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As filed with the Securities and Exchange Commission on September 8, 1997
Registration Nos. _______; 811-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 and amount of securities begin registered:
Units of Interests in the Separate Account under Flexible Premium
Variable Life Insurance Policies.
F. Proposed maximum aggregate offering price to the public of the securities
being registered:
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, an
indefinite number or amount of securities is being registered by this
Registration Statement.
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G. Amount of filing fee: None
H. Approximate date of proposed public offering:
As soon as practicable after the effective date of the Registration
Statement.
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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
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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. 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.
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 "The Funds" and "Charges and Deductions" 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
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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
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<PAGE> 14
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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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.
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, and manages its
daily investments and business affairs, 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. ("DVA"), a wholly owned subsidiary
of ZKI, 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
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<PAGE> 16
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.
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.
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<PAGE> 17
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. Evergreen Asset has
entered into a sub-advisory agreement with Lieber & Company for each of the
foregoing 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%. Keystone
Investment Management Company is the investment adviser to Evergreen VA
Strategic Income Fund, for which it 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 ("CMG")
is the investment adviser to Evergreen VA Aggressive Growth Fund. CMG receives
an annual fee equal to 0.60 of 1% of average daily net assets of the Portfolio.
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.
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.
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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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
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<PAGE> 19
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.
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<PAGE> 20
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.
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<PAGE> 21
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> 22
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.
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 a Death Benefit percentage. 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. The
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 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 a Death
Benefit percentage. For Policies issued pursuant to the guideline premium
test, the Death Benefit will not be less than the Cash Value multiplied by a
Death Benefit percentage. 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
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<PAGE> 23
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>
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<PAGE> 24
<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> 25
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> 26
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.
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<PAGE> 27
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> 28
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.")
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<PAGE> 29
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
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<PAGE> 30
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 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> 31
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 Subaccounts of the Separate Account. This charge will be at an effective
annual rate of 0.45% of the average net assets of the Subaccounts of the
Separate Account. The Account Maintenance Fee 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 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.")
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. 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 policyowners, 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> 32
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> 33
(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> 34
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
27
<PAGE> 35
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> 36
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> 37
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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<PAGE> 38
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> 39
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>
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<PAGE> 41
<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> 42
<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
<PAGE> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
(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> 66
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> 67
<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> 68
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> 69
(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> 70
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> 71
<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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
<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> 82
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> 83
<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> 84
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> 85
<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> 86
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> 87
<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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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) Schedules 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(6)(a) KILICO Articles of Incorporation
<PAGE> 99
** 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, and Zurich Kemper Investments, Inc.
*** 1-A(8)(b) Form of Participation Agreement among KILICO, Evergreen
Variable Trust, and ____________________
*** 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.
*** To be filed by amendment.
<PAGE> 100
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 on the 5th
day of September, 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 5th day of September, 1997.
Signature Title
--------- -----
/s/ JOHN B. SCOTT Chief Executive Officer, President and Director
- ----------------- (Principal Executive Officer)
John B. Scott
/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 and
Frederick L. Blackmon 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
- ------------------ Director
Paul H. Warren
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<S> <C>
1-A(1) KILICO Resolution establishing the Separate Account
1-A(3)(a) Form of Underwriting Agreement between KILICO and
Investors Brokerage Services, Inc. (IBS)
1-A(5)(a) Form of Individual Policy
1-A(5)(b) Form of 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
</TABLE>
<PAGE> 1
The undersigned, Debra P. Rezabek, does hereby certify that she is
corporate secretary of Kemper Investors Life Insurance Company, an Illinois
corporation, and that attached is a true and correct copy of resolutions
adopted by the board of directors of said corporation at a meeting held in
Long Grove, Illinois on June 17, 1997, which resolutions are now in full
force and effect.
WITNESS my hand and the seal of the company at Long Grove, Illinois
this 20th day of August, 1997.
/s/ Debra P. Rezabek
Corporate Secretary
(SEAL)
<PAGE> 2
KILICO VARIABLE SEPARATE ACCOUNT-2
WHEREAS, Section 245.21 of the Illinois Insurance Code provides that a domestic
life insurance company may authorize the establishment of one or more separate
accounts; and
WHEREAS, competitive conditions in the marketing of life insurance make it
both desirable and in the best interest of the Corporation for the Corporation
to be able to offer separate investment facilities; and
WHEREAS, the Board of Directors of this Corporation desires to authorize and
empower its officers to establish and maintain a separate account, so that the
Corporation may exercise each and every power and right permitted to it by
Section 245.21, and other sections relating thereto, of the Illinois Insurance
Code.
NOW, THEREFORE, BE IT RESOLVED, THAT:
1. A separate account designated KILICO Variable Separate Account-2
("Separate Account") of the Corporation is established and empowered to:
a. Provide for the sale of variable life insurance policies
issued by the Corporation which provide for the allocation of
amounts paid to or held by the Corporation under such policies to
the Separate Account;
b. Register, to the extent required, under the Investment
Company Act of 1940, as amended (the "1940 Act"), or file a
notification of claim of exemption from such registration, and make
applications for such exemptions or orders under the provisions of
the 1940 Act as may appear to be necessary or desirable;
c. Register, to the extent required, the policies or units of
interest therein under the Securities Act of 1933, as amended (the
"1933 Act");
Provide for custodial or depository arrangements for assets
allocated to the Separate Account including self custodianship or
safekeeping arrangements by the Corporation;
<PAGE> 3
d. Select an independent public accountant to audit the books
and records of the Separate Account;
e. Invest or reinvest the assets of the Separate Account in
securities issued by one or more investment companies registered
under the 1940 Act;
f. Divide the Separate Account into subaccounts with each
subaccount investing in shares of designated classes of designated
investment companies or other appropriate securities; and
g. Perform such additional functions and take such additional
action as may be necessary or desirable to carry out the foregoing
and the intent and purposes thereof;
AND FURTHER RESOLVED, THAT:
2. The income, gains and losses, whether or not realized, from assets
allocated to the Separate Account shall, in accordance with the variable
life insurance policies, be credited to or charged against the Separate
Account without regard to other income, gains or losses of the
Corporation; and the Separate Account shall at all times be created,
operated and maintained in compliance with all applicable federal and
state laws governing insurance company separate accounts;
3. The proper officers are authorized, as they deem appropriate from time to
time, to divide, modify or eliminate any subaccounts of the Separate
Account, change the designation of the Separate Account to another
designation, designate further subaccounts, deregister the Separate
Account under the 1940 Act and deregister the policies or units of
interest therein under the 1933 Act;
4. The proper officers are, and each of them hereby is, authorized to invest
cash from the Corporation's general account in the Separate Account or in
any division thereof as may be deemed necessary or appropriate to
facilitate the commencement of the Separate Account's operations or to
meet any minimum capital requirements under the 1940 Act and to transfer
cash or securities from time to time between the Corporation's general
account and the Separate Account as deemed necessary or appropriate so
long as such transfers are not prohibited by law and are consistent with
the
<PAGE> 4
terms of the variable life insurance policies issued by the Corporation
providing for allocations to the Separate Account;
5. The fiscal year of the Separate Account shall end on the 31st day of
December of each year;
6. The fundamental investment policies of the Separate Account shall be to
invest or reinvest the assets of the Separate Account in securities issued
by investment companies registered under the 1940 Act as the proper
officers of the Corporation may designate pursuant to the provisions of
the variable life insurance policies issued by the Corporation providing
for allocations to the Separate Account; and the proper officers of the
Corporation are authorized and directed to prepare and execute any
necessary agreements to enable the Separate Account to carry out this
investment policy;
7. The proper officers of the Corporation are authorized to prepare, execute
and file all periodic reports required under the 1940 Act and the
Securities Exchange Act of 1934, as amended, in connection with the
Separate Account and the variable life insurance policies;
8. The Corporation may register variable life insurance policies, or units
of interest thereunder, under the 1933 Act and may register the Separate
Account as a unit investment trust under the 1940 Act and, in connection
therewith, the proper officers of the Corporation are, and each of them
hereby is, authorized to prepare, execute and file with the Securities and
Exchange Commission (the "SEC") (1) registration statements under the 1933
Act and the 1940 Act, including prospectuses, amendments, supplements,
exhibits and other documents relating thereto, (2) applications and
amendments thereto for exemptions from or orders under the 1940 Act, and
(3) requests from the SEC for no action and interpretive letters in such
form and at such times as the proper officer executing the same may deem
necessary or appropriate;
The proper officers of the Corporation are, and each of them is,
authorized to effect all such registrations, filings and qualifications
under blue sky or other applicable securities laws and regulations,
insurance securities laws and insurance laws and regulations of such
states and other jurisdictions as they may deem necessary or appropriate,
with respect to the Corporation and any variable life insurance policies;
such authorization to
<PAGE> 5
include registration, filing and qualification of officers, employees and
agents of the Corporation as brokers, dealers, agents, salesmen, or
otherwise; and such authorization also to include authority to prepare,
execute, acknowledge and file all such applications, applications for
exemptions, appointments, certificates, affidavits, covenants, consents
to service of process and other instruments and to take all such action
as the proper officer executing the same or taking such action may deem
necessary or desirable;
9. The Corporation's Secretary is hereby appointed as agent for service for,
is duly authorized to receive communications and notices with respect to,
and is duly authorized to exercise all powers given to such agent in
connection with (1) any registration statement or amendment thereto under
the 1933 Act or the 1940 Act, (2) any 1940 Act exemptive application or
order, (3) any no action letter or interpretive letter request under the
1933 Act or the 1940 Act, or (4) any similar matter pertaining to state
blue sky or insurance regulation;
10. The signature of any director or officer required by law to be affixed to
any document referred to in this resolution may be affixed by said
director or officer personally or by an attorney-in-fact duly constituted
in writing by said director or officer to sign his or her name thereto;
11. The proper officers of the Corporation are, and each of them hereby is,
authorized to establish procedures under which the Corporation will
provide for voting rights for owners of the variable life insurance
policies with respect to securities owned by the Separate Account.
12. The proper officers of the Corporation are, and each of them hereby is,
authorized to execute such agreement or agreements as deemed necessary and
appropriate with (1) any qualified entity under which such qualified
entity will be appointed principal underwriter and distributor of the
variable life insurance policies and (2) with one or more qualified banks
or other qualified entities to provide administrative, custodial, and/or
such other services in connection with the establishment and maintenance
of the Separate Account and the design, issuance and administration of the
policies; and
13. The proper officers of the Corporation are, and each of them hereby is,
authorized, in the name and on behalf of the Corporation, to execute and
<PAGE> 6
deliver such corporate documents and certificates and to take such further
action as they deem necessary or desirable, including, but not limited to,
the payment of applicable fees, in order to effectuate the purposes of any
of the foregoing matters.
<PAGE> 1
UNDERWRITING AGREEMENT
BETWEEN
KEMPER INVESTORS LIFE INSURANCE COMPANY
AND
INVESTORS BROKERAGE SERVICES, INC.
THIS AGREEMENT is made on this ______ day of _________, 1997 between KEMPER
INVESTORS LIFE INSURANCE COMPANY ("KILICO") on its own behalf and on behalf of
the KILICO Variable Separate Account-2 (the "Account") and INVESTORS BROKERAGE
SERVICES, INC. ("IBS"). In consideration of the mutual covenants contained in
this Agreement, the parties agree as follows:
1. KILICO appoints IBS to promote the sale of variable life contracts
("Contracts") issued by KILICO and the Account. IBS will promote such
Contracts in those states in which KILICO has variable contract authority and
in which the Contracts are eligible for sale under applicable state law.
KILICO agrees to inform IBS of the status of such matters in each of these
states from time to time.
2. The solicitation of Contracts shall be made by persons who are
registered representatives of National Association of Securities Dealers, Inc.
("NASD") member broker-dealers who have a Selling Group Agreement with IBS,
which agreement shall encompass the promotion of the sale of the Contracts;
provided that, no such registered representative shall be allowed to
participate in the solicitation of the Contracts unless such person has been
appointed to solicit variable Contracts by KILICO in any state in which such
solicitation may occur.
3. All books and records maintained by KILICO in connection with the sale
of Contracts will be maintained and preserved by KILICO in conformity with the
requirements of Rule 17a-3 and 17a-4 under the Securities Exchange Act of 1934,
to the extent that such requirements are applicable to the Contracts.
4. KILICO assumes full responsibility for the activities of all persons
engaged directly or indirectly in the promotion of the solicitation of the
Contracts, including all sales representatives and associated persons as
defined in the Securities Exchange Act of 1934. IBS shall, in the course of
contracting with NASD member broker-dealers with which it has agreements,
require that such broker-dealers be responsible for the acts of their
registered representatives and associated persons.
5. Compensation to broker-dealers for the sale of Contracts shall be paid
by KILICO through IBS. Any obligation by IBS to pay such compensation will
occur only following receipt of such amounts by IBS from KILICO.
-1-
<PAGE> 2
6. IBS, when requested by KILICO, shall suspend its efforts to effectuate
sales of the Contracts at any time KILICO shall request.
7. KILICO shall bear the expenses of printing and distributing
registration statements and prospectuses relating to the public sale of
Contracts pursuant to this Agreement. KILICO agrees to bear the expenses of
qualification of the Contracts for sale and of continuing the qualification in
the various states. KILICO shall bear the expenses of any sales literature
used by IBS or furnished by IBS to dealers in connection with offering the
Contracts and the expenses of advertising in connection with such offerings,
except for customized pieces the cost of which shall be mutually agreed to by
KILICO and IBS.
8. IBS agrees that it will not use any sales material as defined under the
rules of the NASD or by the statutes or regulations of any state in which the
Contracts may be solicited, unless such material has received prior written
approval by KILICO.
9. IBS, KILICO and the Account shall each comply with all applicable
provisions of the Investment Company Act of 1940, Securities Act of 1933 and of
all Federal and state securities and insurance laws, rules and regulations
governing the issuance and sale of the Contracts.
10. KILICO agrees to indemnify IBS against any and all claims, liabilities and
expenses including but not limited to reasonable attorneys fees which IBS may
incur under the Investment Company Act of 1940, Securities Act of 1933 and all
Federal and state securities and insurance laws, rules and regulations
governing the issuance and sale of the Contracts, 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 Account, or any
alleged omission to state a material fact therein, the omission of which makes
any statement contained therein misleading or of any alleged act or omission in
connection with the offering, sale or distribution of the Contracts by any
registered representatives or associated persons of a NASD member broker-dealer
which has an agreement with IBS. IBS agrees to indemnify KILICO and the
Account against any and all claims, demands, liabilities and expenses,
including but not limited to reasonable attorneys fees, which KILICO or the
Account may incur, arising out of or based upon any act 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.
