of distribution, the premiums paid into the policy.
In addition, a 10% tax penalty also applies to the taxable portion of such
distributions unless the policy owner is over age 59 1/2 or disabled, or if
other exceptions apply.
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<PAGE> 36
Pre-death distributions from Policies that are not modified endowment
contracts may also result in taxable income. Under Section 7702, if a Partial
Withdrawal is related to a reduction in benefits, special rules apply for
determining whether part or all of the Cash Value so distributed is paid out of
income and taxable as such.
It may not be advantageous to replace existing insurance with Policies
described in this Prospectus. It may also be disadvantageous to purchase a
Policy to obtain additional insurance protection if the purchaser already owns
another variable life insurance policy.
The Policies offered by this Prospectus may or may not be issued as
modified endowment contracts. KILICO will monitor premiums paid and will
notify the Policy Owner when the Policy's non-modified endowment status is in
jeopardy. The Policy Owner may then request that KILICO take whatever steps
are available to avoid treating the Policy as a modified endowment contract if
such is desired. If a Policy is not a modified endowment contract, a cash
distribution during the first 15 years after a Policy is issued which causes a
reduction in death benefits may still become fully or partially taxable to the
Owner pursuant to Section 7702(f)(7) of the Code. The Policy Owner should
carefully consider this potential effect and seek further information before
initiating any changes in the terms of the Policy. Under certain conditions, a
Policy may become a modified endowment as a result of a material change or a
reduction in benefits as defined by Section 7702A(c) of the Code.
In addition to meeting the tests required under Section 7702 and Section
7702A, Section 817(h) of the Code requires that the investments of separate
accounts such as the Separate Account be adequately diversified. Regulations
issued by the Secretary of the Treasury set the standards for measuring the
adequacy of this diversification. A variable life insurance policy that is not
adequately diversified under these regulations would not be treated as life
insurance under Section 7702 of the Code. To be adequately diversified, each
Subaccount of the Separate Account must meet certain tests. KILICO believes
that the investments of the Separate Account meet the applicable
diversification standards.
KILICO will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Subaccount investments
to remain in compliance.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfers between funds, exchanges of funds,
changes in investment objectives of funds or other aspects of the Policies such
that the Policy would no longer qualify as life insurance under Section 7702 of
the Code, KILICO will take whatever steps are available to remain in
compliance.
The Secretary of the Treasury may issue a regulation or a ruling which
will prescribe the circumstances in which a policyowner's control of the
investments of separate accounts such as the Separate Account may cause the
policyowner, rather than the insurance company, to be treated as the owner of
the assets of the separate account. The regulation or ruling could impose
requirements that are not reflected in the Policy, relating, for example, to
such elements of policyowner control as premium allocation, investment
selection, transfer privileges and investments in a subaccount focusing on a
particular investment sector. It has also been suggested that, in certain
circumstances, control over the investment adviser might constitute prohibited
policyowner control. KILICO believes that policyowner control will not exist
under the Policy. Because failure to comply with any such regulation or ruling
presumably would cause earnings on an Owner's interest in the Separate Account
to be includable in the Owner's gross income in the year earned, KILICO has
reserved certain rights to alter the Policy and investment alternatives so as
to comply with such regulation or ruling. KILICO believes that any such
regulation or ruling would apply prospectively. Since the regulation or ruling
has not been issued, there can be no assurance as to the content of such
regulation or ruling or even whether application of the regulation or ruling
will be prospective. For these reasons, Owners are urged to consult with their
own tax advisers.
A total surrender or cancellation of the Policy by lapse may have adverse
tax consequences depending on the circumstances.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
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OTHER CONSIDERATIONS
Because of the complexity of the law in its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Policy or the exercise of elections under a Policy. The above comments
concerning the Federal income tax consequences are not exhaustive and are not
intended as tax advice. Counsel and other competent advisers should be
consulted for more complete information. This discussion is based on KILICO's
understanding of Federal income tax laws as they are currently interpreted by
the Internal Revenue Service. No representation is made as to the likelihood
of continuation of these current laws and interpretations. KILICO also
believes the Policy meets other requirements concerning Owner control over
investments. However, the Secretary of the Treasury has not issued regulations
on this subject. Such regulations, if adopted, could include requirements not
included in the Policy. Because the guidance has not been published, there can
be no assurance as to content or even whether application will be prospective
only. KILICO will make modifications to the Policy to comply with such
regulations.
LEGAL CONSIDERATIONS
On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
The Policy described in this Prospectus contains cost of insurance rates that
distinguish between men and women. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact
of Federal, state and local laws, including Title VII of the Civil Rights Act,
the Equal Pay Act, and NORRIS and subsequent cases on any employment-related
insurance or fringe benefit program before purchasing this Policy.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
KILICO holds the assets of the Separate Account. The assets are kept
segregated and held separate and apart from the general funds of KILICO.
KILICO maintains records of all purchases and redemptions of the shares of each
Portfolio by each of the Subaccounts.
VOTING INTERESTS
To the extent required by law, KILICO will vote a Fund's shares held in
the Separate Account at regular and special shareholder meetings of the Fund in
accordance with instructions received from persons having voting interests in
the corresponding Subaccounts of the Separate Account. If, however, the 1940
Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result KILICO determines that it
is permitted to vote a Fund's shares in its own right, it may elect to do so.
Owners of all Policies participating in each Subaccount shall have voting
interests with respect to that Subaccount, based upon each Owner's
proportionate interest in that Subaccount as measured by units.
Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio of
the Funds.
KILICO will vote shares of the Funds for which it has not received timely
instructions in proportion to the voting instructions that KILICO has received
with respect to all variable policies participating in a portfolio. KILICO
will also vote any Fund shares attributed to amounts it has accumulated in the
Subaccounts in the same proportions that Owners vote.
KILICO may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the subclassification or investment objective
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<PAGE> 38
of the Fund or of one or more of its portfolios or to approve or disapprove an
investment advisory contract for a portfolio of the Fund. In addition, KILICO
itself may disregard voting instructions in favor of changes initiated by an
Owner in the investment policy or the investment adviser of a portfolio of a
Fund if KILICO reasonably disapproves of such changes. A proposed change would
be disapproved only if the change is contrary to state law or prohibited by
state regulatory authorities, or if KILICO determines that the change would
have an adverse effect on its General Account in that the proposed investment
policy for a portfolio may result in overly speculative or unsound investments.
In the event KILICO does disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next annual
report to Owners.
STATE REGULATION OF KILICO
KILICO, a stock life insurance company organized under the laws of
Illinois, is subject to regulation by the Illinois Department of Insurance. An
annual statement is filed with the Director of Insurance on or before March 1st
of each year covering the operations and reporting on the financial condition
of KILICO as of December 31st of the preceding year. Periodically, the
Director of Insurance examines the liabilities and reserves of KILICO and the
Separate Account and certifies to their adequacy, and a full examination of
KILICO's operations is conducted by the National Association of Insurance
Commissioners at least once every three years.
In addition, KILICO is subject to the insurance laws and regulations of
other states within which it is licensed to operate. Generally, the insurance
department of any other state applies the laws of the state of domicile in
determining permissible investments.
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DIRECTORS AND OFFICERS OF KILICO
The directors and principal officers of KILICO are listed below together
with their current positions and their other business experience during the
past five years. The address of each officer and director is 1 Kemper Drive,
Long Grove, Illinois 60049.
<TABLE>
<CAPTION>
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
John B. Scott (52) Chief Executive Officer, President and Director of
Chief Executive Officer since Federal Kemper Life Assurance Company (FKLA) and
February 1992. President since Fidelity Life Association (FLA) since 1988. Chief
November 1993, Director since Executive Officer, President and Director of Zurich
1992. Life Insurance Company of America (ZLICA) and Zurich
Direct, Inc. (ZD) since March 1996. Chairman of the
Board and Director of Investors Brokerage Services,
Inc. (IBS) and Investors Brokerage Services
Insurance Agency, Inc. (IBSIA) since 1993. Chairman
of the Board of FKLA and FLA from April 1988 to
January 1996. Chairman of the Board of KILICO from
February 1992 to January 1996. Executive Vice
President and Director of Kemper Corporation
(K-Corp.) from January 1994 and March 1996,
respectively. Executive Vice President of Kemper
Financial Companies, Inc. from January 1994 to
January 1996 and Director from 1992 to January 1996.
Eliane C. Frye (49) Executive Vice President of FKLA and FLA since 1995.
Executive Vice President since Executive Vice President of ZLICA and ZD since March
1995. 1996. Director of IBS and IBSIA since 1995. Senior
Vice President of KILICO, FKLA and FLA from 1993 to
1995. Vice President of FKLA and FLA from 1988 to
1993.
Frederick L. Blackmon (45) Senior Vice President and Chief Financial Officer of
Senior Vice President and Chief FKLA since December 1995. Senior Vice President and
Financial Officer since December Chief Financial Officer of FLA since January 1996.
1995. Senior Vice President and Chief Financial Officer of
ZLICA since March 1996. Senior Vice President, Chief
Financial Officer and Director of ZD since March
1996. Treasurer and Chief Financial Officer of
K-Corp. since January 1996. Chief Financial Officer
of Alexander Hamilton Life Insurance Company from
April 1989 to November 1995.
James C. Harkensee (38) Senior Vice President of FKLA and FLA since January
Senior Vice President since 1996. Senior Vice President of ZLICA since 1995.
January 1996. Senior Vice President of ZD since 1995. Vice
President of ZLICA from 1992 to 1995. Chief Actuary
of ZLICA from 1991 to 1994. Assistant Vice President
of ZLICA from 1990 to 1992. Vice President of ZD
from 1994 to 1995.
James E. Hohmann (41) Senior Vice President and Chief Actuary of FKLA
Senior Vice President and Chief since December 1995. Senior Vice President and Chief
Actuary since December 1995. Actuary of FLA since January 1996. Senior Vice
President and Chief Actuary of ZLICA since March
1996. Senior Vice President, Chief Actuary and
Director of ZD since March 1996. Managing Principal
(Partner) of Tillinghast-Towers Perrin from January
1991 to December 1995. Consultant/Principal
(Partner) of Tillinghast-Towers Perrin from November
1986 to January 1991.
Edward K. Loughridge (42) Senior Senior Vice President and Corporate Development
Vice President and Corporate Officer of FKLA and FLA since January 1996. Senior
Development Officer since Vice President and Corporate Development Officer for
January 1996. ZLICA and ZD since March 1996. Senior Vice President
of Human Resources of Zurich-American Insurance
Group from February 1992 to March 1996.
</TABLE>
33
<PAGE> 40
<TABLE>
<S> <C>
Philip D. Meserve (47) Senior Vice President of FKLA, FLA, ZLICA and ZD
Senior Vice President since March 1997. Director of IBSIA since March
since March 1997. 1997. Director of IBS since May 1997. Managing
Director of Equitable Distributors from May 1996 to
March 1997. Supervisor at Banker's Trust from April
1995 to April 1996. Senior Vice President of
Fidelity Investments Insurance Services from
February 1992 to March 1995.
Debra P. Rezabek (41) Senior Vice President of FKLA and FLA since March
Vice President since 1995. 1996. Corporate Secretary of FKLA and FLA since
General Counsel since 1993. January 1996. Vice President of KILICO, FKLA and FLA
Corporate Secretary since since 1995. General Counsel and Director of
January 1996. Government Affairs of FKLA and FLA since 1992 and of
KILICO since 1993. Senior Vice President, General
Counsel and Corporate Secretary of ZLICA since March
1996. Senior Vice President, General Counsel,
Corporate Secretary and Director of ZD since March
1996. Secretary of IBS and IBSIA since 1993.
Director of IBS and IBSIA from 1993 to 1996.
Assistant General Counsel of FKLA and FLA from 1988
to 1992. General Counsel and Assistant Secretary of
KILICO, FKLA and FLA from 1992 to 1996. Assistant
Secretary of K-Corp. since January 1996.
George Vlaisavljevich (54) Senior Senior Vice President of FKLA, FLA and ZLICA since
Vice President since October 1996. October 1996. Director of IBS and IBSIA since
October 1996. Executive Vice President of The
Copeland Companies from April 1983 to September
1996.
Loren J. Alter (58) Director of FKLA, FLA and Zurich Kemper Investments,
Director since January 1996. Inc. (ZKI) since January 1996. Director of ZLICA
since May 1979. Executive Vice President of Zurich
Insurance Company since 1979. President, Chief
Executive Officer and Director of K-Corp. since
January 1996.
William H. Bolinder (53) Chairman of the Board and Director of FKLA and FLA
Chairman of the Board and Director since January 1996. Chairman of the Board of ZLICA
since January 1996. and ZD since March 1995. Chairman of the Board of
K-Corp. since January 1996. Vice Chairman and
Director of ZKI since January 1996. Member of the
Corporate Executive Board of Zurich Insurance Group
since October 1994. Chairman of the Board of
American Guarantee and Liability Insurance Company,
Zurich American Insurance Company of Illinois,
American Zurich Insurance Company and Steadfast
Insurance Company since 1995. Chief Executive
Officer of American Guarantee and Liability
Insurance Company, Zurich American Insurance Company
of Illinois, American Zurich Insurance Company and
Steadfast Insurance Company from 1986 to June 1995.
President of Zurich Holding Company of America since
1986. Manager of Zurich Insurance Company, U.S.
Branch since 1986. Underwriter for Zurich American
Lloyds since 1986.
David A. Bowers (50) Executive Vice President, Corporate Secretary &
Director since June 1997. General Counsel of Zurich-American Insurance Group
since August 1985. Vice President, General Counsel
and Secretary of Kemper since March 1996.
Daniel L. Doctoroff (38) Director of FKLA, FLA and K-Corp. since January
Director since January 1996. 1996. Director of ZLICA since March 1996. Managing
Partner of Insurance Partners Advisors, L.P. since
February 1994. Vice President of Keystone, Inc.
since October 1992. Managing Director of Rosecliff
Inc./Oak Hill Partners, Inc. since August 1987.
Director of Bell & Howell Company since 1989;
Specialty Foods Corporation since 1993; and Capstar
Hotel Company since 1995.
Markus Rohrbasser (42) Director of FKLA, FLA and ZLICA since May 1997.
Director since May 1997. Chief Financial Officer and Member of the Corporate
Executive Board of Zurich Insurance Company since
January 1997. Member of Enlarged Corporate Executive
Board and Chief Executive Officer of Union Bank of
Switzerland (North America) from 1992 to 1997.
</TABLE>
34
<PAGE> 41
<TABLE>
<S> <C>
Paul H. Warren (41) Director of FKLA , FLA and K-Corp. since January
Director since January 1996. 1996. Director of ZLICA since March 1996. Partner of
Insurance Partners Advisors, L.P. since March 1994.
Managing Director of International Insurance
Advisors since March 1992. Vice President of J.P.
Morgan from June 1986 to March 1992. Director of
Unionamerica Holdings plc since June 1993;
Unionamerica Insurance Company since September 1993;
Tarquin plc since November 1994; Charman
Underwriting Agencies Ltd. since November 1994; and
Corporate Health Dimensions since March 1997.
</TABLE>
LEGAL MATTERS
All matters of Illinois law pertaining to the Policy, including the
validity of the Policy and KILICO's right to issue the Policy under Illinois
Insurance Law, have been passed upon by Debra P. Rezabek, Senior Vice
President, General Counsel, and Corporate Secretary of KILICO. Katten Muchin &
Zavis, Washington, D.C., has advised KILICO on certain legal matters concerning
Federal securities laws applicable to the issue and sale of Policies.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. KILICO is not a party
in any litigation that is of material importance in relation to its total
assets or that relates to the Separate Account.
EXPERTS
The consolidated balance sheets of KILICO as of December 31, 1996 and
January 4, 1996 and the related consolidated statements of operations,
stockholder's equity, and cash flows for the periods from January 4, 1996 to
December 31, 1996 and for each of the years in the two year period ended
December 31, 1995 have been included herein and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP covering KILICO's financial statements contains an explanatory paragraph
that states as a result of the acquisition of its parent, Kemper Corporation,
the consolidated financial information for the periods after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, is not comparable.
Actuarial matters included in this Prospectus have been examined by Steven
D. Powell, FSA, as stated in the opinion filed as an exhibit to the
registration statement.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies. For further information concerning the Separate Account, KILICO and
the Policy, reference is made to the registration statement as amended with
exhibits. Copies of the registration statement are available from the
Commission upon payment of a fee.
FINANCIAL STATEMENTS
No financial statements are included for the Separate Account. It has not
yet commenced operations, has no assets or liabilities, and has received no
income or incurred any expense. The financial statements of KILICO that are
included should be considered only as bearing upon KILICO's ability to meet its
contractual obligations under the Policy. KILICO's financial statements do not
bear on the investment experience of the assets held in the Separate Account.
KILICO has not provided interim financial statements. There has been no
adverse material change in KILICO's financial position since the dates of the
audited financial statements.
35
103469.6
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder
Kemper Investors Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Kemper
Investors Life Insurance Company and subsidiaries as of December 31, 1996 and as
of January 4, 1996, and the related consolidated statements of operations,
stockholder's equity, and cash flows for the periods from January 4, 1996 to
December 31, 1996 (post-acquisition), and for each of the years in the two-year
period ended December 31, 1995 (pre-acquisition). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 aforementioned post-acquisition consolidated financial
statements present fairly, in all material respects, the financial position of
Kemper Investors Life Insurance Company and subsidiaries as of December 31, 1996
and as of January 4, 1996, and the results of their operations and their cash
flows for the post-acquisition period, in conformity with generally accepted
accounting principles. Further, in our opinion, the aforementioned
pre-acquisition consolidated financial statements present fairly, in all
material respects, the financial position of Kemper Investors Life Insurance
Company and subsidiaries and the results of their operations and their cash
flows for the pre-acquisition periods, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 4, 1996, an investor group as described in Note 1, acquired all of the
outstanding stock of Kemper Investors Life Insurance Company in a business
combination accounted for as a purchase. As a result of the acquisition, the
consolidated financial information for the periods after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, is not comparable.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997
36
<PAGE> 43
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
1996 1996
----------- ----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value (cost:
December 31, 1996, $3,929,650; January 4, 1996,
$3,749,323)............................................... $3,866,431 $3,749,323
Short-term investments...................................... 71,696 372,515
Joint venture mortgage loans................................ 110,971 110,194
Third-party mortgage loans.................................. 106,585 144,450
Other real estate-related investments....................... 50,157 34,296
Policy loans................................................ 288,302 289,390
Other invested assets....................................... 23,507 19,215
---------- ----------
Total investments................................. 4,517,649 4,719,383
Cash........................................................ 2,776 25,811
Accrued investment income................................... 115,199 104,402
Goodwill.................................................... 244,688 254,883
Value of business acquired.................................. 189,639 190,222
Deferred insurance acquisition costs........................ 26,811 --
Federal income tax receivable............................... 3,840 112,646
Reinsurance recoverable..................................... 427,165 502,836
Receivable on sales of securities........................... 32,569 902
Other assets and receivables................................ 30,277 10,540
Assets held in separate accounts............................ 2,127,247 1,761,110
---------- ----------
Total assets...................................... $7,717,860 $7,682,735
========== ==========
LIABILITIES
Future policy benefits...................................... $4,256,521 $4,585,148
Ceded future policy benefits................................ 427,165 502,836
Benefits and claims payable to policyholders................ 36,142 4,535
Other accounts payable and liabilities...................... 59,462 30,030
Deferred income taxes....................................... 60,362 53,472
Liabilities related to separate accounts.................... 2,127,247 1,761,110
---------- ----------
Total liabilities................................. 6,966,899 6,937,131
---------- ----------
Commitments and contingent liabilities
STOCKHOLDER'S EQUITY
Capital stock--$10 par value,
authorized 300,000 shares; outstanding 250,000 shares..... 2,500 2,500
Additional paid-in capital.................................. 761,538 743,104
Unrealized loss on investments.............................. (47,498) --
Retained earnings........................................... 34,421 --
---------- ----------
Total stockholder's equity........................ 750,961 745,604
---------- ----------
Total liabilities and stockholder's equity........ $7,717,860 $7,682,735
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 44
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
PREACQUISITION
----------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
REVENUE
Net investment income....................................... $299,688 $ 348,448 $353,084
Realized investment gains (losses).......................... 13,602 (318,700) (54,557)
Premium income.............................................. 7,822 236 --
Fees and other income....................................... 35,095 38,101 31,950
-------- --------- --------
Total revenue..................................... 356,207 68,085 330,477
-------- --------- --------
BENEFITS AND EXPENSES
Benefits and interest credited to policyholders............. 237,349 245,615 248,494
Commissions, taxes, licenses and fees....................... 28,135 31,793 26,910
Operating expenses.......................................... 24,678 20,837 25,324
Deferral of insurance acquisition costs..................... (27,820) (36,870) (31,852)
Amortization of insurance acquisition costs................. 2,316 14,423 20,809
Amortization of value of business acquired.................. 21,530 -- --
Amortization of goodwill.................................... 10,195 -- --
-------- --------- --------
Total benefits and expenses....................... 296,383 275,798 289,685
-------- --------- --------
Income (loss) before income tax expense (benefit)........... 59,824 (207,713) 40,792
Income tax expense (benefit)................................ 25,403 (74,664) 14,431
-------- --------- --------
Net income (loss)................................. $ 34,421 $(133,049) $ 26,361
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 45
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
PREACQUISITION
-------------------------
DECEMBER 31 JANUARY 4 DECEMBER 31 DECEMBER 31
1996 1996 1995 1994
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
CAPITAL STOCK, beginning and end of period..... $ 2,500 $ 2,500 $ 2,500 $ 2,500
-------- -------- --------- ---------
ADDITIONAL PAID-IN CAPITAL, beginning of
period....................................... 743,104 491,994 491,994 409,423
Capital contributions from parent.............. 18,434 -- -- 82,500
Adjustment to reflect purchase accounting
method....................................... -- 251,110 -- --
Transfer of limited partnership interest to
parent....................................... -- -- -- 71
-------- -------- --------- ---------
End of period........................ 761,538 743,104 491,994 491,994
-------- -------- --------- ---------
UNREALIZED GAIN (LOSS) ON INVESTMENTS,
beginning of period.......................... -- 68,502 (236,443) 93,096
Unrealized gain (loss) on revaluation of
investments, net............................. (47,498) -- 304,945 (329,539)
Adjustment to reflect purchase accounting
method....................................... -- (68,502) -- --
-------- -------- --------- ---------
End of period........................ (47,498) -- 68,502 (236,443)
-------- -------- --------- ---------
RETAINED EARNINGS, beginning of period......... -- 42,880 175,929 149,568
Net income (loss).............................. 34,421 -- (133,049) 26,361
Adjustment to reflect purchase accounting
method....................................... -- (42,880) -- --
-------- -------- --------- ---------
End of period........................ 34,421 -- 42,880 175,929
-------- -------- --------- ---------
Total stockholder's equity........... $750,961 $745,604 $ 605,876 $ 433,980
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 46
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
PREACQUISITION
-------------------------
1996 1995 1994
----------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................... $ 34,421 $(133,049) $ 26,361
Reconcilement of net income (loss) to net cash
provided:
Realized investment losses (gains)............... (13,602) 318,700 54,557
Interest credited and other charges.............. 230,298 237,984 242,591
Deferred insurance acquisition costs............. (25,504) (22,447) (11,043)
Amortization of value of business acquired....... 21,530 -- --
Amortization of goodwill......................... 10,195 -- --
Amortization of discount and premium on
investments.................................... 25,743 4,586 (1,383)
Deferred income taxes............................ (897) 38,423 20,809
Net change in Federal income tax receivable...... 108,806 (86,990) 809
Other, net....................................... (22,283) (29,905) (14,161)
----------- --------- -----------
Net cash provided from operating
activities................................ 368,707 327,302 318,540
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity................ 264,383 320,143 144,717
Fixed maturities sold prior to maturity.......... 891,995 297,637 910,913
Mortgage loans, policy loans and other invested
assets......................................... 168,727 450,573 536,668
Cost of investments purchased or loans originated:
Fixed maturities................................. (1,369,091) (549,867) (1,447,393)
Mortgage loans, policy loans and other invested
assets......................................... (119,044) (131,966) (281,059)
Short-term investments, net......................... 300,819 (168,351) 198,299
Net change in receivable and payable for securities
transactions..................................... (31,667) (1,397) (16,553)
Net reductions in other assets...................... 105 1,996 2,678
----------- --------- -----------
Net cash provided by investing activities... 106,237 218,768 48,270
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits......................................... 141,159 247,778 215,034
Withdrawals...................................... (700,084) (755,917) (652,513)
Capital contributions from parent................... 18,434 -- 82,500
Other............................................... 42,512 (35,309) 3,871
----------- --------- -----------
Net cash used in financing activities....... (497,979) (543,448) (351,108)
----------- --------- -----------
Net increase (decrease) in cash........ (23,035) 2,622 15,702
CASH, beginning of period............................. 25,811 23,189 7,487
----------- --------- -----------
CASH, end of period................................... $ 2,776 $ 25,811 $ 23,189
=========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 47
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Kemper Investors Life Insurance Company and subsidiaries (the "Company")
issues fixed and variable annuity products, variable life, term life and
interest-sensitive life insurance products marketed primarily through a network
of financial institutions, securities brokerage firms, insurance agents and
financial planners. The Company is licensed in the District of Columbia and all
states except New York. The Company is a wholly-owned subsidiary of Kemper
Corporation ("Kemper"). On January 4, 1996, an investor group comprised of
Zurich Insurance Company ("Zurich"), Insurance Partners, L.P. ("IP") and
Insurance Partners Offshore (Bermuda), L.P. (together with IP, "Insurance
Partners") acquired all of the issued and outstanding common stock of Kemper. As
a result of the change in control, Zurich and Insurance Partners own 80 percent
and 20 percent, respectively, of Kemper and therefore the Company.
