<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1998
REGISTRATION STATEMENT 333-35159
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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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:
<TABLE>
<S> <C>
FRANK J. JULIAN, ESQ. JOAN E. BOROS, ESQ.
Kemper Investors Life Insurance Company Jorden Burt Boros
1 Kemper Drive Cicchetti Berenson & Johnson, LLP
Long Grove, Illinois 60049 1025 Thomas Jefferson Street, N.W.
Suite 400 E
Washington, D.C. 20007
</TABLE>
It is proposed that this filing will become effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b), or
[X] 60 days after filing pursuant to paragraph (a)(1), or
[ ] on (date) pursuant to paragraph (b), or
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
E. Title of securities being registered:
Units of Interests in the Separate Account under Flexible Premium
Variable Life Insurance Policies (Individual Life and
Survivorship).
F. Approximate date of proposed public offering:
Continuous.
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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THIS AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-6 (THE "REGISTRATION
STATEMENT") IS BEING FILED PURSUANT TO RULE 485(A) UNDER THE SECURITIES ACT OF
1933, AS AMENDED, TO SUPPLEMENT THE REGISTRATION STATEMENT WITH ANOTHER
PROSPECTUS, AND RELATED EXHIBITS, DESCRIBING A PARTICULAR FORM OF THE FLEXIBLE
PREMIUM VARIABLE LIFE INSURANCE POLICY. THIS AMENDMENT RELATES ONLY TO THE
PROSPECTUS AND EXHIBITS INCLUDED IN THIS AMENDMENT AND DOES NOT OTHERWISE
DELETE, AMEND, OR SUPERSEDE ANY INFORMATION CONTAINED IN THE REGISTRATION
STATEMENT.
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RECONCILIATION AND TIE BETWEEN
ITEMS IN FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. CAPTION IN PROSPECTUS
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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
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
</TABLE>
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<TABLE>
<CAPTION>
ITEM NO. CAPTION IN PROSPECTUS
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<C> <S>
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
</TABLE>
<PAGE> 5
PROSPECTUS-- , 1998
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FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
(INDIVIDUAL LIFE AND SURVIVORSHIP)
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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 Funds and
the portfolios of the Funds (the "Portfolios") currently available under the
Policy are: (a) Evergreen Variable Annuity Trust (Portfolios--Evergreen VA Fund,
Evergreen VA Growth and Income Fund, Evergreen VA Foundation Fund, Evergreen VA
Global Leaders Fund, Evergreen VA Strategic Income Fund, Evergreen VA Aggressive
Growth Fund, Evergreen VA Small Cap Equity Income Fund, and Evergreen VA
International Growth Fund); (b) Goldman Sachs Variable Insurance Trust
(Portfolios--Goldman Sachs International Equity Fund and Goldman Sachs Global
Income Fund); (c) Morgan Stanley Universal Funds, Inc. (Portfolios--High Yield
Portfolio and U.S. Real Estate Portfolio); (d) Fidelity's Variable Insurance
Products Fund ("VIP") (Portfolios--Money Market Portfolio and Overseas
Portfolio); and (e) Fidelity's Variable Insurance Products Fund II ("VIP II")
(Portfolios--Contrafund Portfolio and Index 500 Portfolio). 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 fixed rate declared periodically by KILICO that is guaranteed
never to be less than an effective annual yield of 3%.
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 Option A, the Death Benefit is the Specified
Amount stated in the Policy Specifications. Under Option B, the Death Benefit is
the Specified Amount stated in the Policy Specifications plus the Cash Value.
Second, the Owner will choose the Death Benefit qualification test, which is the
method of qualifying the Policy as a life insurance contract for purposes of
Federal tax law. The Owner may not change the Death Benefit qualification test
once selected, but may, subject to certain restrictions, change from one Death
Benefit option to the other after the Policy has been issued. KILICO guarantees
that the Death Benefit payable for a Policy will never be less than the Death
Benefit stated in the Policy Specifications, less Debt, as long as the Policy is
in force. KILICO reserves the right to limit the Death Benefit under certain
circumstances. There is no guaranteed Cash Value. If the Surrender Value is
insufficient to cover the charges under the Policy, the Policy will lapse.
The Owner may examine the Policy and return it to KILICO for a refund
during the Free-Look Period.
It may not be advantageous to purchase a Policy as a replacement for
another type of life insurance policy, or to obtain additional insurance
protection if a flexible premium variable life insurance policy is already
owned.
This Prospectus generally describes only that portion of the Policy
allocated to the Separate Account. For a brief summary of the Fixed Account
option, see "Fixed Account Option."
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY THE
CURRENT PROSPECTUSES FOR THE APPLICABLE UNDERLYING FUNDS. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS AND OTHER INFORMATION ABOUT THE SEPARATE ACCOUNT
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CAN
BE FOUND AT THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE
(HTTP://WWW.SEC.GOV).
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 SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
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<TABLE>
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PAGE
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DEFINITIONS................................................. 3
SUMMARY..................................................... 5
KILICO AND THE SEPARATE ACCOUNT............................. 11
THE FUNDS................................................... 11
FIXED ACCOUNT OPTION........................................ 14
THE POLICY.................................................. 15
POLICY BENEFITS AND RIGHTS.................................. 17
CHARGES AND DEDUCTIONS...................................... 23
GENERAL PROVISIONS.......................................... 25
DOLLAR COST AVERAGING....................................... 28
SYSTEMATIC WITHDRAWAL PLAN.................................. 28
DISTRIBUTION OF POLICIES.................................... 29
FEDERAL TAX MATTERS......................................... 29
LEGAL CONSIDERATIONS........................................ 33
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................ 33
VOTING INTERESTS............................................ 33
STATE REGULATION OF KILICO.................................. 34
DIRECTORS AND OFFICERS OF KILICO............................ 34
LEGAL MATTERS............................................... 36
LEGAL PROCEEDINGS........................................... 36
YEAR 2000 COMPLIANCE........................................ 36
EXPERTS..................................................... 37
REGISTRATION STATEMENT...................................... 37
FINANCIAL STATEMENTS........................................ 37
CHANGE OF ACCOUNTANTS....................................... 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... 38
REPORT OF INDEPENDENT AUDITORS.............................. 39
APPENDIX A--TABLE OF DEATH BENEFIT FACTORS.................. A-1
</TABLE>
2
<PAGE> 7
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.