KILICO acknowledges that IBS may similarly attempt to hold such an NASD member
broker-dealer responsible for the acts of registered representatives and
associated persons; and to the extent KILICO is obligated to indemnify IBS
under this Agreement, IBS agrees to assign its rights against such
broker-dealers to KILICO.
11. KILIC0 agrees to supply IBS with such information as may be reasonably
required by IBS including the "net accumulation unit value" computed as of the
time prescribed by and in compliance with all pertinent requirements of the
NASD and the Securities and Exchange Commission.
-2-
<PAGE> 3
12. This Agreement shall be effective ___________________. This Agreement is
subject to termination by either party upon thirty (30) days' prior written
notice to the other party. This Agreement may not be assigned by either party
without the written consent of the other party. This Agreement shall be
interpreted according to the laws of the State of Illinois.
IN WITNESS WHEREOF, this Agreement has been signed by the parties on the date
first above written.
KEMPER INVESTORS LIFE INSURANCE COMPANY
ATTEST: BY:
TITLE:
_______________________
TITLE:
INVESTORS BROKERAGE SERVICES, INC.
ATTEST: BY:
TITLE:
_______________________
TITLE:
-3-
<PAGE> 1
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049-0001
Telephone 847-550-5500
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01 1997 POLICY NUMBER 7007004
INITIAL SPECIFIED $50,000 DATE OF ISSUE JAN 01 1997
AMOUNT
RIGHT TO CANCEL - FREE LOOK PERIOD
This policy may be returned to us within 10 days of the time you receive it.
It may be mailed or delivered to us or to the agent who sold it. Upon our
receipt, this policy will be deemed void from the beginning. The Cash Value of
the policy plus any monthly deductions and any deductions made against premiums
will be refunded within seven days of our receipt of a notice of cancellation
and the return of this policy. This amount will be at least equal to the
premiums paid.
On the Maturity Date, if the insured is living and this policy is in force, we
will pay the Surrender Value to you. If the insured dies prior to the Maturity
Date and this policy is in force, we will pay to the beneficiary the Death
Benefit in force at the time of the insured's death. Payment made to you or to
the beneficiary will be made subject to the terms of this policy.
This policy is issued in consideration of the attached application(s) and
payment of the Initial Premium. The terms on this and the following pages are
part of the policy.
Signed for the Kemper Investors Life Insurance Company at its home offices in
Long Grove, Illinois.
Secretary President
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
NON-PARTICIPATING - NO ANNUAL DIVIDENDS
MATURES ON POLICY ANNIVERSARY NEAREST INSURED'S 100TH BIRTHDAY
TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED
ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE
DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH
BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND
TERMINATION PROVISIONS.
This policy is a legal contract between you and us.
READ YOUR POLICY CAREFULLY.
S-7004-GP Page A
<PAGE> 2
INDEX PAGE NO.
Policy Specifications A
Definitions 1
General Provisions 2
Death Benefit Provisions 4
Premium Provisions 6
Account Provisions 7
Non-Forfeiture Provisions 9
Transfer Provisions 9
Withdrawal Provisions 10
Policy Loan Provisions 11
Surrender Value Provisions 12
Transfer, Withdrawal, Loan & Surrender Procedures 12
Settlement Provisions 12
Settlement Option Table 15
Supplemental Benefits, if any, in the Policy Specifications are described in
the supplemental benefit agreements that follow the Settlement Option Table.
All capitalized terms are either defined in the Definition section or itemized
on the Policy Specifications page.
S-7004-GP Page A
<PAGE> 3
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
INITIAL SPECIFIED $50,000 DATE OF ISSUE JAN 01, 1997
AMOUNT
DEATH BENEFIT OPTION A
COVERAGE INFORMATION
<TABLE>
<CAPTION>
RATE
CLASS COVERAGE MATURITY OR MONTHLY
BENEFIT DESCRIPTION PERCENT AMOUNT EXPIRY DATE RATE
<S> <C> <C> <C> <C>
FLEXIBLE PREMIUM VARIABLE LIFE* 100 $50,000 JAN 01, 2062 SEE PAGE D
</TABLE>
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN IF
PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE. EVEN IF
COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO SURRENDER VALUE TO BE
PAID ON THAT DATE. COVERAGE AMOUNT UNDER OPTION A IS THE SPECIFIED AMOUNT
INCLUSIVE OF THE CASH VALUE.
PREMIUM INFORMATION
INITIAL PREMIUM $647.00
PLANNED PERIODIC PREMIUM $647.00 ANNUAL
INSURED RATE CLASS STANDARD NONTOBACCO
S-7004-GP Page A
<PAGE> 4
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
TRADE DATE FEB 01, 1997
DEDUCTION DAY DAY 01 OF EACH MONTH
DEDUCTION PERIOD 65 YEARS, 00 MONTHS
MINIMUM SPECIFIED AMOUNT [$50,000.00]
MINIMUM CHANGE IN SPECIFIED AMOUNT [$25,000.00]
MINIMUM WITHDRAWAL AMOUNT [$500.00]
MINIMUM LOAN AMOUNT [$500.00]
PREMIUM CHARGES [11.50%]
MONTHLY ADMINISTRATIVE CHARGE [FIRST POLICY YEAR $20.00
POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE NET PREMIUMS
CUMULATIVE NET PREMIUMS UP TO $100,000 .65%
CUMULATIVE NET PREMIUMS BETWEEN $100,001 AND $250,000 .50%
CUMULATIVE NET PREMIUMS BETWEEN $250,001 AND $500,000 .40%
CUMULATIVE NET PREMIUMS IN EXCESS OF $500,000 .30%
NET PREMIUMS EQUALS PREMIUMS MINUS WITHDRAWALS
GUARANTEED .90%
ACCOUNT MAINTENANCE CHARGE .45%
INITIAL ADJUSTABLE LOAN INTEREST RATE [10.00%]
MINIMUM PREMIUM [$600.00 per year]
IRC SECTION 7702 TEST GUIDELINE PREMIUM
S-7004GP Page B
<PAGE> 5
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.
S-7004GP Page B
<PAGE> 6
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
TRADE DATE FEB 01, 1997
ACCOUNT INITIAL PREMIUM ALLOCATION
MONEY MARKET 0%
GOVERNMENT BOND 0%
FIXED INCOME 100%
EQUITY 0%
BALANCED 0%
FIXED ACCOUNT 0%
S-7004GP Page C
<PAGE> 7
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE NONTOBACCO TOBACCO AGE NONTOBACCO TOBACCO AGE NONTOBACCO TOBACCO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.08922 0.08922 34 0.13428 0.20694 67 2.18574 3.67025
2 0.08254 0.08254 35 0.14096 0.21948 68 2.41241 3.98026
3 0.08171 0.08171 36 0.14764 0.23452 69 2.66044 4.31179
4 0.07921 0.07921 37 0.15683 0.25375 70 2.94130 4.67927
5 0.07504 0.07504 38 0.16685 0.27549 71 3.31274 5.08855
6 0.07170 0.07170 39 0.17854 0.30059 72 3.63093 5.55642
7 0.06670 0.06670 40 0.19107 0.32904 73 4.05839 6.08662
8 0.06336 0.06336 41 0.20611 0.36252 74 4.54126 6.66862
9 0.06169 0.06169 42 0.22115 0.39686 75 5.06274 7.31730
10 0.06086 0.06086 43 0.23870 0.43623 76 5.62182 7.99178
11 0.06419 0.06419 44 0.25626 0.47731 77 6.21387 8.68058
12 0.07087 0.07087 45 0.27717 0.52428 78 6.83324 9.37272
13 0.08254 0.08254 46 0.29975 0.57128 79 7.49616 10.08913
14 0.09589 0.09589 47 0.32401 0.62251 80 8.22966 10.86205
15 0.10758 0.13762 48 0.34996 0.67630 81 9.05445 11.71251
16 0.11926 0.15599 49 0.37927 0.73685 82 9.99708 12.66752
17 0.12844 0.17102 50 0.41026 0.80082 83 11.07332 13.73779
18 0.13345 0.18021 51 0.44713 0.87496 84 12.26712 14.88656
19 0.13846 0.18856 52 0.48989 0.95760 85 13.55591 16.07811
20 0.14013 0.19274 53 0.53771 1.05216 86 14.91787 17.27457
21 0.13929 0.19441 54 0.59311 1.15868 87 16.34412 18.45789
22 0.13679 0.19191 55 0.65444 1.27212 88 17.80841 19.76999
23 0.13428 0.18856 56 0.72255 1.39507 89 19.33267 21.08692
24 0.13094 0.18439 57 0.79493 1.52246 90 20.94168 22.42853
25 0.12677 0.17854 58 0.87327 1.65858 91 22.66794 23.82284
26 0.12343 0.17353 59 0.96182 1.80005 92 24.57677 25.33222
27 0.12176 0.17186 60 1.06061 1.95717 93 26.76407 27.31458
28 0.12009 0.17019 61 1.17052 2.13432 94 29.63735 29.94249
29 0.12009 0.17186 62 1.29585 2.33420 95 33.93112 33.93112
30 0.12009 0.17520 63 1.43921 2.56130 96 41.27938 41.27938
31 0.12260 0.18105 64 1.60155 2.81241 97 56.03986 56.03986
32 0.12510 0.18689 65 1.78129 3.08515 98 83.33333 83.33333
33 0.12928 0.19608 66 1.97513 3.37018 99 83.33333 83.33333
</TABLE>
*THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES
SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT.
THIS PERCENT IS SHOWN ON PAGE A OF THE POLICY SPECIFICATIONS. THE RATES
ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE
SECTION OF YOUR POLICY.
S-7004CVA Page A
<PAGE> 8
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
INITIAL SPECIFIED $50,000 DATE OF ISSUE JAN 01, 1997
AMOUNT
DEATH BENEFIT OPTION A
COVERAGE INFORMATION
<TABLE>
<CAPTION>
RATE
CLASS COVERAGE MATURITY OR MONTHLY
BENEFIT DESCRIPTION PERCENT AMOUNT EXPIRY DATE RATE
<S> <C> <C> <C> <C>
FLEXIBLE PREMIUM VARIABLE LIFE* 100 $50,000 JAN 01, 2062 SEE PAGE D
</TABLE>
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN IF
PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE. EVEN IF
COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO SURRENDER VALUE TO BE
PAID ON THAT DATE. COVERAGE AMOUNT UNDER OPTION A IS THE SPECIFIED AMOUNT
INCLUSIVE OF THE CASH VALUE.
PREMIUM INFORMATION
INITIAL PREMIUM $580.00
PLANNED PERIODIC PREMIUM $580.00 ANNUAL
INSURED RATE CLASS STANDARD NONTOBACCO
S-7004CVA Page A
<PAGE> 9
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
TRADE DATE FEB 01, 1997
DEDUCTION DAY DAY 01 OF EACH MONTH
DEDUCTION PERIOD 65 YEARS, 00 MONTHS
MINIMUM SPECIFIED AMOUNT [$50,000.00]
MINIMUM CHANGE IN SPECIFIED AMOUNT [$25,000.00]
MINIMUM WITHDRAWAL AMOUNT [$1,000.00]
MINIMUM LOAN AMOUNT [$1,000.00]
PREMIUM CHARGES [11.50%]
MONTHLY ADMINISTRATIVE CHARGE [FIRST POLICY YEAR $20.00
POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE NET PREMIUMS
CUMULATIVE NET PREMIUMS UP TO $100,000 .65%
CUMULATIVE NET PREMIUMS BETWEEN $100,001 AND $250,000 .50%
CUMULATIVE NET PREMIUMS BETWEEN $250,001 AND $500,000 .40%
CUMULATIVE NET PREMIUMS IN EXCESS OF $500,000 .30%
NET PREMIUMS EQUALS PREMIUMS MINUS WITHDRAWALS
GUARANTEED .90%
ACCOUNT MAINTENANCE CHARGE .45%
INITIAL ADJUSTABLE LOAN INTEREST [10.00%]
MINIMUM PREMIUM [$300.00 per year]
IRC SECTION 7702 TEST CASH VALUE ACCUMULATION
S-7004CVA Page B
<PAGE> 10
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE* FACTOR AGE* FACTOR AGE* FACTOR AGE* FACTOR
<S> <C> <C> <C> <C> <C> <C> <C>
0 12.3470 25 5.9841 50 2.6225 75 1.3704
1 12.4517 26 5.7968 51 2.5413 76 1.3464
2 12.1180 27 5.6128 52 2.4633 77 1.3240
3 11.7788 28 5.4326 53 2.3884 78 1.3029
4 11.4440 29 5.2564 54 2.3166 79 1.2829
5 11.1116 30 5.0846 55 2.2479 80 1.2639
6 10.7082 31 4.9173 56 2.1821 81 1.2459
7 10.4515 32 4.7549 57 2.1191 82 1.2289
8 10.1244 33 4.5972 58 2.0588 83 1.2130
9 9.8014 34 4.4446 59 2.0010 84 1.1982
10 9.4848 35 4.2968 60 1.9457 85 1.1845
11 9.1756 36 4.1541 61 1.8928 86 1.1719
12 8.8773 37 4.0162 62 1.8422 87 1.1602
13 8.5921 38 3.8832 63 1.7939 88 1.1493
14 8.3227 39 3.7549 64 1.7480 89 1.1389
15 8.0690 40 3.6313 65 1.7042 90 1.1289
16 7.8285 41 3.5123 66 1.6627 91 1.1190
17 7.5999 42 3.3977 67 1.6232 92 1.1090
18 7.3809 43 3.2873 68 1.5855 93 1.0986
19 7.1686 44 3.1811 69 1.5497 94 1.0875
20 6.9625 45 3.0788 70 1.5155 95 1.0754
21 6.7609 46 2.9804 71 1.4829 96 1.0624
22 6.5626 47 2.8857 72 1.4525 97 1.0490
23 6.3669 48 2.7946 73 1.4233 98 1.0366
24 6.1741 49 2.7069 74 1.3960 99 1.0265
</TABLE>
*ATTAINED AGE IS THE AGE NEAREST BIRTHDAY AS OF THE BEGINNING OF THE POLICY
YEAR.