The financial statements include the accounts of the Company on a
consolidated basis. All significant intercompany balances and transactions have
been eliminated.
PURCHASE ACCOUNTING METHOD
The acquisition of the Company on January 4, 1996, was accounted for using
the purchase method of accounting. The consolidated financial statements of the
Company prior to January 4, 1996, were prepared on a historical cost basis in
accordance with generally accepted accounting principles. The accompanying
financial statements and notes thereto prepared prior to January 4, 1996 have
been labeled "preacquisition". The accompanying consolidated financial
statements of the Company as of January 4, 1996 (the acquisition date) and as of
and for the year ended December 31, 1996, have been prepared in conformity with
the purchase method of accounting. The Company has presented January 4, 1996
(the acquisition date), as the opening purchase accounting balance sheet for
comparative purposes throughout the accompanying financial statements and notes
thereto.
Under purchase accounting, the Company's assets and liabilities have been
marked to their relative fair market values as of the acquisition date. The
difference between the cost of acquiring the Company and the net fair market
values of the Company's assets and liabilities as of the acquisition date has
been recorded as goodwill. The Company is amortizing goodwill on a straight-line
basis over twenty-five years. The allocated cost of acquiring the Company was
$745.6 million and the acquisition resulted in goodwill of $254.9 million as of
January 4, 1996.
The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding goodwill
as of each reporting period. In the event that the Company determines that
goodwill is not recoverable, it would amortize such amounts as additional
goodwill expense in the accompanying financial statements. As of December 31,
1996, the Company believes that no such adjustment is necessary.
Purchase accounting adjustments primarily affected the recorded historical
values of fixed maturities, mortgage loans, other invested assets, deferred
insurance acquisition costs, future policy benefits and deferred income taxes.
Deferred insurance acquisition costs, and the related amortization thereof,
for policies sold prior to January 4, 1996, have been replaced by the value of
business acquired.
The value of business acquired reflects the estimated fair value of the
Company's life insurance business in force and represents the portion of the
cost to acquire the Company that is allocated to the value of the right to
receive future cash flows from insurance contracts existing at the date of
acquisition. Such value is the present value of the actuarially determined
projected cash flows for the acquired policies.
A 15 percent discount rate was used to determine such value and represents
the rate of return required by Zurich and Insurance Partners to invest in the
business being acquired. In selecting the rate of return used to value the
policies purchased, the Company considered the magnitude of the risks associated
with each of the actuarial assumptions used in determining expected future cash
flows, the cost of capital available to fund the acquisition, the perceived
likelihood of changes in insurance regulations and tax laws, the complexity of
the Company's business, and the prices paid (i.e., discount rates used in
determining other life insurance company valuations) on similar blocks of
business sold in recent periods.
41
<PAGE> 48
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The value of the business acquired is amortized over the estimated contract
life of the business acquired in relation to the present value of estimated
gross profits using current assumptions based on an interest rate equal to the
liability or contract rate on the value of business acquired. The estimated
amortization and accretion of interest for the value of business acquired for
each of the years through December 31, 2001 are as follows:
<TABLE>
<CAPTION>
PROJECTED
(IN THOUSANDS) BEGINNING ACCRETION OF ENDING
YEAR ENDED DECEMBER 31 BALANCE AMORTIZATION INTEREST BALANCE
- ----------------------------------------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1996........................................... $190,222 $(31,427) $ 9,897 $168,692
1997........................................... 168,692 (26,330) 10,152 152,514
1998........................................... 152,514 (26,769) 9,085 134,830
1999........................................... 134,830 (26,045) 8,000 116,785
2000........................................... 116,785 (24,288) 6,834 99,331
2001........................................... 99,331 (21,538) 5,867 83,660
</TABLE>
The projected ending balance of the value of business acquired will be
further adjusted to reflect the impact of unrealized gains or losses on fixed
maturities held as available for sale in the investment portfolio. Such
adjustments are not recorded in the Company's net income but rather are recorded
as a credit or charge to stockholder's equity, net of income tax. As of December
31, 1996, this adjustment increased the value of business acquired and
stockholder's equity by approximately $20.9 million and $13.6 million,
respectively.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and liabilities as
well as the disclosure of contingent assets or liabilities at the date of the
financial statements. As a result, actual results reported as revenue and
expenses could differ from the estimates reported in the accompanying financial
statements. As further discussed in the accompanying notes to the consolidated
financial statements, significant estimates and assumptions affect deferred
insurance acquisition costs, the value of business acquired, provisions for real
estate-related losses and reserves, other-than-temporary declines in values for
fixed maturities, the valuation allowance for deferred income taxes and the
calculation of fair value disclosures for certain financial instruments.
LIFE INSURANCE REVENUE AND EXPENSES
Revenue for annuities and interest-sensitive life insurance products
consists of investment income, and policy charges such as mortality, expense and
surrender charges. Expenses consist of benefits and interest credited to
contracts, policy maintenance costs and amortization of deferred insurance
acquisition costs. Also reflected in fees and other income is a ceding
commission experience adjustment received in 1995 as a result of certain
reinsurance transactions entered into by the Company during 1992. (See note
captioned "Reinsurance".)
Premiums for term life policies are reported as earned when due. Profits
for such policies are recognized over the duration of the insurance policies by
matching benefits and expenses to premium income.
DEFERRED INSURANCE ACQUISITION COSTS
The costs of acquiring new business after January 4, 1996, principally
commission expense and certain policy issuance and underwriting expenses, have
been deferred to the extent they are recoverable from estimated future gross
profits on the related contracts and policies. The deferred insurance
acquisition costs for annuities, separate account business and
interest-sensitive life insurance products are being amortized over the
estimated contract life in relation to the present value of estimated gross
profits. Deferred insurance acquisition costs related to such interest-sensitive
products also reflect the estimated impact of unrealized gains or losses on
fixed maturities held as available for sale in the investment portfolio, through
a credit or charge to stockholder's equity, net of income tax. The deferred
insurance acquisition costs for term-life insurance products are being amortized
over the premium paying period of the policies.
42
<PAGE> 49
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE POLICY BENEFITS
Liabilities for future policy benefits related to annuities and
interest-sensitive life contracts reflect net premiums received plus interest
credited during the contract accumulation period and the present value of future
payments for contracts that have annuitized. Current interest rates credited
during the contract accumulation period range from 4.0 percent to 7.5 percent.
Future minimum guaranteed interest rates vary from 3.0 percent to 4.5 percent.
For contracts that have annuitized, interest rates used in determining the
present value of future payments range principally from 3.0 percent to 12.0
percent.
Liabilities for future term life policy benefits have been computed
principally by a net level premium method. Anticipated rates of mortality are
based on the 1975-1980 Select and Ultimate Table modified by Company experience,
including withdrawals. Estimated future investment yields are a level 7 percent
for reinsurance assumed and for direct business, 8 percent for three years; 7
percent for year four; and 6 percent thereafter.
INVESTED ASSETS AND RELATED INCOME
Investments in fixed maturities are carried at fair value. Short-term
investments are carried at cost, which approximates fair value. (See note
captioned "Fair Value of Financial Instruments".)
The amortized cost of fixed maturities is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed and asset-backed securities, over the estimated life of the
security. Such amortization is included in net investment income. Amortization
of the discount or premium from mortgage-backed and asset-backed securities is
recognized using a level effective yield method which considers the estimated
timing and amount of prepayments of the underlying loans and is adjusted to
reflect differences which arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated. To the extent
that the estimated lives of such securities change as a result of changes in
prepayment rates, the adjustment is also included in net investment income. The
Company does not accrue interest income on fixed maturities deemed to be
impaired on an other-than-temporary basis, or on mortgage loans, real estate-
related bonds and other real estate loans where the likelihood of collection of
interest is doubtful.
Mortgage loans are carried at their unpaid balance, net of unamortized
discount and any applicable reserves or write-downs. Other real estate-related
investments net of any applicable reserve and write-downs include notes
receivable from real estate ventures; investments in real estate ventures,
adjusted for the equity in the operating income or loss of such ventures; common
stock carried at fair value and real estate owned carried at fair value.
Real estate reserves are established when declines in collateral values,
estimated in light of current economic conditions and calculated in conformity
with Statement of Financial Accounting Standards ("SFAS") 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN, indicate a likelihood of loss. At year-end
1995, reflecting the Company's change in strategy with respect to its real
estate portfolio, and the disposition thereof, and on January 4, 1996,
reflecting the acquisition of the Company, real estate-related investments were
valued using an estimate of the investments observable market price, net of
estimated costs to sell. Prior to year-end 1995, the Company evaluated its real
estate-related assets (including accrued interest) by estimating the
probabilities of loss utilizing various projections that included several
factors relating to the borrower, property, term of the loan, tenant
composition, rental rates, other supply and demand factors and overall economic
conditions. Generally, at that time, the reserve was based upon the excess of
the loan amount over the estimated future cash flows from the loan, discounted
at the loan's contractual rate of interest taking into consideration the effects
of recourse to, and subordination of loans held by, affiliated non-life realty
companies.
Under purchase accounting, the market value of the Company's policy loans
and other invested assets consisting primarily of venture capital investments
and a leveraged lease, became the Company's new cost basis in such investments.
Investments in policy loans and other invested assets after January 4, 1996 are
carried at cost. Other invested assets also include equity securities, not
related to real estate-related investments, which are carried at fair value.
Realized gains or losses on sales of investments, determined on the basis
of identifiable cost on the disposition of the respective investment,
recognition of other-than-temporary declines in value and changes in real
estate-related reserves and write-downs are included in revenue. Net unrealized
gains or losses on revaluation of
43
<PAGE> 50
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investments are credited or charged to stockholder's equity. Such unrealized
gains are recorded net of deferred income tax expense, while unrealized losses
are not tax benefitted.
SEPARATE ACCOUNT BUSINESS
The assets and liabilities of the separate accounts represent segregated
funds administered and invested by the Company for purposes of funding variable
annuity and variable life insurance contracts for the exclusive benefit of
variable annuity and variable life insurance contract holders. The Company
receives administrative fees from the separate account and retains varying
amounts of withdrawal charges to cover expenses in the event of early
withdrawals by contract holders. The assets and liabilities of the separate
accounts are carried at fair value.
INCOME TAX
The operations of the Company prior to January 4, 1996 have been included
in the consolidated Federal income tax return of Kemper. Income taxes receivable
or payable have been determined on a separate return basis, and payments have
been received from or remitted to Kemper pursuant to a tax allocation
arrangement between Kemper and its subsidiaries, including the Company. The
Company generally had received a tax benefit for losses to the extent such
losses can be utilized in Kemper's consolidated Federal tax return. Subsequent
to January 4, 1996, the Company and its subsidiaries will file separate Federal
income tax returns.
Deferred taxes are provided on the temporary differences between the tax
and financial statement basis of assets and liabilities.
(2) CASH FLOW INFORMATION
The Company defines cash as cash in banks and money market accounts.
Federal income tax refunded by Kemper under the tax allocation arrangement for
the period from January 1, 1996 to January 4, 1996 and for the years ended
December 31, 1995 and 1994 amounted to $108.8 million, $25.2 million and $10.7
million, respectively. The Company paid $28.1 million of Federal income taxes
directly to the United States Treasury Department during 1996.
Not reflected in the statement of cash flows are rollovers of mortgage
loans, other loans and investments totaling approximately $57.0 million in 1994.
44
<PAGE> 51
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME
The Company is carrying its fixed maturity investment portfolio at
estimated fair value as fixed maturities are considered available for sale. The
carrying value (estimated fair value) of fixed maturities compared with
amortized cost, adjusted for other-than-temporary declines in value, were as
follows:
<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
CARRYING AMORTIZED ---------------------
VALUE COST GAINS LOSSES
(in thousands) -------- --------- ----- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 92,238 $ 93,202 $ -- $ (964)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 30,853 31,519 -- (666)
Debt securities issued by foreign governments.......... 105,394 108,456 504 (3,566)
Corporate securities................................... 1,896,615 1,935,511 5,918 (44,814)
Mortgage and asset-backed securities................... 1,741,331 1,760,962 1,990 (21,621)
---------- ---------- ------ --------
Total fixed maturities.......................... $3,866,431 $3,929,650 $8,412 $(71,631)
========== ========== ====== ========
JANUARY 4, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 215,637 $ 215,637 $ -- $ --
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 24,241 24,241 -- --
Debt securities issued by foreign governments.......... 139,361 139,361 -- --
Corporate securities................................... 1,695,268 1,695,268 -- --
Mortgage and asset-backed securities................... 1,674,816 1,674,816 -- --
---------- ---------- ------ --------
Total fixed maturities.......................... $3,749,323 $3,749,323 $ -- $ --
========== ========== ====== ========
</TABLE>
Upon default or indication of potential default by an issuer of fixed
maturity securities, the Company-owned issue(s) of such issuer would be placed
on nonaccrual status and, since declines in fair value would no longer be
considered by the Company to be temporary, would be analyzed for possible
write-down. Any such issue would be written down to its net realizable value
during the fiscal quarter in which the impairment was determined to have become
other than temporary. Thereafter, each issue on nonaccrual status is regularly
reviewed, and additional write-downs may be taken in light of later
developments.
The Company's computation of net realizable value involves judgments and
estimates, so such value should be used with care. Such value determination
considers such factors as the existence and value of any collateral security;
the capital structure of the issuer; the level of actual and expected market
interest rates; where the issue ranks in comparison with other debt of the
issuer; the economic and competitive environment of the issuer and its business;
the Company's view on the likelihood of success of any proposed issuer
restructuring plan; and the timing, type and amount of any restructured
securities that the Company anticipates it will receive.
The Company's $267.7 million real estate portfolio at December 31, 1996
consists of joint venture and third-party mortgage loans and other real
estate-related investments.
At December 31, 1996 and January 4, 1996, total impaired loans were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
1996 1996
(in millions) ----------- ---------
<S> <C> <C>
Impaired loans without reserves--gross...................... $39.8 $--
Impaired loans with reserves--gross......................... 7.6 21.9
----- -----
Total gross impaired loans........................... 47.4 21.9
Reserves related to impaired loans.......................... (4.4) (6.5)
----- -----
Net impaired loans................................... $43.0 $15.4
===== =====
</TABLE>
45
<PAGE> 52
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
Impaired loans without reserves include loans in which the deficit in
equity investments in real estate-related investments is considered in
determining reserves and write-downs. At December 31, 1996, the Company's
deficit in equity investments considered in determining reserves and write-downs
amounted to $5.9 million. The Company had an average balance of $30.8 million
and $124.2 million in impaired loans for 1996 and 1995, respectively. Cash
payments received on impaired loans are generally applied to reduce the
outstanding loan balance.
At December 31, 1996 and January 4, 1996, loans on nonaccrual status
amounted to $43.5 million and $3.5 million, respectively. The Company's
nonaccrual loans are generally included in impaired loans.
At December 31, 1996, securities carried at approximately $6.1 million were
on deposit with governmental agencies as required by law.
At December 31, 1996, the Company had six separate asset-backed securities
included in fixed maturity investments from trusts formed to securitize assets
underwritten by Green Tree Financial Corporation, which in aggregate amounted to
$90.7 million. No other investments exceeded ten percent of the Company's
stockholder's equity at December 31, 1996.
Proceeds from sales of investments in fixed maturities prior to maturity
were $892.0 million, $297.6 million and $910.9 million during 1996, 1995 and
1994, respectively. Gross gains of $9.9 million, $21.2 million and $6.0 million
and gross losses of $16.2 million, $11.9 million and $55.9 million were realized
on sales of fixed maturities in 1996, 1995 and 1994, respectively.
The following table sets forth the maturity aging schedule of fixed
maturity investments at December 31, 1996:
<TABLE>
<CAPTION>
CARRYING AMORTIZED
VALUE COST VALUE
(in thousands) -------- ----------
<S> <C> <C>
One year or less............................................ $ 36,814 $ 36,862
Over one year through five.................................. 643,741 648,811
Over five years through ten................................. 1,170,034 1,200,620
Over ten years.............................................. 274,511 282,395
Securities not due at a single maturity date(1)............. 1,741,331 1,760,962
---------- ----------
Total fixed maturities............................... $3,866,431 $3,929,650
========== ==========
</TABLE>
- ---------------
(1) Weighted average maturity of 4.6 years.
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
PREACQUISITION
-----------------------
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities.................. $250,683 $269,934 $274,231
Dividends on equity securities.............................. 646 681 1,751
Income from short-term investments.......................... 9,130 13,159 10,668
Income from mortgage loans.................................. 20,257 40,494 41,713
Income from policy loans.................................... 20,700 19,658 18,517
Income from other real estate-related investments........... 4,917 15,565 21,239
Income from other loans and investments..................... 2,480 1,555 3,533
-------- -------- --------
Total investment income.............................. 308,813 361,046 371,652
Investment expense.......................................... (9,125) (12,598) (18,568)
-------- -------- --------
Net investment income................................ $299,688 $348,448 $353,084
======== ======== ========
</TABLE>
46
<PAGE> 53
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
Realized gains (losses) for the years ended December 31, 1996, 1995 and
1994, were as follows:
<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
------------------------------------------
PREACQUISITION
--------------------------
1996 1995 1994
(in thousands) ------- --------- --------
<S> <C> <C> <C>
Real estate-related......................................... $17,462 $(325,611) $(41,720)
Fixed maturities............................................ (6,344) 9,336 (49,857)
Equity securities........................................... -- (346) 28,243
Other....................................................... 2,484 (2,079) 8,777
------- --------- --------
Realized investment gains (losses) before income tax
expense (benefit)...................................... 13,602 (318,700) (54,557)
Income tax expense (benefit)................................ 4,761 (111,545) (19,095)
------- --------- --------
Net realized investment gains (losses).................... $ 8,841 $(207,155) $(35,462)
======= ========= ========
</TABLE>
Unrealized gains (losses) are computed below as follows: fixed
maturities--the difference between fair value and amortized cost, adjusted for
other-than-temporary declines in value; equity securities and other--the
difference between fair value and cost. The change in unrealized investment
gains (losses) by class of investment for the years ended December 31, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED GAINS (LOSSES)
------------------------------------------------
PREACQUISITION
--------------------
DECEMBER 31
DECEMBER 31 JANUARY 4 --------------------
1996 1996 1995 1994
(in thousands) ------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
Fixed maturities................................... $(63,219) $-- $351,964 $(351,646)
Equity securities.................................. 1,256 -- 180 (32,710)
Adjustment to deferred insurance acquisition
costs............................................ 1,307 -- (14,277) 11,325
Adjustment to value of business acquired........... 20,947 -- -- --
-------- --- -------- ---------
Unrealized gain (loss) before income tax expense
(benefit)..................................... (39,709) -- 337,867 (373,031)
Income tax expense (benefit)....................... 7,789 -- 32,922 (43,492)
-------- --- -------- ---------
Net unrealized gain (loss) on investments... $(47,498) $-- $304,945 $(329,539)
======== === ======== =========
</TABLE>
(4) UNCONSOLIDATED INVESTEES
At December 31, 1996, the Company, along with other Kemper subsidiaries,
directly held partnership interests in a number of real estate joint ventures.
The Company's direct and indirect real estate joint venture investments are
accounted for utilizing the equity method, with the Company recording its share
of the operating results of the respective partnerships. The Company, as an
equity owner, has the ability to fund, and historically has elected to fund,
operating requirements of certain of the joint ventures. Consolidation
accounting methods are not utilized as the Company, in most instances, does not
own more than 50 percent in the aggregate, and in any event, major decisions of
the partnership must be made jointly by all partners.
As of December 31, 1996 and January 4, 1996, the Company's net equity
investment in unconsolidated investees amounted to $11.7 million and $11.4
million, respectively. The Company's share of net income related to such
unconsolidated investees amounted to $223 thousand for the year ended December
31, 1996, compared with net losses of $453 thousand, and $6.3 million for the
years ended December 31, 1995 and 1994, respectively.
Also at January 4, 1996, the Company had joint venture-related loans
totaling $21.8 million before reserves to partnerships in which Lumbermens
Mutual Casualty Company, an affiliate until August 1993 ("Lumbermens"), had
equity interests. These joint venture-related loans were sold during 1996.
47
<PAGE> 54
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT AND INTEREST RATE RISK
The Company generally strives to maintain a diversified invested asset
portfolio; however, certain concentrations of risk exist in the Company's
ownership of mortgage-backed and asset-backed securities and real estate.
Approximately 36.4 percent of the Company's investment-grade fixed
maturities at December 31, 1996 were mortgage-backed securities, down from 45.7
percent at January 4, 1996, due to sales and paydowns during 1996. These
investments had an average yield of 6.83 percent during 1996 and consisted
primarily of marketable mortgage pass-through securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation and other
investment-grade securities collateralized by mortgage pass-through securities
issued by these entities. The Company has not made any investments in
interest-only or other similarly volatile tranches of mortgage-backed
securities. The Company's mortgage-backed investments are generally of AAA
credit quality, and the markets for these investments have been and are expected
to remain liquid. The Company plans to continue to reduce its holding of such
investments over time.
As a result of purchases during 1996, approximately 8.8 percent of the
Company's investment-grade fixed maturities at December 31, 1996 consisted of
corporate asset-backed securities. The majority of the Company's investments in
asset-backed securities were backed by manufactured housing loans, auto loans
and home equity loans.
Investment income was lower in 1996, compared with both 1995 and 1994,
primarily reflecting purchase accounting adjustments related to the amortization
of premiums on fixed maturity investments. Under purchase accounting, the market
value of the Company's fixed maturity investments as of January 4, 1996 became
the Company's new cost basis in such investments. The difference between the new
cost basis and original par is then amortized against investment income over the
remaining effective lives of the fixed maturity investments. As a result of the
interest rate environment as of January 4, 1996, the market value of the
Company's fixed maturity investments was approximately $133.9 million greater
than original par. The amortization of such premiums reduced investment income
by approximately $22.7 million in 1996, compared with 1995 and 1994.
Future investment income from mortgage-backed securities and other
asset-backed securities may be affected by the timing of principal payments and
the yields on reinvestment alternatives available at the time of such payments.
As a result of purchase accounting adjustments to fixed maturities, most of the
Company's mortgage-backed securities are carried at a premium over par.
Prepayment activity resulting from a decline in interest rates on such
securities purchased at a premium would accelerate the amortization of the
premiums which would result in reductions of investment income related to such
securities. At December 31, 1996, the Company had unamortized premiums and
discounts of $24.7 million and $5.7 million, respectively, related to
mortgage-backed and asset-backed securities. The Company believes that as a
result of the purchase accounting adjustments and the current interest rate
environment, anticipated prepayment activity is expected to result in reductions
to future investment income similar to those reductions experienced by the
Company in 1996.
The Company's real estate portfolio is distributed by geographic location
and property type, as shown in the following two tables:
GEOGRAPHIC DISTRIBUTION AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
California........................ 35.2%
Illinois.......................... 13.5
Hawaii............................ 11.0
Colorado.......................... 7.9
Oregon............................ 7.6
Washington........................ 7.4
Florida........................... 5.4
Texas............................. 4.2
Ohio.............................. 2.7
Other states...................... 5.1
-----
Total................... 100.0%
=====
</TABLE>
DISTRIBUTION BY PROPERTY TYPE AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
Hotel............................. 38.8%
Land.............................. 24.4
Office............................ 14.1
Residential....................... 9.1
Retail............................ 2.6
Industrial........................ 1.0
Other............................. 10.0
-----
Total................... 100.0%
=====
</TABLE>
48
<PAGE> 55
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Real estate markets have been depressed in recent periods in areas where
most of the Company's real estate portfolio is located. Portions of California's
and Hawaii's real estate market conditions have continued to be worse than in
many other areas of the country. Real estate markets in northern California and
Illinois continue to show some stabilization and improvement.
Undeveloped land represented approximately 24.4 percent of the Company's
real estate portfolio at December 31, 1996. To maximize the value of certain
land and other projects, additional development has been proceeding or has been
planned. Such development of existing projects would continue to require
funding, either from the Company or third parties. In the present real estate
markets, third-party financing can require credit enhancing arrangements (e.g.,
standby financing arrangements and loan commitments) from the Company. The
values of development projects are dependent on a number of factors, including
Kemper's and the Company's plans with respect thereto, obtaining necessary
construction and zoning permits and market demand for the permitted use of the
property. The values of certain development projects have been written down as
of December 31, 1995, reflecting changes in plans in connection with the
Zurich-led acquisition of Kemper. There can be no assurance that such permits
will be obtained as planned or at all, nor that such expenditures will occur as
scheduled, nor that Kemper's and the Company's plans with respect to such
projects may not change substantially.
Approximately half of the Company's real estate loans are on properties or
projects where the Company, Kemper, or their affiliates have taken ownership
positions in joint ventures with a small number of partners. (See note captioned
"Unconsolidated Investees".)
At December 31, 1996, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt"), have interests constituted
approximately $101.3 million, or 37.8 percent, of the Company's real estate
portfolio. The Nesbitt ventures primarily consist of eleven hotel properties. At
December 31, 1996, the Company did not have any Nesbitt-related
off-balance-sheet legal funding commitments outstanding.
At December 31, 1996, loans to and investments in a master limited
partnership (the "MLP") between subsidiaries of Kemper and subsidiaries of
Lumbermens, constituted approximately $53.0 million, or 19.8 percent, of the
Company's real estate portfolio. The Company's interest in the MLP is a less
than one percent limited partnership interest and Kemper's interest is 75
percent at December 31, 1996. At December 31, 1996, MLP-related commitments
accounted for approximately $9.4 million of the Company's off-balance-sheet
legal commitments, which the Company expects to fund.