ACCUMULATION UNIT VALUE--The value of a Subaccount measured by that
Subaccount's Accumulation Units.
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. The Owner may designate more than one
Beneficiary.
CASH VALUE--The sum of the value of Policy assets in the Separate Account,
Fixed Account and Loan Account.
DATE OF RECEIPT--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., Central Time) on any date when the New York Stock
Exchange is open for trading. Otherwise, it will be deemed to be received on the
next such day.
DEATH BENEFIT--The amount payable upon the death of the Insured (the last
surviving Insured in the case of a Survivorship Policy) while the Policy is in
force.
DEBT--The principal of any outstanding loan, plus 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/lives is/are covered by the Policy and
who is/are named in the Policy Specifications.
ISSUE DATE--The date shown as such 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. 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.
NET PREMIUM--The premium paid less the charges deducted from premium as
shown in the Policy Specifications.
OWNER--The person designated on the application who may exercise all rights
and privileges under the Policy.
PLANNED PREMIUM--The scheduled premium specified by the Owner in the
application.
3
<PAGE> 8
POLICY DATE--The date shown as such in the Policy Specifications. The
Policy Date is the date that insurance coverage takes effect subject to any
principles of conditional receipt under applicable law and is the date used to
determine Policy Years and Monthly Processing Dates.
POLICY LOAN--The amount of the Cash Value which the Owner has borrowed as a
loan. An Owner may borrow up to 90% of the Policy's Cash Value.
POLICY YEAR--Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
SEPARATE ACCOUNT--The KILICO Variable Separate Account-2, which was
established under Illinois law as a separate investment account of KILICO.
SEPARATE ACCOUNT VALUE--The portion of the Cash Value in the Subaccount(s).
SPECIFIED AMOUNT--The amount of insurance 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 Cash Value on the date of surrender minus 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 Issue Date.
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.
4
<PAGE> 9
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," "The
Policy--Allocation of Premiums and Separate Account Value," "Charges and
Deductions," and "Policy Benefits and Rights.")
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.")
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 Premium and Cash Value allocated to
the Separate Account. KILICO does not guarantee a minimum Separate Account
Value. (See "Policy Benefits and Rights--Cash Value.")
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.")
Policy Loans. An Owner may borrow up to 90% of the Policy's Cash Value.
(See "Policy Benefits and Rights--Policy Loans.") 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.")
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.")
Death Benefit. As long as the Policy remains in force, the Policy provides
for payment of a Death Benefit upon the death of the Insured (or upon the death
of the last surviving Insured if the Policy is issued as a Survivorship Policy).
The Owner will make two elections to determine the Death Benefit under the
Policy. First, the Owner will choose one of two Death Benefit options. Under
Option A, the Death Benefit is the Specified Amount stated in the Policy
Specifications. Under Option B, the Death Benefit is the Specified Amount stated
in the Policy Specifications plus the Cash Value. In either case, the Death
Benefit will not be less than a specified multiple of the Cash Value. KILICO
reserves the right to limit the Death Benefit under certain circumstances.
Second, the Owner will choose the Death Benefit qualification test, which is the
method for qualifying the Policy as a life insurance contract for purposes of
Federal tax law. The Owner may not change the Death Benefit qualification test
once selected, but may, subject to certain restrictions, change the Death
Benefit from Option A
5
<PAGE> 10
to 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
Benefit.")
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.")
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
sixteen Subaccounts of the Separate Account and the Fixed Account. The
Subaccounts each invest in shares of a designated Portfolio of Evergreen
Variable Annuity Trust, Goldman Sachs Variable Insurance Trust, Morgan Stanley
Universal Funds, Inc., Fidelity's Variable Insurance Products Fund, or
Fidelity's Variable Insurance Products Fund II.
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 Net Premium will be allocated to the Fidelity
VIP Money Market Subaccount. On the Trade Date, which is generally thirty days
from the Issue Date, the Separate Account Value in the Fidelity VIP 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 Net Premium 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.")
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 "The Policy--Allocation of
Premiums and Separate Account Value.")
THE FUNDS
The following Portfolios of Evergreen Variable Annuity Trust are currently
available for investment by the Separate Account under the Policy:
Evergreen VA Fund, Evergreen VA Growth and Income Fund, Evergreen VA
Foundation Fund, Evergreen VA Global Leaders Fund, Evergreen VA Strategic Income
Fund, Evergreen VA Aggressive Growth Fund, Evergreen VA Small Cap Equity Income
Fund, and Evergreen VA International Growth Fund.
The following Portfolios of Goldman Sachs Variable Insurance Trust are
currently available for investment by the Separate Account under the Policy:
Goldman Sachs International Equity Fund and Goldman Sachs Global Income
Fund.
The following Portfolios of Morgan Stanley Universal Funds, Inc. are
currently available for investment by the Separate Account under the Policy:
High Yield Portfolio and U.S. Real Estate Portfolio.
The following Portfolios of Fidelity's Variable Insurance Products Fund are
currently available for investment by the Separate Account under the Policy:
Money Market Portfolio and Overseas Portfolio.
The following Portfolios of Fidelity's Variable Insurance Products Fund II
are currently available for investment by the Separate Account under the Policy:
Contrafund Portfolio and Index 500 Portfolio.
6
<PAGE> 11
For a more detailed description of the Funds, see "The Funds," and 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
Net Premium. State and local premium tax rates generally range from .50% to 5%.
In addition, a charge of 1% of each premium payment (commonly referred to as a
deferred acquisition cost tax or DAC Tax) 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.")
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 "Charges and Deductions--Other Charges" and "Federal Tax Matters.")
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 "Charges and
Deductions--Mortality and Expense Risk Charge.")
KILICO also deducts a Monthly Administrative Charge and an Account
Maintenance Charge 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 Charge 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.")
The Subaccounts purchase shares of the Funds. Each Portfolio of the Funds
incurs annual fund operating expenses which consist of management fees and other
expenses. See "Charges and Deductions--Other Charges" in this Prospectus and the
prospectuses for the Funds for the other expenses for each Portfolio and for
additional information about the fees and expenses of the Funds.