S-7004CVA Page B
<PAGE> 11
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
TRADE DATE FEB 01, 1997
SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION
MONEY MARKET 0%
GOVERNMENT BOND 0%
FIXED INCOME 100%
EQUITY 0%
BALANCED 0%
FIXED ACCOUNT 0%
S-7004CVA Page C
<PAGE> 12
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007004
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE NONTOBACCO TOBACCO AGE NONTOBACCO TOBACCO AGE NONTOBACCO TOBACCO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.08922 0.08922 34 0.13428 0.20694 67 2.18574 3.67025
2 0.08254 0.08254 35 0.14096 0.21948 68 2.41241 3.98026
3 0.08171 0.08171 36 0.14764 0.23452 69 2.66044 4.31179
4 0.07921 0.07921 37 0.15683 0.25375 70 2.94130 4.67927
5 0.07504 0.07504 38 0.16685 0.27549 71 3.31274 5.08855
6 0.07170 0.07170 39 0.17854 0.30059 72 3.63093 5.55642
7 0.06670 0.06670 40 0.19107 0.32904 73 4.05839 6.08662
8 0.06336 0.06336 41 0.20611 0.36252 74 4.54126 6.66862
9 0.06169 0.06169 42 0.22115 0.39686 75 5.06274 7.31730
10 0.06086 0.06086 43 0.23870 0.43623 76 5.62182 7.99178
11 0.06419 0.06419 44 0.25626 0.47731 77 6.21387 8.68058
12 0.07087 0.07087 45 0.27717 0.52428 78 6.83324 9.37272
13 0.08254 0.08254 46 0.29975 0.57128 79 7.49616 10.08913
14 0.09589 0.09589 47 0.32401 0.62251 80 8.22966 10.86205
15 0.10758 0.13762 48 0.34996 0.67630 81 9.05445 11.71251
16 0.11926 0.15599 49 0.37927 0.73685 82 9.99708 12.66752
17 0.12844 0.17102 50 0.41026 0.80082 83 11.07332 13.73779
18 0.13345 0.18021 51 0.44713 0.87496 84 12.26712 14.88656
19 0.13846 0.18856 52 0.48989 0.95760 85 13.55591 16.07811
20 0.14013 0.19274 53 0.53771 1.05216 86 14.91787 17.27457
21 0.13929 0.19441 54 0.59311 1.15868 87 16.34412 18.45789
22 0.13679 0.19191 55 0.65444 1.27212 88 17.80841 19.76999
23 0.13428 0.18856 56 0.72255 1.39507 89 19.33267 21.08692
24 0.13094 0.18439 57 0.79493 1.52246 90 20.94168 22.42853
25 0.12677 0.17854 58 0.87327 1.65858 91 22.66794 23.82284
26 0.12343 0.17353 59 0.96182 1.80005 92 24.57677 25.33222
27 0.12176 0.17186 60 1.06061 1.95717 93 26.76407 27.31458
28 0.12009 0.17019 61 1.17052 2.13432 94 29.63735 29.94249
29 0.12009 0.17186 62 1.29585 2.33420 95 33.93112 33.93112
30 0.12009 0.17520 63 1.43921 2.56130 96 41.27938 41.27938
31 0.12260 0.18105 64 1.60155 2.81241 97 56.03986 56.03986
32 0.12510 0.18689 65 1.78129 3.08515 98 83.33333 83.33333
33 0.12928 0.19608 66 1.97513 3.37018 99 83.33333 83.33333
</TABLE>
*THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES
SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT.
THIS PERCENT IS SHOWN ON PAGE A OF THE POLICY SPECIFICATIONS. THE RATES
ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE
SECTION OF YOUR POLICY.
12
<PAGE> 13
DEFINITION SECTION
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.
CASH VALUE: The Cash Value of this policy is
the sum of the subaccount values of the Separate Account
plus the fixed account value and loan account value.
DEBT: The principal of any outstanding loan under this
policy plus any loan interest due or accrued.
FUND: An investment company or separate series thereof,
in which the subaccounts of the Separate Accounts invest.
GENERAL ACCOUNT: Our assets other than those allocated
to the Separate Account or any other Separate Account.
ISSUE AGE: The Insured's age as of his or her nearest
birthday on the Policy Date.
MATURITY DATE: The Maturity Date is stated in the Policy
Specifications. It is the policy anniversary nearest the
insured's 100th birthday.
MONTHLY PROCESSING DATE: The Monthly Processing Date is
stated in the Policy Specifications. It is the same
day in each month as the Policy Date. It is the day from
which policy months are determined.
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.
POLICY DATE, POLICY YEAR: The Policy Date is stated in
the Policy Specifications. It is used to determine
Policy Years and Monthly Processing Dates. Subsequent
Policy Years will start on anniversaries of the Policy
Date.
PREMIUM: A dollar amount received by us in U.S. Currency
as consideration for the benefits to be provided under
this policy.
PREMIUM CHARGES: The percentage of Premium deducted
before the Premium is allocated to the subaccounts or the
fixed account.
SEPARATE ACCOUNT: The Kemper Investors Life Insurance
Company (KILICO) Variable Separate Account -2 which was
established under Law as a separate investment account of
KILICO.
SEPARATE ACCOUNT VALUE: On any Valuation Date the
separate account value of this policy is the sum of its
subaccount values.
SUBACCOUNTS: The Separate Account has several
subaccounts. The subaccounts available under this policy
are stated in the Policy Specifications.
SUBACCOUNT VALUE: Each subaccount will be valued
separately as determined by the formula stated in this
policy.
SURRENDER VALUE: The Surrender Value of this policy is
the Cash Value on the date of surrender minus any Debt.
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<PAGE> 14
TRADE DATE: The Trade Date is the first Valuation Date
after the Company has delivered the policy and any free
look period has been waived or has expired. It is the
date that the money market subaccount Value will be
allocated to the subaccounts and the fixed account
according to your initial allocation.
VALUATION DATE: Each day that is not a New York Stock
Exchange holiday or each business day on which valuation
of the assets is required by applicable law.
VALUATION PERIOD: The period that starts at the close of
a Valuation Date and ends at the close of the next
succeeding Valuation Date.
WE, OUR, OURS, US: Kemper Investors Life Insurance
Company
YOU, YOUR, YOURS: The party(ies) named as owner in the
application unless later changed as provided in this
policy.
GENERAL PROVISIONS
THE CONTRACT This policy, any endorsements, the attached application and any
supplemental application(s) form the entire contract. All statements made in
the application and any supplemental application(s) are representations and not
warranties unless fraud is involved. In addition to other reasons permitted
by law, the validity of this policy can be contested if any material
misrepresentations of fact are made in the application, a supplementary
application or a request. No statement will void this policy or be used to
deny a claim unless it is contained in an attached application or supplemental
application.
MODIFICATION OF POLICY Only our President, Secretary or Assistant Secretaries
have power to approve a change in or waive the provisions of this policy. No
agent or person other than such officers can change or waive the terms of this
policy.
OWNERSHIP OF POLICY Unless otherwise provided in the application, the insured
is the original policy owner. You have the exclusive right to cancel or amend
this policy by agreement with us and exercise every option and right conferred
by this policy, including the right of assignment. We reserve the right to
require the return of this policy for endorsement for any change.
CHANGE OF OWNERSHIP Ownership may be changed during the lifetime of the
insured by written notice from you with prior consent from us. After we
receive written notice at our home office, the change will take effect as of
the date the notice was signed. The change, however, will not apply to any
payment made or action taken by us before the notice was received. A change
of ownership may have tax consequences, depending on the circumstances. We
recommend that you seek the advice of a qualified tax consultant prior to
making any such changes.
EFFECTIVE DATE OF COVERAGE The effective date of coverage under this policy
is the Policy Date. The Issue Date is the same date as the Policy Date unless
a different Issue Date is stated in the Policy Specifications.
Incontestability and suicide periods are measured from the Issue Date.
TERMINATION All coverage under this policy terminates when any one of the
following events occurs: 1. you request that coverage terminate; 2. the insured
dies; 3. this policy matures; or 4. the grace period ends.
CONTESTABILITY This policy will be incontestable after it has been in force
during the lifetime of the insured for two years from the Issue Date. A new
two year contestability period will apply to each increase in insurance
beginning with the effective date of each increase and will apply only to
statements made in the application for the increase. If the policy is
reinstated, a new two year contestability period will apply from the effective
date of the reinstatement and will apply only to statements made in the
application for the reinstatement.
MISSTATEMENT OF AGE AND/OR SEX If the age and/or sex of the insured was
misstated, the Death Benefit will be adjusted based on what the Cost of
Insurance charged for the most recent Monthly Processing Date, prior to the
insured's death, would have purchased using the correct age and/or sex.
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<PAGE> 15
SUICIDE If the insured dies by suicide, while sane or insane, within two
years from the Issue Date, the Death Benefit will be limited to the premiums
paid less any withdrawal and Debt. If the insured dies by suicide, while sane
or insane, within two years of or any increase in insurance, or any
reinstatement, our total liability with respect to such increase or
reinstatement will be the Cost of Insurance.
DUE PROOF OF DEATH Upon the death of the insured, written proof of death in
the form of a certified copy of the death certificate, a written physician's
statement or any other proof satisfactory to us is required within sixty days
of such death or as soon thereafter as is reasonably possible.
BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY The original beneficiary is
named in the application for this policy. If a beneficiary is not named, the
original beneficiary is the estate of the insured. You may change the
beneficiary by filing a written change with us subject to the following:
1. The change must be filed during the insured's lifetime;
2. This policy must be in force at the time a change is filed;
3. Such change must not be prohibited by the terms of an existing
assignment,beneficiary designation, or other restrictions.
4. Such change will take effect when we receive it at our home office;
5. After we receive the request, the change will take effect as of the date
the request for change was signed, however,action taken by us before
such request was received will remain valid; and
6. The request for change must provide information to identify the new
beneficiary.
DEATH OF BENEFICIARY The interest of a beneficiary who dies before the
insured will pass to the other beneficiaries, if any, share and share alike,
unless otherwise provided in the beneficiary designation. If no beneficiary
survives the insured, the proceeds of this policy will be paid to the insured's
estate.
If a beneficiary dies within ten days of the insured's death, proceeds of this
policy will be paid as if the insured had survived that beneficiary.
ASSIGNMENT No assignment of this policy is binding on us without prior
consent. Any claim under an assignment is subject to proof of the extent of
the interest of the assignee. Your rights and the rights of the beneficiary
are subject to the rights of the assignee of record. An assignment of
coverage may have tax consequences depending on the circumstances. We
recommend that you seek the advice of a qualified tax consultant prior to
making any such changes or assignments.
NON-PARTICIPATING This policy will not pay dividends. It will not
participate in any of our surplus earnings.
REPORTS At least once each Policy Year we will send you a report. The report
will reflect the premiums paid, investment experience and charges made since
the last report. The report will also reflect the current Death Benefit and
Cash Value as well as any other information required by statute.
RESERVES, CASH VALUE All reserves are greater than or equal to those required
by statute. Any Cash Value and Death Benefit available under this policy are
at least equal to the minimum benefits required by the statutes of the state in
which this policy is delivered.
BASIS OF COMPUTATIONS A detailed statement of the method of computation of
Cash Value under this policy has been filed with the insurance department of
the state in which this policy is delivered. The 1980 Commissioner's Standard
Ordinary Smoker and Nonsmoker Mortality Tables, age nearest birthday, is the
basis for minimum cash values, death benefits and guaranteed maximum Cost of
Insurance rates under this policy.
TAX TREATMENT This policy is intended to qualify as a life insurance policy
under the Internal Revenue Code ("Code"). We may return premiums which would
disqualify the policy from tax treatment as a life insurance policy. This
policy may be endorsed to reflect any change in the Code and its regulations or
rulings. You will receive a copy of any such endorsement.
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<PAGE> 16
Currently, no charges are made against the Account for federal, state or other
taxes that may be attributed to the Account. We may in the future, however,
impose charges for federal income taxes attributed to the Account. Charges for
other taxes, if any, attributed to this policy may also be made.
DEATH BENEFIT PROVISIONS
DEATH BENEFIT The Death Benefit is based on the Specified Amount, the Death
Benefit Option and the Table of Death Benefit Factors applicable at the time of
death. The Initial Specified Amount, the Death Benefit Option and the Table of
Death Benefit Factors are shown in the Policy Specifications.
SPECIFIED AMOUNT The Specified Amount is the Initial Specified Amount shown
on the Policy Specifications, unless changed in accordance with the Changes
provision or reduced by a cash withdrawal.
DEATH BENEFIT OPTION The Death Benefit Option is shown on the Policy
Specifications, unless changed in accordance with the Changes provision.
If Option A is in effect, the Death Benefit is the greater of: 1. the
Specified Amount; or 2. the Table of Death Benefit Factors times the Cash
Value of this policy on the date of the insured's death.
If Option B is in effect, the Death Benefit is the greater of:
1. the Specified Amount plus the Cash Value of this
policy on the date of the
insured's death; or
2. the Table of Death
Benefit Factors times the Cash Value of this
policy on the date of the insured's death.
CHANGES You may change the Death Benefit Option after the
first Policy Year. The Specified Amount will be changed
as follows:
1. If the change is Option A to Option B, the
Specified Amount after such change will be:
a. the Specified Amount prior to such change;
minus
b. the Cash Value on the date of the change.
2. If the change is from Option B to Option A, the
Specified Amount after such change will be:
a. the Specified Amount prior to such change; plus
b. the Cash Value on the date of the change.
You may also increase the Specified Amount after the
first Policy Year and prior to the insured's attained
age 85. You may also decrease the Specified Amount
after the first Policy Year. The change is subject to
the following:
1. Any decrease will reduce the insurance in the
following order:
a. the most recent increase first;
b. any other increases in the reverse order in
which they occurred; and
c. finally, against the initial Specified Amount.
2. Any request for an increase must be applied for
on a supplemental application and is subject to our
normal underwriting requirements.
The request for a change must be in writing. No
more than one change will be
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<PAGE> 17
allowed in any Policy Year. The Minimum Change in
Specified Amount is shown in the Policy Specifications.
The change will be effective on the first Monthly
Processing Date on or after the day we receive the
request. No changes will be allowed if the resulting
Specified Amount would be less than the lesser of the
Initial Specified Amount or the Minimum Specified Amount
or if this policy would be disqualified as life
insurance under the Code. The Initial Specified Amount
and the Minimum Specified Amount are shown on the Policy
Specifications.
PAYMENT OF THE Death Benefits will be paid following receipt by us at
DEATH BENEFIT our home office of due proof that the insured died
while this policy was in force. The Death Benefit will
be determined based upon the date of death. The return
of this policy is required before a payment is made.
The Death Benefit proceeds will be equal to:
1. the Death Benefit; minus
2. any monthly deductions due during the grace
period; minus
3. any Debt.