At December 31, 1996, the Company's loans to and investments in projects
with the Prime Group, Inc. or its affiliates totaled approximately $(5.3)
million. Negative amounts represent the Company's share of project related
operating losses in excess of the Company's investment. Prime Group-related
commitments, however, accounted for $145.2 million of the off-balance-sheet
legal commitments at December 31, 1996, of which the Company expects to fund
$15.9 million.
(6) INCOME TAXES
Income tax expense (benefit) was as follows for the years ended December
31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
PREACQUISITION
----------------------
1996 1995 1994
(in thousands) ------- --------- -------
<S> <C> <C> <C>
Current.................................................... $26,300 $(113,087) $(6,898)
Deferred................................................... (897) 38,423 21,329
------- --------- -------
Total............................................ $25,403 $ (74,664) $14,431
======= ========= =======
</TABLE>
Included in the 1995 current tax benefit is the recognition of a net
operating loss carryover at December 31, 1995 which was utilized against taxable
income on Kemper's consolidated short-period Federal income tax return for the
January 1 through January 4, 1996 tax year. Beginning January 5, 1996, the
Company and its subsidiaries will each file a stand alone Federal income tax
return. Previously, the Company had filed a consolidated Federal income tax
return with Kemper. In 1996, the Company and Kemper settled all outstanding
balances under the tax allocation agreement.
49
<PAGE> 56
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
The actual income tax expense (benefit) for 1996, 1995 and 1994 differed
from the "expected" tax expense (benefit) for those years as displayed below.
"Expected" tax expense (benefit) was computed by applying the U.S. Federal
corporate tax rate of 35 percent in 1996, 1995, and 1994 to income (loss) before
income tax expense (benefit).
<TABLE>
<CAPTION>
Preacquisition
---------------------
1996 1995 1994
(in thousands) ------- -------- -------
<S> <C> <C> <C>
Computed expected tax expense (benefit)..................... $20,938 $(72,700) $14,277
Difference between "expected" and actual tax expense
(benefit):
State taxes............................................... 913 (1,370) 645
Amortization of goodwill.................................. 3,568 -- --
Foreign tax credit........................................ -- (183) (155)
Other, net................................................ (16) (411) (336)
------- -------- -------
Total actual tax expense (benefit)................ $25,403 $(74,664) $14,431
======= ======== =======
</TABLE>
Deferred tax assets and liabilities are generally determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company only records deferred tax
assets if future realization of the tax benefit is more likely than not, with a
valuation allowance recorded for the portion that is not likely to be realized.
The Company has established a valuation allowance to reduce the deferred
Federal tax asset related to real estate and other investments to the amount
that, based upon available evidence, is, in management's judgment, more likely
than not to be realized. Any reversals of the valuation allowance are contingent
upon the recognition of future capital gains in the Company's Federal income tax
return or a change in circumstances which causes the recognition of the benefits
to become more likely than not. The change in the valuation allowance is related
solely to the change in the net deferred Federal tax asset or liability from
unrealized gains or losses on investments.
50
<PAGE> 57
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred Federal tax liability were as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------
December 31
December 31 January 4 ---------------------
1996 1996 1995 1994
(in thousands) ----------- --------- --------- --------
<S> <C> <C> <C> <C>
Deferred Federal tax assets:
Unrealized losses on investments............. $ 16,624 $ -- $ -- $ 85,331
Life policy reserves......................... 46,452 46,654 42,512 51,519
Real estate-related.......................... 20,642 27,736 21,920 39,360
Other investment-related..................... 5,409 1,773 1,725 7,435
Other........................................ 8,159 9,750 6,864 6,415
-------- -------- --------- --------
Total deferred Federal tax assets......... 97,286 85,913 73,021 190,060
Valuation allowance.......................... (31,825) (15,201) (15,201) (100,532)
-------- -------- --------- --------
Total deferred Federal tax assets after
valuation allowance..................... 65,461 70,712 57,820 89,528
-------- -------- --------- --------
Deferred Federal tax liabilities:
Deferred insurance acquisition costs......... 9,384 -- 111,523 108,663
Value of business acquired................... 66,373 66,578 -- --
Other investment-related..................... 28,855 37,919 -- --
Unrealized gains on investments.............. -- -- 37,919 --
Depreciation and amortization................ 15,473 15,490 18,767 18,878
Other........................................ 5,738 4,197 2,320 3,351
-------- -------- --------- --------
Total deferred Federal tax liabilities.... 125,823 124,184 170,529 130,892
-------- -------- --------- --------
Net deferred Federal tax liabilities........... $(60,362) $(53,472) $(112,709) $(41,364)
======== ======== ========= ========
</TABLE>
The valuation allowance is subject to future adjustments based on, among
other items, the Company's estimates of future operating earnings and capital
gains.
The tax returns through the year 1986 have been examined by the Internal
Revenue Service ("IRS"). Changes proposed are not material to the Company's
financial position. The tax returns for the years 1987 through 1993 are
currently under examination by the IRS.
(7) RELATED-PARTY TRANSACTIONS
The Company received cash capital contributions of $18.4 million and $82.5
million during 1996 and 1994, respectively.
The Company has loans to joint ventures, consisting primarily of mortgage
loans on real estate, in which the Company and/or one of its affiliates has an
ownership interest. At December 31, 1996 and January 4, 1996, joint venture
mortgage loans totaled $111.0 million and $110.2 million, respectively, and
during 1996, 1995 and 1994, the Company earned interest income on these joint
venture loans of $9.5 million, $19.6 million and $22.0 million, respectively.
All of the Company's personnel are employees of Federal Kemper Life
Assurance Company ("FKLA"), an affiliated company. The Company is allocated
expenses for the utilization of FKLA employees and facilities, the investment
management services of Zurich Kemper Investments, Inc. ("ZKI"), an affiliated
company, and the information systems of Kemper Service Company ("KSvC"), a ZKI
subsidiary, based on the Company's share of administrative, legal, marketing,
investment management, information systems and operation and support services.
During 1996, 1995 and 1994, expenses allocated to the Company from ZKI and KSvC
amounted to $1.7 million, $4.4 million and $6.5 million, respectively. The
Company also paid to ZKI investment management fees of $3.6 million, $3.4
million and $6.0 million during 1996, 1995 and 1994, respectively. In addition,
expenses
51
<PAGE> 58
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) RELATED-PARTY TRANSACTIONS (CONTINUED)
allocated to the Company from FKLA during 1996, 1995 and 1994 amounted to $10.5
million, $14.3 million and $11.1 million, respectively.
During 1995 and 1994, the Company sold certain mortgages and real
estate-related investments, net of reserves, amounting to approximately $3.5
million and $154.0 million, respectively, to an affiliated non-life realty
company, in exchange for cash. No gain or loss was recognized on these sales.
During 1996, the Company purchased approximately $24.5 million of real
estate-related investments from such affiliated non-life realty subsidiaries for
cash. The Company also paid to Kemper real estate subsidiaries $1.8 million in
both 1996 and 1995, related to the management of the Company's real estate
portfolio.
(8) REINSURANCE
In the ordinary course of business, the Company enters into reinsurance
agreements to diversify risk and limit its overall financial exposure to certain
blocks of fixed-rate annuities and to individual death claims. The Company
generally cedes 100 percent of the related annuity liabilities under the terms
of the reinsurance agreements. Although these reinsurance agreements
contractually obligate the reinsurers to reimburse the Company, they do not
discharge the Company from its primary liabilities and obligations to
policyholders. As such, these amounts paid or deemed to have been paid are
recorded on the Company's consolidated balance sheet as reinsurance recoverables
and ceded future policy benefits.
In 1992 and 1991, the Company entered into 100 percent indemnity
reinsurance agreements ceding $515.7 million and $416.3 million, respectively,
of its fixed-rate annuity liabilities to FLA. FLA is a mutual insurance company
that shares common management and common board members with the Company, FKLA
and Kemper. As of December 31, 1996 and January 4, 1996, the reinsurance
recoverable related to the fixed-rate annuity liabilities ceded to FLA amounted
to $427.0 million and $502.8 million, respectively. During 1995, the Company
recorded income of $4.4 million related to a ceding commission experience
adjustment from the 1992 reinsurance agreement.
In December 1996, the Company assumed on a yearly renewable term basis
approximately $14.4 billion (face amount) of term life insurance from FKLA. As a
result of this transaction, the Company recorded premiums and reserves of
approximately $7.3 million. The difference between the cash transferred, which
represents the statutory reserves of the business assumed, and the reserves
recorded under generally accepted accounting principles, of approximately $18.4
million, was deemed to be a capital contribution from Kemper and was recorded as
additional paid-in-capital during 1996.
The Company's retention limit on term life insurance is $300 thousand (face
amount) on the life of any one individual with the excess amounts ceded to
outside reinsurers. The term life insurance business assumed from FKLA during
1996 did not have any individual contracts greater than $300 thousand in face
amount. Reserves ceded to outside reinsurers on the Company's direct business
amounted to approximately $94 thousand as of December 31, 1996.
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
FKLA sponsors a welfare plan that provides medical and life insurance
benefits to its retired and active employees and the Company is allocated a
portion of the costs of providing such benefits. The Company is self insured
with respect to medical benefits, and the plan is not funded except with respect
to certain disability-related medical claims. The medical plan provides for
medical insurance benefits at retirement, with eligibility based upon age and
the participant's number of years of participation attained at retirement. The
plan is contributory for pre-Medicare retirees, and will be contributory for all
retiree coverage for most current employees, with contributions generally
adjusted annually. Postretirement life insurance benefits are noncontributory
and are limited to $10,000 per participant.
The allocated accumulated postretirement benefit obligation accrued by the
Company amounted to $1.7 million and $687 thousand at December 31, 1996 and
January 4, 1996, respectively.
The discount rate used in determining the allocated postretirement benefit
obligation was 7.75 percent and 7.25 percent for 1996 and 1995, respectively.
The assumed health care trend rate used was based on projected
52
<PAGE> 59
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
experience for 1996 and 1997, 10 percent in 1998, gradually declining to 5.0
percent by the year 2001 and remaining at that level thereafter.
A one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of December 31, 1996 and January 4, 1996 by $56 thousand and $146 thousand,
respectively.
During 1995, the Company adopted certain severance-related policies to
provide benefits, generally limited in time, to former or inactive employees
after employment but before retirement. The effect of adopting these policies
was immaterial.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various legal actions for which it establishes
liabilities where appropriate. In the opinion of the Company's management, based
upon the advice of legal counsel, the resolution of such litigation is not
expected to have a material adverse effect on the consolidated financial
statements.
Although none of the Company or its joint venture projects have been
identified as a "potentially responsible party" under Federal environmental
guidelines, inherent in the ownership of or lending to real estate projects is
the possibility that environmental pollution conditions may exist on or near or
relate to properties owned or previously owned on properties securing loans.
Where the Company has presently identified remediation costs, they have been
taken into account in determining the cash flows and resulting valuations of the
related real estate assets. Based on the Company's receipt and review of
environmental reports on most of the projects in which it is involved, the
Company believes its environmental exposure would be immaterial to its
consolidated results of operations. However, the Company may be required in the
future to take actions to remedy environmental exposures, and there can be no
assurance that material environmental exposures will not develop or be
identified in the future. The amount of future environmental costs is impossible
to estimate due to, among other factors, the unknown magnitude of possible
exposures, the unknown timing and extent of corrective actions that may be
required, the determination of the Company's liability in proportion to others
and the extent such costs may be covered by insurance or various environmental
indemnification agreements.
See the note captioned "Financial Instruments--Off-Balance-Sheet Risk"
below for the discussion regarding the Company's loan commitments and standby
financing agreements.
The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during the years
1996 and prior. The Company's financial statements include provisions for all
known assessments that are expected to be levied against the Company as well as
an estimate of amounts (net of estimated future premium tax recoveries) that the
Company believes it will be assessed in the future for which the life insurance
industry has estimated the cost to cover losses to policyholders. The Company is
also contingently liable for any future guaranty fund assessments related to
insolvencies of unaffiliated insurance companies, for which the life insurance
industry has been unable to estimate the cost to cover losses to policyholders.
No specific amount can be reasonably estimated for such insolvencies as of
December 31, 1996.
(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK
At December 31, 1996, the Company had future legal loan commitments and
stand-by financing agreements totaling $197.4 million to support the financing
needs of various real estate investments. To the extent these arrangements are
called upon, amounts loaned would be secured by assets of the joint ventures,
including first mortgage liens on the real estate. The Company's criteria in
making these arrangements are the same as for its mortgage loans and other real
estate investments. The Company presently expects to fund approximately $39.6
million of these arrangements. These commitments are included in the Company's
analysis of real estate-related reserves and write-downs. The fair values of
loan commitments and standby financing agreements are estimated in conjunction
with and using the same methodology as the fair value estimates of mortgage
loans and other real estate-related investments.
53
<PAGE> 60
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) DERIVATIVE FINANCIAL INSTRUMENTS
The Company was party to derivative financial instruments in the normal
course of business for other than trading purposes to hedge exposures in foreign
currency fluctuations related to certain foreign fixed maturity securities held
by the Company. The Company sold its interest in such securities during 1996.
The following table summarizes various information regarding these derivative
financial instruments as of January 4, 1996:
<TABLE>
<CAPTION>
WEIGHTED
(IN THOUSANDS) WEIGHTED AVERAGE
AVERAGE REPRICING
NOTIONAL CARRYING ESTIMATED YEARS TO FREQUENCY
JANUARY 4, 1996 AMOUNT VALUE FAIR VALUE EXPIRATION (DAYS)
--------------- -------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Non-trading foreign exchange forward options................ $43,754 $112 $112 .32 30
</TABLE>
The Company's hedges relating to foreign currency exposure were implemented
using forward contracts on foreign currencies. These are generally
short-duration contracts with U.S. money-center banks. The Company records
realized and unrealized gains and losses on such investments in net income on a
current basis. The amounts of gain (loss) included in net income during 1996,
1995 and 1994 totaled $227 thousand, $(1.0) million and $6.4 million,
respectively.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at specific points in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. A significant portion of the Company's financial instruments are
carried at fair value. (See note captioned "Invested Assets and Related
Income".) Fair value estimates for financial instruments not carried at fair
value are generally determined using discounted cash flow models and assumptions
that are based on judgments regarding current and future economic conditions and
the risk characteristics of the investments. Although fair value estimates are
calculated using assumptions that management believes are appropriate, changes
in assumptions could significantly affect the estimates and such estimates
should be used with care.
Fair value estimates are determined for existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and certain liabilities that are not
considered financial instruments. Accordingly, the aggregate fair value
estimates presented do not represent the underlying value of the Company. For
example, the Company's subsidiaries are not considered financial instruments,
and their value has not been incorporated into the fair value estimates. In
addition, tax ramifications related to the realization of unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Fixed maturities and equity securities: Fair values for fixed maturity
securities and for equity securities were determined by using market quotations,
or independent pricing services that use prices provided by market makers or
estimates of fair values obtained from yield data relating to instruments or
securities with similar characteristics, or fair value as determined in good
faith by the Company's portfolio manager, ZKI.
Cash and short-term investments: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate fair values.
Mortgage loans and other real estate-related investments: Fair values for
mortgage loans and other real estate-related investments were estimated based
upon the investments observable market price, net of estimated costs to sell.
The estimates of fair value should be used with care given the inherent
difficulty of estimating the fair value of real estate due to the lack of a
liquid quotable market.
Other loans and investments: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate fair values. The
fair values of policy loans were estimated by discounting the expected future
cash flows using an interest rate charged on policy loans for similar policies
currently being issued.
Life policy benefits: Fair values of the life policy benefits regarding
investment contracts (primarily deferred annuities) and universal life contracts
were estimated by discounting gross benefit payments, net of contractual
premiums, using the average crediting rate currently being offered in the
marketplace for similar contracts with
54
<PAGE> 61
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
maturities consistent with those remaining for the contracts being valued. The
Company had projected its future average crediting rate in 1996 to be 4.75
percent, while the assumed average market crediting rate was 5.8 percent in
1996.
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1996 and January 4, 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1996 January 4, 1996
------------------------ ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities(1)........................... $3,866,431 $3,866,431 $3,749,323 $3,749,323
Cash and short-term investments............... 74,472 74,472 398,326 398,326
Mortgage loans and other real estate-related
assets..................................... 267,713 267,713 288,940 288,940
Policy loans.................................. 288,302 288,302 289,390 289,390
Other invested assets......................... 23,507 23,507 19,215 19,215
Financial instruments recorded as liabilities:
Life policy benefits.......................... 4,249,264 4,101,588 4,585,148 4,585,148
</TABLE>
- ---------------
(1) Includes $112 thousand carrying value and fair value for January 4, 1996, of
derivative securities used to hedge the foreign currency exposure on certain
specific foreign fixed maturity investments.
(14) STOCKHOLDER'S EQUITY--RETAINED EARNINGS
The maximum amount of dividends which can be paid by insurance companies
domiciled in the State of Illinois to shareholders without prior approval of
regulatory authorities is restricted. The maximum amount of dividends which can
be paid by the Company without prior approval in 1997 is $40.9 million. The
Company paid no cash dividends in 1996, 1995 or 1994.
The Company's net income (loss) and stockholder's equity as determined in
accordance with statutory accounting principles were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $ 37,287 $(64,707) $ 44,491
======== ======== ========
Statutory surplus........................................... $411,837 $383,374 $416,243
======== ======== ========
</TABLE>
55
<PAGE> 62
APPENDIX A
ILLUSTRATIONS OF CASH VALUES,
SURRENDER VALUES,
DEATH BENEFITS
The tables in this Prospectus have been prepared to help show how values
under Individual and Survivorship Policies change with investment experience.
The tables illustrate how Cash Values, Surrender Values, and Death Benefits
under a Policy issued on an Insured or Insureds of given ages would vary over
time if the hypothetical gross investment rates of return were a uniform, after
tax, annual rate of 0%, 6%, and 12%. If the hypothetical gross investment rate
of return averages 0%, 6%, or 12%, but fluctuates over or under those averages
throughout the years, the Cash Values, Surrender Values and Death Benefits may
be different.
The amounts shown for the Cash Value, Surrender Value and Death Benefit as
of each Policy anniversary reflect the fact that the net investment return on
the assets held in the Subaccounts is lower than the gross return. This is
because of a daily charge to the Subaccounts for assuming mortality and expense
risks, which currently varies from 0.30% to 0.65% depending upon the cumulative
amount of premiums paid, but is guaranteed not to exceed an effective annual
rate of 0.90%. In addition, the net investment returns also reflect the
deduction of the Fund investment advisory fees and other Fund expenses (.87%,
the average of the actual and estimated fees and expenses including any caps or
reimbursements). The tables also reflect applicable charges and deductions
including a 3.0% deduction against premiums (1% of which represents the charge
for federal taxes and 2.0% of which represents an estimated charge to
approximate certain taxes and charges imposed by states and other
jurisdictions), a monthly administrative charge of $20 per month for the first
Policy Year and $5 per month thereafter, a daily Account Maintenance Fee which
is equal to an effective annual charge of 0.45%, and monthly charges for
providing insurance protection. For each hypothetical gross investment rate of
return, tables are provided reflecting current and guaranteed cost of insurance
charges. Hypothetical gross average investment rates of return of 0%, 6% and
12% correspond to the following approximate net annual investment rates of
return of -1.52%, 4.48% and 10.48%, on a current basis. On a guaranteed basis,
these rates of return would be -1.77%, 4.23% and 10.23%, respectively. Cost of
insurance rates vary by issue age (or attained age in the case of increases in
Specified Amount), sex, rating class and Policy Year and, therefore, are not
reflected in the approximate net annual investment rate of return above.
Values are shown for Policies which are issued to preferred nonsmoker
Insureds. Values for Policies issued on a basis involving a higher mortality
risk would result in lower Cash Values, Surrender Values and Death Benefits
than those illustrated. Females generally have a more favorable rate structure
than males.
The tables also reflect the fact that no charges for Federal, state or
other income taxes are currently made against the Separate Account. If such a
charge is made in the future, it will take a higher gross rate of return than
illustrated to produce the net after-tax returns shown in the tables.
Upon request, KILICO will furnish an illustration based on the proposed
Insured's or Insureds' age, sex and premium payment requested.
<PAGE> 63
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ----------------------------- ----------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,675 3,004 3,004 250,000 3,197 3,197 250,000 3,391 3,391 250,000
2 7,534 6,103 6,103 250,000 6,683 6,683 250,000 7,286 7,286 250,000
3 11,585 9,096 9,096 250,000 10,263 10,263 250,000 11,525 11,525 250,000
4 15,840 12,003 12,003 250,000 13,959 13,959 250,000 16,161 16,161 250,000
5 20,307 14,827 14,827 250,000 17,779 17,779 250,000 21,237 21,237 250,000
6 24,997 17,574 17,574 250,000 21,732 21,732 250,000 26,802 26,802 250,000
7 29,922 20,240 20,240 250,000 25,820 25,820 250,000 32,903 32,903 250,000
8 35,093 22,829 22,829 250,000 30,049 30,049 250,000 39,595 39,595 250,000
9 40,523 25,336 25,336 250,000 34,420 34,420 250,000 46,935 46,935 250,000
10 46,224 27,760 27,760 250,000 38,936 38,936 250,000 54,987 54,987 250,000
11 52,210 30,098 30,098 250,000 43,602 43,602 250,000 63,822 63,822 250,000
12 58,495 32,343 32,343 250,000 48,414 48,414 250,000 73,515 73,515 250,000
13 65,095 34,485 34,485 250,000 53,371 53,371 250,000 84,149 84,149 250,000
14 72,025 36,524 36,524 250,000 58,478 58,478 250,000 95,824 95,824 250,000
15 79,301 38,466 38,466 250,000 63,749 63,749 250,000 108,658 108,658 251,728
16 86,941 40,187 40,187 250,000 69,078 69,078 250,000 122,643 122,643 275,690
17 94,963 41,803 41,803 250,000 74,575 74,575 250,000 137,931 137,931 300,979
18 103,387 43,326 43,326 250,000 80,259 80,259 250,000 154,652 154,652 327,739
19 112,231 44,751 44,751 250,000 86,138 86,138 250,000 172,938 172,938 356,044
20 121,517 46,073 46,073 250,000 92,216 92,216 250,000 192,929 192,929 386,070
25 175,397 50,780 50,780 250,000 125,833 125,833 250,000 324,226 324,226 566,746
30 244,163 51,196 51,196 250,000 166,206 166,206 257,570 528,311 528,311 818,724
35 331,927 45,042 45,042 250,000 214,245 214,245 299,086 845,531 845,531 1,180,362
40 443,939 27,476 27,476 250,000 269,374 269,374 345,579 1,332,621 1,332,621 1,709,620
45 - - - - - - - - - -
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY
YEAR 28, 0.50% THEREAFTER.