The Policy is available for distribution through entities or persons that
provide separate trust or consultative services for which they charge a fee. The
fees are not part of the Policy and KILICO is not responsible for the payment of
the fees. Under special circumstances with KILICO's consent, the Policy may be
distributed through entities or persons that do not provide such additional
services. Although KILICO does not charge any explicit sales load, it will
compensate broker-dealers for the sale of the Policies. Expenses incurred in the
distribution of the 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 Federal
tax law, 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.
Generally, distributions are not included in income until the amount of the
distributions exceed the premiums paid for the Policy. If the Policy is treated
as a modified endowment contract (MEC), a Policy Loan will also be treated as a
distribution. Generally, distributions from a MEC (including loans) are included
in income to the extent the Cash Value exceeds premiums paid for the Policy. A
change of Owner, an assignment, a Policy Loan or a surrender of the Policy may
have tax consequences.
The Death Benefit 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.")
7
<PAGE> 12
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.")
ILLUSTRATIONS OF CASH VALUE, SURRENDER VALUE, DEATH BENEFIT
KILICO will furnish, upon request and at no charge, a personalized
illustration reflecting the proposed Insured's age, sex, and underwriting
classification. Where applicable, KILICO will also furnish upon request an
illustration for a Policy that is not affected by the sex of the Insured.
Personalized illustrations provided by KILICO upon request will be based, as
appropriate, on the methodology and format of the hypothetical illustrations
that KILICO has included in the registration statement for the Policy. Tables in
Exhibit 10. to the registration statement illustrate the Cash Value, Surrender
Value and Death Benefit based upon certain hypothetical assumed rates of return
for the Separate Account and the charges deducted under the Policy.
FEES AND EXPENSES
The following tables are designed to help you understand the various fees
and expenses that you will bear, directly or indirectly, as an Owner. The first
table describes the Policy charges and deductions you will directly bear under
the Policy. The second table describes the fees and expenses of the Portfolios
that you will bear indirectly when you purchase a Policy. (See "Charges and
Deductions.")
POLICY CHARGES AND DEDUCTIONS
<TABLE>
<S> <C> <C>
Cost of Insurance Charge(1)................ CURRENT GUARANTEED
Individual Policy Ranges from $0.01263 per $1,000 Ranges from $0.05669 per $1,000
of net amount at risk to of net amount at risk up to
$83.33 per $1,000 of net $83.33 per $1,000 of net
amount at risk(2) amount at risk(2)
Survivorship Ranges from $0.00833 per $1,000 Ranges from $0.01 per $1,000 of
Policy of net amount at risk to net amount at risk up to
$83.33 per $1,000 of net $83.33 per $1,000 of net
amount at risk(2) amount at risk(2)
Monthly Administrative Charge.............. $20 per month during Policy Year 1 and for 12 months following an
increase in Specified Amount(3)
$5 per month thereafter
Premium Tax Charge(4)...................... .50% to 5% of each premium payment
DAC Tax Charge............................. 1% of each premium payment
Annual Separate Account Charges(5)
Mortality and Expense Risk Charge.......... CUMULATIVE NET MORTALITY AND EXPENSE
PREMIUM PAID(6) RISK CHARGE
-------------- --------------------
Up to $100,000 0.65%
$100,000-$250,000 0.50%
$250,001-$500,000 0.40%
$500,001 and higher 0.30%
Account Maintenance Charge............... 0.45%
Federal Income Tax Charge(7)............. None
Transfer Charge............................ None
Sales Charge or Surrender Charge........... None
</TABLE>
- ---------------
(1) The current cost of insurance charge will never exceed the guaranteed cost
of insurance charge shown in the Policy Specifications. The net amount at
risk is the difference between the Death Benefit divided by 1.0024663 and
the Cash Value. (See "Charges and Deductions--Cost of Insurance Charge.")
8
<PAGE> 13
(2) Current and guaranteed cost of insurance charges 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.
(3) Additional evidence of insurability satisfactory to KILICO will be required
for an increase in Specified Amount. (See "Policy Benefits and
Rights--Changes in Specified Amount.")
(4) KILICO deducts a premium tax charge equal to the actual state tax rate from
each premium payment. State and local premium tax rates range from .50% to
5%. KILICO expects to pay an average state premium tax rate of approximately
2.18%, but the actual premium tax attributable to a Policy may be more or
less. (See "Charges and Deductions--Deductions from Premiums.")
(5) Deducted daily and shown as a percentage of average net assets.
(6) For the purpose of determining the amount of cumulative Net Premium paid in
connection with any Policy, KILICO reserves the right to aggregate
cumulative Net Premium 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.
(7) KILICO does not currently assess a charge for Federal, state or other taxes
that may be attributable to the Separate Account, though it reserves the
right to do so in the future. (See "Charges and Deductions--Other Charges.")
PORTFOLIO EXPENSES AFTER WAIVERS/REIMBURSEMENTS
(as a percentage of net assets for the period ended December 31, 1997)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER OPERATING
PORTFOLIO FEES EXPENSES EXPENSES
--------- ---------- -------- ---------
<S> <C> <C> <C>
Evergreen VA Fund(1)........................................ 0.64% 0.36% 1.00%
Evergreen VA Growth and Income Fund()(1).................... 0.72% 0.28% 1.00%
Evergreen VA Foundation Fund()(1)........................... 0.73% 0.27% 1.00%
Evergreen VA Global Leaders Fund()(1)....................... 0.00% 1.00% 1.00%
Evergreen VA Strategic Income Fund(1)....................... 0.00% 1.00% 1.00%
Evergreen VA Aggressive Growth Fund(1)...................... 0.00% 1.00% 1.00%
Evergreen VA Small Cap Equity Income Fund(2)................ 0.00% 1.00% 1.00%
Evergreen VA International Growth Fund(2)................... 0.00% 1.00% 1.00%
Goldman Sachs International Equity Fund(3).................. 1.00% 0.25% 1.25%
Goldman Sachs Global Income Fund(3)......................... 0.90% 0.15% 1.05%
Morgan Stanley High Yield Portfolio(4)...................... 0.00% 0.80% 0.80%
Morgan Stanley U.S. Real Estate Portfolio(4)................ 0.00% 1.10% 1.10%
Fidelity's VIP Money Market Portfolio....................... 0.21% 0.10% 0.31%
Fidelity's VIP Overseas Portfolio(5)........................ 0.75% 0.17% 0.92%
Fidelity's VIP II Contrafund Portfolio(5)................... 0.60% 0.11% 0.71%
Fidelity's VIP II Index 500 Portfolio(6).................... 0.24% 0.04% 0.28%
</TABLE>
- ---------------
(1) Reflects an agreement to voluntarily limit aggregate operating expenses
(including investment advisory expenses, but excluding interest, brokerage
commissions and extraordinary expenses) to 1.00% of average daily net
assets. Absent such an agreement, the actual Management Fees, Other Expenses
and Total Operating Expenses for the period from January 1, 1997 to December
31, 1997 were as follows:
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER OPERATING
FEES EXPENSES EXPENSES
---------- -------- ---------
<S> <C> <C> <C>
Evergreen VA Fund......................................... 0.95% 0.36% 1.31%
Evergreen VA Growth and Income Fund....................... 0.95% 0.28% 1.23%
Evergreen VA Foundation Fund.............................. 0.83% 0.27% 1.10%
Evergreen VA Global Leaders Fund.......................... 0.95% 1.94% 2.89%
Evergreen VA Strategic Income Fund........................ 0.58% 2.09% 2.67%
Evergreen VA Aggressive Growth Fund....................... 0.60% 2.42% 3.02%
</TABLE>
(2) Expenses have been estimated for the current fiscal year.