We may defer payment of the Death Benefit:
1. for up to 6 months; or
2. for any period during which the New York Stock
Exchange is closed for trading (except for normal
weekend and holiday closings) or when the Securities
and Exchange Commission determines that an emergency
exists which may make such payment impractical.
PREMIUM PROVISIONS
INITIAL PREMIUM The Initial Premium is shown in the Policy
Specifications. It is payable to us or to an authorized
agent on or before delivery of this policy.
ADDITIONAL PREMIUM The amount and frequency of Planned Premium and Minimum
Premium Requirements are shown in the Policy
Specifications. The amount and frequency can be
changed upon request, subject to our approval.
While this policy is in force, additional premiums may
be paid at any time prior to the Maturity Date. We
reserve the right to limit or refund any Premium if:
1. the amount of the Premium is below our current
minimum Premium amount requirement;
2. the Premium would increase the Death Benefit by more
than the amount of Premium; or
3. the Premium would disqualify the policy as life
insurance under the Code.
We reserve the right to require evidence of
insurability before accepting a Premium that would
increase the net amount at risk.
NET PREMIUM The Net Premium equals the Premium paid less the
Premium Charges shown in the Policy Specifications.
PREMIUM ALLOCATION The initial Net Premium will be allocated to the Money
Market Subaccount. On the first Valuation Date on or
following the Trade Date, the Money Market Subaccount
Value will be allocated in accordance with the Initial
Premium Allocation as shown in the Policy
Specifications. Any Net Premium received after
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<PAGE> 18
the Trade Date will be allocated on the first
Valuation Date on or following the date the Premium is
received in our home office in accordance with the
Initial Premium Allocation as shown in the Policy
Specifications.
The Premium allocation shown in the Policy
Specifications may be changed by you. The request for
an allocation change must be in writing or per
telephone request, if a proper telephone authorization
form is on file with us.
GRACE PERIOD If the Surrender Value on the day immediately preceding
a Monthly Processing Date is less than the monthly
deduction for the next month, a grace period of 61 days
will be allowed for the payment, without evidence of
insurability, of Premium payment or loan repayment
equal to at least three monthly deductions.
This grace period will begin on the day we mail notice
of the required payment to your last known address.
If payment is not received within the grace period, all
coverage under this policy will terminate at the end of
the grace period in accordance with the nonforfeiture
provisions. If death of the insured occurs within the
grace period, any amount payable will be reduced by any
unpaid monthly deductions.
REINSTATEMENT If this policy lapses because of insufficient Surrender
Value to cover the monthly deduction, and has not been
surrendered for its Surrender Value, it may be
reinstated at any time within three years after the
date of lapse. The reinstatement is subject to:
1. receipt of evidence of insurability satisfactory to
us;
2. payment of enough Premium to pay the unpaid monthly
deductions due during the last expired grace period.
3. payment of a minimum premium sufficient to keep
this policy in force for three months; and
4. payment 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 us.
The suicide and incontestability provisions will apply
from the effective date of reinstatement.
GENERAL ACCOUNT PROVISIONS
GENERAL ACCOUNT The guaranteed benefits under this policy are provided
through our General Account. The fixed account is the
only account available to you in our General Account.
FIXED ACCOUNT The fixed account is credited with interest rate(s)
which will not be less than the guaranteed minimum
interest rate. The guaranteed minimum interest rate is
3.00% per year compounded daily at the daily equivalent
of a 3.00% annual effective rate.
We may declare from time to time a current rate which is
higher than the guaranteed minimum interest rate. Each
current interest rate will be guaranteed until the next
policy anniversary.
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On each policy anniversary, we will also declare current
interest rate(s) which will apply to net premiums
previously received, and the interest thereon. These
interest rate(s) will be guaranteed until the next
policy anniversary.
FIXED ACCOUNT VALUE On any Valuation Date, the fixed account value is
equal to:
1. the sum of all net premiums allocated to the fixed
account; plus
2. any amounts transferred to the fixed account; plus
3. the total interest credited to the fixed account;
plus
4. any pro-rata monthly deductions charged to the fixed
account; minus
5. any amounts transferred from the fixed account; minus
6. any amounts withdrawn from the fixed account; minus
7. any amounts loaned from the fixed account.
VARIABLE ACCOUNT PROVISIONS
ACCOUNT The variable benefits under this policy are provided
through the KILICO Variable Separate Account 2 which is
referred to in this policy as the Separate Account.
It is a separate investment Account maintained by us
into which a portion of our assets have been allocated
for this policy and may be allocated for certain other
policies.
LIABILITIES OF ACCOUNT The assets equal to the reserves and other liabilities
of the Account will not be charged with liabilities
arising out of any other business we may conduct. The
assets of the Account will be valued on each Valuation
Date.
SUBACCOUNT VALUE On any Valuation Date, a Subaccount Value equals:
1. the Subaccount Value on the previous Valuation Date
multiplied by the Investment Experience Factor for
the end of the current Valuation Period; plus
2. any net premiums received and allocated to the
Subaccount during the current Valuation Period; plus
3. any amounts transferred to the subaccount during
the current Valuation Period; minus
4. the pro-rata portion or the designated amount of
any monthly deduction charged to the Subaccount
when the Valuation Period includes a Monthly
Processing Date; minus
5. any amounts transferred from the Subaccount during
the current Valuation Period; minus
6. any amounts withdrawn from the Subaccount during
the current Valuation Period; minus
7. any amounts borrowed from the Subaccount during the
Valuation Period.
FUND Each subaccount of the Separate Account will buy shares
of an investment company offered as in investment
alternative under the policy. The Funds are registered
under the Investment Company Act of 1940 as open-end
management investment
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<PAGE> 20
companies. Each series of a Fund represents a
separate investment portfolio which corresponds to one
of the subaccounts of the Separate Account.
If we establish additional subaccounts each new
subaccount will invest in a new series of a Fund or
in shares of an investment company. We may also add
and/or substitute other investment companies.
CHANGE OF INVESTMENT Unless otherwise required by law or regulation, the
ADVISER OR INVESTMENT investment adviser or any investment objective may not
OBJECTIVES be changed without our consent. Any investment
objective will not be materially changed unless a
statement of the change is filed with and approved by
the Insurance Department of the State of Illinois.
If required, approval of or change of any investment
objective will be filed with the insurance department
of the state where this policy is delivered.
RIGHTS RESERVED BY US We reserve the right, subject to compliance with the
law as currently applicable or subsequently changed:
1. to operate the Separate Account in any form
permitted under the Investment Company Act of 1940
or in any other form permitted by law;
2. to take any action necessary to comply with or
obtain and continue any exemptions from the
Investment Company Act of 1940 or to comply with any
other applicable law;
3. to transfer any assets in any Subaccount to another
Subaccount or to one or more accounts, or our
General Account; or to add, combine, substitute or
remove subaccounts in the Separate Account;
4. to delete the shares of any of the portfolios of
the Funds or other open-end investment company
and to substitute, for the Funds shares held in any
subaccount, the shares of another portfolio of the
Funds or the shares of another investment company
or any other investment permitted by law; and
5. to change the way we assess charges, but without
increasing the aggregate amount beyond that
currently charged to the Separate Account and the
Funds in connection with the policies.
When required by law, we will obtain your approval of
such changes and the approval of any regulatory
authority.
ACCUMULATION UNIT Each subaccount has an accumulation unit value. For
VALUE 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 portfolio. When
premiums or other amounts are allocated to a
subaccount, a number of units are purchased based on the
subaccount's accumulation unit value 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.
The accumulation unit value for each subsequent
Valuation Period is the investment experience factor
for that period multiplied by the accumulation unit
value for the immediately preceding period. The
accumulation unit value for a Valuation Period
applies to each day in such period. The number of
accumulation units will not change as a result of
investment experience.
INVESTMENT EXPERIENCE Each subaccount has its own Investment Experience
FACTOR Factor. The investment experience of the Separate
Account is calculated by applying the Investment
Experience Factor to the Cash Value in each subaccount
during a Valuation Period.
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The Investment Experience Factor of a subaccount for a
Valuation Period is determined by dividing 1. by 2.
and subtracting 3. from the result, where:
1. is the net result of:
a. the net asset value per unit of the investment
held in the subaccount determined at the end
of the current Valuation Period; plus
b. the per unit amount of any dividend or capital
gain distributions made by the investments
held in the subaccount 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 we
determine to have resulted from the
investment operations of the subaccount;
2. is the net asset value per unit of the
investment held in the subaccount, determined at
the end of the last prior Valuation Period; and
3. is the factor representing the sum of the
Mortality and Expense Risk Charge and the
Account Management Charge for each day in the
Current Valuation Period.
NONFORFEITURE PROVISIONS
CASH VALUE The Cash Value of this policy is equal to the sum of
the subaccount values plus the fixed account value plus
the loan account value.
MONTHLY DEDUCTION On each Monthly Processing Date, a monthly deduction
will be made equal to the sum of the following:
1. the monthly cost of insurance charge for this
policy.; plus
2. the monthly charge for any supplemental benefits and
riders; plus
3. the monthly administration charge.
The monthly deduction will be deducted from the
subaccounts and the fixed account in proportion to the
value that each account bears to the separate account
value plus the fixed account value.
COST OF INSURANCE The Cost of Insurance is determined on each Monthly
Processing Date and is determined separately for the
Initial Specified Amount and for each increase in
Specified Amount.
The Cost of Insurance equals a. times the result of b.
minus c., where:
a. is the Cost of Insurance rate;
b. the Death Benefit divided by 1.0024663; and
c. is the Cash Value.
COST OF INSURANCE RATE The monthly Cost of Insurance Rate is based on the
insured's sex, Issue Age, Attained Age (in the case
of increases) and Rate Class. The Cost of Insurance
rate will also vary by Policy Year. It is determined
separately for the initial Specified Amount and the
amount of each increase in Specified Amount.
Any change in the Cost of Insurance Rates will apply to
all individuals of the same Sex, Issue Age, Attained
Age (in the case of increases), Rate Class and Policy
Year. At no time will such rates ever be greater than
those shown in the Table of Guaranteed Maximum Monthly
Cost of Insurance Rates, shown in the Policy
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Specifications, multiplied by a Rate Class percent.
These rates are based on the 1980 Commissioner's
Standard Ordinary Smoker or Nonsmoker Mortality Tables,
age nearest birthday.
SUPPLEMENTAL BENEFITS The monthly charges for any Supplemental Benefits and
AND RIDERS riders are shown in the Policy Specifications.
INSUFFICIENT CASH The policy will terminate as provided in the grace
VALUE period provision if the Surrender Value on the date
immediately preceding a Monthly Processing Date is:
1. insufficient to cover the monthly deduction for
the month following such Monthly Processing Date;
and
2. no Premium payment or loan payment sufficient to
cover at least three monthly deductions is
received before the end of the grace period.
Any deduction for the Cost of Insurance or other
benefits and riders after termination of insurance will
not be considered a reinstatement of this policy or a
waiver by us of the termination.
TRANSFER PROVISIONS You may transfer all or part of the value of each
subaccount at any time to another subaccount subject
to the following conditions:
1. transfers are not permitted until after the
Trade Date. Thereafter, one transfer will
be permitted in each fifteen day period. All
transfers which occur during one business day
will be considered one transfer;
2. The minimum amount which may be transferred is
$500.00 or, if smaller, the remaining value of
this policy's interest in a subaccount;
3. No partial transfer will be made if your
remaining subaccount value will be less than
$500.00 after such transfer unless this policy's
interest in such subaccount is eliminated by
means of such transfer.
You may transfer part of the fixed account value to any
subaccount subject to the following additional
conditions:
1. transfers are not permitted until after the Trade
Date. Thereafter, one transfer will be permitted
in each Policy Year during the thirty days that
follow a policy anniversary;
2. The minimum amount which may be transferred is
$500.00 or, if smaller, the remaining value of
this policy's interest in the fixed account;
3. No partial transfer will be made if your
remaining fixed account value will be less than
$500.00 after such transfer unless this policy's
interest in the fixed account is eliminated by
means of such transfer.
We reserve the right at any time and without prior
notice to any party to terminate, suspend or modify
the reallocation provision described above. We may
defer making reallocations for up to 7 business days
from receipt of such notice.
Any transfer direction must clearly specify the amount
which is to be transferred and the names of the
accounts which are to be affected. A telephone transfer
direction will be honored by us only if a properly
executed telephone transfer authorization is on file
with us, and if such transfer direction complies with
the authorization's conditions and our administrative
procedures.
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WITHDRAWAL PROVISIONS Cash withdrawals may be made any time after the first
policy year. The Minimum Withdrawal Amount is shown
in the Policy Specifications. You must specify the
accounts from which the withdrawal is to be made.
EFFECT OF A WITHDRAWAL The Cash Value will be reduced by the amount of the
withdrawal. If Death Benefit Option A is in effect,
the Specified Amount will also be reduced by the amount
of the withdrawal.
POLICY LOAN PROVISIONS
POLICY LOANS Policy Loans may be made any time after the first
Policy Year. We will lend up to a maximum loan amount
of 90% of Cash Value. The amount of any new loan
may not exceed the maximum loan amount less Debt on the
date the loan is granted. The minimum amount of a loan
is shown in the Policy Specifications.
On the date the loan is made, an amount equal to the
loan will be transferred from the subaccounts and
the fixed accounts to the loan account held in the
General Account until the loan is repaid. Unless
directed otherwise, the loaned amount will be deducted
from the subaccounts and the fixed account in
proportion to the values that each account bears to
the separate account value plus the fixed account
value.
Should the Debt equal or exceed the Cash Value, this
policy will terminate 61 days after notice has been
mailed to you at your last known address.
Cash Values derived from premium received by us in the
form of a check or draft will not be available for
loans until 30 days after deposit of such check or
draft.
POLICY LOAN INTEREST Interest accrues daily at the adjustable loan interest
rate. The adjustable loan interest rate will not exceed
the lesser of 10% or a published monthly average,
currently Moody's Corporate Bond Yield Average-Monthly
Average Corporates, as published by Moody's Investor's
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
interest rate will be determined at the beginning of
each Policy Year and it applies to new and outstanding
loans. Loan interest is due on each policy anniversary
after the date the loan is issued. Interest payments
are due as shown in the Policy Specifications. If
interest is not paid within (31) days of its due date
it will be added to the amount of the loan as of its
due date.
The initial adjustable loan interest rate is shown in
the Policy Specifications.
We will give 30 days advance written notice before each
policy anniversary of the interest rate for the new
Policy Year.
During the existence of a loan, the General Account
Value will earn interest at the rate charged, reduced
by not more than 1.00%. Interest will be earned on a
daily basis and will be added to the General Account
Value.