<PAGE> 64
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 65
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ----------------------------- ----------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,675 2,524 2,524 250,000 2,702 2,702 250,000 2,880 2,880 250,000
2 7,534 5,133 5,133 250,000 5,652 5,652 250,000 6,193 6,193 250,000
3 11,585 7,647 7,647 250,000 8,676 8,676 250,000 9,793 9,793 250,000
4 15,840 10,062 10,062 250,000 11,772 11,772 250,000 13,704 13,704 250,000
5 20,307 12,380 12,380 250,000 14,944 14,944 250,000 17,958 17,958 250,000
6 24,997 14,596 14,596 250,000 18,187 18,187 250,000 22,582 22,582 250,000
7 29,922 16,708 16,708 250,000 21,500 21,500 250,000 27,611 27,611 250,000
8 35,093 18,714 18,714 250,000 24,884 24,884 250,000 33,086 33,086 250,000
9 40,523 20,614 20,614 250,000 28,340 28,340 250,000 39,050 39,050 250,000
10 46,224 22,400 22,400 250,000 31,863 31,863 250,000 45,548 45,548 250,000
11 52,210 24,071 24,071 250,000 35,454 35,454 250,000 52,637 52,637 250,000
12 58,495 25,616 25,616 250,000 39,104 39,104 250,000 60,368 60,368 250,000
13 65,095 27,023 27,023 250,000 42,804 42,804 250,000 68,801 68,801 250,000
14 72,025 28,281 28,281 250,000 46,548 46,548 250,000 78,008 78,008 250,000
15 79,301 29,375 29,375 250,000 50,322 50,322 250,000 88,065 88,065 250,000
16 86,941 30,294 30,294 250,000 54,120 54,120 250,000 99,065 99,065 250,000
17 94,963 31,024 31,024 250,000 57,932 57,932 250,000 111,112 111,112 250,000
18 103,387 31,557 31,557 250,000 61,755 61,755 250,000 124,296 124,296 263,409
19 112,231 31,882 31,882 250,000 65,584 65,584 250,000 138,577 138,577 285,302
20 121,517 31,976 31,976 250,000 69,403 69,403 250,000 154,011 154,011 308,192
21 131,268 31,815 31,815 250,000 73,197 73,197 250,000 170,680 170,680 332,108
22 141,507 31,372 31,372 250,000 76,952 76,952 250,000 188,666 188,666 357,125
23 152,257 30,609 30,609 250,000 80,643 80,643 250,000 208,051 208,051 383,293
24 163,545 29,480 29,480 250,000 84,241 84,241 250,000 228,917 228,917 410,678
25 175,397 27,931 27,931 250,000 87,716 87,716 250,000 251,348 251,348 439,357
26 187,842 25,914 25,914 250,000 91,041 91,041 250,000 275,438 275,438 469,429
27 200,909 23,382 23,382 250,000 94,194 94,194 250,000 301,296 301,296 500,965
28 214,629 20,277 20,277 250,000 97,149 97,149 250,000 329,035 329,035 534,090
29 229,036 16,538 16,538 250,000 99,878 99,878 250,000 358,781 358,781 568,883
30 244,163 12,081 12,081 250,000 102,342 102,342 250,000 390,660 390,660 605,406
31 260,046 6,777 6,777 250,000 104,479 104,479 250,000 424,782 424,782 643,757
32 276,723 315 315 250,000 106,118 106,118 250,000 461,111 461,111 683,827
33 294,234 0 0 0 107,329 107,329 250,000 499,986 499,986 726,230
34 - - - - 107,894 107,894 250,000 541,354 541,354 770,564
35 - - - - 107,666 107,666 250,000 585,295 585,295 817,071
36 - - - - 106,496 106,496 250,000 631,937 631,937 866,006
37 - - - - 104,207 104,207 250,000 681,428 681,428 917,542
38 - - - - 100,582 100,582 250,000 733,951 733,951 971,751
39 - - - - 95,358 95,358 250,000 789,727 789,727 1,028,935
40 - - - - 88,166 88,166 250,000 848,968 848,968 1,089,141
</TABLE>
<PAGE> 66
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
41 - - - - 78,471 78,471 250,000 911,836 911,836 1,152,560
42 - - - - 65,524 65,524 250,000 978,476 978,476 1,219,181
43 - - - - 48,253 48,253 250,000 1,048,975 1,048,975 1,289,190
44 - - - - 25,142 25,142 250,000 1,123,398 1,123,398 1,362,682
45 - - - - 0 0 0 1,201,842 1,201,842 1,440,047
46 - - - - - - - 1,284,489 1,284,489 1,521,477
47 - - - - - - - 1,371,588 1,371,588 1,607,364
48 - - - - - - - 1,463,465 1,463,465 1,697,912
49 - - - - - - - 1,560,569 1,560,569 1,793,562
50 - - - - - - - 1,663,387 1,663,387 1,894,598
51 - - - - - - - 1,772,527 1,772,527 2,001,183
52 - - - - - - - 1,888,731 1,888,731 2,113,679
53 - - - - - - - 2,012,879 2,012,879 2,232,484
54 - - - - - - - 2,146,116 2,146,116 2,357,938
55 - - - - - - - 2,289,459 2,289,459 2,489,787
56 - - - - - - - 2,443,373 2,443,373 2,627,847
57 - - - - - - - 2,607,393 2,607,393 2,770,355
58 - - - - - - - 2,777,861 2,777,861 2,913,976
59 - - - - - - - 2,950,845 2,950,845 3,058,846
60 - - - - - - - 3,166,198 3,166,198 3,250,102
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.90% IN ALL POLICY
YEARS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 67
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ----------------------------- ----------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ -------- -------- --------- -------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,675 3,004 3,004 250,000 3,197 3,197 250,000 3,391 3,391 250,000
2 7,534 6,103 6,103 250,000 6,683 6,683 250,000 7,286 7,286 250,000
3 11,585 9,096 9,096 250,000 10,263 10,263 250,000 11,525 11,525 250,000
4 15,840 12,003 12,003 250,000 13,959 13,959 250,000 16,161 16,161 250,000
5 20,307 14,827 14,827 250,000 17,779 17,779 250,000 21,237 21,237 250,000
6 24,997 17,574 17,574 250,000 21,732 21,732 250,000 26,802 26,802 250,000
7 29,922 20,240 20,240 250,000 25,820 25,820 250,000 32,903 32,903 250,000
8 35,093 22,829 22,829 250,000 30,049 30,049 250,000 39,595 39,595 250,000
9 40,523 25,336 25,336 250,000 34,420 34,420 250,000 46,935 46,935 250,000
10 46,224 27,760 27,760 250,000 38,936 38,936 250,000 54,987 54,987 250,000
11 52,210 30,098 30,098 250,000 43,602 43,602 250,000 63,822 63,822 250,000
12 58,495 32,343 32,343 250,000 48,414 48,414 250,000 73,515 73,515 250,000
13 65,095 34,485 34,485 250,000 53,371 53,371 250,000 84,149 84,149 250,000
14 72,025 36,524 36,524 250,000 58,478 58,478 250,000 95,824 95,284 250,000
15 79,301 38,466 38,466 250,000 63,749 63,749 250,000 108,658 108,658 250,000
16 86,941 40,187 40,187 250,000 69,078 69,078 250,000 122,693 122,693 250,000
17 94,963 41,803 41,803 250,000 74,575 74,575 250,000 138,148 138,148 250,000
18 103,387 43,326 43,326 250,000 80,259 80,259 250,000 155,189 155,189 250,000
19 112,231 44,751 44,751 250,000 86,138 86,138 250,000 173,992 173,992 250,000
20 121,517 46,073 46,073 250,000 92,216 92,216 250,000 194,744 194,744 260,956
25 175,397 50,780 50,780 250,000 125,833 125,833 250,000 333,598 333,598 406,989
30 244,163 51,196 51,196 250,000 166,249 166,249 250,000 556,461 556,461 645,495
35 331,927 45,042 45,042 250,000 217,236 217,236 250,000 917,418 917,418 981,638
40 443,939 27,476 27,476 250,000 283,099 283,099 297,254 1,501,814 1,501,814 1,576,905
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY
YEAR 28, 0.50% THEREAFTER.
<PAGE> 68
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 69
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ----------------------------- ----------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,675 2,524 2,524 250,000 2,702 2,702 250,000 2,880 2,880 250,000
2 7,534 5,133 5,133 250,000 5,652 5,652 250,000 6,193 6,193 250,000
3 11,585 7,647 7,647 250,000 8,676 8,676 250,000 9,793 9,793 250,000
4 15,840 10,062 10,062 250,000 11,772 11,772 250,000 13,704 13,704 250,000
5 20,307 12,380 12,380 250,000 14,944 14,944 250,000 17,958 17,958 250,000
6 24,997 14,596 14,596 250,000 18,187 18,187 250,000 22,582 22,582 250,000
7 29,922 16,708 16,708 250,000 21,500 21,500 250,000 27,611 27,611 250,000
8 35,093 18,714 18,714 250,000 24,884 24,884 250,000 33,086 33,086 250,000
9 40,523 20,614 20,614 250,000 28,340 28,340 250,000 39,050 39,050 250,000
10 46,224 22,400 22,400 250,000 31,863 31,863 250,000 45,548 45,548 250,000
11 52,210 24,071 24,071 250,000 35,454 35,454 250,000 52,637 52,637 250,000
12 58,495 25,616 25,616 250,000 39,104 39,104 250,000 60,368 60,368 250,000
13 65,095 27,023 27,023 250,000 42,804 42,804 250,000 68,801 68,801 250,000
14 72,025 28,281 28,281 250,000 46,548 46,548 250,000 78,008 78,008 250,000
15 79,301 29,375 29,375 250,000 50,322 50,322 250,000 88,065 88,065 250,000
16 86,941 30,294 30,294 250,000 54,120 54,120 250,000 99,065 99,065 250,000
17 94,963 31,024 31,024 250,000 57,932 57,932 250,000 111,112 111,112 250,000
18 103,387 31,557 31,557 250,000 61,755 61,755 250,000 124,332 124,332 250,000
19 112,231 31,882 31,882 250,000 65,584 65,584 250,000 138,869 138,869 250,000
20 121,517 31,976 31,976 250,000 69,403 69,403 250,000 154,881 154,881 250,000
21 131,268 31,815 31,815 250,000 73,197 73,197 250,000 172,556 172,556 250,000
22 141,507 31,372 31,372 250,000 76,952 76,952 250,000 192,116 192,116 250,000
23 152,257 30,609 30,609 250,000 80,643 80,643 250,000 213,705 213,705 269,269
24 163,545 29,480 29,480 250,000 84,241 84,241 250,000 237,296 237,296 294,248
25 175,397 27,931 27,931 250,000 87,716 87,716 250,000 263,068 263,068 320,943
26 187,842 25,914 25,914 250,000 91,041 91,041 250,000 291,231 291,231 349,477
27 200,909 23,382 23,382 250,000 94,194 94,194 250,000 321,946 321,946 383,115
28 214,629 20,277 20,277 250,000 97,149 97,149 250,000 355,441 355,441 419,420
29 229,036 16,538 16,538 250,000 99,878 99,878 250,000 391,965 391,965 458,599
30 244,163 12,081 12,081 250,000 102,342 102,342 250,000 431,791 431,791 500,878
31 260,046 6,777 6,777 250,000 104,479 104,479 250,000 475,208 475,208 546,490
32 276,723 315 315 250,000 106,118 106,118 250,000 522,697 522,697 590,647
33 294,234 0 0 0 107,329 107,329 250,000 574,787 574,787 638,014
34 -- -- -- -- 107,894 107,894 250,000 631,971 631,971 688,849
35 -- -- -- -- 107,666 107,666 250,000 694,886 694,886 743,528
36 -- -- -- -- 106,496 106,496 250,000 764,304 764,304 802,520
37 -- -- -- -- 104,207 104,207 250,000 840,025 840,025 882,027
38 -- -- -- -- 100,582 100,582 250,000 922,575 922,575 968,704
39 -- -- -- -- 95,358 95,358 250,000 1,012,522 1,012,522 1,063,148
40 -- -- -- -- 88,166 88,166 250,000 1,110,463 1,110,463 1,165,986
</TABLE>
<PAGE> 70
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
41 -- -- -- -- 78,471 78,471 250,000 1,217,017 1,217,017 1,277,867
42 -- -- -- -- 65,524 65,524 250,000 1,332,819 1,332,819 1,399,460
43 -- -- -- -- 48,253 48,253 250,000 1,458,510 1,458,510 1,531,436
44 -- -- -- -- 25,142 25,142 250,000 1,594,734 1,594,734 1,674,470
45 -- -- -- -- 0 0 0 1,742,156 1,742,156 1,829,264
46 -- -- -- -- -- -- -- 1,901,474 1,901,474 1,996,548
47 -- -- -- -- -- -- -- 2,073,421 2,073,421 2,177,092
48 -- -- -- -- -- -- -- 2,258,753 2,258,753 2,371,691
49 -- -- -- -- -- -- -- 2,458,276 2,458,276 2,581,190
50 -- -- -- -- -- -- -- 2,672,781 2,672,781 2,806,420
51 -- -- -- -- -- -- -- 2,903,027 2,903,027 3,048,178
52 -- -- -- -- -- -- -- 3,158,262 3,158,262 3,284,593
53 -- -- -- -- -- -- -- 3,442,794 3,442,794 3,546,078
54 -- -- -- -- -- -- -- 3,761,966 3,761,966 3,837,205
55 -- -- -- -- -- -- -- 4,122,515 4,122,515 4,163,740
56 -- -- -- -- -- -- -- 4,529,361 4,529,361 4,529,361
57 -- -- -- -- -- -- -- 4,975,996 4,975,996 4,975,996
58 -- -- -- -- -- -- -- 5,466,313 5,466,313 5,466,313
59 -- -- -- -- -- -- -- 6,004,582 6,004,582 6,004,582
60 -- -- -- -- -- -- -- 6,595,494 6,595,494 6,595,494
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.09% IN ALL POLICY
YEARS.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 71
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ------------------------------- ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36,750 31,282 31,282 1,000,000 33,255 33,255 1,000,000 35,230 35,230 1,000,000
2 75,338 61,441 61,441 1,000,000 67,336 67,336 1,000,000 73,471 73,471 1,000,000
3 115,854 90,209 90,209 1,000,000 101,994 101,994 1,000,000 114,758 114,758 1,000,000
4 158,397 117,883 117,883 1,000,000 137,551 137,551 1,000,000 159,725 159,725 1,000,000
5 203,067 144,337 144,337 1,000,000 173,920 173,920 1,000,000 208,655 208,655 1,000,000
6 249,970 170,102 170,102 1,000,000 211,672 211,672 1,000,000 262,527 262,527 1,000,000
7 299,219 194,900 194,900 1,000,000 250,607 250,607 1,000,000 321,641 321,641 1,000,000
8 350,930 218,897 218,897 1,000,000 291,025 291,025 1,000,000 386,930 386,930 1,000,000
9 405,226 241,914 241,914 1,000,000 332,811 332,811 1,000,000 458,896 458,896 1,000,000
10 462,238 263,682 263,682 1,000,000 375,831 375,831 1,000,000 538,211 538,211 1,000,000
11 522,099 283,903 283,903 1,000,000 419,967 419,967 1,000,000 625,737 625,737 1,000,000
12 584,954 302,756 302,756 1,000,000 465,534 465,534 1,000,000 722,494 722,494 1,071,459
13 650,952 320,199 320,199 1,000,000 512,699 512,699 1,000,000 828,137 828,137 1,202,869
14 720,250 336,372 336,372 1,000,000 561,801 561,801 1,000,000 943,481 943,481 1,342,951
15 793,012 350,915 350,915 1,000,000 613,248 613,248 1,000,000 1,069,894 1,069,894 1,493,571
16 869,413 363,807 363,807 1,000,000 667,121 667,121 1,000,000 1,207,700 1,207,700 1,655,032
17 949,633 375,366 375,366 1,000,000 724,020 724,020 1,000,000 1,358,163 1,358,163 1,828,766
18 1,033,865 385,478 385,478 1,000,000 783,812 783,812 1,037,767 1,522,381 1,522,381 2,015,633
19 1,122,308 394,030 394,030 1,000,000 845,439 845,439 1,101,523 1,701,554 1,701,554 2,216,955
20 1,215,174 400,894 400,894 1,000,000 908,941 908,941 1,166,080 1,897,003 1,897,003 2,433,665
25 1,753,971 404,323 404,323 1,000,000 1,256,604 1,256,604 1,505,662 3,174,708 3,174,708 3,803,935
30 2,441,628 326,917 326,917 1,000,000 1,659,586 1,659,586 1,890,268 5,143,456 5,143,456 5,858,396
35 3,319,271 33,564 33,564 1,000,000 2,123,895 2,123,895 2,309,736 8,163,406 8,163,406 8,877,704
40 - - - - 2,696,073 2,696,073 2,767,519 12,972,611 12,972,611 13,316,386
45 - - - - - - - - - -
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY
YEAR 2, 0.50% IN POLICY YEARS 3 THROUGH 7, 0.40% IN POLICY YEARS 8
THROUGH 14, AND 0.30% THEREAFTER.
(6) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL
PREMIUM PAYMENT.
<PAGE> 72
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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 73
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM
PAID 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ ------------------------------ -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36,750 20,767 20,767 1,000,000 22,407 22,407 1,000,000 24,055 24,055 1,000,000
2 75,338 40,267 40,267 1,000,000 44,862 44,862 1,000,000 49,674 49,674 1,000,000
3 115,854 58,212 58,212 1,000,000 67,069 67,069 1,000,000 76,735 76,735 1,000,000
4 158,397 74,470 74,470 1,000,000 88,881 88,881 1,000,000 105,288 105,288 1,000,000
5 203,067 88,901 88,901 1,000,000 110,148 110,148 1,000,000 135,401 135,401 1,000,000
6 249,970 101,385 101,385 1,000,000 130,738 130,738 1,000,000 167,202 167,202 1,000,000
7 299,219 111,829 111,829 1,000,000 150,556 150,556 1,000,000 200,897 200,897 1,000,000
8 350,930 120,106 120,106 1,000,000 169,479 169,479 1,000,000 236,725 236,725 1,000,000
9 405,226 126,086 126,086 1,000,000 187,388 187,388 1,000,000 275,001 275,001 1,000,000
10 462,238 129,567 129,567 1,000,000 204,106 204,106 1,000,000 316,078 316,078 1,000,000
11 522,099 130,212 130,212 1,000,000 219,338 219,338 1,000,000 360,317 360,317 1,000,000
12 584,954 127,060 127,060 1,000,000 232,228 232,228 1,000,000 407,778 407,778 1,000,000
13 650,952 120,570 120,570 1,000,000 243,205 243,205 1,000,000 459,746 459,746 1,000,000
14 720,250 109,477 109,477 1,000,000 251,195 251,195 1,000,000 516,613 516,613 1,000,000
15 793,012 92,957 92,957 1,000,000 255,511 255,511 1,000,000 579,440 579,440 1,000,000
16 869,413 70,219 70,219 1,000,000 255,507 255,507 1,000,000 649,778 649,778 1,000,000
17 949,633 40,313 40,313 1,000,000 250,395 250,395 1,000,000 729,684 729,684 1,000,000
18 1,033,865 2,117 2,117 1,000,000 239,237 239,237 1,000,000 818,424 818,424 1,083,593
19 1,122,308 0 0 0 220,898 220,898 1,000,000 912,936 912,936 1,189,464
20 -- -- -- -- 193,757 193,757 1,000,000 1,013,571 1,013,571 1,300,310
21 -- -- -- -- 155,446 155,446 1,000,000 1,120,625 1,120,625 1,416,470
22 -- -- -- -- 102,634 102,634 1,000,000 1,234,376 1,234,376 1,538,032
23 -- -- -- -- 30,557 30,557 1,000,000 1,355,025 1,355,025 1,665,326
24 -- -- -- -- 0 0 0 1,482,742 1,482,742 1,798,566
25 -- -- -- -- -- -- -- 1,617,731 1,617,731 1,938,366
26 -- -- -- -- -- -- -- 1,760,313 1,760,313 2,085,091
27 -- -- -- -- -- -- -- 1,910,902 1,910,902 2,239,386
28 -- -- -- -- -- -- -- 2,070,032 2,070,032 2,401,651
29 -- -- -- -- -- -- -- 2,238,420 2,238,420 2,572,616
30 -- -- -- -- -- -- -- 2,416,855 2,416,855 2,752,798
31 -- -- -- -- -- -- -- 2,606,320 2,606,320 2,942,535
32 -- -- -- -- -- -- -- 2,808,014 2,808,014 3,142,448
33 -- -- -- -- -- -- -- 3,023,366 3,023,366 3,353,215
34 -- -- -- -- -- -- -- 3,254,229 3,254,229 3,575,422
35 -- -- -- -- -- -- -- 3,502,296 3,502,296 3,808,747
36 -- -- -- -- -- -- -- 3,768,422 3,768,422 4,052,938
37 -- -- -- -- -- -- -- 4,052,024 4,052,024 4,305,276
38 -- -- -- -- -- -- -- 4,347,485 4,347,485 4,560,512
39 -- -- -- -- -- -- -- 4,648,632 4,648,632 4,818,772
40 -- -- -- -- -- -- -- 5,018,579 5,018,579 5,151,571
</TABLE>
<PAGE> 74
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.90% IN ALL POLICY
YEARS.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 75
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM
PAID 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ ------------------------------- ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36,750 31,282 31,282 1,000,000 33,255 33,255 1,000,000 35,230 35,230 1,000,000
2 75,338 61,441 61,441 1,000,000 67,336 67,336 1,000,000 73,471 73,471 1,000,000
3 115,854 90,209 90,209 1,000,000 101,994 101,994 1,000,000 114,758 114,758 1,000,000
4 158,397 117,883 117,883 1,000,000 137,551 137,551 1,000,000 159,725 159,725 1,000,000
5 203,067 144,337 144,337 1,000,000 173,920 173,920 1,000,000 208,655 208,655 1,000,000
6 249,970 170,102 170,102 1,000,000 211,672 211,672 1,000,000 262,527 262,527 1,000,000
7 299,219 194,900 194,900 1,000,000 250,607 250,607 1,000,000 321,641 321,641 1,000,000
8 350,930 218,897 218,897 1,000,000 291,025 291,025 1,000,000 386,930 386,930 1,000,000
9 405,226 241,914 241,914 1,000,000 332,811 332,811 1,000,000 458,896 458,896 1,000,000
10 462,238 263,682 263,682 1,000,000 375,831 375,831 1,000,000 538,211 538,211 1,000,000
11 522,099 283,903 283,903 1,000,000 419,967 419,967 1,000,000 625,737 625,737 1,000,000
12 584,954 302,756 302,756 1,000,000 465,534 465,534 1,000,000 722,839 722,839 1,000,000
13 650,952 320,199 320,199 1,000,000 512,699 512,699 1,000,000 830,992 830,992 1,000,000
14 720,250 336,372 336,372 1,000,000 561,801 561,801 1,000,000 951,901 951,901 1,037,572
15 793,012 350,915 350,915 1,000,000 613,248 613,248 1,000,000 1,086,568 1,086,568 1,162,628
16 869,413 363,807 363,807 1,000,000 667,121 667,121 1,000,000 1,235,362 1,235,362 1,297,130
17 949,633 375,366 375,366 1,000,000 724,020 724,020 1,000,000 1,399,258 1,399,258 1,469,221
18 1,033,865 385,478 385,478 1,000,000 784,378 784,378 1,000,000 1,579,748 1,579,748 1,658,735
19 1,122,308 394,030 394,030 1,000,000 848,733 848,733 1,000,000 1,778,459 1,778,459 1,867,382
20 1,215,174 400,894 400,894 1,000,000 917,748 917,748 1,000,000 1,997,172 1,997,172 2,097,030
25 1,753,971 404,323 404,323 1,000,000 1,316,496 1,316,496 1,382,321 3,465,371 3,465,371 3,638,640
30 2,441,628 326,917 326,917 1,000,000 1,794,960 1,794,960 1,884,708 5,810,938 5,810,938 6,101,485
35 3,319,271 33,564 33,564 1,000,000 2,383,558 2,383,558 2,407,393 9,612,153 9,612,153 9,708,275
40 - - - - 3,146,397 3,146,397 3,146,397 15,979,843 15,979,843 15,979,843
45 - - - - - - - - - -
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY
YEAR 2, 0.50% IN POLICY YEARS 3 THROUGH 7, 0.40% IN POLICY YEARS 8
THROUGH 14, AND 0.30% THEREAFTER.
(6) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL
PREMIUM PAYMENT.