9
<PAGE> 14
(3) Expenses are estimated for the current fiscal year. Each Portfolio's
investment adviser has voluntarily agreed to reduce or limit certain Other
Expenses (excluding management fees, taxes, interest and brokerage fees, and
litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed . 25% and .15%, respectively, of average daily net
assets of Goldman Sachs International Equity Fund and Goldman Sachs Global
Income Fund. Without such reduction, it is estimated that Other Expenses
would have been 2.12% and 3.27%, respectively, on an annualized basis.
(4) Each Portfolio's expenses were voluntarily waived and reimbursed by its
investment adviser. Absent waiver and/or reimbursement, Management Fees,
Other Expenses, and Total Operating Expenses would have been 0.50%, 1.18%,
and 1.68% for High Yield Portfolio for the annualized period January 2, 1997
through December 31, 1997, and 0.80%, 1.52%, and 2.32 % for U.S. Real Estate
Portfolio for the annualized period March 3, 1997 through December 31, 1997.
(5) A portion of the brokerage commissions that certain Portfolios pay was used
to reduce expenses. In addition, certain Portfolios have entered into
arrangements with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, Total Operating Expenses would have been 0.90% for VIP
Overseas Portfolio and 0.68% for VIP II Contrafund Portfolio.
(6) The investment adviser agreed to reimburse a portion of Index 500
Portfolio's expenses during the period. Without such reimbursement,
Management Fees, Other Expenses and Total Operating Expenses would have been
0.27%, 0.13%, and 0.40%, respectively.
10
<PAGE> 15
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 non-operating holding company.
Kemper Corporation is a wholly-owned subsidiary of Zurich Holding Company of
America ("ZHCA"), which is a wholly-owned subsidiary of Zurich Insurance Company
("Zurich"). 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 Premium under the Policy. In addition, the
Separate Account may receive and invest Net Premium 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 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 (the "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.
Sixteen Subaccounts are available under the Policy. Each Subaccount invests
exclusively in shares of one of the corresponding Portfolios of the Funds. The
Separate Account also includes other subaccounts which are not available under
the Policy. 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. Additional Subaccounts may be
added in the future. Not all Subaccounts may be available in all jurisdictions
or under all Policies.
THE FUNDS
The Separate Account invests in shares of Evergreen Variable Annuity Trust,
Goldman Sachs Variable Insurance Trust, Morgan Stanley Universal Funds, Inc.,
Fidelity's Variable Insurance Products Fund, and Fidelity's Variable Insurance
Products Fund II, 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 Annuity Trust and Morgan
Stanley Universal Funds, Inc., 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. 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.
11
<PAGE> 16
EVERGREEN VARIABLE ANNUITY TRUST
The Portfolios of the Evergreen Variable Annuity Trust in which the
Separate Account invests are summarized below:
Evergreen VA Fund: Seeks to achieve capital appreciation by investing in
the securities of little-known or relatively small companies, or companies
undergoing changes which the Fund's investment adviser believes will have
favorable consequences. Income will not be a factor in the selection of
portfolio investments.
Evergreen VA Growth and Income Fund: Seeks to achieve a return composed of
capital appreciation in the value of its shares and current income. The Fund
will attempt to meet its objective by investing in the securities of companies
which are undervalued in the marketplace relative to those companies' assets,
breakup value, earnings, or potential earnings growth.
Evergreen VA Foundation Fund: Seeks, in order of priority, reasonable
income, conservation of capital and capital appreciation. The Fund invests
principally in income-producing common and preferred stocks, securities
convertible into or exchangeable for common stocks and fixed income securities.
Evergreen VA Global Leaders Fund: Seeks to achieve capital appreciation by
investing primarily in a diversified portfolio of U.S. and non-U.S. equity
securities of companies located in the world's major industrialized countries.
The Fund's investment adviser will attempt to screen the largest companies in
the world's major industrialized countries and cause the Fund to invest, in the
opinion of the Fund's investment adviser, in the 100 best based on certain
qualitative and quantitative criteria.
Evergreen VA Strategic Income Fund: Seeks high current income from interest
on debt securities and, secondarily, considers potential for growth of capital
in selecting securities.
Evergreen VA Aggressive Growth Fund: Seeks long-term capital appreciation
by investing primarily in common stocks of emerging growth companies and in
larger, more well established companies, all of which are viewed by the Fund's
investment adviser as having above average appreciation potential.
Evergreen VA Small Cap Equity Income Fund: Seeks to achieve a return
consisting of current income and capital appreciation in the value of its
shares. The Fund invests in common and preferred stocks, securities convertible
into or exchangeable for common stocks and fixed income securities. In
attempting to achieve its objective, the Fund invests primarily in companies
with total market capitalizations of less than $500 million.
Evergreen VA International Growth Fund: Seeks long-term growth of capital
and, as a secondary objective, seeks modest income. The Fund invests primarily
in equity securities issued by well-established, quality companies located in
countries with developed markets.