POLICY LOAN REPAYMENT A Debt may be repaid in full or in part at any time
while this policy is in force. As Debt is paid, the
loan account value equal to the amount of repayment
which exceeds the difference between interest due and
interest earned will be allocated to the subaccounts
and the fixed account according to the then current
premium allocation instructions.
EFFECT OF POLICY LOANS The Debt on this policy will reduce the amount of Cash
Value payable upon surrender. The Debt on this policy
will also reduce the amount of Cash Value available for
withdrawal. The Death Benefit payable to the
beneficiary upon the death of the insured will also
be reduced by the amount of Debt.
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SURRENDER VALUE PROVISIONS
SURRENDER This policy may be surrendered for its Surrender Value
upon written request by you and return of the policy to
us at our home office. The request must be made
during the lifetime of the insured and while this
policy is in force. The return of the policy is
required before the Surrender Value is paid.
Payment of the Surrender Value will discharge us from
our obligations under this policy.
We will pay the Surrender Value of this policy to you on
the Maturity Date if the Insured is living and this
policy is in force.
REALLOCATION, WITHDRAWAL, LOAN
AND SURRENDER PROCEDURES
A transfer, withdrawal, loan or surrender will be
effective at the end of the Valuation Period
following a telephone transfer direction or receipt by
us at our home office of a written request which
contains all required information.
Accumulation units will be redeemed to the extent
necessary to achieve the dollar amount of the transfer,
withdrawal, loan or surrender. The accumulation units
credited in each subaccount will be reduced by the
number of accumulation units redeemed. The reduction
in the number of accumulation units will be determined
on the basis of the accumulation unit value at the end
of the Valuation Period during which the request
containing all required information is received by us.
An amount withdrawn, loaned or surrendered from
the subaccounts will be paid within seven calendar days
after the date proper written election is received by
us unless:
1. the New York Stock Exchange is closed (other than
customary weekend and holiday closings);
2. trading in the markets normally utilized is
restricted, or an emergency exists as determined by
the Securities and Exchange Commission, so that
disposal of investments or determination of the
valuation unit is not reasonably practicable; or
3. such other periods as defined by the Securities
and Exchange Commission for the protection of
owners.
If the withdrawal, loan, or surrender is to be
made from the fixed account, we may defer the payment
for a period permitted by law, but not more than six
months after the written request is received by us.
During the period of deferral, interest at the then
current rate will continue to be credited to the fixed
account value.
SETTLEMENT PROVISIONS
SETTLEMENT OPTIONS The policyholder, or beneficiary at the death of the
Insured, if no election by the Policyholder is in
effect, may elect to have all of the Surrender Value or
Death Benefit of this policy paid in a lump sum or have
the amount applied to one of the settlement options
noted below. 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 our minimum
24
<PAGE> 25
payment, according to our rules in effect at the
time the settlement option is chosen.
If at any time the payments are less than the minimum
payment, we have the right to increase the period
between payments to quarterly, semi-annual or annual
or to make the payment in one lump sum so that
the payment is at least equal to our minimum payment.
ELECTION OF Election of a settlement option may be made by written
SETTLEMENT OPTION notice to us. The election may be made:
1. by you during the lifetime of the insured;
2. by the beneficiary if no election made by you is
in effect at the time of the death of the insured;
or
3. by the beneficiary if you reserve the right for
the beneficiary to change an election upon the
death of the insured. Such change must be made
prior to the first settlement option payment.
An election in effect during the lifetime of the insured
will be revoked by a subsequent change of beneficiary or
an assignment of this policy, unless provided otherwise.
GENERAL CONDITIONS The Surrender Value or Death Benefit will be used to
determine the monthly benefit payment. The monthly
benefit payment will be based upon the settlement
option elected in accordance with the appropriate
Settlement Option Table.
OPTION 1 - Income for Specified Period - We will pay a
monthly income for the period elected but not less than
5 years nor more than 30 years.
OPTION 2 - Life Income - We will pay a monthly
income to the payee during the payee's lifetime.
OPTION 3 - Life Income with Installments Guaranteed -
We will pay a monthly income for the Guaranteed Period
elected and thereafter for the remaining lifetime of
the payee. The period elected may be 5, 10, 15 or 20
years.
OPTION 4 - Joint and Survivor Income - We 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 will 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%.
OTHER SETTLEMENT May be available with our consent.
OPTIONS
SUPPLEMENTARY CONTRACT A supplementary contract will be issued to reflect
payments to be made under a settlement option.
If settlement is a result of the death of the insured,
its effective date will be the date of death.
Otherwise its effective date will be the date
chosen by you.
DATE OF FIRST PAYMENT Interest under the settlement options will begin to
accrue on the effective date of the supplementary
contract. If the normal effective date is the 29th,
30th or 31st of the month, the effective date will be
the 28th day of that month.
EVIDENCE OF AGE, We may require satisfactory evidence of the age and sex
SEX AND SURVIVAL of any person on whose life the income is to be based
and the continued survival of any person on whose life
the income is based.
BASIS OF SETTLEMENT The guaranteed monthly payments are based on an
OPTIONS interest rate of 2.5% per year
25
<PAGE> 26
and, where mortality is involved the "1983 Table A"
individual mortality table developed by the Society
of Actuaries, with a 5-year setback.
DISBURSEMENT OF FUNDS At the death of the payee, any unpaid installments will
UPON DEATH OF PAYEE be paid in one lump sum to the estate of the payee
UNDER OPTIONS 1 OR 3 unless otherwise provided in the supplementary
agreement. The lump sum will be equal to the commuted
value of the remaining installments, based upon a
minimum interest rate of not less than 2.5%.
PROTECTION OF BENEFITS Unless otherwise provided in the supplementary contract
the payee may not: 1. commute; 2. anticipate;
3. assign; 4. alienate; or 5. otherwise encumber any
payment to be received.
CREDITORS The proceeds of the policy and any payment under an
option will be exempt from the claim of creditors and
from legal process to the extent permitted by law.
26
<PAGE> 1
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049-0001
Telephone 847-550-5500
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01 1997 POLICY NUMBER 7007005
INITIAL SPECIFIED $100,000 DATE OF ISSUE JAN 01 1997
AMOUNT
RIGHT TO CANCEL - FREE LOOK PERIOD
This policy may be returned to us within 10 days of the time you receive it.
It may be mailed or delivered to us or to the agent who sold it. Upon our
receipt, this policy will be deemed void from the beginning. The Cash Value of
the policy plus any monthly deductions and any deductions made against premiums
will be refunded within seven days of our receipt of a notice of cancellation
and the return of this policy. This amount will be at least equal to the
premiums paid.
On the Maturity Date, if the Life Insured is living and this policy is in
force, we will pay the Surrender Value to you. If both Lives Insured die prior
to the Maturity Date and this policy is in force, on the second death we will
pay to the beneficiary the Death Benefit in force at the time of the Life
Insured's death. Payment made to you or to the beneficiary will be made
subject to the terms of this policy.
The Death Benefit is payable following the second death of the Lives Insured.
However, you must give us proof of the first death as soon as it occurs. Proof
of the first death is important for us to accurately determine benefits under
the policy. We will adjust your Monthly Deduction accordingly when we receive
proof of the first death.
This policy is issued in consideration of the attached application(s) and
payment of the Initial Premium. The terms on this and the following pages are
part of the policy.
Signed for the Kemper Investors Life Insurance Company at its home offices in
Long Grove, Illinois.
Secretary President
SURVIVORSHIP, FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
PAYABLE ON THE SECOND DEATH
NON-PARTICIPATING - NO ANNUAL DIVIDENDS
MATURES ON POLICY ANNIVERSARY NEAREST THE YOUNGER OF THE LIVES INSURED'S 100TH
BIRTHDAY
TO THE EXTENT ALLOCATIONS ARE MADE TO THE DIVISIONS, THE CASH VALUE IS BASED ON
THE INVESTMENT EXPERIENCE OF THE DIVISIONS AND MAY INCREASE OR DECREASE DAILY.
THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH BENEFIT
MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND TERMINATION
PROVISIONS.
This policy is a legal contract between you and us.
READ YOUR POLICY CAREFULLY.
Policy Form No. S-7005
<PAGE> 2
<TABLE>
<S> <C>
INDEX PAGE NO.
Policy Specifications A
Definitions 1
General Provisions 2
Death Benefit Provisions 4
Premium Provisions 6
Account Provisions 7
Non-Forfeiture Provisions 9
Reallocation Provisions 9
Withdrawal Provisions 10
Policy Loan Provisions 11
Surrender Value Provisions 12
Reallocation, Withdrawal, Loan & Surrender Procedures 12
Settlement Provisions 12
Settlement Option Table 15
</TABLE>
Supplemental Benefits, if any, in the Policy Specifications are described in
the supplemental benefit agreements that follow the Settlement Option Table.
All capitalized terms are either defined in the Definition section or itemized
on the Policy Specifications page.
S-7005-GP Page A
<PAGE> 3
POLICY SPECIFICATIONS
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007005
INITIAL SPECIFIED $1,000,000 DATE OF ISSUE JAN 01, 1997
AMOUNT
DEATH BENEFIT OPTION A
COVERAGE INFORMATION
<TABLE>
<CAPTION>
RATE
CLASS COVERAGE MATURITY OR MONTHLY
BENEFIT DESCRIPTION PERCENT AMOUNT EXPIRY DATE RATE
<S> <C> <C> <C> <C>
FLEXIBLE PREMIUM VARIABLE LIFE* 100 $1,000,000 JAN 01, 2062 SEE PAGE D
</TABLE>
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE
SHOWN IF PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE.
EVEN IF COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO SURRENDER VALUE
TO BE PAID ON THAT DATE. COVERAGE AMOUNT UNDER OPTION A IS THE SPECIFIED AMOUNT
INCLUSIVE OF THE CASH VALUE.
PREMIUM INFORMATION
INITIAL PREMIUM $7850.00
PLANNED PERIODIC PREMIUM $7850.00 ANNUAL
INSURED RATE CLASS NO. 1 STANDARD NONTOBACCO
NO. 2 STANDARD NONTOBACCO
S-7005-GP Page A
<PAGE> 4
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007005
TRADE DATE FEB 01, 1997
DEDUCTION DAY DAY 01 OF EACH MONTH
DEDUCTION PERIOD 65 YEARS, 00 MONTHS
MINIMUM SPECIFIED AMOUNT [$1,000,000.00]
MINIMUM CHANGE IN SPECIFIED AMOUNT [$100,000.00]
MINIMUM WITHDRAWAL AMOUNT [$1,000.00]
MINIMUM LOAN AMOUNT [$1,000.00]
PREMIUM CHARGES [11.50%]
MONTHLY ADMINISTRATIVE CHARGE [FIRST POLICY YEAR $20.00
POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE NET PREMIUMS
CUMULATIVE NET PREMIUMS UP TO $100,000 .65%
CUMULATIVE NET PREMIUMS BETWEEN $100,001 AND $250,000 .50%
CUMULATIVE NET PREMIUMS BETWEEN $250,001 AND $500,000 .40%
CUMULATIVE NET PREMIUMS IN EXCESS OF $500,000 .30%
NET PREMIUMS EQUALS PREMIUMS MINUS WITHDRAWALS
GUARANTEED .90%
ACCOUNT MAINTENANCE CHARGE .45%
INITIAL ADJUSTABLE LOAN INTEREST RATE [10.00%]
MINIMUM PREMIUM [$3000.00 per year]
IRC SECTION 7702 TEST GUIDELINE PREMIUM
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
</TABLE>
S-7005-GP Page B
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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.
S-7005-GP Page B
<PAGE> 6
POLICY SPECIFICATIONS
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007005
TRADE DATE FEB 01, 1997
SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION
MONEY MARKET 0%
GOVERNMENT BOND 0%
FIXED INCOME 100%
EQUITY 0%
BALANCED 0%
FIXED ACCOUNT 0%
S-7005-GP Page C
<PAGE> 7
POLICY SPECIFICATIONS
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007005
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
POLICY POLICY POLICY
YEAR NONTOBACCO TOBACCO YEAR NONTOBACCO TOBACCO YEAR NONTOBACCO TOBACCO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.01000 0.01000 23 0.12231 0.32054 45 4.69924 6.45568
2 0.01000 0.01000 24 0.14365 0.36892 46 5.44087 7.23885
3 0.01000 0.01000 25 0.16895 0.42403 47 6.30715 8.13124
4 0.01000 0.01000 26 0.19908 0.48940 48 7.31753 9.14548
5 0.01000 0.01000 27 0.23597 0.56666 49 8.46287 10.31447
6 0.01000 0.01153 28 0.28156 0.66170 50 9.73941 11.52027
7 0.01000 0.01522 29 0.33723 0.77243 51 11.12947 12.86132
8 0.01000 0.01972 30 0.40308 0.90081 52 12.63400 14.19007
9 0.01000 0.02505 31 0.47990 1.04164 53 14.23436 15.69246
10 0.01183 0.03145 32 0.56784 1.19774 54 15.95027 17.16392
11 0.01443 0.03887 33 0.66736 1.36161 55 17.78897 18.82740
12 0.01748 0.04761 34 0.78170 1.54520 56 19.78599 20.61799
13 0.02104 0.05770 35 0.91701 1.74944 57 22.00633 22.59981
14 0.02522 0.06961 36 1.08841 1.99230 58 24.56619 24.94159
15 0.03015 0.08362 37 1.27877 2.28250 59 27.80325 27.91512
16 0.03603 0.10000 38 1.52262 2.62869 60 32.43367 32.47109
17 0.04312 0.11940 39 1.81657 3.03185 61 40.11855 40.15324
18 0.05168 0.14280 40 2.16057 3.49329 62 55.18811 55.22392
19 0.06186 0.17010 41 2.55596 4.00181 63 83.33333 83.33333
20 0.07389 0.20151 42 3.00219 4.54959 64 83.33333 83.33333
21 0.08796 0.23727 43 3.49949 5.13142
22 0.10405 0.27685 44 4.05867 5.75965
</TABLE>
*THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES
SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT.
THIS PERCENT IS SHOWN ON PAGE A OF THE POLICY SPECIFICATIONS. THE RATES
ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE
SECTION OF YOUR POLICY.
S-7005CVA Page A
<PAGE> 8
POLICY SPECIFICATIONS
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007005
INITIAL SPECIFIED $1,000,000 DATE OF ISSUE JAN 01, 1997
AMOUNT
DEATH BENEFIT OPTION A
COVERAGE INFORMATION
<TABLE>
<CAPTION>
RATE
CLASS COVERAGE MATURITY OR MONTHLY
BENEFIT DESCRIPTION PERCENT AMOUNT EXPIRY DATE RATE
<S> <C> <C> <C> <C>
FLEXIBLE PREMIUM VARIABLE LIFE* 100 $1,000,000 JAN 01, 2062 SEE PAGE D
</TABLE>
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE
SHOWN IF PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE.