<PAGE> 76
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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 77
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM
PAID 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ ------------------------------ -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36,750 20,767 20,767 1,000,000 22,407 22,407 1,000,000 24,055 24,055 1,000,000
2 75,338 40,267 40,267 1,000,000 44,862 44,862 1,000,000 49,674 49,674 1,000,000
3 115,854 58,212 58,212 1,000,000 67,069 67,069 1,000,000 76,735 76,735 1,000,000
4 158,397 74,470 74,470 1,000,000 88,881 88,881 1,000,000 105,288 105,288 1,000,000
5 203,067 88,901 88,901 1,000,000 110,148 110,148 1,000,000 135,401 135,401 1,000,000
6 249,970 101,385 101,385 1,000,000 130,738 130,738 1,000,000 167,202 167,202 1,000,000
7 299,219 111,829 111,829 1,000,000 150,556 150,556 1,000,000 200,897 200,897 1,000,000
8 350,930 120,106 120,106 1,000,000 169,479 169,479 1,000,000 236,725 236,725 1,000,000
9 405,226 126,086 126,086 1,000,000 187,388 187,388 1,000,000 275,001 275,001 1,000,000
10 462,238 129,567 129,567 1,000,000 204,106 204,106 1,000,000 316,078 316,078 1,000,000
11 522,099 130,212 130,212 1,000,000 219,338 219,338 1,000,000 360,317 360,317 1,000,000
12 584,954 127,060 127,060 1,000,000 232,228 232,228 1,000,000 407,778 407,778 1,000,000
13 650,952 120,570 120,570 1,000,000 243,205 243,205 1,000,000 459,746 459,746 1,000,000
14 720,250 109,477 109,477 1,000,000 251,195 251,195 1,000,000 516,613 516,613 1,000,000
15 793,012 92,957 92,957 1,000,000 255,511 255,511 1,000,000 579,440 579,440 1,000,000
16 869,413 70,219 70,219 1,000,000 255,507 255,507 1,000,000 649,778 649,778 1,000,000
17 949,633 40,313 40,313 1,000,000 250,395 250,395 1,000,000 729,684 729,684 1,000,000
18 1,033,865 2,117 2,117 1,000,000 239,237 239,237 1,000,000 821,899 821,899 1,000,000
19 1,122,308 0 0 0 220,898 220,898 1,000,000 930,055 930,055 1,000,000
20 -- -- -- -- 193,757 193,757 1,000,000 1,053,716 1,053,716 1,106,402
21 -- -- -- -- 155,446 155,446 1,000,000 1,188,398 1,188,398 1,247,818
22 -- -- -- -- 102,634 102,634 1,000,000 1,334,933 1,334,933 1,401,680
23 -- -- -- -- 30,557 30,557 1,000,000 1,494,171 1,494,171 1,568,880
24 -- -- -- -- 0 0 0 1,666,969 1,666,969 1,750,318
25 -- -- -- -- -- -- -- 1,854,214 1,854,214 1,946,925
26 -- -- -- -- -- -- -- 2,056,832 2,056,832 2,159,673
27 -- -- -- -- -- -- -- 2,275,790 2,275,790 2,389,580
28 -- -- -- -- -- -- -- 2,512,089 2,512,089 2,637,694
29 -- -- -- -- -- -- -- 2,766,788 2,766,788 2,905,127
30 -- -- -- -- -- -- -- 3,040,935 3,040,935 3,192,982
31 -- -- -- -- -- -- -- 3,335,542 3,335,542 3,502,319
32 -- -- -- -- -- -- -- 3,661,468 3,661,468 3,807,927
33 -- -- -- -- -- -- -- 4,024,027 4,024,027 4,144,748
34 -- -- -- -- -- -- -- 4,429,824 4,429,824 4,518,420
35 -- -- -- -- -- -- -- 4,887,186 4,887,186 4,936,058
36 -- -- -- -- -- -- -- 5,402,360 5,402,360 5,402,360
37 -- -- -- -- -- -- -- 5,967,918 5,967,918 5,967,918
38 -- -- -- -- -- -- -- 6,588,788 6,588,788 6,588,788
39 -- -- -- -- -- -- -- 7,270,379 7,270,379 7,270,379
40 -- -- -- -- -- -- -- 8,018,629 8,018,629 8,018,629
</TABLE>
<PAGE> 78
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS
HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL
GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE
REQUIREMENTS BASED ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.90% IN ALL POLICY
YEARS.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 79
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 45
FEMALE PREFERRED NON-SMOKER ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ------------------------------- ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 9,975 8,698 8,698 1,000,000 9,240 9,240 1,000,000 9,782 9,782 1,000,000
2 20,449 17,404 17,404 1,000,000 19,038 19,038 1,000,000 20,737 20,737 1,000,000
3 31,446 25,939 25,939 1,000,000 29,231 29,231 1,000,000 32,791 32,791 1,000,000
4 42,993 34,307 34,307 1,000,000 39,836 39,836 1,000,000 46,055 46,055 1,000,000
5 55,118 42,511 42,511 1,000,000 50,870 50,870 1,000,000 60,652 60,652 1,000,000
6 67,849 50,554 50,554 1,000,000 62,349 62,349 1,000,000 76,714 76,714 1,000,000
7 81,217 58,433 58,433 1,000,000 74,286 74,286 1,000,000 94,382 94,382 1,000,000
8 95,252 66,135 66,135 1,000,000 86,682 86,682 1,000,000 113,801 113,801 1,000,000
9 109,990 73,665 73,665 1,000,000 99,558 99,558 1,000,000 135,150 135,150 1,000,000
10 125,464 81,028 81,028 1,000,000 112,936 112,936 1,000,000 158,624 158,624 1,000,000
11 141,713 88,368 88,368 1,000,000 127,023 127,023 1,000,000 184,695 184,695 1,000,000
12 158,773 95,576 95,576 1,000,000 141,702 141,702 1,000,000 213,425 213,425 1,000,000
13 176,687 102,653 102,653 1,000,000 156,998 156,998 1,000,000 245,086 245,086 1,000,000
14 195,496 109,603 109,603 1,000,000 172,936 172,936 1,000,000 279,976 279,976 1,000,000
15 215,246 116,428 116,428 1,000,000 189,543 189,543 1,000,000 318,426 318,426 1,000,000
16 235,983 123,130 123,130 1,000,000 206,848 206,848 1,000,000 360,799 360,799 1,005,799
17 257,758 129,669 129,669 1,000,000 224,839 224,839 1,000,000 407,451 407,451 1,094,454
18 280,621 136,035 136,035 1,000,000 243,539 243,539 1,000,000 458,797 458,797 1,187,825
19 304,627 142,223 142,223 1,000,000 262,967 262,967 1,000,000 515,297 515,297 1,286,234
20 329,833 148,223 148,223 1,000,000 283,147 283,147 1,000,000 577,459 577,459 1,390,175
21 356,300 154,025 154,025 1,000,000 304,102 304,102 1,000,000 645,836 645,836 1,500,083
22 384,090 159,617 159,617 1,000,000 325,855 325,855 1,000,000 721,033 721,033 1,616,411
23 413,269 164,991 164,991 1,000,000 348,437 348,437 1,000,000 803,720 803,720 1,739,732
24 443,907 170,135 170,135 1,000,000 371,873 371,873 1,000,000 894,628 894,628 1,870,756
25 476,078 175,032 175,032 1,000,000 396,194 396,194 1,000,000 994,553 994,553 2,010,190
26 509,857 179,666 179,666 1,000,000 421,428 421,428 1,000,000 1,104,369 1,104,369 2,158,820
27 545,325 184,180 184,180 1,000,000 448,021 448,021 1,000,000 1,226,110 1,226,110 2,319,554
28 582,566 188,337 188,337 1,000,000 475,605 475,605 1,000,000 1,359,894 1,359,894 2,491,597
29 621,669 192,086 192,086 1,000,000 504,207 504,207 1,000,000 1,506,851 1,506,851 2,675,715
30 662,728 195,371 195,371 1,000,000 533,857 533,857 1,000,000 1,668,205 1,668,205 2,873,150
31 705,839 198,117 198,117 1,000,000 564,585 564,585 1,000,000 1,845,273 1,845,273 3,084,927
32 751,106 200,287 200,287 1,000,000 596,457 596,457 1,000,000 2,039,556 2,039,556 3,312,443
33 798,636 201,822 201,822 1,000,000 629,536 629,536 1,000,000 2,252,672 2,252,672 3,557,194
34 848,543 202,628 202,628 1,000,000 663,859 663,859 1,020,219 2,486,344 2,486,344 3,821,013
35 900,945 202,594 202,594 1,000,000 699,370 699,370 1,047,027 2,742,432 2,742,432 4,105,695
36 955,967 201,588 201,588 1,000,000 736,049 736,049 1,074,632 3,022,944 3,022,944 4,413,498
37 1,013,741 199,463 199,463 1,000,000 773,907 773,907 1,103,127 3,330,063 3,330,063 4,746,671
38 1,074,403 196,091 196,091 1,000,000 812,972 812,972 1,132,632 3,666,228 3,666,228 5,107,788
</TABLE>
<PAGE> 80
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
39 1,138,098 191,295 191,295 1,000,000 853,260 853,260 1,163,249 4,034,043 4,034,043 5,499,611
40 1,204,978 184,867 184,867 1,000,000 894,787 894,787 1,194,988 4,436,332 4,436,332 5,924,722
41 1,275,202 176,585 176,585 1,000,000 937,577 937,577 1,227,945 4,876,200 4,876,200 6,386,359
42 1,348,937 166,206 166,206 1,000,000 981,663 981,663 1,262,124 5,357,063 5,357,063 6,887,576
43 1,426,359 153,096 153,096 1,000,000 1,026,966 1,026,966 1,297,469 5,882,013 5,882,013 7,431,335
44 1,507,651 136,969 136,969 1,000,000 1,073,544 1,073,544 1,334,200 6,455,149 6,455,149 8,022,460
45 1,593,009 117,026 117,026 1,000,000 1,121,328 1,121,328 1,372,281 7,080,146 7,080,146 8,664,682
46 1,682,635 92,723 92,723 1,000,000 1,170,363 1,170,363 1,411,692 7,761,677 7,761,677 9,362,135
47 1,776,741 63,243 63,243 1,000,000 1,220,655 1,220,655 1,452,580 8,504,554 8,504,554 10,120,419
48 1,875,553 27,577 27,577 1,000,000 1,272,218 1,272,218 1,494,856 9,314,030 9,314,030 10,943,986
49 1,979,306 0 0 0 1,325,088 1,325,088 1,538,295 10,195,983 10,195,983 11,836,517
50 -- -- -- -- 1,379,319 1,379,319 1,582,906 11,156,913 11,156,913 12,803,673
51 -- -- -- -- 1,434,986 1,434,986 1,628,709 12,204,100 12,204,100 13,851,654
52 -- -- -- -- 1,491,878 1,491,878 1,675,230 13,342,915 13,342,915 14,982,759
53 -- -- -- -- 1,551,649 1,551,649 1,724,193 14,595,699 14,595,699 16,218,740
54 -- -- -- -- 1,613,174 1,613,174 1,774,330 15,962,570 15,962,570 17,557,231
55 -- -- -- -- 1,676,841 1,676,841 1,825,744 17,457,325 17,457,325 19,007,536
56 -- -- -- -- 1,743,214 1,743,214 1,877,791 19,097,329 19,097,329 20,571,643
57 -- -- -- -- 1,812,934 1,812,934 1,927,874 20,903,073 20,903,073 22,228,327
58 -- -- -- -- 1,887,124 1,887,124 1,980,348 22,903,613 22,903,613 24,035,051
59 -- -- -- -- 1,966,617 1,966,617 2,038,596 25,128,588 25,128,588 26,048,294
60 -- -- -- -- 2,051,666 2,051,666 2,106,036 27,603,810 27,603,810 28,335,311
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY YEAR 10,
0.50% IN POLICY YEARS 11 THROUGH 26, 0.40% THEREAFTER.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 81
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 45
FEMALE PREFERRED NON-SMOKER ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ------------------------------ ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 9,975 8,656 8,656 1,000,000 9,197 9,197 1,000,000 9,739 9,739 1,000,000
2 20,449 17,299 17,299 1,000,000 18,927 18,927 1,000,000 20,621 20,621 1,000,000
3 31,446 25,751 25,751 1,000,000 29,026 29,026 1,000,000 32,569 32,569 1,000,000
4 42,993 34,016 34,016 1,000,000 39,508 39,508 1,000,000 45,687 45,687 1,000,000
5 55,118 42,099 42,099 1,000,000 50,388 50,388 1,000,000 60,089 60,089 1,000,000
6 67,849 49,994 49,994 1,000,000 61,670 61,670 1,000,000 75,892 75,892 1,000,000
7 81,217 57,676 57,676 1,000,000 73,342 73,342 1,000,000 93,204 93,204 1,000,000
8 95,252 65,143 65,143 1,000,000 85,410 85,410 1,000,000 112,165 112,165 1,000,000
9 109,990 72,391 72,391 1,000,000 97,881 97,881 1,000,000 132,930 132,930 1,000,000
10 125,464 79,414 79,414 1,000,000 110,762 110,762 1,000,000 155,667 155,667 1,000,000
11 141,713 86,205 86,205 1,000,000 124,056 124,056 1,000,000 180,560 180,560 1,000,000
12 158,773 92,754 92,754 1,000,000 137,765 137,765 1,000,000 207,811 207,811 1,000,000
13 176,687 99,050 99,050 1,000,000 151,893 151,893 1,000,000 237,642 237,642 1,000,000
14 195,496 105,077 105,077 1,000,000 166,435 166,435 1,000,000 270,295 270,295 1,000,000
15 215,246 110,819 110,819 1,000,000 181,391 181,391 1,000,000 306,038 306,038 1,000,000
16 235,983 116,256 116,256 1,000,000 196,753 196,753 1,000,000 345,167 345,167 1,000,000
17 257,758 121,363 121,363 1,000,000 212,516 212,516 1,000,000 387,999 387,999 1,042,203
18 280,621 126,115 126,115 1,000,000 228,669 228,669 1,000,000 434,790 434,790 1,125,671
19 304,627 130,482 130,482 1,000,000 245,202 245,202 1,000,000 485,850 485,850 1,212,729
20 329,833 134,423 134,423 1,000,000 262,097 262,097 1,000,000 541,529 541,529 1,303,676
21 356,300 137,891 137,891 1,000,000 279,328 279,328 1,000,000 602,196 602,196 1,398,721
22 384,090 140,828 140,828 1,000,000 296,869 296,869 1,000,000 668,243 668,243 1,498,068
23 413,269 143,155 143,155 1,000,000 314,672 314,672 1,000,000 740,070 740,070 1,601,956
24 443,907 144,774 144,774 1,000,000 332,683 332,683 1,000,000 818,087 818,087 1,710,702
25 476,078 145,567 145,567 1,000,000 350,834 350,834 1,000,000 902,714 902,714 1,824,565
26 509,857 145,406 145,406 1,000,000 369,057 369,057 1,000,000 994,391 994,391 1,943,835
27 545,325 144,085 144,085 1,000,000 387,230 387,230 1,000,000 1,093,503 1,093,503 2,068,689
28 582,566 141,556 141,556 1,000,000 405,358 405,358 1,000,000 1,200,653 1,200,653 2,199,836
29 621,669 137,583 137,583 1,000,000 423,324 423,324 1,000,000 1,316,285 1,316,285 2,337,327
30 662,728 131,944 131,944 1,000,000 441,031 441,031 1,000,000 1,440,907 1,440,907 2,481,675
31 705,839 124,371 124,371 1,000,000 458,371 458,371 1,000,000 1,575,038 1,575,038 2,633,148
32 751,106 114,524 114,524 1,000,000 475,206 475,206 1,000,000 1,719,175 1,719,175 2,792,112
33 798,636 101,949 101,949 1,000,000 491,358 491,358 1,000,000 1,873,771 1,873,771 2,958,872
34 848,543 86,090 86,090 1,000,000 506,615 506,615 1,000,000 2,039,247 2,039,247 3,133,915
35 900,945 66,262 66,262 1,000,000 520,734 520,734 1,000,000 2,216,001 2,216,001 3,317,575
36 955,967 41,639 41,639 1,000,000 533,439 533,439 1,000,000 2,404,417 2,404,417 3,510,449
37 1,013,741 11,247 11,247 1,000,000 544,431 544,431 1,000,000 2,604,917 2,604,917 3,713,048
38 1,074,403 0 0 0 553,373 553,373 1,000,000 2,817,973 2,817,973 3,925,999
39 -- -- -- -- 559,875 559,875 1,000,000 3,044,115 3,044,115 4,150,043
</TABLE>
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40 -- -- -- -- 563,454 563,454 1,000,000 3,283,932 3,283,932 4,385,692
41 -- -- -- -- 563,467 563,467 1,000,000 3,537,988 3,537,988 4,633,703
42 -- -- -- -- 559,053 559,053 1,000,000 3,806,851 3,806,851 4,894,468
43 -- -- -- -- 549,019 549,019 1,000,000 4,091,022 4,091,022 5,168,598
44 -- -- -- -- 531,730 531,730 1,000,000 4,390,960 4,390,960 5,457,085
45 -- -- -- -- 505,026 505,026 1,000,000 4,707,354 4,707,354 5,760,860
46 -- -- -- -- 465,879 465,879 1,000,000 5,041,039 5,041,039 6,080,502
47 -- -- -- -- 410,088 410,088 1,000,000 5,393,105 5,393,105 6,417,795
48 -- -- -- -- 331,489 331,489 1,000,000 5,764,733 5,764,733 6,773,561
49 -- -- -- -- 221,072 221,072 1,000,000 6,157,616 6,157,616 7,148,377
50 -- -- -- -- 64,782 64,782 1,000,000 6,573,251 6,573,251 7,543,463
51 -- -- -- -- 0 0 0 7,013,218 7,013,218 7,960,003
52 -- -- -- -- -- -- -- 7,479,054 7,479,054 8,398,230
53 -- -- -- -- -- -- -- 7,972,249 7,972,249 8,858,763
54 -- -- -- -- -- -- -- 8,495,269 8,495,269 9,343,946
55 -- -- -- -- -- -- -- 9,055,353 9,055,353 9,859,469
56 -- -- -- -- -- -- -- 9,667,065 9,667,065 10,413,362
57 -- -- -- -- -- -- -- 10,316,388 10,316,388 10,970,447
58 -- -- -- -- -- -- -- 10,989,052 10,989,052 11,531,911
59 -- -- -- -- -- -- -- 11,669,078 11,669,078 12,096,166
60 -- -- -- -- -- -- -- 12,516,358 12,516,358 12,848,042
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.90% IN ALL POLICY YEARS.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 83
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 45
FEMALE PREFERRED NON-SMOKER ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREMIUM
PAID 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ ------------------------------- ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ------ ----- ------- ----- ----- ------- ----- ----- -------
1 9,975 8,698 8,698 1,000,000 9,240 9,240 1,000,000 9,782 9,782 1,000,000
2 20,449 17,404 17,404 1,000,000 19,038 19,038 1,000,000 20,737 20,737 1,000,000
3 31,446 25,939 25,939 1,000,000 29,231 29,231 1,000,000 32,791 32,791 1,000,000
4 42,993 34,307 34,307 1,000,000 39,836 39,836 1,000,000 46,055 46,055 1,000,000
5 55,118 42,511 42,511 1,000,000 50,870 50,870 1,000,000 60,652 60,652 1,000,000
6 67,849 50,554 50,554 1,000,000 62,349 62,349 1,000,000 76,714 76,714 1,000,000
7 81,217 58,433 58,433 1,000,000 74,286 74,286 1,000,000 94,382 94,382 1,000,000
8 95,252 66,135 66,135 1,000,000 86,682 86,682 1,000,000 113,801 113,801 1,000,000
9 109,990 73,665 73,665 1,000,000 99,558 99,558 1,000,000 135,150 135,150 1,000,000
10 125,464 81,028 81,028 1,000,000 112,936 112,936 1,000,000 158,624 158,624 1,000,000
11 141,713 88,368 88,368 1,000,000 127,023 127,023 1,000,000 184,695 184,695 1,000,000
12 158,773 95,576 95,576 1,000,000 141,702 141,702 1,000,000 213,425 213,425 1,000,000
13 176,687 102,653 102,653 1,000,000 156,998 156,998 1,000,000 245,086 245,086 1,000,000
14 195,496 109,603 109,603 1,000,000 172,936 172,936 1,000,000 279,976 279,976 1,000,000
15 215,246 116,428 116,428 1,000,000 189,543 189,543 1,000,000 318,426 318,426 1,000,000
16 235,983 123,130 123,130 1,000,000 206,848 206,848 1,000,000 360,799 360,799 1,000,000
17 257,758 129,669 129,669 1,000,000 224,839 224,839 1,000,000 407,461 407,461 1,000,000
18 280,621 136,035 136,035 1,000,000 243,539 243,539 1,000,000 458,849 458,849 1,000,000
19 304,627 142,223 142,223 1,000,000 262,967 262,967 1,000,000 515,444 515,444 1,000,000
20 329,833 148,223 148,223 1,000,000 283,147 283,147 1,000,000 577,780 577,780 1,000,000
21 356,300 154,025 154,025 1,000,000 304,102 304,102 1,000,000 646,451 646,451 1,000,000
22 384,090 159,617 159,617 1,000,000 325,855 325,855 1,000,000 722,113 722,113 1,000,000
23 413,269 164,991 164,991 1,000,000 348,437 348,437 1,000,000 805,501 805,501 1,014,932
24 443,907 170,135 170,135 1,000,000 371,873 371,873 1,000,000 897,372 897,372 1,112,742
25 476,078 175,032 175,032 1,000,000 396,194 396,194 1,000,000 998,549 998,549 1,218,230
26 509,857 179,666 179,666 1,000,000 421,428 421,428 1,000,000 1,109,975 1,109,975 1,331,970
27 545,325 184,180 184,180 1,000,000 448,021 448,021 1,000,000 1,233,779 1,233,779 1,468,197
28 582,566 188,337 188,337 1,000,000 475,605 475,605 1,000,000 1,370,202 1,370,202 1,616,839
29 621,669 192,086 192,086 1,000,000 504,207 504,207 1,000,000 1,520,516 1,520,516 1,779,004
30 662,728 195,371 195,371 1,000,000 533,857 533,857 1,000,000 1,686,118 1,686,118 1,955,897
31 705,839 198,117 198,117 1,000,000 564,585 564,585 1,000,000 1,868,541 1,868,541 2,148,823
32 751,106 200,287 200,287 1,000,000 596,457 596,457 1,000,000 2,069,581 2,069,581 2,338,626
33 798,636 201,822 201,822 1,000,000 629,536 629,536 1,000,000 2,291,173 2,291,173 2,543,202
34 848,543 202,628 202,628 1,000,000 663,886 663,886 1,000,000 2,535,470 2,535,470 2,763,662
35 900,945 202,594 202,594 1,000,000 699,583 699,583 1,000,000 2,804,876 2,804,876 3,001,217
36 955,967 201,588 201,588 1,000,000 736,721 736,721 1,000,000 3,102,091 3,102,091 3,257,196
37 1,013,741 199,463 199,463 1,000,000 775,422 775,422 1,000,000 3,429,498 3,429,498 3,600,973
38 1,074,403 196,091 196,091 1,000,000 815,848 815,848 1,000,000 3,790,108 3,790,108 3,979,614
</TABLE>
<PAGE> 84
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
39 1,138,098 191,295 191,295 1,000,000 858,192 858,192 1,000,000 4,187,215 4,187,215 4,396,576
40 1,204,978 184,867 184,867 1,000,000 902,690 902,690 1,000,000 4,624,419 4,624,419 4,855,640
41 1,275,202 176,585 176,585 1,000,000 949,641 949,641 1,000,000 5,105,660 5,105,660 5,360,943
42 1,348,937 166,206 166,206 1,000,000 998,882 998,882 1,048,826 5,635,249 5,635,249 5,917,001
43 1,426,359 153,096 153,096 1,000,000 1,050,019 1,050,019 1,102,520 6,217,765 6,217,765 6,528,653
44 1,507,651 136,969 136,969 1,000,000 1,103,105 1,103,105 1,158,260 6,858,326 6,858,326 7,201,243
45 1,593,009 117,026 117,026 1,000,000 1,158,160 1,158,160 1,216,068 7,562,325 7,562,325 7,940,441
46 1,682,635 92,723 92,723 1,000,000 1,215,223 1,215,223 1,275,984 8,335,739 8,335,739 8,752,526
47 1,776,741 63,243 63,243 1,000,000 1,274,317 1,274,317 1,338,032 9,184,980 9,184,980 9,644,229
48 1,875,553 27,577 27,577 1,000,000 1,335,456 1,335,456 1,402,229 10,116,954 10,116,954 10,622,802
49 1,979,306 0 0 0 1,398,649 1,398,649 1,468,581 11,139,098 11,139,098 11,696,053
50 -- -- -- -- 1,463,890 1,463,890 1,537,085 12,259,385 12,259,385 12,872,354
51 -- -- -- -- 1,531,165 1,531,165 1,607,723 13,486,349 13,486,349 14,160,667
52 -- -- -- -- 1,601,555 1,601,555 1,665,617 14,839,372 14,839,372 15,432,947
53 -- -- -- -- 1,677,136 1,677,136 1,727,450 16,349,596 16,349,596 16,840,084
54 -- -- -- -- 1,757,030 1,757,030 1,792,171 18,024,772 18,024,772 18,385,268
55 -- -- -- -- 1,841,967 1,841,967 1,860,386 19,888,808 19,888,808 20,087,697
56 -- -- -- -- 1,932,202 1,932,202 1,932,202 21,963,375 21,963,375 21,963,375
57 -- -- -- -- 2,026,390 2,026,390 2,026,390 24,253,282 24,253,282 24,253,282
58 -- -- -- -- 2,124,703 2,124,703 2,124,703 26,780,880 26,780,880 26,780,880
59 -- -- -- -- 2,227,322 2,227,322 2,227,322 29,570,844 29,570,844 29,570,844
60 -- -- -- -- 2,334,436 2,334,436 2,334,436 32,650,406 32,650,406 32,650,406
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY YEAR 10,
0.50% IN POLICY YEARS 11 THROUGH 26, 0.40% THEREAFTER.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 85
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 45
FEMALE PREFERRED NON-SMOKER ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ------------------------------ -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 9,975 8,656 8,656 1,000,000 9,197 9,197 1,000,000 9,739 9,739 1,000,000
2 20,449 17,299 17,299 1,000,000 18,927 18,927 1,000,000 20,621 20,621 1,000,000
3 31,446 25,751 25,751 1,000,000 29,026 29,026 1,000,000 32,569 32,569 1,000,000
4 42,993 34,016 34,016 1,000,000 39,508 39,508 1,000,000 45,687 45,687 1,000,000
5 55,118 42,099 42,099 1,000,000 50,388 50,388 1,000,000 60,089 60,089 1,000,000
6 67,849 49,994 49,994 1,000,000 61,670 61,670 1,000,000 75,892 75,892 1,000,000
7 81,217 57,676 57,676 1,000,000 73,342 73,342 1,000,000 93,204 93,204 1,000,000
8 95,252 65,143 65,143 1,000,000 85,410 85,410 1,000,000 112,165 112,165 1,000,000
9 109,990 72,391 72,391 1,000,000 97,881 97,881 1,000,000 132,930 132,930 1,000,000
10 125,464 79,414 79,414 1,000,000 110,762 110,762 1,000,000 155,667 155,667 1,000,000
11 141,713 86,205 86,205 1,000,000 124,056 124,056 1,000,000 180,560 180,560 1,000,000
12 158,773 92,754 92,754 1,000,000 137,765 137,765 1,000,000 207,811 207,811 1,000,000
13 176,687 99,050 99,050 1,000,000 151,893 151,893 1,000,000 237,642 237,642 1,000,000
14 195,496 105,077 105,077 1,000,000 166,435 166,435 1,000,000 270,295 270,295 1,000,000
15 215,246 110,819 110,819 1,000,000 181,391 181,391 1,000,000 306,038 306,038 1,000,000
16 235,983 116,256 116,256 1,000,000 196,753 196,753 1,000,000 345,167 345,167 1,000,000
17 257,758 121,363 121,363 1,000,000 212,516 212,516 1,000,000 388,010 388,010 1,000,000
18 280,621 126,115 126,115 1,000,000 228,669 228,669 1,000,000 434,934 434,934 1,000,000
19 304,627 130,482 130,482 1,000,000 245,202 245,202 1,000,000 486,348 486,348 1,000,000