Evergreen Asset Management Corp. is the investment adviser to Evergreen VA
Fund, Evergreen VA Growth and Income Fund, Evergreen VA Foundation Fund,
Evergreen VA Global Leaders Fund, and Evergreen VA Small Cap Equity Income Fund.
Keystone Investment Management Company is the investment adviser to Evergreen VA
Strategic Income Fund and Evergreen VA International Growth Fund. The Capital
Management Group of First Union National Bank is the investment adviser to
Evergreen VA Aggressive Growth Fund. Lieber & Company serves as sub-adviser to
Evergreen VA Fund, Evergreen VA Growth and Income Fund, Evergreen VA Foundation
Fund, Evergreen VA Global Leaders Fund, and Evergreen VA Small Cap Equity Income
Fund.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
The Portfolios of the Goldman Sachs Variable Insurance Trust in which the
Separate Account invests are summarized below:
Goldman Sachs International Equity Fund: Seeks long-term capital
appreciation through investments in equity securities of companies that are
organized outside the U.S. or whose securities are principally traded outside
the U.S.
Goldman Sachs Global Income Fund: Seeks a high total return, emphasizing
current income and, to a lesser extent, providing opportunities for capital
appreciation by investing primarily in a portfolio of high quality fixed-income
securities of U.S. and foreign issuers and foreign currencies.
Goldman Sachs Asset Management International, an affiliate of Goldman,
Sachs & Co., serves as investment adviser to the Goldman Sachs International
Equity Fund and the Goldman Sachs Global Income Fund.
12
<PAGE> 17
MORGAN STANLEY UNIVERSAL FUNDS, INC.
The Portfolios of the Morgan Stanley Universal Funds, Inc. in which the
Separate Account invests are summarized below:
High Yield Portfolio: Seeks above-average total return over a market cycle
of three to five years by investing primarily in a diversified portfolio of high
yield securities, including corporate bonds and other fixed income securities
and derivatives. High yield securities are rated below investment grade and are
commonly referred to as "junk bonds." The Portfolio's average weighted maturity
will ordinarily exceed five years and will usually be between five and fifteen
years.
U.S. Real Estate Portfolio: Seeks above-average current income and
long-term capital appreciation by investing primarily in equity securities of
U.S. and non-U.S. companies principally engaged in the U.S. real estate
industry, including real estate investment trusts ("REITs").
Miller Anderson & Sherrerd, LLP serves as investment adviser to the High
Yield Portfolio. Morgan Stanley Asset Management Inc. serves as investment
adviser to the U.S. Real Estate Portfolio.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
The Portfolios of Fidelity's Variable Insurance Products Fund in which the
Separate Account invests are summarized below:
Money Market Portfolio: Seeks to earn a high level of current income while
maintaining a stable $1.00 price by investing in high quality, short-term
securities. Neither the Portfolio nor its yield is insured or guaranteed by the
U.S. Government.
Overseas Portfolio: Seeks long-term growth of capital by investing
primarily in foreign securities. The Portfolio increases diversification by
spreading investments among securities of both developed and emerging markets,
different countries and geographic regions.
Fidelity Management & Research Company ("FMR") serves as the investment
adviser to Money Market Portfolio and Overseas Portfolio. Fidelity Investments
Money Management, Inc., a subsidiary of FMR, chooses investments for Money
Market Portfolio. Fidelity Management & Research (U.K.) Inc. ("FMR U.K."), in
London, England, Fidelity Management & Research (Far East) Inc. ("FMR Far
East"), in Tokyo, Japan, Fidelity International Investment Advisors, in
Pembroke, Bermuda, and Fidelity International Investment Advisors (U.K.) Limited
("FIIA(U.K.)L"), in London, England, serve as sub-advisers to Overseas
Portfolio.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
The Portfolios of Fidelity's Variable Insurance Products Fund II in which
the Separate Account invests are summarized below:
Contrafund Portfolio: Seeks capital appreciation by investing in securities
of companies whose value FMR believes is not fully recognized by the public. The
Portfolio normally invests primarily in common stocks and securities convertible
into common stocks, but it has the flexibility to invest in other types of
securities.
Index 500 Portfolio: Seeks to provide investment results that correspond to
the total return of common stocks publicly traded in the United States. To
achieve this objective, the Portfolio attempts to duplicate the composition and
total return of the Standard & Poor's Composite Index of 500 Stocks (commonly
referred to as the "S&P 500").
FMR serves as the investment adviser to Contrafund Portfolio and Index 500
Portfolio. FMR U.K., FMR Far East, and FIIA(U.K.)L serve as sub-advisers to
Contrafund Portfolio. Bankers Trust Company, a wholly-owned subsidiary of
Bankers Trust New York Corporation, currently serves as the sub-adviser to Index
500 Portfolio.
There is no assurance that any of the Portfolios of Evergreen Variable
Annuity Trust, Goldman Sachs Variable Insurance Trust, Morgan Stanley Universal
Funds, Inc., Fidelity's Variable Insurance Products Fund, or Fidelity's Variable
Insurance Products Fund II 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. (See also "Charges and Deductions--Other
Charges").
13
<PAGE> 18
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
Net Premium allocated by 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 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
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% per annum. KILICO, at its discretion,
may credit interest in excess of 3% per annum. 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 Premium 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 Premium 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.
14
<PAGE> 19
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 1 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 or subsequently changed. 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 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 minimum premium payments 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 of life insurance contract subject to
different tax treatment than conventional life insurance contracts for certain
pre-death distributions. (See "Federal Tax Matters.") 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 "The Policy--Policy
Termination, 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 "The
Policy--Policy Termination, Lapse and Reinstatement.")
Certain charges will be deducted from each premium payment. (See "Charges
and Deductions.") The remainder of the premium is Net Premium and will be
allocated as described below under "The Policy--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
Fidelity VIP 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 Termination, 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 Net Premium will
be allocated to the Fidelity VIP Money Market Subaccount. The Separate Account
Value will remain in the Fidelity VIP Money Market Subaccount until the Trade
Date. On the Trade Date, the Separate Account Value in the Fidelity VIP Money
Market Subaccount will be allocated among the Subaccounts and the
15
<PAGE> 20
Fixed Account as elected by the Owner in the application for the Policy. The
initial Net Premium 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 Net Premium 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) Subaccounts 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 Net Premium is allocated to
the Fidelity VIP 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.