EVEN IF COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO SURRENDER VALUE
TO BE PAID ON THAT DATE. COVERAGE AMOUNT UNDER OPTION A IS THE SPECIFIED AMOUNT
INCLUSIVE OF THE CASH VALUE.
PREMIUM INFORMATION
INITIAL PREMIUM $7070.00
PLANNED PERIODIC PREMIUM $7070.00 ANNUAL
INSURED RATE CLASS NO. 1 STANDARD NONTOBACCO
NO. 2 STANDARD NONTOBACCO
S-7005CVA Page A
<PAGE> 9
POLICY SPECIFICATIONS
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007005
TRADE DATE FEB 01, 1997
MONTHLY PROCESSING DAY DAY 01 OF EACH MONTH
DEDUCTION PERIOD 65 YEARS, 00 MONTHS
MINIMUM SPECIFIED AMOUNT [$1,000,000.00]
MINIMUM CHANGE IN SPECIFIED AMOUNT [$100,000.00]
MINIMUM WITHDRAWAL AMOUNT [$500.00]
MINIMUM LOAN AMOUNT [$500.00]
PREMIUM CHARGES [11.50%]
MONTHLY ADMINISTRATIVE CHARGE [FIRST POLICY YEAR $20.00
POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE NET PREMIUMS
CUMULATIVE NET PREMIUMS UP TO $100,000 .65%
CUMULATIVE NET PREMIUMS BETWEEN $100,001 AND $250,000 .50%
CUMULATIVE NET PREMIUMS BETWEEN $250,001 AND $500,000 .40%
CUMULATIVE NET PREMIUMS IN EXCESS OF $500,000 .30%
NET PREMIUMS EQUALS PREMIUMS MINUS WITHDRAWALS
GUARANTEED .90%
ACCOUNT MAINTENANCE FEE .45%
INITIAL ADJUSTABLE LOAN INTEREST RATE [10.00%]
MINIMUM PREMIUM [$3,000.00 per year]
IRC SECTION 7702 TEST CASH VALUE ACCUMULATION
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
ATTAINED DEATH BENEFIT ATTAINED DEATH BENEFIT
AGE FACTOR AGE FACTOR
<S> <C> <C> <C>
35 6.4070 68 1.9574
36 6.0961 69 1.9072
37 5.8462 70 1.8641
38 5.6391 71 1.7925
39 5.4628 72 1.7358
40 5.3102 73 1.6895
41 5.0545 74 1.6503
42 4.8491 75 1.6166
43 4.6790 76 1.5623
44 4.5342 77 1.5197
45 4.4091 78 1.4852
46 4.1990 79 1.4559
47 4.0305 80 1.4306
48 3.8911 81 1.4304
49 3.7726 82 1.4297
</TABLE>
S-7005CVA Page B
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
50 3.6702 83 1.4282
51 3.4982 84 1.4254
52 3.3605 85 1.4211
53 3.2467 86 1.4147
54 3.1501 87 1.4057
55 3.0666 88 1.3938
56 2.9265 89 1.3783
57 2.8146 90 1.3589
58 2.7222 91 1.3353
59 2.6438 92 1.3076
60 2.5762 93 1.2759
61 2.4624 94 1.2408
62 2.3717 95 1.2029
63 2.2971 96 1.1631
64 2.2338 97 1.1221
65 2.1793 98 1.0808
66 2.0886 99 1.0399
67 2.0165
</TABLE>
S-7005CVA Page B
<PAGE> 11
POLICY SPECIFICATIONS
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01, 1997 POLICY NUMBER 7007005
TRADE DATE FEB 01, 1997
SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION
MONEY MARKET 0%
GOVERNMENT BOND 0%
FIXED INCOME 100%
EQUITY 0%
BALANCED 0%
FIXED ACCOUNT 0%
S-7005CVA Page C
<PAGE> 12
POLICY SPECIFICATIONS
INSURED NO. 1 JOHN DOE ISSUE AGE
35 NO. 2 JANE DOE
35
POLICY DATE JAN 01, 1997 POLICY NUMBER
7007005
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
POLICY POLICY POLICY
YEAR NONTOBACCO TOBACCO YEAR NONTOBACCO TOBACCO YEAR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.01000 0.01000 23 0.12231 0.32054 45 4.69924 6.45568
2 0.01000 0.01000 24 0.14365 0.36892 46 5.44087 7.23885
3 0.01000 0.01000 25 0.16895 0.42403 47 6.30715 8.13124
4 0.01000 0.01000 26 0.19908 0.48940 48 7.31753 9.14548
5 0.01000 0.01000 27 0.23597 0.56666 49 8.46287 10.31447
6 0.01000 0.01153 28 0.28156 0.66170 50 9.73941 11.52027
7 0.01000 0.01522 29 0.33723 0.77243 51 11.12947 12.86132
8 0.01000 0.01972 30 0.40308 0.90081 52 12.63400 14.19007
9 0.01000 0.02505 31 0.47990 1.04164 53 14.23436 15.69246
10 0.01183 0.03145 32 0.56784 1.19774 54 15.95027 17.16392
11 0.01443 0.03887 33 0.66736 1.36161 55 17.78897 18.82740
12 0.01748 0.04761 34 0.78170 1.54520 56 19.78599 20.61799
13 0.02104 0.05770 35 0.91701 1.74944 57 22.00633 22.59981
14 0.02522 0.06961 36 1.08841 1.99230 58 24.56619 24.94159
15 0.03015 0.08362 37 1.27877 2.28250 59 27.80325 27.91512
16 0.03603 0.10000 38 1.52262 2.62869 60 32.43367 32.47109
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
17 0.04312 0.11940 39 1.81657 3.03185 61 40.11855 40.15324
18 0.05168 0.14280 40 2.16057 3.49329 62 55.18811 55.22392
19 0.06186 0.17010 41 2.55596 4.00181 63 83.33333 83.33333
20 0.07389 0.20151 42 3.00219 4.54959 64 83.33333 83.33333
21 0.08796 0.23727 43 3.49949 5.13142
22 0.10405 0.27685 44 4.05867 5.75965
</TABLE>
*THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES
SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT.
THIS PERCENT IS SHOWN ON PAGE A OF THE POLICY SPECIFICATIONS. THE RATES
ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE
SECTION OF YOUR POLICY.
13
<PAGE> 14
DEFINITION SECTION
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.
CASH VALUE: The Cash Value of this policy is the sum of
the subaccount values of the Separate Account plus the fixed
account value and loan account value.
DEBT: The principal of any outstanding loan under this
policy plus any loan interest due or accrued.
FUND: An investment company or separate series thereof,
in which the subaccounts of the Separate Account invest.
GENERAL ACCOUNT: Our assets other than those allocated
to the Separate Account or any other Separate Account.
ISSUE AGES: Ages as of the Lives Insured nearest
birthdays on the Policy Date.
LIFE INSURED: The second to die of the Lives Insured.
LIVES INSURED: The persons whose lives are insured under
the policy as set forth in the policy specifications.
MATURITY DATE: The Maturity Date is stated in the
Policy Specifications. It is the policy anniversary nearest
the younger of the Lives Insured's 100th birthday.
MONTHLY PROCESSING DATE: The Monthly Processing Date is
stated in the Policy Specifications. It is the same day in
each month as the Policy Date. It is the day from which
policy months are determined.
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.
POLICY DATE, POLICY YEAR: The Policy Date is stated in
the Policy Specifications. It is used to determine Policy
Years and Monthly Processing Dates. Subsequent Policy Years
will start on anniversaries of the Policy Date.
PREMIUM: A dollar amount received by us in U.S.
Currency as consideration for the benefits to be provided
under this policy.
14
<PAGE> 15
PREMIUM CHARGES: The percentage of Premium deducted
before the Premium is allocated to the subaccounts or the
fixed account.
SEPARATE ACCOUNT: The Kemper Investors Life Insurance
Company (KILICO) Variable Separate Account -2 which was
established under Law as a separate investment account of
KILICO.
SEPARATE ACCOUNT VALUE: On any Valuation Date the
separate account value of this policy is the sum of its
subaccount values.
SUBACCOUNTS: The Separate Account has several
subaccounts. The subaccounts available under this policy
are stated in the Policy Specifications.
SUBACCOUNT VALUE: Each subaccount will be valued
separately as determined by the formula stated in this
policy.
SURRENDER VALUE: The Surrender Value of this policy is
the Cash Value on the date of surrender minus any Debt.
TRADE DATE: The Trade Date is the first Valuation Date
after the Company has delivered the policy and any free look
period has been waived or has expired. It is the date that
the money market subaccount Value will be allocated to the
subaccounts and the fixed account according to your initial
allocation.
VALUATION DATE: Each day that is not a New York Stock
Exchange holiday or each business day on which valuation of
the assets is required by applicable law.
VALUATION PERIOD: The period that starts at the close
of a Valuation Date and ends at the close of the next
succeeding Valuation Date.
WE, OUR, OURS, US: Kemper Investors Life Insurance
Company
YOU, YOUR, YOURS: The party(ies) named as owner in the
application unless later changed as provided in this policy.
GENERAL PROVISIONS
THE CONTRACT This policy, any endorsements, the attached application
and any supplemental application(s) form the entire
contract. All statements made in the application and any
supplemental application(s) are representations and not
warranties unless fraud is involved. In addition to other
reasons permitted by law, the validity of this policy can be
contested if any material
15
<PAGE> 16
misrepresentations of fact are made in the application,
a supplementary application or a request. No statement will
void this policy or be used to deny a claim unless it is
contained in an attached application or supplemental
application.
MODIFICATION OF
POLICY Only our President, Secretary or Assistant Secretaries
have power to approve a change in or waive the provisions
of this policy. No agent or person other than such
officers can change or waive the terms of this policy.
OWNERSHIP OF POLICY Unless otherwise provided in the application, the lives
insured are the original policy owners. You have the
exclusive right to cancel or amend this policy by agreement
with us and exercise every option and right conferred by
this policy, including the right of assignment. We reserve
the right to require the return of this policy for
endorsement for any change.
CHANGE OF OWNERSHIP Ownership may be changed during the lifetime of the life
insured by written notice from you with prior consent
from us. After we receive written notice at our home
office, the change will take effect as of the date the
notice was signed. The change, however, will not apply to
any payment made or action taken by us before the notice was
received. A change of ownership may have tax consequences,
depending on the circumstances. We recommend that you seek
the advice of a qualified tax consultant prior to making any
such changes.
EFFECTIVE DATE OF
COVERAGE The effective date of coverage under this policy is the
Policy Date. The Issue Date is the same date as the
Policy Date unless a different Issue Date is stated in the
Policy Specifications. Incontestability and suicide periods
are measured from the Issue Date.
TERMINATION All coverage under this policy terminates when any one of
the following events occurs: 1. you request that
coverage terminate; 2. the Life Insured dies; 3. this policy
matures; or 4. the grace period ends.
CONTESTABILITY This policy will be incontestable after it has been in
force during the lifetime of the Lives Insured for two
years from the Issue Date.
A new two year contestability period will apply to each
increase in insurance beginning with the effective date of
each increase and will apply only to statements made in the
application for the increase.
If the policy is reinstated, a new two year
contestability period will apply from the effective date of
the reinstatement and will apply only to statements made in
the application for the reinstatement.
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<PAGE> 17
MISSTATEMENT OF AGE If the age and/or sex of either of the Lives Insured was
AND/OR SEX misstated, the Death Benefit will be adjusted based on what
the Cost of Insurance charged for the most recent Monthly
Processing Date, prior to the Life Insured's death, would
have purchased using the correct age and/or sex.
SUICIDE If the first death is by suicide, within two years of the
Issue Date, whether the insured is sane or insane, we will
reissue this policy. The new policy on the survivor will
be a single life permanent policy which is available at
time of re-issue. The suicide provision for the new
policy will be effective as of the original Issue Date.
If the second death is by suicide, within two years
after the Issue Date, whether the Life Insured is sane or
insane, we will pay only the premiums paid less any
withdrawal and Debt. If the second death occurs within two
years after the date of an increase in insurance, or
reinstatement, our total liability with respect to such
increase or reinstatement will be the cost of insurance.
DUE PROOF OF DEATH The Death Benefit is payable when the Life Insured dies. You
must provide us proof when both deaths occur. Written
proof of death in the form of a certified copy of the death
certificate, a written physician's statement or any other
proof satisfactory to us is required within sixty days of
such deaths or as soon thereafter as is reasonably possible.
BENEFICIARY The original beneficiary is named in the application
DESIGNATION for this policy. If a beneficiary is not
AND CHANGE OF named, the original beneficiary is your estate.
BENEFICIARY You may change the beneficiary by filing a written change
with us subject to the following:
1. The change must be filed during the Life Insured's
lifetime;
2. This policy must be in force at the time a change is
filed;
3. Such change must not be prohibited by the terms of an
existing assignment, beneficiary designation, or other
restriction;
4. Such change will take effect when we receive it at our
home office;
5. After we receive the request, the change will take
effect as of the date the request for change was
signed; however, action taken by us before such request
was received will remain valid; and
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<PAGE> 18
6. The request for change must provide information to
identify the new beneficiary.
DEATH OF The interest of a beneficiary who dies before the Life
BENEFICIARY Insured will pass to the other beneficiaries, if any,
share and share alike, unless otherwise provided in the
beneficiary designation. If no beneficiary survives the
Life Insured, the proceeds of this policy
will be paid to the Life Insured's estate.
If a beneficiary dies within ten days of the Life
Insured's death, proceeds of this policy will be paid
as if the insured had survived that beneficiary.
ASSIGNMENT No assignment of this policy is binding on us without
prior consent. Any claim under an assignment is
subject to proof of the extent of the interest of the
assignee. Your rights and the rights of the beneficiary are
subject to the rights of the assignee of record.
An assignment of coverage may have tax consequences
depending on the circumstances. We recommend that you seek
the advice of a qualified tax consultant prior to making any
such changes or assignments.
NON-PARTICIPATING This policy will not pay dividends. It will not
participate in any of our surplus earnings.
REPORTS At least once each Policy Year we will send you a report.
The report will reflect the premiums paid, investment
experience and charges made since the last report.
The report will also reflect the current
Death Benefit and Cash Value as well as any other
information required by statute.