20 329,833 134,423 134,423 1,000,000 262,097 262,097 1,000,000 542,708 542,708 1,000,000
21 356,300 137,891 137,891 1,000,000 279,328 279,328 1,000,000 604,525 604,525 1,000,000
22 384,090 140,828 140,828 1,000,000 296,869 296,869 1,000,000 672,382 672,382 1,000,000
23 413,269 143,155 143,155 1,000,000 314,672 314,672 1,000,000 746,937 746,937 1,000,000
24 443,907 144,774 144,774 1,000,000 332,683 332,683 1,000,000 828,934 828,934 1,027,879
25 476,078 145,567 145,567 1,000,000 350,834 350,834 1,000,000 918,879 918,879 1,121,032
26 509,857 145,406 145,406 1,000,000 369,057 369,057 1,000,000 1,017,389 1,017,389 1,220,866
27 545,325 144,085 144,085 1,000,000 387,230 387,230 1,000,000 1,125,170 1,125,170 1,338,953
28 582,566 141,556 141,556 1,000,000 405,358 405,358 1,000,000 1,243,091 1,243,091 1,466,848
29 621,669 137,583 137,583 1,000,000 423,324 423,324 1,000,000 1,372,054 1,372,054 1,605,303
30 662,728 131,944 131,944 1,000,000 441,031 441,031 1,000,000 1,513,052 1,513,052 1,755,141
31 705,839 124,371 124,371 1,000,000 458,371 458,371 1,000,000 1,667,170 1,667,170 1,917,245
32 751,106 114,524 114,524 1,000,000 475,206 475,206 1,000,000 1,835,922 1,835,922 2,074,592
33 798,636 101,949 101,949 1,000,000 491,358 491,358 1,000,000 2,020,809 2,020,809 2,243,098
34 848,543 86,090 86,090 1,000,000 506,615 506,615 1,000,000 2,223,557 2,223,557 2,423,677
35 900,945 66,262 66,262 1,000,000 520,734 520,734 1,000,000 2,446,173 2,446,173 2,617,405
36 955,967 41,639 41,639 1,000,000 533,439 533,439 1,000,000 2,691,036 2,691,036 2,825,588
37 1,013,741 11,247 11,247 1,000,000 544,431 544,431 1,000,000 2,958,612 2,958,612 3,106,543
</TABLE>
<PAGE> 86
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
38 1,074,403 0 0 0 553,373 553,373 1,000,000 3,250,817 3,250,817 3,413,357
39 -- -- -- -- 559,875 559,875 1,000,000 3,569,690 3,569,690 3,748,175
40 -- -- -- -- 563,454 563,454 1,000,000 3,917,400 3,917,400 4,113,270
41 -- -- -- -- 563,467 563,467 1,000,000 4,296,220 4,296,220 4,511,031
42 -- -- -- -- 559,053 559,053 1,000,000 4,708,526 4,708,526 4,943,952
43 -- -- -- -- 549,019 549,019 1,000,000 5,156,762 5,156,762 5,414,600
44 -- -- -- -- 531,730 531,730 1,000,000 5,643,430 5,643,430 5,925,602
45 -- -- -- -- 505,026 505,026 1,000,000 6,171,134 6,171,134 6,479,691
46 -- -- -- -- 465,879 465,879 1,000,000 6,742,523 6,742,523 7,079,649
47 -- -- -- -- 410,088 410,088 1,000,000 7,360,342 7,360,342 7,728,359
48 -- -- -- -- 331,489 331,489 1,000,000 8,027,309 8,027,309 8,428,675
49 -- -- -- -- 221,072 221,072 1,000,000 8,746,163 8,746,163 9,183,471
50 -- -- -- -- 64,782 64,782 1,000,000 9,519,325 9,519,325 9,995,291
51 -- -- -- -- 0 0 0 10,348,837 10,348,837 10,866,279
52 -- -- -- -- -- -- -- 11,264,214 11,264,214 11,714,783
53 -- -- -- -- -- -- -- 12,280,251 12,280,251 12,648,658
54 -- -- -- -- -- -- -- 13,416,547 13,416,547 13,684,878
55 -- -- -- -- -- -- -- 14,699,559 14,699,559 14,846,554
56 -- -- -- -- -- -- -- 16,147,229 16,147,229 16,147,229
57 -- -- -- -- -- -- -- 17,736,481 17,736,481 17,736,481
58 -- -- -- -- -- -- -- 19,481,162 19,481,162 19,481,162
59 -- -- -- -- -- -- -- 21,396,472 21,396,472 21,396,472
60 -- -- -- -- -- -- -- 23,499,101 23,499,101 23,499,101
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.90% IN ALL POLICY YEARS.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 87
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 65
FEMALE PREFERRED NON-SMOKER ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM
PAID 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------------- ------------------------------- ----------------------------------
POL INTEREST CASH SUR. DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 47,115 47,115 2,000,000 50,011 50,011 2,000,000 52,907 52,907 2,000,000
2 107,625 93,627 93,627 2,000,000 102,373 102,373 2,000,000 111,468 111,468 2,000,000
3 165,506 139,039 139,039 2,000,000 156,665 156,665 2,000,000 175,725 175,725 2,000,000
4 226,282 183,184 183,184 2,000,000 212,781 212,781 2,000,000 246,074 246,074 2,000,000
5 290,096 226,158 226,158 2,000,000 270,903 270,903 2,000,000 323,285 323,285 2,000,000
6 357,100 267,619 267,619 2,000,000 330,755 330,755 2,000,000 407,701 407,701 2,000,000
7 427,455 307,281 307,281 2,000,000 392,125 392,125 2,000,000 499,823 499,823 2,000,000
8 501,328 345,439 345,439 2,000,000 455,375 455,375 2,000,000 600,789 600,789 2,000,000
9 578,895 382,065 382,065 2,000,000 520,574 520,574 2,000,000 711,570 711,570 2,000,000
10 660,339 417,784 417,784 2,000,000 588,583 588,583 2,000,000 834,219 834,219 2,000,000
11 745,856 452,042 452,042 2,000,000 658,915 658,915 2,000,000 969,344 969,344 2,000,000
12 835,649 485,492 485,492 2,000,000 732,297 732,297 2,000,000 1,118,882 1,118,882 2,000,000
13 929,932 518,249 518,249 2,000,000 808,991 808,991 2,000,000 1,284,509 1,284,509 2,053,673
14 1,026,928 550,608 550,608 2,000,000 889,414 889,414 2,000,000 1,467,399 1,467,399 2,279,017
15 1,132,875 582,598 582,598 2,000,000 973,767 973,767 2,000,000 1,669,080 1,669,080 2,520,979
16 1,242,018 612,999 612,999 2,000,000 1,061,363 1,061,363 2,000,000 1,890,720 1,890,720 2,780,682
17 1,356,619 641,251 641,251 2,000,000 1,152,105 1,152,105 2,000,000 2,133,900 2,133,900 3,060,012
18 1,476,950 667,205 667,205 2,000,000 1,246,259 1,246,259 2,000,000 2,400,598 2,400,598 3,360,598
19 1,603,298 690,659 690,659 2,000,000 1,344,144 1,344,144 2,000,000 2,692,942 2,692,942 3,685,022
20 1,735,963 711,383 711,383 2,000,000 1,446,169 1,446,169 2,000,000 3,013,233 3,013,233 4,035,924
21 1,875,261 729,139 729,139 2,000,000 1,552,756 1,552,756 2,037,992 3,364,002 3,364,002 4,415,252
22 2,021,524 743,679 743,679 2,000,000 1,663,060 1,663,060 2,141,522 3,748,018 3,748,018 4,826,323
23 2,175,100 754,268 754,268 2,000,000 1,776,819 1,776,819 2,247,321 4,167,908 4,167,908 5,271,570
24 2,336,355 760,643 760,643 2,000,000 1,894,142 1,894,142 2,355,745 4,626,980 4,626,980 5,754,575
25 2,505,673 761,896 761,896 2,000,000 2,014,930 2,014,930 2,466,879 5,128,312 5,128,312 6,278,592
26 2,683,456 757,487 757,487 2,000,000 2,139,261 2,139,261 2,581,019 5,675,669 5,675,669 6,847,694
27 2,870,129 746,560 746,560 2,000,000 2,267,168 2,267,168 2,697,930 6,273,021 6,273,021 7,464,895
28 3,066,136 728,070 728,070 2,000,000 2,398,686 2,398,686 2,817,976 6,924,665 6,924,665 8,135,097
29 3,271,942 700,747 700,747 2,000,000 2,533,878 2,533,878 2,941,072 7,635,345 7,635,345 8,862,345
30 3,488,039 662,994 662,994 2,000,000 2,672,872 2,672,872 3,066,586 8,410,403 8,410,403 9,649,256
31 3,714,941 612,809 612,809 2,000,000 2,815,842 2,815,842 3,194,854 9,255,799 9,255,799 10,501,630
32 3,953,189 544,980 544,980 2,000,000 2,962,361 2,962,361 3,325,250 10,175,979 10,175,979 11,422,536
33 4,203,348 455,435 455,435 2,000,000 3,112,740 3,112,740 3,457,943 11,178,215 11,178,215 12,417,879
34 4,466,015 339,132 339,132 2,000,000 3,267,496 3,267,496 3,593,265 12,271,262 12,271,262 13,494,707
35 4,741,816 189,871 189,871 2,000,000 3,427,439 3,427,439 3,731,453 13,465,947 13,465,947 14,660,376
36 5,031,407 -- -- -- 3,593,763 3,593,763 3,871,201 14,775,907 14,775,907 15,916,608
37 -- -- -- -- 3,767,954 3,767,954 4,006,843 16,217,734 16,217,734 17,245,938
38 -- -- -- -- 3,952,475 3,952,475 4,147,728 17,814,531 17,814,531 18,694,569
39 -- -- -- -- 4,149,210 4,149,210 4,301,071 19,589,924 19,589,924 20,306,915
40 -- -- -- -- 4,358,813 4,358,813 4,474,322 21,564,553 21,564,553 22,136,013
</TABLE>
<PAGE> 88
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY
YEAR 2, 0.50% IN POLICY YEARS 3 THROUGH 5, 0.40% IN POLICY YEARS 6
THROUGH 10, AND 0.30% THEREAFTER.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 89
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 65
FEMALE PREFERRED NON-SMOKER ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ------------------------------ ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 46,840 46,840 2,000,000 49,731 49,731 2,000,000 52,623 52,623 2,000,000
2 107,625 92,046 92,046 2,000,000 100,732 100,732 2,000,000 109,766 109,766 2,000,000
3 165,506 135,330 135,330 2,000,000 152,722 152,722 2,000,000 171,542 171,542 2,000,000
4 226,282 176,548 176,548 2,000,000 205,563 205,563 2,000,000 238,240 238,240 2,000,000
5 290,096 215,523 215,523 2,000,000 259,082 259,082 2,000,000 310,165 310,165 2,000,000
6 357,100 252,055 252,055 2,000,000 313,087 313,087 2,000,000 387,657 387,657 2,000,000
7 427,455 285,846 285,846 2,000,000 367,295 367,295 2,000,000 471,042 471,042 2,000,000
8 501,328 316,772 316,772 2,000,000 421,603 421,603 2,000,000 560,905 560,905 2,000,000
9 578,895 344,508 344,508 2,000,000 475,731 475,731 2,000,000 657,777 657,777 2,000,000
10 660,339 368,734 368,734 2,000,000 529,423 529,423 2,000,000 762,361 762,361 2,000,000
11 745,856 389,071 389,071 2,000,000 582,397 582,397 2,000,000 875,523 875,523 2,000,000
12 835,649 405,038 405,038 2,000,000 634,314 634,314 2,000,000 998,325 998,325 2,000,000
13 929,932 416,004 416,004 2,000,000 684,750 684,750 2,000,000 1,132,089 1,132,089 2,000,000
14 1,028,928 421,190 421,190 2,000,000 733,216 733,216 2,000,000 1,278,534 1,278,534 2,000,000
15 1,132,875 419,652 419,652 2,000,000 779,163 779,163 2,000,000 1,437,785 1,437,785 2,171,630
16 1,242,018 410,262 410,262 2,000,000 821,989 821,989 2,000,000 1,608,180 1,608,180 2,365,151
17 1,356,619 391,710 391,710 2,000,000 861,068 861,068 2,000,000 1,790,121 1,790,121 2,567,033
18 1,476,950 362,443 362,443 2,000,000 895,729 895,729 2,000,000 1,984,049 1,984,049 2,777,471
19 1,603,298 320,587 320,587 2,000,000 925,221 925,221 2,000,000 2,190,445 2,190,445 2,997,405
20 1,735,963 263,785 263,785 2,000,000 948,644 948,644 2,000,000 2,409,813 2,409,813 3,227,704
21 1,875,261 188,932 188,932 2,000,000 964,814 964,814 2,000,000 2,642,687 2,642,687 3,468,526
22 2,021,524 91,895 91,895 2,000,000 972,155 972,155 2,000,000 2,889,575 2,889,575 3,720,906
23 2,175,100 -- -- -- 968,481 968,481 2,000,000 3,150,954 3,150,954 3,985,327
24 -- -- -- -- 950,811 950,811 2,000,000 3,427,294 3,427,294 4,262,526
25 -- -- -- -- 915,253 915,253 2,000,000 3,719,249 3,719,249 4,553,476
26 -- -- -- -- 856,348 856,348 2,000,000 4,027,541 4,027,541 4,859,228
27 -- -- -- -- 766,545 766,545 2,000,000 4,353,250 4,353,250 5,180,368
28 -- -- -- -- 634,713 634,713 2,000,000 4,697,455 4,697,455 5,518,570
29 -- -- -- -- 444,564 444,564 2,000,000 5,061,543 5,061,543 5,874,933
30 -- -- -- -- 170,522 170,522 2,000,000 5,446,983 5,446,983 6,249,323
31 -- -- -- -- -- -- -- 5,855,243 5,855,243 6,643,358
32 -- -- -- -- -- -- -- 6,287,596 6,287,596 7,057,827
33 -- -- -- -- -- -- -- 6,745,180 6,745,180 7,493,221
34 -- -- -- -- -- -- -- 7,230,145 7,230,145 7,950,990
35 -- -- -- -- -- -- -- 7,749,148 7,749,148 8,436,497
36 -- -- -- -- -- -- -- 8,315,927 8,315,927 8,957,917
37 -- -- -- -- -- -- -- 8,917,745 8,917,745 9,483,130
38 -- -- -- -- -- -- -- 9,542,343 9,542,343 10,013,735
39 -- -- -- -- -- -- -- 10,175,804 10,175,804 10,548,238
40 -- -- -- -- -- -- -- 10,958,019 10,958,019 11,248,406
</TABLE>
<PAGE> 90
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON CASH VALUE ACCUMULATION TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.90% IN ALL POLICY
YEARS.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 91
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 65
FEMALE PREFERRED NON-SMOKER ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ------------------------------- ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 47,115 47,115 2,000,000 50,011 50,011 2,000,000 52,907 52,907 2,000,000
2 107,625 93,627 93,627 2,000,000 102,373 102,373 2,000,000 111,468 111,468 2,000,000
3 165,506 139,039 139,039 2,000,000 156,665 156,665 2,000,000 175,725 175,725 2,000,000
4 226,282 183,184 183,184 2,000,000 212,781 212,781 2,000,000 246,074 246,074 2,000,000
5 290,096 226,158 226,158 2,000,000 270,903 270,903 2,000,000 323,285 323,285 2,000,000
6 357,100 267,619 267,619 2,000,000 330,755 330,755 2,000,000 407,701 407,701 2,000,000
7 427,455 307,281 307,281 2,000,000 392,125 392,125 2,000,000 499,823 499,823 2,000,000
8 501,328 345,439 345,439 2,000,000 455,375 455,375 2,000,000 600,789 600,789 2,000,000
9 578,895 382,065 382,065 2,000,000 520,574 520,574 2,000,000 711,570 711,570 2,000,000
10 660,339 417,784 417,784 2,000,000 588,583 588,583 2,000,000 834,219 834,219 2,000,000
11 745,856 452,042 452,042 2,000,000 658,915 658,915 2,000,000 969,344 969,344 2,000,000
12 835,649 485,492 485,492 2,000,000 732,297 732,297 2,000,000 1,118,882 1,118,882 2,000,000
13 929,932 518,249 518,249 2,000,000 808,901 808,991 2,000,000 1,284,535 1,284,535 2,000,000
14 1,028,928 550,608 550,608 2,000,000 889,414 889,414 2,000,000 1,468,259 1,468,259 2,000,000
15 1,132,875 582,598 582,598 2,000,000 973,767 973,767 2,000,000 1,672,039 1,672,039 2,000,000
16 1,242,018 612,999 612,999 2,000,000 1,061,363 1,061,363 2,000,000 1,897,877 1,897,877 2,000,000
17 1,356,619 641,251 641,251 2,000,000 1,152,105 1,152,105 2,000,000 2,147,623 2,147,623 2,255,004
18 147,950 667,205 667,205 2,000,000 1,246,259 1,246,259 2,000,000 2,423,020 2,423,020 2,544,171
19 1,603,298 690,659 690,659 2,000,000 1,344,144 1,344,144 2,000,000 2,726,647 2,726,647 2,862,980
20 1,735,963 711,383 711,383 2,000,000 1,446,169 1,446,169 2,000,000 3,061,326 3,061,326 3,214,393
21 1,875,261 729,139 729,139 2,000,000 1,552,872 1,552,872 2,000,000 3,430,149 3,430,149 3,601,656
22 2,021,524 743,679 743,679 2,000,000 1,664,937 1,664,937 2,000,000 3,836,497 3,836,497 4,028,322
23 2,175,100 754,268 754,268 2,000,000 1,783,124 1,783,124 2,000,000 4,283,993 4,283,993 4,498,192
24 2,336,355 760,643 760,643 2,000,000 1,908,596 1,908,596 2,004,026 4,776,658 4,776,658 5,015,491
25 2,505,673 761,896 761,896 2,000,000 2,039,999 2,039,999 2,141,999 5,318,761 5,318,761 5,584,699
26 2,683,456 757,487 757,487 2,000,000 2,176,490 2,176,490 2,285,315 5,915,014 5,915,014 6,210,765
27 2,870,129 746,560 746,560 2,000,000 2,318,157 2,318,157 2,434,065 6,570,484 6,570,484 6,899,008
28 3,066,136 728,070 728,070 2,000,000 2,465,070 2,465,070 2,588,324 7,290,636 7,290,636 7,655,168
29 3,271,942 700,747 700,747 2,000,000 2,617,282 2,617,282 2,748,146 8,081,358 8,081,358 8,485,426
30 3,488,039 662,994 662,994 2,000,000 2,774,822 2,774,822 2,913,563 8,948,969 8,948,969 9,396,417
31 3,714,941 612,809 612,809 2,000,000 2,937,693 2,937,693 3,084,577 9,900,241 9,900,241 10,395,253
32 3,953,189 544,980 544,980 2,000,000 3,107,976 3,107,976 3,232,295 10,949,822 10,949,822 11,387,815
33 4,203,348 455,435 455,435 2,000,000 3,286,673 3,286,673 3,385,273 12,110,425 12,110,425 12,473,738
34 4,466,015 339,132 339,132 2,000,000 3,475,054 3,475,054 3,544,555 13,397,295 13,397,295 13,665,240
35 4,741,816 189,871 189,871 2,000,000 3,674,680 3,674,680 3,711,426 14,828,715 14,828,715 14,977,002
36 5,031,407 -- -- -- 3,886,193 3,886,193 3,886,193 16,421,407 16,421,407 16,421,407
37 -- -- -- -- 4,106,972 4,106,972 4,106,972 18,179,420 18,179,420 18,179,420
38 -- -- -- -- 4,337,420 4,337,420 4,337,420 20,119,914 20,119,914 20,119,914
39 -- -- -- -- 4,577,962 4,577,962 4,577,962 22,261,832 22,261,832 22,261,832
40 -- -- -- -- 4,829,039 4,829,039 4,829,039 24,626,082 24,626,082 24,626,082
</TABLE>
<PAGE> 92
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.65% THROUGH POLICY YEAR 2,
0.50% IN POLICY YEARS 3 THROUGH 5, 0.40% IN POLICY YEARS 6 THROUGH
10, AND 0.30% THEREAFTER.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 93
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER ISSUE AGE 65
FEMALE PREFERRED NON-SMOKER ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
PREMIUM 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PAID GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PLUS ------------------------------ ------------------------------ ----------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 46,840 46,840 2,000,000 49,731 49,731 2,000,000 52,623 52,623 2,000,000
2 107,625 92,046 92,046 2,000,000 100,732 100,732 2,000,000 109,766 109,766 2,000,000
3 165,506 135,330 135,330 2,000,000 152,722 152,722 2,000,000 171,542 171,542 2,000,000
4 226,282 176,548 176,548 2,000,000 205,563 205,563 2,000,000 238,240 238,240 2,000,000
5 290,096 215,523 215,523 2,000,000 259,082 259,082 2,000,000 310,165 310,165 2,000,000
6 357,100 252,055 252,055 2,000,000 313,087 313,087 2,000,000 387,657 387,657 2,000,000
7 427,455 285,846 285,846 2,000,000 367,295 367,295 2,000,000 471,042 471,042 2,000,000
8 501,328 316,772 316,772 2,000,000 421,603 421,603 2,000,000 560,905 560,905 2,000,000
9 578,895 344,508 344,508 2,000,000 475,731 475,731 2,000,000 657,777 657,777 2,000,000
10 660,339 368,734 368,734 2,000,000 529,423 529,423 2,000,000 762,361 762,361 2,000,000
11 745,856 389,071 389,071 2,000,000 582,397 582,397 2,000,000 875,523 875,523 2,000,000
12 835,649 405,038 405,038 2,000,000 634,314 634,314 2,000,000 998,325 998,325 2,000,000
13 929,932 416,004 416,004 2,000,000 684,750 684,750 2,000,000 1,132,089 1,132,089 2,000,000
14 1,028,928 421,190 421,190 2,000,000 733,216 733,216 2,000,000 1,278,534 1,278,534 2,000,000
15 1,132,875 419,652 419,652 2,000,000 779,163 779,163 2,000,000 1,439,934 1,439,934 2,000,000
16 1,242,018 410,262 410,262 2,000,000 821,989 821,989 2,000,000 1,619,337 1,619,337 2,000,000
17 1,356,619 391,710 391,710 2,000,000 861,068 861,068 2,000,000 1,820,853 1,820,853 2,000,000
18 1,476,950 362,443 362,443 2,000,000 895,729 895,729 2,000,000 2,047,647 2,047,647 2,150,030
19 1,603,298 320,587 320,587 2,000,000 925,221 925,221 2,000,000 2,295,578 2,295,578 2,410,357
20 1,735,963 263,785 263,785 2,000,000 948,644 948,644 2,000,000 2,566,115 2,566,115 2,694,421
21 1,875,261 188,932 188,932 2,000,000 964,814 964,814 2,000,000 2,861,057 2,861,057 3,004,110
22 2,021,524 91,895 91,895 2,000,000 972,155 972,155 2,000,000 3,182,285 3,182,285 3,341,399
23 2,175,100 -- -- -- 968,481 968,481 2,000,000 3,531,738 3,531,738 3,708,325
24 -- -- -- -- 950,811 950,811 2,000,000 3,911,410 3,911,410 4,106,980
25 -- -- -- -- 915,253 915,253 2,000,000 4,323,372 4,323,372 4,539,540
26 -- -- -- -- 856,348 856,348 2,000,000 4,769,737 4,769,737 5,008,223
27 -- -- -- -- 766,545 766,545 2,000,000 5,252,691 5,252,691 5,515,326
28 -- -- -- -- 634,713 634,713 2,000,000 5,774,410 5,774,410 6,063,131
29 -- -- -- -- 444,564 444,564 2,000,000 6,337,086 6,337,086 6,653,940
30 -- -- -- -- 170,522 170,522 2,000,000 6,942,676 6,942,676 7,289,810
31 -- -- -- -- -- -- -- 7,592,842 7,592,842 7,972,484
32 -- -- -- -- -- -- -- 8,309,551 8,309,551 8,641,933
33 -- -- -- -- -- -- -- 9,104,147 9,104,147 9,377,272
34 -- -- -- -- -- -- -- 9,991,701 9,991,701 10,191,535
35 -- -- -- -- -- -- -- 10,992,618 10,992,618 11,102,544
36 -- -- -- -- -- -- -- 12,120,876 12,120,876 12,120,876
37 -- -- -- -- -- -- -- 13,359,478 13,359,478 13,359,478
38 -- -- -- -- -- -- -- 14,719,215 14,719,215 14,719,215
39 -- -- -- -- -- -- -- 16,211,935 16,211,935 16,211,935
40 -- -- -- -- -- -- -- 17,850,642 17,850,642 17,850,642
</TABLE>
<PAGE> 94
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON GUIDELINE PREMIUM TEST.
(5) THE MORTALITY AND EXPENSE RISK CHARGE IS 0.90% IN ALL POLICY YEARS.
(6) ZERO VALUES INDICATE POLICY LAPSE IN 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 RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS
BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
NO REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 95
APPENDIX B
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age* Percent Age* Percent Age* Percent Age* Percent
- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95+ 100
</TABLE>
* ATTAINED AGE IS THE AGE NEAREST BIRTHDAY AS OF THE BEGINNING OF THE POLICY
YEAR.
<PAGE> 96
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484(b)(1)
UNDER THE SECURITIES ACT OF 1933
Pursuant to the Underwriting Agreement filed as Exhibit 1-A(3)(a) to this
Registration Statement, Kemper Investors Life Insurance Company (KILICO) and
the Separate Account will agree to indemnify Investors Brokerage Services, Inc.
(IBS) against any claims, liabilities and expenses which IBS may incur under
the Securities Act of 1933, common law or otherwise, arising out of or based
upon any alleged untrue statements of material fact contained in any
registration statement or prospectus of the Separate Account, or any omission
to state a material fact therein, the omission of which makes any statement
contained therein misleading. IBS will agree to indemnify KILICO and the
Separate Account against any and all claims, demands, liabilities and expenses
which KILICO or the Separate Account may incur, arising out of or based upon
any act or deed of IBS or of any registered representative of an NASD member
investment dealer which has an agreement with IBS and is acting in accordance
with KILICO's instructions.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of KILICO
or the Separate Account (by virtue of the fact that they may also be agents,
employees or controlling persons of IBS) pursuant to the foregoing provisions,
or otherwise, KILICO and the Separate Account have been advised that in the
opinion of the Securities and Exchange Commission such indemnification may be
against public policy as expressed in the Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by KILICO or the Separate Account of
expenses incurred or paid by a director, officer or controlling person of
KILICO or the Separate Account in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, KILICO and the Separate
Account will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
REPRESENTATION REGARDING FEES AND CHARGES PURSUANT TO
SECTION 26 OF THE INVESTMENT COMPANY ACT OF 1940
Kemper Investors Life Insurance Company (KILICO) represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by KILICO.
<PAGE> 97
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Reconciliation and tie between items in N-8B-2 and prospectus.
The prospectus consisting of ____ pages.
The undertaking to file reports.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933.
Representation Regarding Fees and Charges Pursuant to Section 26 of the
Investment Company Act of 1940.
The signatures.