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.
Transfers will be based on the Accumulation Unit Values next determined
following receipt of valid, complete transfer instructions by KILICO. 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 unless such remaining
amount is zero. These minimums may be waived for reallocations under established
third party asset allocation programs. 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 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 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 TERMINATION, LAPSE AND REINSTATEMENT
Termination and Lapse. All coverage under the Policy terminates when any
one of the following events occurs: (1) the Owner requests that the coverage be
terminated; (2) the Insured dies (last surviving Insured in the case of a
Survivorship Policy); (3) the Policy matures; or (4) a lapse occurs. 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.")
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<PAGE> 21
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
Internal Revenue 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.
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.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT
While the Policy is in force (see "Policy Termination, Lapse and
Reinstatement--Termination and Lapse," above), a Death Benefit will be paid upon
the death of the Insured (the last surviving Insured in the case of a
Survivorship Policy). The Death Benefit is based on the Death Benefit option,
the Death Benefit qualification test, the Specified Amount and the Table of
Death Benefit Factors (see Appendix A) 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 offered under the Policy--Option A or Option B. 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 in the application and is
stated in the Policy Specifications. The minimum Specified Amount permitted
under an Individual Policy is $50,000 (or a lower amount which is based upon a
single premium payment and which satisfies the requirements of applicable tax
law to qualify the Policy as a life insurance contract) and the minimum
Specified Amount permitted under a Survivorship Policy is $1,000,000.
KILICO reserves the right in circumstances where it cannot obtain
reinsurance coverage to reduce the Death Benefit arising from application of the
required Death Benefit Factors. The reductions will be effected by requiring
partial withdrawals of Cash Value. Such right will be exercised consistent with
administrative procedures to insure that the right is exercised in a
non-discriminatory manner. Such partial withdrawals may be taxable in whole or
in part to the Owners. (See "Federal Tax Matters.")
Option A. Under Option A, for Policies issued pursuant to the cash value
accumulation test, as described below, the Death Benefit will be equal to the
Specified Amount or, if greater, the Cash Value (determined as of the end of the
Valuation Period during which the Insured or last surviving Insured dies)
multiplied by the Death Benefit Factor. For Policies issued pursuant to the
guideline premium test, as described below, the Death Benefit
17
<PAGE> 22
will be equal to the Specified Amount or, if greater, the Cash Value (determined
as of the end of the Valuation Period during which the Insured or last surviving
Insured dies) multiplied by the appropriate Death Benefit Factor. The Death
Benefit Factors under both tests vary according to the age(s) of the Insured(s)
and will be at least equal to those required in Section 7702 of the Internal
Revenue Code. For example, under the guideline premium test, the Death Benefit
Factor is 250% for an Insured at Age 40 or under and it declines for older
Insureds. A table showing the Death Benefit Factors under the guideline premium
test is in Appendix A to this Prospectus and in the Policy.
Option B. Under Option B, the Death Benefit will be equal to the Specified
Amount plus the Cash Value (determined as of the end of the Valuation Period
during which the Insured or last surviving Insured dies). For Policies issued
pursuant to the cash value accumulation test, the Death Benefit will not be less
that the Cash Value (determined as of the end of the Valuation Period during
which the Insured or last surviving Insured dies) multiplied by the appropriate
Death Benefit Factor. For Policies issued pursuant to the guideline premium
test, the Death Benefit will not be less than the Cash Value multiplied by the
appropriate Death Benefit Factor. The Death Benefit Factors are the same as
those used in connection with Option A and are shown in Appendix A to this
Prospectus and in the Policy. 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 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 the Death Benefit 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 Amount and
Cash Value. The Individual Policy examples assume a male, non-tobacco Insured
who is Age 50 and Age 70, respectively, at the time of death and that there is
no outstanding Debt. The Survivorship Policy examples assume one male
non-tobacco Insured Age 55 and one female non-tobacco Insured Age 50, and one
male non-tobacco Insured Age 75 and one female non-tobacco Insured Age 70. 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.
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<PAGE> 23
INDIVIDUAL POLICY--AGE 50
<TABLE>
<CAPTION>
CASH VALUE GUIDELINE
ACCUMULATION PREMIUM
TEST TEST
------------ ---------
<S> <C> <C>
Specified Amount............................................ $250,000 $250,000
Cash Value.................................................. $150,000 $150,000
Death Benefit (corridor) Factor............................. 262.251% 185%
Death Benefit Option A...................................... $393,377 $277,500
Death Benefit Option B...................................... $400,000 $400,000
</TABLE>
INDIVIDUAL POLICY--AGE 70
<TABLE>
<CAPTION>
CASH VALUE GUIDELINE
ACCUMULATION PREMIUM
TEST TEST
------------ ----------
<S> <C> <C>
Specified Amount.......................................... $1,000,000 $1,000,000
Cash Value................................................ $ 700,000 $ 700,000
Death Benefit (corridor) Factor........................... 151.548% 115%
Death Benefit Option A.................................... $1,060,836 $1,000,000
Death Benefit Option B.................................... $1,700,000 $1,700,000
</TABLE>
SURVIVORSHIP POLICY--AGES MALE 55 AND FEMALE 50
<TABLE>
<CAPTION>
CASH VALUE GUIDELINE
ACCUMULATION PREMIUM
TEST TEST
------------ ----------
<S> <C> <C>
Specified Amount.......................................... $1,000,000 $1,000,000
Cash Value................................................ $ 500,000 $ 500,000
Death Benefit (corridor) Factor........................... 336.783% 185%
Death Benefit Option A.................................... $1,683,915 $1,000,000
Death Benefit Option B.................................... $1,683,915 $1,500,000
</TABLE>
SURVIVORSHIP POLICY--AGES MALE 75 AND FEMALE 70
<TABLE>
<CAPTION>
CASH VALUE GUIDELINE
ACCUMULATION PREMIUM
TEST TEST
------------ ----------
<S> <C> <C>
Specified Amount.......................................... $2,000,000 $2,000,000
Cash Value................................................ $1,500,000 $1,500,000
Death Benefit (corridor) Factor........................... 169.985% 115%
Death Benefit Option A.................................... $2,549,775 $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.