RESERVES, CASH All reserves are greater than or equal to those required
VALUE by statute. Any Cash Value and Death Benefit available
under this policy are at least equal to the minimum
benefits required by the statutes of the state in which
this policy is delivered.
BASIS OF A detailed statement of the method of computation of
COMPUTATIONS Cash Value under this policy has been filed with the
insurance department of the state in which this policy is
delivered. The 1980 Commissioner's Standard Ordinary Smoker
and Nonsmoker Mortality Tables, age nearest birthday, is the
basis for minimum cash values, death benefits and guaranteed
maximum Cost of Insurance rates under this policy.
TAX TREATMENT This policy is intended to qualify as a life insurance
policy under the Internal Revenue
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<PAGE> 19
Code ("Code"). We may return premiums which would
disqualify the policy from tax treatment as a life
insurance policy. This policy may be endorsed to reflect
any change in the Code and its regulations or rulings. You
will receive a copy of any such endorsement.
Currently, no charges are made against the Account for
federal, state or other taxes that may be attributed to the
Account. We may in the future, however, impose charges for
federal income taxes attributed to the Account. Charges
for other taxes, if any, attributed to this policy may also
by made.
DEATH BENEFIT
PROVISIONS
DEATH BENEFIT The Death Benefit is based on the Specified Amount,
the Death Benefit Option and the Table of Death Benefit
Factors applicable at the time of death. The Initial
Specified Amount, the Death Benefit Option and the
Table of Death Benefit Factors are shown in the Policy
Specifications.
SPECIFIED AMOUNT The Specified Amount is the Initial Specified Amount shown
on the Policy Specifications, unless changed in
accordance with the Changes provision or reduced by a cash
withdrawal.
DEATH BENEFIT
OPTION The Death Benefit Option is shown in the Policy
Specifications, unless changed in accordance with the
Changes provision.
If Option A is in effect, the Death Benefit is the greater
of:
1. the Specified Amount; or
2. the Table of Death Benefit Factors times
the Cash Value of this policy on the
date of the Life Insured's death.
If Option B is in effect, the Death Benefit is the greater
of:
1. the Specified Amount plus the Cash Value of this
policy on the date of the Life Insured's death; or
2. the Table of Death Benefit Factors times the
Cash Value of this policy on the date of the Life
Insured's death.
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<PAGE> 20
CHANGES You may change the Death Benefit Option after the first
Policy Year. The Specified Amount will be changed as
follows.
1. If the change is Option A to Option B, the
Specified Amount after such change will be:
a. the Specified Amount prior to such change; minus
b. the Cash Value on the date of the change.
2. If the change is from Option B to Option A, the
Specified Amount after such change will be:
a. the Specified Amount prior to such change; plus
b. the Cash Value on the date of the change.
You may also increase the Specified Amount after the first
Policy Year and prior to the older of the lives insured's
attained age 85. You may also decrease the Specified
Amount after the first Policy Year. The ` change is
subject to the following:
1. Any decrease will reduce the insurance in the
following order:
a. the most recent increase first;
b. any other increases in the reverse order in which
they occurred; and
c. finally, against the initial Specified Amount.
2. Any request for an increase must be applied for on a
supplemental application and is subject to our
normal underwriting requirements.
The request for a change must be in writing. No more than
one change will be allowed in any Policy Year. The Minimum
Change in Specified Amount is shown in the Policy
Specifications. The change will be effective on the first
Monthly Processing Date on or after the day we receive the
request. No changes will be allowed if the resulting
Specified Amount would be less than the lesser of the
Initial Specified Amount or the Minimum Specified Amount
or if this policy would be disqualified as life insurance
under the Code. The Initial Specified Amount and the
Minimum Specified Amount are shown on the Policy
Specifications.
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<PAGE> 21
PAYMENT OF THE Death Benefits will be paid following receipt by us at our
DEATH BENEFIT home office of due proof that the Life Insured died while
this policy was in force. The Death Benefit will be
determined based upon the date of death. The return of
this policy is required before a payment is made.
The Death Benefit proceeds will be equal to:
1. the Death Benefit; minus
2. any monthly deductions due during the grace period;
minus
3. any Debt.
We may defer payment of the Death Benefit:
1. for up to 6 months; or
2. for any period during which the New York Stock
Exchange is closed for trading (except for normal
weekend and holiday closings) or when the Securities
and Exchange Commission determines that an emergency
exists which may make such payment impractical.
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<PAGE> 22
S-7004 Page 8
PREMIUM PROVISIONS
INITIAL PREMIUM The Initial Premium is shown in the Policy Specifications.
It is payable to us or to an authorized agent on or before
delivery of this policy.
ADDITIONAL PREMIUM The amount and frequency of Planned Premium and Minimum
Premium Requirements are shown in the Policy
Specifications. The amount and frequency can be changed
upon request, subject to our approval.
While this policy is in force, additional premiums may be
paid at any time prior to the Maturity Date. We reserve
the right to limit or refund any Premium if:
1. the amount of the Premium is below our current
minimum Premium amount requirement;
2. the Premium would increase the Death Benefit by more
than the amount of Premium; or
3. the Premium would disqualify the policy as life
insurance under the Code.
We reserve the right to require evidence of insurability
before accepting a Premium that would increase the net
amount at risk.
NET PREMIUM The Net Premium equals the Premium paid less the Premium
Charges shown in the Policy Specifications.
PREMIUM ALLOCATION The initial Net Premium will be allocated to the Money
Market Subaccount. On the first Valuation Date on or
following the Trade Date, the Money Market Subaccount Value
will be allocated in accordance with the Initial Premium
Allocation as shown in the Policy Specifications. Any Net
Premium received after the Trade Date will be allocated on
the first Valuation Date on or following the date the
Premium is received in our home office in accordance with
the Initial Premium Allocation as shown in the Policy
Specifications.
The Premium allocation shown in the Policy Specifications
may be changed by you. The request for an allocation
change must be in writing.
GRACE PERIOD If the Surrender Value on the day immediately preceding a
Monthly Processing Date is less than the monthly deduction
for the next month, a grace period of 61 days will be
allowed for the payment, without evidence of insurability,
of Premium payment or loan repayment equal to at least three
monthly deductions.
This grace period will begin on the day we mail notice
of the required payment to your last known address.
If payment is not received within the grace period, all
coverage under this policy will terminate at the end of the
grace period in accordance with the nonforfeiture
provisions. If death of the insured occurs within the grace
period, any amount payable will be reduced by any unpaid
monthly deductions.
REINSTATEMENT If this policy lapses because of insufficient Surrender
Value to cover the monthly deduction, and has not been
surrendered for its Surrender Value, it may be reinstated at
any time within three years after the date of lapse. If one
of the Lives Insured dies during the lapse, the policy will
be re-issued as a single life permanent policy.
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S-7004 Page 8
The reinstatement is subject to:
1. receipt of evidence of insurability satisfactory to
us on the Lives Insured;
2. payment of enough Premium to pay the unpaid
monthly deductions due during the last expired grace
period.
3. payment of a minimum premium sufficient to keep
this policy in force for three months; and
4. payment 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
us.
The suicide and incontestability provisions will apply from
the effective date of reinstatement.
GENERAL ACCOUNT PROVISIONS
GENERAL ACCOUNT The guaranteed benefits under this policy are provided
through our General Account. The fixed account is the only
account available to you in our General Account.
FIXED ACCOUNT The fixed account is credited with interest rate(s) which
will not be less than the guaranteed minimum interest rate.
The guaranteed minimum interest rate is 3.00% per year
compounded daily at the daily equivalent of a 3.00% annual
effective rate.
We may declare from time to time a current rate which is
higher than the guaranteed minimum interest rate. Each
current interest rate will be guaranteed until the next
policy anniversary.
On each policy anniversary, we will also declare current
interest rate(s) which will apply to net premiums
previously received, and the interest thereon. These
interest rate(s) will be guaranteed until the next policy
anniversary.
FIXED ACCOUNT VALUE On any Valuation Date, the fixed account value is
equal to:
1. the sum of all net premiums allocated to
the fixed account; plus
2. any amounts transferred to the fixed
account; plus
3. the total interest credited to the fixed
account; plus
4. any pro-rata monthly deductions charged to
the fixed account; minus
5. any amounts transferred from the fixed
account; minus
6. any amounts withdrawn from the fixed
account; minus
7. any amounts loaned from the fixed account.
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S-7004 Page 8
VARIABLE ACCOUNT PROVISIONS
ACCOUNT The variable benefits under this policy are provided
through the KILICO Variable Separate Account 2 which
is referred to in this policy as the Separate Account.
It is a separate investment Account maintained by us
into which a portion of our assets have been allocated
for this policy and may be allocated for certain other
policies.
LIABILITIES OF ACCOUNT The assets equal to the reserves and other liabilities
of the Account will not be charged with liabilities
arising out of any other business we may conduct. The
assets of the Account will be valued on each Valuation
Date.
SUBACCOUNT VALUE On any Valuation Date, a Subaccount Value equals:
1. the Subaccount Value on the previous Valuation Date
multiplied by the Investment Experience Factor for
the end of the current Valuation Period; plus
2. any net premiums received and allocated to the
Subaccount during the current Valuation Period; plus
3. any amounts transferred to the subaccount during
the current Valuation Period; minus
4. the pro-rata portion or the designated amount of
any monthly deduction charged to the Subaccount
when the Valuation Period includes a Monthly
Processing Date; minus
5. any amounts transferred from the Subaccount during
the current Valuation Period; minus
6. any amounts withdrawn from the Subaccount during
the current Valuation Period; minus
7. any amounts borrowed from the Subaccount during the
Valuation Period.
FUND
Each subaccount of the Separate Account will buy shares
of an investment company offered as in investment
alternative under the policy. The Funds are registered
under the Investment Company Act of 1940 as open-end
management investment companies. Each series of a Fund
represents a separate investment portfolio which
corresponds to one of the subaccounts of the Separate
Account.
If we establish additional subaccounts each new
subaccount will invest in a new series of a Fund or in
shares of an investment company. We may also add and/or
substitute other investment companies.
CHANGE OF INVESTMENT ADVISER Unless otherwise required by law or regulation,
OR INVESTMENT OBJECTIVES the investment adviser or any investment
objective may not be changed without our consent.
Any investment objective will not be materially
changed unless a statement of the change is filed
with and approved by the Insurance Department of
the State of Illinois. If required, approval of
or change of any investment objective will be
filed with the insurance department of the state
where this policy is delivered.
RIGHTS RESERVED BY US We reserve the right, subject to compliance with
the law as currently applicable or subsequently
changed:
1. to operate the Separate Account in any form
permitted under the Investment Company Act of
1940 or in any other form permitted by law;
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S-7004 Page 8
2. to take any action necessary to comply with or obtain
and continue any exemptions from the Investment Company
Act of 1940 or to comply with any other applicable law;
3. to transfer any assets in any Subaccount to another
Subaccount or to one or more accounts, or our General
Account; or to add, combine, substitute or remove
subaccounts in the Separate Account;
4. to delete the shares of any of the portfolios of the
Funds or other open-end investment company and to
substitute, for the Funds shares held in any subaccount,
the shares of another portfolio of the Funds or the
shares of another investment company or any other
investment permitted by law; and
5. to change the way we assess charges, but without
increasing the aggregate amount beyond that currently
charged to the Separate Account and the Funds in
connection with the policies.
When required by law, we will obtain your approval of such
changes and the approval of any regulatory authority.
ACCUMULATION Each subaccount has an accumulation unit value. For each
UNIT VALUE subaccount the accumulation unit value was initially set
at the same unit value as the net asset value of a share of
the underlying portfolio. When premiums or other amounts
are allocated to a subaccount, a number of units are
purchased based on subaccount's accumulation unit value 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.
The accumulation unit value for each subsequent Valuation
Period is the investment experience factor for that period
multiplied by the accumulation unit value for the
immediately preceding period. The accumulation unit value
for a Valuation Period applies to each day in such period.
The number of accumulation units will not change as a
result of investment experience.
INVESTMENT Each subaccount has its own Investment Experience Factor.
EXPERIENCE FACTOR The investment experience of the Separate Account is
calculated by applying the Investment Experience Factor
to the Cash Value in each subaccount during a Valuation
Period.
The Investment Experience Factor of a subaccount for a
Valuation Period is determined by dividing 1. by 2. and
subtracting 3. from the result, where:
1. is the net result of:
a. the net asset value per unit of the investment
held in the subaccount determined at the end of
the current Valuation Period; plus
b. the per unit amount of any dividend or capital
gain distributions made by the investments held
in the subaccount if the "ex-dividend" date
occurs during the current Valuation Period; plus
or minus
c. a charge or credit for any taxes reserved for the
current Valuation Period which we determine to
have resulted from the investment operations of
the subaccount;
2. is the net asset value per unit of the investment
held in the subaccount, determined at the end of
the last prior Valuation Period; and
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S-7004 Page 14
3. is the factor representing the sum of the Mortality
and Expense Risk Charge and the Account Management
Charge for each day in the Current Valuation Period.
NONFORFEITURE PROVISIONS
CASH VALUE The Cash Value of this policy is equal to the sum of the
subaccount values plus the fixed account value plus the
loan account value.
MONTHLY DEDUCTION On each Monthly Processing Date, a monthly deduction will
be made equal to the sum of the following:
1. the monthly cost of insurance charge for this
policy.; plus
2. the monthly charge for any supplemental benefits and
riders; plus
3. the monthly administration charge.
The monthly deduction will be deducted from the
subaccounts and the fixed account in proportion to the
value that each account bears to the separate account value
plus the fixed account value.
COST OF INSURANCE The Cost of Insurance is determined on each Monthly
Processing Date and is determined separately for the
Initial Specified Amount and for each increase in
Specified Amount.
The Cost of Insurance equals a. times the result of b.
minus c., where:
a. is the Cost of Insurance rate;
b. the Death Benefit divided by 1.0024663; and
c. is the Cash Value.
COST OF INSURANCE The monthly Cost of Insurance Rate is based on the
RATE Insured Lives sexes, Issue Ages, Attained Ages (in the case
of increases), Rate Classes the net amount at risk
and the duration that the coverage has been in force. The
Cost of Insurance rate will also vary by Policy Year.
Any change in the Cost of Insurance Rates will apply to all
individuals of the same Sex, Issue Age, Attained Age
(in the case of increases) Rate Class and Policy Year. At
no time will such rates ever be greater than those shown in
the Table of Guaranteed Maximum Monthly Cost of Insurance
Rates, shown in the Policy Specifications, multiplied by a
Rate Class percent. These rates are based on the 1980
Commissioner's Standard Ordinary Smoker or Nonsmoker
Mortality Tables, age nearest birthday.