Written consents of the following persons:
A. Debra P. Rezabek, Esq. (included in Opinion filed as Exhibit 3(a)).
B. KPMG Peat Marwick LLP, independent auditors (filed as Exhibit 6(a)).
C. Steven D. Powell, FSA (included in Opinion filed as Exhibit 3(b)).
The following exhibits:
*** 1-A(1) KILICO Resolution establishing the Separate Account
1-A(2) Not Applicable
*** 1-A(3)(a) Form of Underwriting Agreement between KILICO and
Investors Brokerage Services, Inc. (IBS)
** 1-A(3)(b) Specimen Selling Group Agreement of IBS
1-A(3)(c) Schedule of Commissions
** 1-A(3)(d) General Agent Agreement
1-A(4) Not Applicable
*** 1-A(5)(a) Form of Individual Policy
*** 1-A(5)(b) Form of Survivorship Policy
**** 1-A(5)(c) Rider
<PAGE> 98
* 1-A(6)(a) KILICO Articles of Incorporation
** 1-A(6)(b) By-Laws of KILICO
1-A(7) Not Applicable
1-A(8)(a) Form of Participation Agreement among KILICO, Investors
Fund Series (formerly known as Kemper Investors Fund),
Zurich Kemper Investments, Inc., and Kemper
Distributors, Inc.
1-A(8)(b) Form of Participation Agreement among KILICO and
Evergreen Variable Trust
**** 1-A(8)(c) Administrative Services Agreement between KILICO and
Bancorp Services L.L.C.
1-A(9) Not Applicable
1-A(10)(a) Application for Individual Policy
1-A(10)(b) Application for Survivorship Policy
*** 3(a) Opinion and consent of legal officer of KILICO as to
legality of policies being registered
*** 3(b) Opinion and consent of actuarial officer of KILICO
regarding prospectus illustrations and actuarial matters
6(a) Consent of independent auditors
**** 8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)
(iii)
_________________________________
* Filed with the Registration Statement of the Registrant on Form S-6 filed
on or about December 26, 1995 (File No. 33-65399).
** Filed with Amendment No. 2 to the Registration Statement on Form S-1 (File
No. 333-02491) filed on or about April 23, 1997.
*** Filed with the Registration Statement of the Registrant on Form S-6 filed
on or about September 8, 1997 (File No. 333-35159).
**** To be filed by amendment.
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
KILICO Variable Separate Account-2, has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Long Grove and State of Illinois of the 4th day of December, 1997.
KILICO Variable Separate Account-2
(Registrant)
By: Kemper Investors Life Insurance
Company (Depositor)
By: /s/ JOHN B. SCOTT
----------------------------------------
John B. Scott, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following directors and principal
officers of Kemper Investors Life Insurance Company in the capacities indicated
on the 4th day of December, 1997.
<TABLE>
<S> <C>
Signature Title
--------- -----
/s/ JOHN B. SCOTT
------------------------------------ Chief Executive Officer, President and Director
John B. Scott (Principal Executive Officer)
/s/ WILLIAM H. BOLINDER
-------------------------------- Chairman of the Board and Director
William H. Bolinder
/s/ FREDERICK L. BLACKMON
------------------------------- Senior Vice President and Chief Financial Officer (Principal Financial Officer
Frederick L. Blackmon and Principal Accounting Officer)
/s/ LOREN J. ALTER Director
-------------------------------
Loren J. Alter
/s/ DAVID A. BOWERS Director
--------------------------------
David A. Bowers
/s/ DANIEL L. DOCTOROFF Director
-------------------------------
Daniel L. Doctoroff
/s/ MARKUS ROHRBASSER Director
----------------------------------
Markus Rohrbasser
/s/ PAUL H. WARREN Director
-------------------------------
Paul H. Warren
</TABLE>
<PAGE> 100
EXHIBIT INDEX
1-A(3)(c) Schedule of Commissions
1-A(8)(a) Form of Participation Agreement among KILICO, Investors Fund
Series (formerly known as Kemper Investors Fund), Zurich
Kemper Investments, Inc., and Kemper Distributors, Inc.
1-A(8)(b) Form of Participation Agreement among KILICO and Evergreen
Variable Trust
1-A(10)(a) Application for Individual Policy
1-A(10)(b) Application for Survivorship Policy
6(a) Consent of independent auditors
103473.2
<PAGE> 1
EXHIBIT 1-A(3)(c)
SCHEDULE OF COMMISSIONS
KEMPER INVESTORS LIFE INSURANCE COMPANY
PLAN OF INSURANCE
(Not Available in all states)
Plan Description
Variable Life Insurance
FIRST FOUNDATION VUL
POLICY FORMS L-8161,L-8162 PREMIUM COMPENSATION
- ------------------------------------------------------------------------------
ALL PAYMENTS 3%
<PAGE> 1
EXHIBIT 1-A(8)(a)
PARTICIPATION AGREEMENT
AMONG
KEMPER INVESTORS FUND
AND
KEMPER INVESTORS LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of January, 1997 by
and among Kemper Investors Life Insurance Company (hereinafter, the
"Company"), an Illinois insurance company, on its own behalf and on behalf of
each separate account of the Company set forth on Schedule A hereto as may be
amended from time to time (each account hereinafter referred to as an
"Account"), Kemper Investors Fund, a business trust organized under the laws
of the Commonwealth of Massachusetts (hereinafter the "Fund"), Zurich Kemper
Investments, Inc. (hereinafter the "Adviser"), a Delaware corporation, and
Kemper Distributors, Inc. (hereinafter the "Underwriter"), a Delaware
corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate
accounts established for variable life insurance and variable annuity
contracts (hereinafter the "Variable Insurance Products I) offered by
insurance companies that have entered into participation agreements with the
Fund (hereinafter "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of Sections 9(a), 13(a), l5(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares
of the Fund to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies (SEC Release No. IC-17164; File No. 812-7345; hereinafter the
"Shared Funding Exemption Order");
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
<PAGE> 2
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities laws;
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Accounts (the "Contracts") under the 1933 Act (or is relying on an exclusion
or exemption from such registration), and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement;
WHEREAS, each Account is duly established and maintained as a separate
account, established by resolution of the Board of Directors of the Company,
on the date shown for such Account on Schedule A hereto, to set aside and
invest assets attributable to the aforesaid Contracts;
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act (or is relying on an exclusion or
exemption from such registration);
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD");
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement
("Designated Portfolios"), on behalf of the Accounts to fund the aforesaid
Contracts, and the Underwriter is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company also intends to purchase shares in other open-end investment
companies or series thereof not affiliated with the Fund ("Unaffiliated
Funds") on behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Underwriter agree as follows:
ARTICLE I
Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios that the Accounts order, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of each Designated Portfolio available
for purchase at the applicable net asset value per share by the Company
and the Accounts on those days on which the Fund calculates such
Designated Portfolio's net asset value pursuant to rules of the SEC, and
the Fund shall use reasonable efforts to calculate such net asset value
on each day when the New York
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Stock Exchange is open for trading. Notwithstanding the foregoing, the Board
of Trustees of the Fund ("Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and
any applicable state laws, necessary in the best interest of the shareholders
of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies or their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell shares of any Designated Portfolio to
any insurance company or separate account unless an agreement containing
provisions substantially the same as Sections 2.1, 3.4, 3.5 and 3.6 and
Article VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e)
of the 1940 Act and any rules thereunder, and in accordance with the
procedures and policies of the Fund as described in the Fund's then current
prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Accounts,
and receipt by such designee shall constitute receipt by the Fund; provided
that the Company receives the order prior to the determination of net asset
value as set forth in the Fund's then current prospectus and the Fund receives
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the Fund's then current prospectus in accordance with the
provisions of such prospectus.
1.7 The Company shall pay for shares of a Designated Portfolio on the next
Business Day after receipt of an order to purchase shares of such Designated
Portfolio. Payment shall be in federal funds transmitted by wire by 11:00 a.m.
New York time. If payment in federal funds for any purchase is not received or
is received by the Fund after 11:00 a.m. New York time on such Business Day,
the Company shall promptly, upon the Fund's request, reimburse the Fund for
any charges, costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the Fund, or
any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the
federal funds so wired,
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such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the shares of a Designated Portfolio will be
by book entry only. Stock certificates will not be issued to the Company or
any Account. Shares of a Designated Portfolio ordered from the Fund will be
recorded in an appropriate title for each Account or the appropriate
subaccount of each Account.
1.9 The Fund shall furnish same-day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital
gain distributions payable on shares of the Designated Portfolios. The Company
hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on shares of a Designated Portfolio in additional
shares of that Designated Portfolio. The Company reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Fund
shall use its best efforts to furnish advance notice of the day such dividends
and distributions are expected to be paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. New York time) and shall use its best efforts to make such net asset
value per share available by 7:00 p.m. New York time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the shares of the Designated Portfolios (and
other Portfolios of the Fund) may be sold to other insurance companies
(subject to Section 1.3 and Article VII hereof) and the cash value of the
Contracts may be invested in other investment companies, provided, however,
that (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of any Designated Portfolio; or (b) the Company gives
the Fund, the Adviser and the Underwriter 45 days' written notice of its
intention to make such other investment company available as a funding vehicle
for the Contracts; or (c) the Fund, the Adviser or Underwriter consents to the
use of such other investment company, such consent not to be unreasonably
withheld.
ARTICLE II
Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act;(or are exempted from such registration), that
the Contracts will be continually issued, offered for sale and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a separate account under
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<PAGE> 5
Illinois insurance laws and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act (or will rely on an exemption
from such registration), to serve as a separate account for the Contracts.
The Company further represents and warrants that certain Contracts specified
in Appendix A hereto are exempt from the registration requirements of the 1933
Act under the provisions of Section 4(2) thereof, and that the Accounts
supporting such Contracts are exempt from the registration requirements of the
1940 Act under the provisions of Section 12(d)(1) of the 1940 Act under the
provisions of Section 12(d)(1)(E) thereof.
2.2 The Fund represents and warrants that shares of the Designated
Portfolios sold pursuant to this Agreement shall be registered under the 1933
Act, duly authorized for issuance and sold in compliance with all applicable
federal securities laws and that the Fund is and shall remain registered under
the 1940 Act. The Fund shall amend the Registration Statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Fund shall register and
qualify the shares of the Designated Portfolios for sale in accordance with
the laws of the various states only if and to the extent deemed advisable by
the Fund after taking into consideration any state insurance law requirements
that the Company advises the Fund may be applicable.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
may make such payments in the future subject to applicable law.
2.4 The Fund makes no representations as to whether any aspect of its
operation, including but not limited to, investments policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance laws of the State of Illinois to the extent
required to perform this Agreement. The Company will advise the Fund in
writing as to any requirements of Illinois insurance law that affect the
Designated Portfolios, and the Fund will be deemed to be in compliance with
this Section 2.4 so long as the Fund complies with such advice of the Company.
2.5 The Fund represents that it is lawfully organized and validly existing
as a business trust under the laws of the Commonwealth of Massachusetts and
that it does and will comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the shares of
the Designated Portfolios in accordance with any applicable state and federal
securities laws.
2.7 The Adviser represents and warrants that it is and shall remain duly
registered as an investment adviser under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with any applicable state and
federal securities laws.
2.8 The Fund, the Adviser and the Underwriter represent and warrant that
all their directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity
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<PAGE> 6
bond or similar coverage for the benefit of the Fund in an amount not less
than the minimum coverage required currently by Rule 17g-1 of the 1940 Act or
such related provisions as may be promulgated from time to time. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be issued
by a reputable bonding company.
2.9 The Company represents and warrants that all its directors, officers,
employees, investment advisers, and other individuals or entities employed or
controlled by the Company dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not
less than $20 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees
that this bond or another bond containing these provisions will always be in
effect, and agrees to notify the Fund, the Adviser and the Underwriter in the
event that such coverage no longer applies.
2.10 Except for shares of Designated Portfolios purchased by the Company on
behalf of Contracts exempt from registration under the 1933 Act (as said
Contracts are specified in Schedule A hereto), the Company represents and
warrants that all shares of the Designated Portfolios purchased by the Company
will be purchased on behalf of one or more unmanaged separate accounts that
offer interests therein that are registered under the 1933 Act and upon which
a registration fee has been or will be paid; and the Company acknowledges that
the Fund intends to rely upon this representation and warranty for purposes of
calculating SEC registration fees payable with respect to such shares of the
Designated Portfolios pursuant to Instruction B.5 to Form 24F-2 or any similar
form or SEC registration fee calculation procedure that allows the Fund to
exclude shares so sold for purposes of calculating its SEC registration fee.
The Company agrees to cooperate with the Fund on no less than an annual basis
to certify as to its continuing compliance with this representation and
warranty.
ARTICLE III
Prospectuses, Statements of Additional
Information and Proxy Statements: Voting
3.1 The Fund shall provide the Company with as many copies of the Fund's
current prospectus for the Designated Portfolios as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the prospectus for a Designated Portfolio is amended)
to have the prospectus for the Contracts and the prospectus for the Designated
Portfolios printed together in one document. Expenses with respect to the
foregoing shall be borne as provided under Article V.
3.2 The Fund's prospectus shall disclose that (a) the Fund is intended to
be a funding vehicle for all types of variable annuity and variable life
insurance contracts offered by Participating Insurance Companies, (b) material
irreconcilable conflicts of interest may arise, and (c) the Fund's Board will
monitor events in order to identify the existence of any material
irreconcilable conflicts and determine what action, if any, should be taken in
response to such conflicts. The Fund hereby notifies the Company that
disclosure in the prospectus for the Contracts regarding the potential
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<PAGE> 7
risks of mixed and shared funding may be appropriate. Further, the Fund's
prospectus shall state that the current Statement of Additional Information
("SAI") for the Fund is available from the Company (or, in the Fund's
discretion, from the Fund), and the Fund shall provide a copy of such SAI to
any owner of a Contract who requests such SAI and to the Company in such
quantities as the Company may reasonably request. Expenses with respect to the
foregoing shall be borne as provided under Article V.
3.3 The Fund shall provide the Company with copies of its proxy material,
reports to shareholders, and other communications to shareholders for the
Designated Portfolios in such quantity as the Company shall reasonably require
for distributing to Contract owners. Expenses with respect to the foregoing
shall be borne as provided under Article V.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the shares of each Designated Portfolio in accordance
with instructions received from Contract owners; and
(iii) vote shares of each Designated Portfolio for which no
instructions have been received in the same proportion as
shares of such Designated Portfolio for which instructions
have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require passthrough voting privileges for variable contract owners or to
the extent otherwise required by law. The Company reserves the right to vote
shares of each Designated Portfolio held in any separate account in its own
right, to the extent permitted by law.
3.5 The Company shall be responsible for assuring that each of its separate
accounts participating in a Designated Portfolio calculates voting privileges
as required by the Shared Funding Exemption Order and consistent with any
reasonable standards that the Fund has adopted or may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well
as with Sections 16(a) and, if and when applicable, Section 16(b). Further,
the Fund will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
or trustees and with whatever rules the SEC may promulgate from time to time
with respect thereto. The Fund reserves the right, upon prior written notice
to the Company (given at the earliest practicable time), to take all actions,
including but not limited to, the dissolution, termination, merger and sale of
all assets of the Fund or any Designated Portfolio upon the
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<PAGE> 8
sole authorization of the Board, to the extent permitted by the laws of the
Commonwealth of Massachusetts and the 1940 Act.
3.7 It is understood and agreed that, except with respect to information
regarding the Fund, the Underwriter, the Adviser or Designated Portfolios
provided in writing by the Fund, the Underwriter or the Adviser, none of the
Fund, the Underwriter or the Adviser is responsible for the content of the
prospectus statement of additional information or Private Placement Memorandum
for the Contracts.
ARTICLE IV
Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or the Underwriter, each piece of sales literature or other promotional
material ("sales literature") that the Company develops or uses and in which
the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter
is named, at least eight business days prior to its use. No such material
shall be used if the Fund or its designee reasonably objects to such use
within eight business days after receipt of such material. The Fund or its
designee reserves the right to reasonably object to the continued use of such
material, and no such material shall be used if the Fund or its designee so
object.
4.2 The Company shall not give any information or make any representation
or statement on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or SAI for the shares of
the Designated Portfolios, as such registration statement, prospectus or SAI
may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company, each piece of sales literature that the Fund or
Underwriter develops or uses in which the Company and/or its Account is named,
at least eight business days prior to its use. No such material shall be used
if the Company reasonably objects to such use within eight business days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of such material and no such material shall be used if
the Company so objects.
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, statement of additional
information or Private Placement Memorandum for the Contracts, as such
registration statement, prospectus or statement of additional information or
private placement memorandum may be amended or supplemented from time to time,
or in published reports for the Accounts which are the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature approved by the Company or its designee, except with the permission
of the Company.
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4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Designated Portfolios,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
shareholder reports, solicitations for voting instructions, sales literature,
applications for exemptions, request for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Accounts,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities. The Company will also provide to the Fund at least
one complete copy of all private placement memorandums that relate to the
Contracts or the Accounts, contemporaneously with the first use of such
documents with potential customers.
4.7 For purposes of this Agreement, the phrase "sales literature" includes,
but is not limited to, any of the following: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, electronic media, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature Cam., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article) and educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
4.8 At the request of any party to this Agreement, any other party will
make available to the requesting party's independent auditors all records,
data and access to operating procedures that may reasonably be requested in
connection with compliance and regulatory requirements related to this
Agreement or any party's obligations under this Agreement.
ARTICLE V
Fees and Expenses
5.1 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except and as further provided in Schedule B. The
Fund shall see to it that all shares of the Designated Portfolios are
registered, duly authorized for issuance and sold in compliance with
applicable federal securities laws and, if and to the extent deemed advisable
by the Fund, in accordance with applicable state securities laws prior to
their sale.
5.2 The parties hereto shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, SAI, proxy materials and reports as
provided in Schedule B.
5.3 Administrative services to variable Contract owners shall be the
responsibility of the Company and shall not be the responsibility of the Fund,
Underwriter or Adviser. The Fund recognizes the Company as the sole
shareholder of shares of the Designated Portfolios issued under the Agreement.
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5.4 The Fund shall not pay and neither the Adviser nor the Underwriter
shall pay any fee or other compensation to the Company under this Agreement,
although the parties will bear certain expenses in accordance with Schedule B
and other provisions of this Agreement.
ARTICLE VI
Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Internal Revenue Code
of 1986, as amended ("Code") and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Fund
will, with respect to each Designated Portfolio, comply with Section 817(h) of
the Code and Treasury Regulation Section 1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments
or other modifications or successor provisions to such Section or Regulations.
In the event of a breach of this Article VI, the Fund will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the affected Designated Portfolio so as to achieve compliance within the grace
period afforded by Treasury Regulation Section 1.817-5.
6.2 The Fund represents that each Designated Portfolio is currently
qualified (and for new Designated Portfolios, intends to qualify) as a
Regulated Investment Company under Subchapter M of the Code, and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that a Designated
Portfolio has ceased to so qualify or that a Designated Portfolio might not so
qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make
every effort to maintain such treatment, and that it will notify the Fund, the
Adviser and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus or Private
Placement Memorandum offering a contract that is a "modified endowment
contract" as that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII
Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities;
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(c) an administrative or judicial decision in any relevant proceeding; (d)
the manner in which the investments of any Designated Portfolio are being
managed; (e) a difference in voting instructions given by variable annuity
contact and variable life insurance contract owners; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
contract owners. The Board shall promptly inform the Company if it determines
that an irreconcilable material conflict exists and the implications thereof.
7.2 The Company and the Adviser will report any potential or existing
conflicts of which each is aware to the Board. The Company will assist the
Board in carrying out its responsibilities under the Shared Funding Exemption
Order, by providing the Board with all information reasonably necessary for
the Board to consider any issues raised. This includes, but is not limited to,
an obligation by the Company to inform the Board whenever Contract owner
voting instructions are disregarded. At least annually, and more frequently if
deemed appropriate by the Board, the Company shall submit to the Adviser, and
the Adviser shall at least annually submit to the Board, such reports,
materials and data as the Board may reasonably request so that the Board may
fully carry out the obligations imposed upon it by the conditions contained in
the Shared Funding Exemption Order; and said reports, materials and data shall
be submitted more frequently if deemed appropriate by the Board. The
responsibility to report such information and conflicts to the Board will be
carried out with a view only to the interests of the contract owners.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and any other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested Board members), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(a), withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Designated Portfolio and reinvesting such assets in a
different investment medium, which may include another Designated Portfolio of
the Fund, or submitting to a vote of all affected contract owners the question
whether such segregation should be implemented and, as appropriate,
segregating the assets of any appropriate group (A annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contract owners the option of making such a change;
and (b), establishing a new registered management investment company or
managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in any Designated Portfolio and terminate this Agreement with
respect to such Account provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
members of the Board. The Company will bear the cost of any remedial action,
including including such withdrawal and termination. No penalty will be
imposed by the Fund upon
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the affected Account for withdrawing assets from the Fund in the event of a
material irreconcilable conflict. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the effective date of such
termination the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of such Designated
Portfolio.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the
affected Account's investment in the affected Designated Portfolio and
terminate this Agreement with respect to such Account within six months after
the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required
by the foregoing material irreconcilable conflict as determined by a majority
of the disinterested members of the Board. Until the effective date of such
termination the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of such Designated
Portfolios.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict; but in no
event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw an Account's investment in any
Designated Portfolio and terminate this Agreement within six (6) months after
the Board informs the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined by
a majority of the disinterested members of the Board.
7.7 If and to the extent the Shared Funding Exemption Order contains terms
and conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and
7.5 of this Agreement, then the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with the Shared Funding Exemption Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2,
7.3, 7.4 and 7.5 of the Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are
contained in the Shared Funding Exemption Order or any amendment thereto. If
and to the extent that Rule 6e-2 and Rule 6e3(T) are amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemption Order) on terms and conditions
materially different from those contained in the Shared Funding Exemption
Order, then (a) the Fund and/or the Participating Insurance Companies, as
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appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and
7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII
Indemnification
8.1 Indemnification by the Company.
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter and each of their officers, trustees and directors
and each person, if any, who controls the Fund, the Adviser or the Underwriter
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or litigation (including legal and
other expenses), to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the shares of the
Designated Portfolios or the Contracts and;
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus, or statement of additional
information or Private Placement Memorandum for the Contracts or
contained in the Contracts or sales literature for the Contracts (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of the Fund for use in the
Registration Statement, prospectus, statement of additional
information or Private Placement Memorandum for the Contracts or in
the Contracts or sales literature for the Contracts (for any amendment
or supplement) or otherwise for use in connection with the sale of the
Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus, SAI or sales
literature of the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the Company or persons
under its authorization or control, with respect to the sale or
distribution of the Contracts or shares of the Designated
Portfolios; or
13
<PAGE> 14
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement, prospectus, SAI or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any material failure by the Company
to provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional or
in good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in any
Registration Statement, prospectus, statement of additional
information or sales literature for any Unaffiliated Fund, or
arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
otherwise pertain to or arise in connection with the availability
of any Unaffiliated Fund as an underlying funding vehicle in
respect of the Contracts; or
(vi) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c).
(b) The Company shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of its obligations or duties under this Agreement.
(c) The Company shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Company in writing within a reasonable time after
the summons or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability that it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Company has been
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense provided,
however, that
14
<PAGE> 15
no such settlement shall, without the Indemnified Parties' written consent,
include any factual stipulation referring to the Indemnified Parties or their
conduct. After notice from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the shares of the Designated Portfolios or the
Contracts or the operation of the Fund.
8.2 Indemnification by the Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Underwriter) or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of shares of the Designated
Portfolios or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, prospectus or SAI of the Fund or sales
literature of the Fund developed by the Underwriter (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the Registration Statement or
prospectus for the Fund or its sales literature (or any amendment
or supplement thereto) or otherwise for use in connection with
the sale of the Contracts or shares of the Designated Portfolios;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus, Private
Placement Memorandum or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or
wrongful conduct of the Fund or Underwriter or person under their
control with respect to the sale or distribution of the Contracts
or shares of the Designated Portfolios; or
15
<PAGE> 16
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, Private Placement Memorandum or sales
literature for the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance or such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to the Company or the Accounts, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been sewed upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such senice on any designated agent), but failure to notify the Underwriter
of any such claim shall not relieve the Underwriter from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision, except to the extent that
the Underwriter has been prejudiced by such failure to give notice. In case any
such action is brought against the Indemnified Party, the Underwriter will be
entitled to participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action and to settle the claim at is own
expense; provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Underwriter
to such party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
16
<PAGE> 17
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund); or litigation (including
legal and other expenses) to which the Indemnified Parties may be required to
pay or may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages, liabilities or
expenses (or actions in respect thereof) or settlements, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter, the Adviser or the Accounts, whichever is
applicable.
(c) The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been sewed upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such senice on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability that it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Fund has been
prejudiced by such failure to give notice. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in
17
<PAGE> 18
the defense thereof. The Fund also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action and to
settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Company, the Adviser and the Underwriter agree to notify the Fund
promptly of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of any Account, or the sale
or acquisition of shares of the Designated Portfolios.