The Death Benefit 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. Due proof of death is required
within 60 days of death or as soon thereafter as is possible. Written proof of
death must be in the form of a certified copy of the death certificate, a
physician's statement or any other proof satisfactory to KILICO. Payments may be
postponed in certain circumstances. (See "General Provisions--Postponement of
Payments").
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<PAGE> 24
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.
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 Factor
under either Option A or Option 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. Decreases
in the Death Benefit may have tax consequences. (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 Owner the amount of such excess above the premium limitations. Some
or all of the amount refunded may be subject to tax. (See "Federal Tax
Matters.")
KILICO reserves the right to disallow a requested decrease, and will not
permit a requested decrease if, among other reasons, (1) compliance with the
guideline premium limitations under tax law resulting from the requested
decrease would result in immediate termination of the Policy, or (2) to effect
the requested decrease, 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.
20
<PAGE> 25
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 Net 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 Premium 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.
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 Premium 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.
21
<PAGE> 26
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 investments 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. 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.") If the Debt equals
or exceeds the Cash Value, the Policy will terminate 61 days after notice is
sent to the Owner, unless payment sufficient to keep the Policy in force for
three months is received by KILICO at its Home Office.
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 loan 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 within 31 days after it is due will be
added, as of the due date, 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 will 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
22
<PAGE> 27
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 payment sufficient to
keep the Policy in force for three months is made to KILICO within 61 days of
the date such notice is sent to the Owner. (See "The Policy--Policy Termination,
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 Policy 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
Policy Loan will be treated as a distribution and will be includible in income
to the extent the Cash Value exceeds the premiums paid for the Policy.
Therefore, a Policy Loan may be subject to Federal income tax and a 10% tax
penalty may also apply. (See "Federal Tax Matters.")
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 generally 30
days (45 days in North Carolina) 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
Net Premium. This charge is to reimburse KILICO for the payment of state premium
taxes. State and local premium tax rates generally range from .50% to 5%. KILICO
expects to pay an average state premium tax rate of approximately 2.18%, 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
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<PAGE> 28
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 (DAC Tax).
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 applicable cost of insurance rate (see below) by
the "net amount at risk" for each Policy month. The net amount at risk is equal
to the Death Benefit divided by 1.0024663 minus the Cash Value on the Monthly
Processing Date.
Cost of Insurance Rate. The monthly cost of insurance rates are based on
the issue age (or attained age in the case of increases in Specified Amount),
sex, rate class of the Insured(s) and Policy Year. The monthly cost of insurance
rates will be determined by KILICO based on its expectations as to future
mortality experience. Any change in the schedule of rates will apply to all
individuals of the same class as the Insured(s). The cost of insurance rate may
never exceed those shown in the table of guaranteed maximum cost of insurance
rates in the Policy. The guaranteed maximum cost of insurance rates are based on
the 1980 Commissioner's Standard Ordinary Smoker and Non-Smoker Mortality
Tables, Age Nearest Birthday, published by the National Association of Insurance
Commissioners. Separate costs of insurance rates apply to any increases in
Specified Amount.
Rate Class. The rate class of an Insured will affect the cost of insurance
rate. KILICO currently places Insureds in premier and preferred rate classes and
rate classes involving a higher mortality risk. The cost of insurance rates for
rate classes involving a higher mortality risk are multiples of the premier and
preferred rates. (See "Charges and Deductions--Cost of Insurance Rate," above.)
MORTALITY AND EXPENSE RISK CHARGE
A daily charge is deducted from the Subaccounts of the Separate Account for
mortality and expense risks assumed by KILICO. The mortality and expense risk
assumed is that KILICO's estimates of longevity and of the expenses incurred
over the lengthy period the Policy may be in effect--which estimates are the
basis for the level of other charges KILICO makes under the Policy--will not be
correct. KILICO may use any profits from this charge for legitimate corporate
purposes, including distribution.
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 NET MORTALITY AND EXPENSE
PREMIUM 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 Net Premium paid in
connection with any Policy, KILICO reserves the right to aggregate cumulative
Net Premium 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.
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<PAGE> 29
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 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.
Account Maintenance Charge. To further defray the costs of the
administrative functions described above, KILICO deducts a daily charge from the
Subaccount of the Separate Account. This charge will be at an effective annual
rate of 0.45% of the average net assets of the Subaccount of the Separate
Account. The Account Maintenance Charge will be assessed daily against the
average net assets of the Subaccount of the Separate Account at a daily rate of
the effective annual rate divided by 365. The effects of simple compounding may
result in fees slightly in excess of the effective annual rate.
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.
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 Funds. 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 "Summary--Fees and Expenses" and "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 and
therefore may differ among Funds. For more information concerning the investment
advisory fees and other charges against the Portfolios, see the prospectuses for
the Funds and the statements of additional information of the Funds which are
available upon request.
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
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<PAGE> 30
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
(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 Owner or 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.
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<PAGE> 31
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 each increase 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 original 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 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. An assignment of coverage may have tax consequences. (See "Federal Tax
Matters.")
NONPARTICIPATING
The Policy will not pay dividends. It will not participate in any of
KILICO's surplus or earnings.
OWNER AND BENEFICIARY
Unless otherwise provided in the application or subsequently changed, the
Insured is the Owner. The Owner has exclusive right to cancel or amend the
Policy by agreement with KILICO and exercise every option or right conferred by
this Policy, including the right of assignment.
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. One or more primary or secondary Beneficiaries
may be named. In such case, the proceeds of the Policy will be paid in equal
shares to the survivors in the appropriate beneficiary class, unless otherwise
requested by the Owner. If no Beneficiary is designated or 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. If a
Beneficiary dies within ten days of the Insured's death, proceeds of the Policy
will be paid as if the Insured had survived the Beneficiary. The interest of any
Beneficiary may be subject to that of an assignee.
The Owner may, at any time during the life of the Insured(s) and while the
Policy is in force, designate in writing a new Owner or Beneficiary. Any change
of Owner or Beneficiary must be made in writing in a form acceptable to KILICO.
Any such change must not be prohibited by the terms of an existing assignment,
Beneficiary designation or other restriction. KILICO reserves the right to
require the return of the Policy for endorsement for any change. The change will
take effect as of the date the request is signed; however, KILICO will not be
liable for any payment made or other action taken before the notice has been
received at KILICO's Home Office. A change of ownership may have tax
consequences. (See "Federal Tax Matters.")