SUPPLEMENTAL The monthly charges for any Supplemental Benefits and
BENEFITS riders are shown in the Policy Specifications.
AND RIDERS
INSUFFICIENT CASH The policy will terminate as provided in the grace period
VALUE provision if the Surrender Value on the date immediately
preceding a Monthly Processing Date is:
1. insufficient to cover the monthly deduction for
the month following such Monthly Processing Date; and
2. no Premium payment or loan payment sufficient to
cover at least three monthly deductions is received
before the end of the grace period.
Any deduction for the Cost of Insurance or other benefits
and riders after termination of insurance will not be
considered a reinstatement of this policy or a waiver by us
of the termination.
<PAGE> 27
S-7004 Page 14
TRANSFER You may transfer all or part of the value of each
PROVISIONS subaccount at any time to another subaccount subject
to the following conditions:
1. Transfers are not permitted until after the Trade
Date. Thereafter, one transfer will be permitted
in each fifteen day period. All transfers which
occur during one business day will be considered
one transfer;
2. The minimum amount which may be transferred is
$500.00 or, if smaller, the remaining value of
this policy's interest in a subaccount;
3. No partial transfer will be made if your remaining
subaccount value will be less than $500.00 after
such transfer unless this policy's interest in such
subaccount is eliminated by means of such transfer.
You may transfer part of the fixed account value
to any subaccount subject to the following additional
conditions:
1. Transfers are not permitted until after the Trade
Date. Thereafter, one transfer will be permitted
in each Policy Year during the thirty days that
follow a policy anniversary;
2. The minimum amount which may be transferred is
$500.00 or, if smaller, the remaining value of this
policy's interest in the fixed account;
3. No partial transfer will be made if your remaining
fixed account value will be less than $500.00 after
such transfer unless this policy's interest in the
fixed account is eliminated by means of such
transfer.
We reserve the right at any time and without prior
notice to any party to terminate, suspend or
modify the reallocation provision described
above. We may defer making reallocations for up
to 7 business days from receipt of such notice.
Any transfer direction must clearly specify the amount
which is to be transferred and the names of the accounts
which are to be affected. A telephone transfer direction
will be honored by us only if a properly executed telephone
transfer authorization is on file with us, and if such
transfer direction complies with the authorization's
conditions and our administrative procedures.
WITHDRAWAL Cash withdrawals may be made any time after the first
PROVISIONS policy year. The Minimum Withdrawal Amount is shown in
the Policy Specifications. You must specify the accounts
from which the withdrawal is to be made.
EFFECT OF A The Cash Value will be reduced by the amount of the
WITHDRAWAL withdrawal. If Death Benefit Option A is in effect,
the Specified Amount will also be reduced by the amount of
the withdrawal.
POLICY LOAN PROVISIONS
POLICY LOANS Policy Loans may be made any time after the first Policy
Year. We will lend up to a maximum loan amount of 90% of
Cash Value. The amount of any new loan may not exceed the
maximum loan amount less Debt on the date the loan is
granted. The minimum amount of a loan is shown in the
Policy Specifications.
On the date the loan is made, an amount equal to the loan
will be transferred from the subaccounts and the fixed
accounts to the loan account held in the General Account
until the loan is repaid. Unless directed otherwise, the
loaned amount will
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S-7004 Page 14
be deducted from the subaccounts and the fixed account in
proportion to the values that each account bears to
the separate account value plus the fixed account value.
Should the Debt equal or exceed the Cash Value, this policy
will terminate 61 days after notice has been mailed to
you at your last known address.
Cash Values derived from premium received by us in the form
of a check or draft will not be available for loans until
30 days after deposit of such check or draft.
POLICY LOAN
INTEREST Interest accrues daily at the adjustable loan interest
rate. The adjustable loan interest rate will not exceed the
lesser of 10% or a published monthly average, currently
Moody's Corporate Bond Yield Average-Monthly Average
Corporates, as published by Moody's Investor's 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 interest rate will be
determined at the beginning of each Policy Year and it
applies to new and outstanding loans. Loan interest is due
on each policy anniversary after the date the loan is
issued. Interest payments are due as shown in the Policy
Specifications. If interest is not paid within (31) days
of its due date it will be added to the amount of the loan
as of its due date.
The initial adjustable loan interest rate is shown in the
Policy Specifications.
We will give 30 days advance written notice before each
policy anniversary of the interest rate for the new
Policy Year.
During the existence of a loan, the General Account Value
will earn interest at the rate charged, reduced by not
more than 1.00% Interest will be earned on a daily basis
and will be added to the General Account Value.
POLICY LOAN
REPAYMENT A Debt may be repaid in full or in part at any time while
this policy is in force. As Debt is paid, the loan
account value equal to the amount of repayment which exceeds
the difference between interest due and interest earned will
be allocated to the subaccounts and the fixed account
according to the then current premium allocation
instructions.
EFFECT OF POLICY
LOANS The Debt on this policy will reduce the amount of Cash Value
payable upon surrender. The Debt on this policy will
also reduce the amount of Cash Value available for
withdrawal. The Death Benefit payable to the beneficiary
upon the death of the Life Insured will also be reduced by
the amount of Debt.
SURRENDER VALUE PROVISIONS
SURRENDER This policy may be surrendered for its Surrender Value upon
written request by you and return of the policy to us
at our home office. The request must be made during the
lifetime of the Life Insured and while this policy is in
force. The return of the policy is required before the
Surrender Value is paid.
Payment of the Surrender Value will discharge us from
our obligations under this policy.
We will pay the Surrender Value of this policy to you on the
Maturity Date if the Life Insured is living and this
policy is in force.
TRANSFER, WITHDRAWAL,
LOAN AND SURRENDER PROCEDURES
A transfer, withdrawal, loan or surrender will be effective
at the end of the Valuation Period following a telephone
transfer direction or receipt by us at our home office of a
written request which contains all required information.
<PAGE> 29
S-7004 Page 14
Accumulation units will be redeemed to the extent necessary
to achieve the dollar amount of the transfer, withdrawal,
loan or surrender. The accumulation units credited in each
subaccount will be reduced by the number of accumulation
units redeemed. The reduction in the number of
accumulation units will be determined on the basis of the
accumulation unit value at the end of the Valuation Period
during which the request containing all required
information is received by us. An amount withdrawn, loaned
or surrendered from the subaccounts will be paid within
seven calendar days after the date proper written election
is received by us unless:
1. the New York Stock Exchange is closed (other than
customary weekend and holiday closings);
2. trading in the markets normally utilized is
restricted, or an emergency exists as
determined by the Securities and Exchange
Commission, so that disposal of investments or
determination of the valuation unit is not
reasonably practicable; or
3. such other periods as defined by the Securities
and Exchange Commission for the protection of owners.
If the withdrawal, loan, or surrender is to be made from
the fixed account, we may defer the payment for a
period permitted by law, but not more than six months after
the written request is received by us. During the period
of deferral, interest at the then current rate will
continue to be credited to the fixed account value.
SETTLEMENT PROVISIONS
SETTLEMENT OPTIONS The policyholder, or beneficiary at the death of the Life
Insured, if no election by the Policyholder is in effect,
may elect to have all of the Surrender Value or Death
Benefit of this policy paid in a lump sum or have the
amount applied to one of the settlement options noted
below. 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 our minimum payment, according to our rules
in effect at the time the settlement option is chosen.
If at any time the payments are less than the minimum
payment, we have the right to increase the period between
payments to quarterly, semi-annual or annual or to make the
payment in one lump sum so that the payment is at least
equal to our minimum payment.
ELECTION OF Election of a settlement option may be made by written
SETTLEMENT OPTION notice to us. The election may be made:
1. by you during the lifetime of the Life Insured;
2. by the beneficiary if no election made by you is
in effect at the time of the death of the Life
Insured; or
3. by the beneficiary if you reserve the right for
the beneficiary to change an election upon the death
of the Life Insured. Such change must be made prior
to the first settlement option payment.
An election in effect during the lifetime of the Life
Insured will be revoked by a subsequent change of
beneficiary or an assignment of this policy, unless provided
otherwise.
<PAGE> 30
S-7004 Page 14
GENERAL
CONDITIONS The Surrender Value or Death Benefit will be used to
determine the monthly benefit payment. The monthly
benefit payment will be based upon the settlement option
elected in accordance with the appropriate Settlement
Option Table.
OPTION 1 - Income for Specified Period - We will pay a
monthly income for the period elected but not
less than 5 years nor more than 30 years.
OPTION 2 - Life Income - We will pay a monthly income to
the payee during the payee's lifetime.
OPTION 3 - Life Income with Installments Guaranteed - We
will pay a monthly income for the Guaranteed
Period elected and thereafter for the remaining
lifetime of the payee. The period elected may
be 5, 10, 15 or 20 years.
OPTION 4 - Joint and Survivor Income - We 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
will 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%.
OTHER
SETTLEMENT
OPTIONS May be available with our consent.
SUPPLEMENTARY
CONTRACT A supplementary contract will be issued to reflect payments
to be made under a settlement option. If settlement is a
result of the death of the Life Insured, its effective
date will be the date of death. Otherwise its effective
date will be the date chosen by you.
DATE OF FIRST
PAYMENT Interest under the settlement options will begin to accrue
on the effective date of the supplementary contract. If
the normal effective date is the 29th, 30th or 31st of the
month, the effective date will be the 28th day of that
month.
EVIDENCE OF AGE,
SEX AND SURVIVAL We may require satisfactory evidence of the age and sex of
any person on whose life the income is to be based and the
continued survival of any person on whose life the income
is based.
BASIS OF
SETTLEMENT
OPTIONS The guaranteed monthly payments are based on an interest
rate of 2.5% 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.
DISBURSEMENT OF
FUNDS UPON DEATH At the death of the payee, any unpaid installments will be
OF PAYEE UNDER paid in one lump sum to the estate of the payee unless
OPTIONS 1 OR 3 otherwise provided in the supplementary agreement.
The lump sum will be equal to the commuted value of the
remaining installments, based upon a minimum interest rate
of not less than 2.5%.
PROTECTION OF
BENEFITS Unless otherwise provided in the supplementary contract the
payee may not: 1. commute; 2. anticipate; 3. assign; 4.
alienate; or 5. otherwise encumber any payment to be
received.
CREDITORS The proceeds of the policy and any payment under an option
will be exempt from the claim of creditors and from legal
process to the extent permitted by law.
<PAGE> 1
[ZURICH KEMPER LIFE LETTERHEAD]
September 3, 1997
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 600049
Dear Sirs:
This opinion is furnished in connection with the filing of an S-6 Registration
Statement ("Registration Statement") by Kemper Investors Life Insurance Company
("KILICO") for the KILICO Variable Separate Account-2 ("Variable Separate
Account"). The Registration Statement covers an indefinite number of units of
interest in the Variable Separate Account. Premiums to be received under
individual and survivorship flexible premium variable life insurance policies
("Policies") offered by KILICO may be allocated by KILICO to the Variable
Separate Account in accordance with the owners' direction with reserves
established by KILICO to support such Policies.
The Policies are designed to provide life insurance protection and are to be
offered in a manner described in the Prospectus which is included in the
Registration Statement.
The Policies will be sold only in jurisdictions authorizing such sales.
I have examined all applicable corporate records of KILICO and such other
documentation and laws as I consider appropriate as a basis of this opinion.
On the basis of such examination, it is my opinion that:
1. KILICO is a corporation duly organized and validly existing under the
laws of the State of Illinois.
2. The Variable Separate Account is an account established and
maintained by KILICO pursuant to the laws of the State of Illinois, under
which income, gains and losses, whether or not realized, from assets
allocated to the Variable Separate Account are, in accordance with the
Policies, credited to or charged against the Variable Separate Account
without regard to other income, gains or losses of KILICO.
<PAGE> 2
Kemper Investors Life Insurance Company
September 3, 1997
Page Two
3. Assets allocated to the Variable Separate Account will be owned by
KILICO. The policies provide that the portion of the assets of the
Variable Separate Account equal to the reserves and other Policy
liabilities with respect to the Variable Separate Account will not be
chargeable with liabilities arising out of any other business KILICO may
conduct.
4. When issued and sold as described above, the Policies will be duly
authorized and will constitute validly issued and binding obligations of
KILICO in accordance with their terms.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the references to my name under the heading "Legal Matters" in
the Prospectus.
Sincerely,
/s/ DEBRA P. REZABEK
Debra P. Rezabek
Senior Vice President, General Counsel
and Corporate Secretary
<PAGE> 1
ACTUARIAL OPINION
This opinion is supplied with the filing of the Registration Statement on
Form S-6 by the KILICO Variable Separate Account-2 (the "Separate Account") and
Kemper Investors Life Insurance Company ("KILICO") covering an indefinite
number of units of interest in the Separate Account. Premiums received under
KILICO's Individual and Survivorship Flexible Premium Variable Life Insurance
Policies will be allocated by KILICO to the Separate Account as described in
the Prospectus included in the Registration Statement.
I am familiar with the provisions of the Policies and the description in
the Prospectus and it is my opinion that the illustrations of death benefits,
surrender values, cash values, and accumulated premiums included in Appendix A
of the Prospectus, based on the assumptions in the illustrations, are
consistent with the provisions of the Policies. The rate structure of the
Policies have not been designed to make the relationship between planned
premiums and benefits, as shown in the illustrations, appear more favorable, in
the case of individual Policies, to prospective nonsmoker preferred males ages
40 and 60, than to nonsmoker preferred males at other ages, or, in the case of
survivorship Policies, to prospective nonsmoker preferred males and females
ages 45 and 40 and 65 and 60, respectively, than to nonsmoker preferred males
and females at other ages. The nonsmoker risk class generally has a more
favorable rate structure than the smoker risk classes. Female risk classes
generally have a more favorable rate structure than male risk classes.
Preferred risk classes generally have a more favorable rate structure than
nonpreferred risk classes.
The current and guaranteed monthly mortality rates used in the
illustrations have not been designed so as to make the relationship between
current and guaranteed rates more favorable for the ages and sexes illustrated
than for a nonsmoker male or female at other ages. The nonsmoker risk classes
generally have lower monthly mortality rates than the smoker risk classes. The
female risk classes generally have lower monthly mortality rates than the male
risk classes. Preferred risk classes generally have lower monthly mortality
rates than nonpreferred risk classes.
I consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to me under the heading "Experts" in the
Prospectus.
/s/STEVEN D. POWELL
----------------------------
Steven D. Powell, FSA
<PAGE> 1
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
September 4, 1997