ARTICLE IX
Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from the statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemption Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X
Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to any
Designated Portfolio, by twelve (12) months' advance written notice delivered
to the other parties; or
(b) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio based
upon the Company's reasonable and good faith determination that shares of such
Designated Portfolio are not reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio if the
shares of such Designated Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal securities
18
<PAGE> 19
laws or such law precludes the use of such shares to fund the Contracts issued
or to be issued by the Company; or
(d) termination by the Fund, the Adviser or Underwriter in the event
that formal administrative proceedings are instituted against the Company or
any affiliate by the NASD, the SEC, or the Insurance Commissioner or like
official of any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the shares of a Designated
Portfolio or the shares of any Unaffiliated Fund, provided, however, that the
Fund, the Adviser or Underwriter determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Company to perform its obligations
under this Agreement; or
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund, the Adviser or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body, provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Fund or
Underwriter to perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio in the
event that such Designated Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to comply with the Section
817(h) diversification requirements specified in Article VI hereof, or if the
Company reasonably believes that such Designated Portfolio may fail to so
qualify or comply; or
(g) termination by the Fund, the Adviser or Underwriter by written
notice to the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by any of the Fund, the Adviser or the Underwriter by
written notice to the Company, if any of the Fund, the Adviser or the
Underwriter, respectively, shall determine, in their sole judgment exercised
in good faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, insurance company rating or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(i) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund, the Adviser or the
Underwriter has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity and that material adverse
change or publicity will have a material adverse effect on the Fund's or the
Underwriter's ability to perform its obligations under this Agreement; or
19
<PAGE> 20
(j) at the option of Company, as one party, or the Fund, the Adviser and
the Underwriter, as one party, upon the other party's material breach of any
provision of this Agreement upon 30 days' notice and opportunity to cure.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of a Designated Portfolio
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, the owners of the Existing
Contracts may in such event be permitted to reallocate investments in the
Designated Portfolios, redeem investments in the Designated Portfolios and/or
invest in the Designated Portfolios upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section
10.2 shall not apply to any termination under Article VII and the effect of
such Article VII termination shall be governed by Article VII of this
Agreement. The parties further agree that this Section 10.2 shall not apply to
any termination under Section lO.l(g) of this Agreement.
10.3 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
Kemper Investors Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
If to the Company:
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
Attention: General Counsel
20
<PAGE> 21
If to the Adviser:
Zurich Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606 Attention:
Secretary
If to the Underwriter:
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
ARTICLE XII
Miscellaneous
12.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.4 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Delaware Insurance Commissioner
with any information or reports in connection with services provided under
this Agreement that such Commissioner may request in order to ascertain
whether the variable annuity operations of the Company are being conducted in
a manner consistent with the Delaware variable annuity laws and regulations
and any other applicable law or regulations.
12.5 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
21
<PAGE> 22
12.6 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.7 All persons are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which on file with the
Secretary of the Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund with
respect to a Designated Portfolio hereunder are not binding upon any of the
trustees, officers or shareholders of the Fund individually, but are binding
upon only the assets and property of such Designated Portfolio. All parties
dealing with the Fund with respect to a Designated Portfolio shall look solely
to the assets of such Designated Portfolio for the enforcement of any claims
against the Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and on behalf by its duly authorized representative and
its seal to be hereunder affLxed hereto as of the date first above written.
COMPANY: Kemper Investors Life Insurance Company
By:
Title:
FUND: Kemper Investors Fund
By:
Title:
ADVISER Zurich Kemper Investments, Inc.
By:
Title:
UNDERWRITER Kemper Distributors, Inc.
By:
Title:
22
<PAGE> 23
SCHEDULE A
Name of Separate Account and
Date Established by Board of Directors
KILICO Variable Annuity Separate Account (KVASA) (5/29/81)
KILICO Variable Separate Account (KVSA) (1/22/87)
KILICO Variable Separate Account-2 (KVSA-2) (6/17/97)
KILICO Variable Series II Separate Account (IISA) (1/30/97)
KILICO Variable Series III Separate Account (IIISA) (1/30/97)
KILICO Variable Series VI Separate Account (VISA) (1/30/97)
Contracts Funded
by Separate Account
Kemper Passport (KVASA)
Kemper Advantage III (KVASA)
Kemper Select (KVSA)
Power V (KVSA)
Policy No. [TBA] (KVASA)+
First Foundation VUL (KVSA-2)+
Series II VUL (IISA)++
Series III VUL (IISA)++
Series IV VUL (IIISA)++
Series V VUL (IISA)++
Series VI VUL (IISA)++
Series VII VUL (VISA)++
Designated Portfolios
A. All Contracts (except Series VUL products)
Money Market Portfolio
Total Return Portfolio
High Yield Portfolio
Growth Portfolio
Government Securities Portfolio
International Portfolio
Small Cap Growth Portfolio
A-1
<PAGE> 24
B. Kemper Advantage III only. The following additional Portfolios may be
used for Kemper Advantage III but only in connection with retail sales to
qualified employee benefit plans and then only in distribution
arrangements for which the Company or Investors Brokerage Services, Inc.,
an affiliate of the Company, provides wholesaling services through its
employees:
Investment Grade Bond Portfolio
Value Portfolio
Small Cap Value Portfolio
Value+Growth Portfolio
Horizon 20+ Portfolio
Horizon 10+ Portfolio
Horizon 5 Portfolio
C. Kemper Passport and First Foundation VUL - The following Portfolios may
be used for Kemper Passport* and First Foundation VUL+:
Investment Grade Bond Portfolio
Value Portfolio
Small Cap Value Portfolio
Value + Growth Portfolio
Horizon 20+ Portfolio
Horizon 10+ Portfolio
Horizon 5 Portfolio
Blue Chip Portfolio
Global Income portfolio
D. Series II VUL, Series III VUL, Series IV VUL, Series V VUL, Series VI VUL
and Series VII VUL - The Following Portfolio may be used for the Series
VUL products Money Market Portfolio.
____________________
+ Effective upon registration of contract or Portfolio becoming
effective.
++ Contracts exempt from registration under the 1933 Act.
Additional Designated Portfolios may be added for Kemper Passport at the
request of the Fund, Adviser and Underwriter and with the consent of
the Company, which consent will not be unreasonably withheld.
A-2
<PAGE> 25
SCHEDULE B
EXPENSES
1. In the event the prospectus, SAI, annual report or other communication of
the Fund is combined with a document of another party, the Fund will pay
the costs based upon the relative number of pages attributable to the
Fund.
<TABLE>
<CAPTION>
ITEM FUNCTION RESPONSIBLE PARTY
PROSPECTUS
<S> <C> <C>
Update Typesetting Fund (1)
New Sales: Printing Company
Distribution Company
Existing Printing Fund (1)
Owners: Distribution Fund (1)
STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
PROXY MATERIALS OF Typesetting Fund
THE FUND Printing Fund
ANNUAL REPORTS & Distribution Fund
OTHER COMMUNICATIONS
WITH SHAREHOLDERS
OF THE FUND
All
Marketing: Typesetting Fund (1)
Printing Company
Existing Owners: Distribution Company
Printing Fund (1)
OPERATIONS OF FUND Distribution Fund (1)
All operations and Fund
related expenses,
including the cost
of registration and
qualification of
the Fund's shares,
preparation and
filing of the
Fund's prospectus
and registration
statement, proxy
materials and
reports, the
preparation of all
statements and
notices required by
any federal or
state law and all
taxes on the
issuance of the
Fund's shares, and
all costs of
management of the
business affairs of
the Fund.
</TABLE>
B-1
<PAGE> 1
EXHIBIT 1-A(8)(b)
EVERGREEN VARIABLE TRUST
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this day of October, 1997 between EVERGREEN
VARIABLE TRUST, an open-end management investment company organized as a
Massachusetts business trust (the "Trust"), and Kemper Investors Life Insurance
Company, a life insurance company organized under the laws of the State of
Illinois (the "Company"), on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A, as may be amended from
time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and the offer and sale of its shares are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has obtained an order from the Securities and
Exchange Commission granting Participating Insurance Companies and their
separate account exemptions from the provisions of section 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act and rules 6e-2(b)(15) and 6e- 3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and nonaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Trust Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable
life insurance policies and/or variable annuity contracts under the 1933 Act
(the "Contracts"); and
WHEREAS, the Company has registered or will register certain Accounts
as unit investment trusts under the 1940 Act;
WHEREAS, the Company relies on certain provisions of the 1940 and 1933
Acts that exempt certain Accounts and Contracts from the registration
requirements of
<PAGE> 2
the Acts in connection with the sale of Contracts under certain private
placement offerings; and
WHEREAS, the Company desires to utilize shares of one or more Portfolios
as an investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Sale of Trust Shares
1.1 The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interest of the shareholders
of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any
Portfolio when requested by the Company on behalf of an Account at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust. The Trust shall make payment for such
shares in the manner established from time to time by the Trust, but in no
event shall payment be delayed for a greater period than is permitted by the
1940 Act.
1.3 For the purposes of Section 1.1, 1.2, the Trust hereby appoints the
Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that (i) such orders are received by the Company in good order prior
to the close of the regular trading session of the New York Stock Exchange and
(ii) the Trust receives notice of such orders by 9:30 a.m. New York time on the
next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Trust calculates
its net asst value pursuant to the rules of the Securities and Exchange
Commission.
1.4 Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for on the same Business Day that the Trust receives
notice of the order. Payments shall be made in federal funds transmitted by
wire.
<PAGE> 3
1.5 The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on shares of any Portfolio of
the Trust. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the number of
share so issued as payment of such dividends and distributions.
1.6. The Trust shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. New
York time.
1.7. The Trust agrees that it shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Trust Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that the trust shares will be used only for
the purposes of funding the Contracts and Accounts listed in Schedule A, as
amended from time to time.
1.8. The Trust agrees that all participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.8 and
Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and statements
of additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this Section 2.1. and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2. The Trust will bear or cause to be borne the printing costs (or
duplicating costs with respect to the statement of additional information) and
mailing costs associated with the delivery of the Trust's current prospectus,
statement of additional information, annual report, semi-annual report, Trust
sponsored proxy material or other shareholder communications, including any
amendments or supplements to any of the foregoing.
2.3. The Company will bear the printing costs (or duplicating costs
with respect to the statement of additional information) and mailing costs
associated with the delivery of the Accounts' current prospectuses and
statements of additional information, private placement memorandums, annual and
semi-annual reports,
<PAGE> 4
Contracts, Contract applications, Account sponsored proxy materials and voting
solicitation instructions.
2.4. The Company agrees and acknowledges that the Trust's adviser,
Evergreen Asset Management Corp. ("Evergreen Asset"), is the sole owner of the
name and mark "Evergreen" and that all use of any designation comprised in
whole or part of Evergreen (an "Evergreen Mark") under this Agreement shall
inure to the benefit of Evergreen Asset. Except as provided in Section 2.5.,
the Company shall not use any Evergreen mark on its own behalf or on behalf of
the Accounts or Contracts in any registration statement, advertisement, sales
literature or other materials relating to the Accounts or Contracts without the
prior written consent of Evergreen Asset. Upon termination of this Agreement
for any reason, the Company shall cease all use of any Evergreen Asset mark(s)
as soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust
or its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment adviser is named prior to the
filing of such document with the Securities and Exchange Commission. The
Company shall furnish, or shall cause to be furnished, to the Trust or its
designee, each piece of sales literature or other promotional material
including private placement memorandums, in which the Trust or its investment
adviser is named, at least ten Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
2.6. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
its investment adviser in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.7. The Trust shall furnish or cause to be furnished, to the Company
or its designee, a copy of each Trust prospectus or statement of additional
information in which the Company or the Accounts are named prior to the filing
of such document with the Securities and Exchange Commission. The Trust shall
furnish, or shall cause to be furnished, to the Company or its designee, each
piece of sales literature or other promotional material in which the Company or
the Accounts are named, at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to
such use within ten Business Days after receipt of such material.
2.8. The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the
<PAGE> 5
Contracts other than information or representations contained in and accurately
derived from the registration statement, prospectus or private placement
memorandum for the Contracts (as such registration statement, prospectus or
private placement memorandum may be amended or supplemented from time to time),
or in materials approved by the Company for distribution including sales
literature or other promotional materials, except as required by legal process
or regulatory authorities or with the written permission of the Company.
2.9. So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges
for variable policy owners, the Company will provide pass-through voting
privileges to owners of policies whose cash values are invested, through the
Accounts, in shares of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and the
Company shall be responsible for assuring that the Accounts calculated voting
privileges in the manner established by the Trust. With respect to each
Account, the Company will vote shares of the Trust held by the Account and for
which no timely voting instructions from policy owners are received as well as
shares it owns that are held by that Account, in the same proportion as those
shares for which voting instructions are received. The Company and its agents
will in no way recommend or oppose or interfere with the solicitation of
proxies for Trust shares held by Contract owners without the prior written
consent of the Trust, which consent may be withheld in the Trust's sole
discretion.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the State of
Illinois and that it has legally and validly established each Account as a
segregated asset account under such law on the dates set forth in Schedule A.
3.2. The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act to the extent required by the 1933 Act prior to
any issuance or sale of the Contracts; the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws;
and the sale of the Contracts shall comply in all material respects with state
insurance suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of The Commonwealth of Massachusetts.
<PAGE> 6
3.5. The Trust represents and warrants that the Trust shares offered
and sold pursuant tot this Agreement will be registered under the 1933 Act and
the Trust is registered under the 1940 Act prior to any issuance or sale of
such shares. The Trust shall amend its registration statement under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify its
shares for sale in accordance with the laws of the various states only if and
to the extent deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder. The Trust shall provide the Company, or cause to
be provided, a letter from the appropriate office within ten Business Days
following the end of each calendar quarter of the Trust, certifying the Trust's
compliance during that calendar quarter with the diversification requirements
and qualification as a regulated investment company, and including a detailed
listing of individual securities held by each Portfolio of the Trust. In the
event of a breach of this Section 3.6 by the Trust, it will take all reasonable
steps (a) to immediately notify the Company of such breach and (b) to
adequately diversify the Trust so as to achieve compliance within the grace
period afforded by Regulation 817-5.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or
(f) a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall promptly inform the Company if they determine that
an irreconcilable material conflict exists and the implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Trust
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions.
<PAGE> 7
4.3. If it is determined by a majority of the Trustees, or a majority
of its disinterested Trustees, that an irreconcilable material conflict exists
that affects the interests of Contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract owners
are also affected, at its expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from the Trust
or any Portfolio and reinvesting such assets in a difference investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting
the question of whether or not such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
4.4. If an irreconcilable material conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested Trustees. Any such
withdrawal and termination must take place within six (6) months after the
Trust gives written notice that this provision is being implemented. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of
the Trust.
4.5. If any irreconcilable material conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account within six (6) months after the Trustees
inform the Company in writing that it had determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing irreconcilable material conflict as determined by a majority of the
required by the foregoing irreconcilable material conflict as determined by a
majority of the disinterested Trustees. Until the end of such six (6) month
period, the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
4.6. For purposes of Section 4.3. through 4.6. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Company be required to establish a new funding medium for the
Contracts if any offer to do so has
<PAGE> 8
been declined by vote of a majority of Contract owners materially adversely
affected by the irreconcilable material conflict. In the event that the
Trustees determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six (6) months
after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such irreconcilable material conflict as
determined by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit tot he trustees such
reports, materials or data as the Trustees may reasonably request sot hat the
trustees may fully carry out the duties imposed upon them by the Shared Trust
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(l) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Trust Exemptive Order) on terms and
conditions materially different from those contained in the Shared Trust
Exemptive Order, then the Trust and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(l), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify
and hold harmless the Trust and each of its Trustees, officers, employees and
agents and each person, if any, who controls the Trust within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively, "Losses"),
to which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration statement,
prospectus or private placement memorandum for the Contracts or in the
Contracts themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or any amendment or supplement
to any of the foregoing) (collectively, "Company Documents" for the purposes of
this Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
<PAGE> 9
that this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written information furnished to
the Company by or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the Contracts or Trust shares;
or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or acquisition
of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in Section
5.2(a) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company.
5.2 Indemnification By the Trust. The Trust agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees and
agents and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Trust) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively, "Losses"),
to which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement
or prospectus for the Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, that this indemnity shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately derived from
written information furnished to the Trust by or on behalf of the Company for
<PAGE> 10
use in Trust Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived form written
information furnished to the Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to provide the
services or furnish the materials required under the terms of this Agreement;
or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust.
5.3. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or gross negligence int
he performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim which shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim or shall not relieve that party from any liability which it may have to
the Indemnified Party int he absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against he Indemnified
Parties, the indemnifying party shall be entitled to participate, at its own
expense, int he defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonable satisfactory to
the party named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional
<PAGE> 11
counsel retained by it, and the indemnifying party will not be liable to the
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
ARTICLE VI.
Termination
6.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six (6) months' advance
written notice delivered to the other party; or
(b) termination by the Company by written notice to the Trust with
respect to any Portfolio based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the requirements of the
Contracts or not consistent with the Company's obligations to Contract owners;
or
(c) termination by the Company by written notice to the Trust with
respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Trust with
respect to any Portfolio in the event that such Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M of the Code or any
independent or resulting failure under Section 817 of the Code, or under any
successor or similar provision of either, or if the Company reasonably believes
that the Trust may fail to so qualify; or
(e) termination by the Trust by written notice to the Company, if the
Trust shall determine, in its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity, but no such
termination shall be effective under this subsection (e) until the Company has
been afforded a reasonable opportunity to respond to a statement by the Trust
concerning the reason for notice of termination hereunder; or
(f) termination by the Company by written notice to the Trust, if the
Company shall determine, in its sole judgment exercised in good faith, that
either the Trust or an investment adviser to the Trust has suffered a material
adverse change in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material adverse
publicity; but no such termination shall be effective under this subsections
(f) until the Trust has been afforded a reasonable opportunity to
<PAGE> 12
respond to a statement by the Company concerning the reason for notice of
termination hereunder.
6.2. Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Trust (or any Portfolio) pursuant to the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement, provided that the Company continues to pay the cots set
forth in Section 2.3.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
If to the Company:
One Kemper Drive
Long Grove, Illinois 60049
Attention: General Counsel
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
<PAGE> 13
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated
hereby.
8.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the
other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Participation Agreement as of the date and year first above
written.
KEMPER INVESTORS LIFE INSURANCE COMPANY EVERGREEN VARIABLE TRUST
By: By:
Name: Name:
Title: Title:
<PAGE> 14
SCHEDULE A
Separate Accounts, Contracts and Associated Portfolios
------------------------------------------------------
Name of Separate Accounts and Date
Established by Board of Directors
- ---------------------------------
1. KILICO Variable Separate Account - 2
(KV SA-2) (est. 06/17/97)
2. KILICO Variable Series III Separate Account
(Series III SA) (est. 01/30/97)
3. KILICO Variable Series VI Separate Account
(Series VI SA) (est. 01/30/98)
Contracts Funded by Separate Account
- ------------------------------------
1. First Foundation VUL (KV SA-2)
2. Series IV VUL (Individual) (Series III SA)
3. Series VII VUL (Survivorship) (Series VI SA)
Designated Portfolios
- ---------------------
1. First Foundation VUL
o Evergreen VA Fund
o Evergreen VA Growth and Income Fund
o Evergreen VA Foundation Fund
o Evergreen VA Global Leaders Fund
o Evergreen VA Strategic Income fund
o Evergreen VA Aggressive Growth Fund
2. Series IV VUL
o Evergreen VA Fund
o Evergreen VA Growth and Income Fund
o Evergreen VA Foundation Fund
o Evergreen VA Global Leaders Fund
o Evergreen VA Strategic Income Fund
o Evergreen VA Aggressive Growth Fund
<PAGE> 15
3. Series VII VUL
o Evergreen VA Fund
o Evergreen VA Growth and Income Fund
o Evergreen VA Foundation Fund
o Evergreen VA Global Leaders Fund
o Evergreen VA Strategic Income Fund
o Evergreen VA Aggressive Growth
108356
<PAGE> 1
[ZURICH KEMPER LOGO]
EXHIBIT 1-A(10)(a)
APPLICATION TO
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, Illinois 60049-0001
VARIABLE UNIVERSAL LIFE SUPPLEMENT
Name of Proposed
Insured___________________________________________________________ Plan_______
Planned Premium_______________________ Mode Payable_____________________________
PREMIUM ALLOCATION
<TABLE>
<CAPTION>
EVERGREEN VARIABLE TRUST INVESTORS FUND SERIES FIXED ACCOUNT
% of Premium % of Premium % of Premium
(Whole Percentages Only) (Whole Percentages Only) (Whole Percentages Only)
Subaccount Subaccount
<S> <C> <C>
____ % Evergreen VA _____ % Money Market _____ %
____ % Evergreen VA Growth and Income _____ % Total Return
____ % Evergreen VA Foundation _____ % High Yield
____ % Evergreen VA Global Leaders _____ % Growth
____ % Evergreen VA Strategic Income _____ % Government Securities
____ % Evergreen VA Aggressive Growth _____ % International
_____ % Small Cap Growth
_____ % Investment Grade Bond
_____ % Value
_____ % Small Cap Value
_____ % Value + Growth
_____ % Horizon 20+
_____ % Horizon 10+
_____ % Horizon 5
_____ % Blue Chip Premium may be allocated to 10 subaccounts. Total of
_____ % Global Income subaccount plus fixed account must equal 100%
</TABLE>
SUITABILITY
ANNUAL EARNINGS
[ ] $25,000 to $50,000 [ ] $50,000 to $100,000
[ ] $100,000 to $200,000 [ ] over $200,000
NET WORTH
[ ] $25,000 to $75,000 [ ] $75,000 to $125,000
[ ] $125,000 to $250,000 [ ] over $250,000
FINANCIAL OBJECTIVES:
[ ] Long Term Growth [ ] Preservation of Capital
[ ] Maximum Capital Appreciation
Other___________________________________________________________________________
[ ] Check this box if you do not wish to provide this information.
IRC SECTION 7702 TEST
[ ] Guideline Premium Test
[ ] Cash Value Accumulation Test
TELEPHONE AUTHORIZATION
[ ] Check here to authorize telephone transfers among the subaccounts and the
fixed account subject to the conditions of the Telephone Transfer Agreement.
I understand that
THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED
CONDITIONS. POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE
EXPERIENCE OF THE SEPARATE ACCOUNT. ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH
BENEFITS, POLICY VALUES, AND CASH SURRENDER VALUES ARE AVAILABLE UPON REQUEST.
Receipt is acknowledged of the current prospectus for the Policy and for the
underlying funds for the Premium Allocation options selected above.
All statements and answers to the foregoing questions are, to the best of my
knowledge and belief: (a) complete; and (b) true. I agree (a) that they shall
form a part of my application; (b) that they shall be subject to the terms of
the agreement found in the application; and (c) that they shall become a part
of any policy based on my application.
<TABLE>
<S> <C> <C>
Dated at ______________________________ ____________________________________ on ___________________________________
City and State Signature of Proposed Insured Month Day Year
</TABLE>
Signature of Applicant and Owner (If other than Proposed Insured)_______________
Signature of Agent as Witness___________________________________________________
Signature of Registered Principal_______________________________________________
L-8178
<PAGE> 1
[ZURICH KEMPER LOGO]
EXHIBIT 1-A(10)(b)
APPLICATION TO
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, Illinois 60049-0001
VARIABLE UNIVERSAL LIFE SUPPLEMENT
Names of Proposed
Insureds________________________________________________________________________
Planned Premium_______________________ Mode Payable__________________Plan_______
PREMIUM ALLOCATION
<TABLE>
<CAPTION>
EVERGREEN VARIABLE TRUST INVESTORS FUND SERIES FIXED ACCOUNT
% of Premium % of Premium % of Premium
(Whole Percentages Only) (Whole Percentages Only) (Whole Percentages Only)
Subaccount Subaccount
<S> <C> <C>
____ % Evergreen VA _____ % Money Market _____ %
____ % Evergreen VA Growth and Income _____ % Total Return
____ % Evergreen VA Foundation _____ % High Yield
____ % Evergreen VA Global Leaders _____ % Growth
____ % Evergreen VA Strategic Income _____ % Government Securities
____ % Evergreen VA Aggressive Growth _____ % International
_____ % Small Cap Growth
_____ % Investment Grade Bond
_____ % Value
_____ % Small Cap Value
_____ % Value + Growth
_____ % Horizon 20+
_____ % Horizon 10+
_____ % Horizon 5
_____ % Blue Chip Premium may be allocated to 10 subaccounts. Total of
_____ % Global Income subaccount plus fixed account must equal 100%
</TABLE>
SUITABILITY
ANNUAL EARNINGS
[ ] $25,000 to $50,000 [ ] $50,000 to $100,000
[ ] $100,000 to $200,000 [ ] over $200,000
NET WORTH
[ ] $25,000 to $75,000 [ ] $75,000 to $125,000
[ ] $125,000 to $250,000 [ ] over $250,000
FINANCIAL OBJECTIVES:
[ ] Long Term Growth [ ] Preservation of Capital
[ ] Maximum Capital Appreciation
Other___________________________________________________________________________
[ ] Check this box if you do not wish to provide this information.
IRC SECTION 7702 TEST
[ ] Guideline Premium Test
[ ] Cash Value Accumulation Test
TELEPHONE AUTHORIZATION
[ ] Check here to authorize telephone transfers among the subaccounts and the
fixed account subject to the conditions of the Telephone Transfer Agreement.
We understand that
THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED
CONDITIONS. POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE
EXPERIENCE OF THE SEPARATE ACCOUNT. ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH
BENEFITS, POLICY VALUES, AND CASH SURRENDER VALUES ARE AVAILABLE UPON REQUEST.
All statements and answers to the foregoing questions are, to the best of our
knowledge and belief: (a) complete; and (b) true. We agree (a) that they shall
form a part of our applications; (b) that they shall be subject to the terms of
the agreement found in the applications; and (c) that they shall become a part
of any policy based on our applications.
Dated at ______________________________ on ___________________________________
City and State Month Day Year
_______________________________________ ____________________________________
Signature of Proposed Insured Signature of Proposed Insured
Signature of Applicant(s) and Owner(s)__________________________________________
(if other than Proposed Insureds)_______________________________________________
Signature of Agent as Witness___________________________________________________
Signature of Registered Principal_______________________________________________
L-8179
<PAGE> 1
EXHIBIT 6(a)
The Board of Directors
Kemper Investors Life Insurance Company
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
December 5, 1997