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 Values,
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<PAGE> 32
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 Funds 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 at 1 Kemper Drive, Long Grove, Illinois 60049. The notice or request
should include the Policy number and the full name(s) 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 (i) continuation of the
Policy under an extended Maturity Date and (ii) 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. There currently is no charge associated with the option to extend
the Maturity Date. 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 or the Fidelity VIP Money Market 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 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 Fidelity VIP Money Market
Subaccount. In all other cases, transfers will commence on the first Transfer
Date following the Issue Date, subject to the requirements stated above.
Transfers will be made in the amounts designated by the 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 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 or reinstate 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
on which 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 Owners to preauthorize periodic withdrawals after the first Policy Year.
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 Owners who request a minimum $500 periodic payment. The amounts distributed
under the SWP are partial withdrawals. (See "Policy Benefits and
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<PAGE> 33
Rights--Surrender Privileges.") Withdrawals taken under the SWP may be subject
to income taxes, withholding and tax penalties. (See "Federal Tax Matters.")
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 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, as amended (the "1934
Act"), and are members of the National Association of Securities Dealers, Inc.
The Policy is distributed through the principal underwriter, LIS Securities
("LIS"). KILICO and LIS are affiliated through Zurich's ownership. Pursuant to a
Distribution Agreement between KILICO and LIS, LIS is authorized to enter into
Selling Group Agreements with broker-dealers that are registered under the 1934
Act and are members of the NASD. LIS is engaged in the distribution of other
variable life policies and annuities.
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 LIS, pays compensation, not to exceed 5% 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.
GROUP OR SPONSORED ARRANGEMENTS
Policies may be purchased under group or sponsored arrangements, as well as
on an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases Individual Policies covering a
group of individuals on a group basis. Examples of such arrangements are
employer-sponsored benefit plans and deferred compensation plans. A "sponsored
arrangement" includes a program under which an employer permits group
solicitation of its employees or an association permits group solicitation of
its members for the purchase of Policies on an individual basis.
KILICO may reduce the following types of charges for Policies issued in
connection with group or sponsored arrangements: the cost of insurance charge,
mortality and expense risk charge, account maintenance charge and monthly
administrative charge. KILICO may also issue Policies in connection with group
or sponsored arrangements on a "non-medical" or guaranteed issue basis. Due to
the underwriting criteria established for Policies issued on a non-medical,
guaranteed issue basis, actual monthly cost of insurance charges may be higher
than the current cost of insurance charges under otherwise identical Policies
that are medically underwritten. In addition, KILICO may also specify different
minimum initial premiums at issue for Policies issued in connection with group
or sponsored arrangements.
The amounts of any reduction, the charges to be reduced, the elimination or
modification of underwriting requirements, and the criteria for applying a
reduction or modification will generally reflect the reduced sales and
administrative effort, costs and differing mortality experience appropriate to
the circumstances giving rise to the reduction or modification. The charges will
be reduced in accordance with KILICO's practice in effect when the Policy is
issued. The elimination or modification of underwriting requirements will be
done in accordance with KILICO's administrative procedures with respect to
underwriting when the Policy is issued. Reductions and modifications will not be
made where prohibited by applicable law and will not be unfairly discriminatory
against any person including the purchasers to whom the reduction or
modification applies and all other Owners of the Policy.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the Federal income tax treatment of the Policy
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The Federal income tax treatment of the Policy is unclear in
certain circumstances, and a qualified tax adviser should always be consulted
with regard to the application of law to individual circumstances. This
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Department regulations, and interpretations existing on the
date of this
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<PAGE> 34
Prospectus. These authorities, however, are subject to change by Congress, the
Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences associated
with the purchase of the Policy. In addition, KILICO MAKES NO GUARANTEE
REGARDING ANY TAX TREATMENT--FEDERAL, STATE OR LOCAL--OF ANY POLICY OR OF ANY
TRANSACTION INVOLVING A POLICY.
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 Policy Cash Values. 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. However, KILICO's Federal
income taxes are increased in respect of the Policies because of the Federal tax
law's treatment of deferred acquisition costs. Accordingly, a charge equal to 1%
of each premium payment in all Policy Years is made to compensate KILICO for its
higher corporate income tax liability.
If there is a material change in applicable Federal, state or local law,
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.
TAXATION OF LIFE INSURANCE POLICIES
TAX STATUS OF THE POLICY. Section 7702 of the Code establishes a statutory
definition of life insurance for Federal tax purposes. KILICO believes that the
Policy will meet the current statutory definition of life insurance, which
places limitations on the amount of premiums that may be paid and the Cash
Values that can accumulate relative to the Death Benefit. As a result, the Death
Benefit payable under the Policy will generally be excludable from the
Beneficiary's gross income, and interest and other income credited under the
Policy will not be taxable unless certain withdrawals are made (or are deemed to
be made) from the Policy prior to the Insured's death, as discussed below. This
tax treatment will only apply, however, if (1) the investments of the Separate
Account are "adequately diversified" in accordance with Treasury Department
regulations, and (2) KILICO, rather than the Owner, is considered the owner of
the assets of the Separate Account for Federal income tax purposes.
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department regulations
prescribe the manner in which the investments of a segregated asset account,
such as the Separate Account, are to be "adequately diversified." If the
Separate Account fails to comply with these diversification standards, the
Policy will not be treated as a life insurance contract for Federal income tax
purposes and the Owner would generally be taxable currently on the income on the
contract (as defined in the tax law). KILICO expects that the Separate Account,
through the Funds, will comply with the diversification requirements prescribed
by the Code and Treasury Department regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable life insurance
contract owners may be considered the owners, for Federal income tax purposes,
of the assets of a segregated asset account, such as the Separate Account, used
to support their contracts. In those circumstances, income and gains from the
segregated asset account would be includible in the contract owners' gross
income. The Internal Revenue Service (the "IRS") has stated in published rulings
that a variable contract owner will be considered the owner of the assets of a
segregated asset account if the owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. In
addition, the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts [of a segregated asset account] without
being treated as owners of the underlying assets." As of the date of this
Prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the Owner of this Policy has the choice of more
investment options to which to allocate premium payments and Separate Account
values, and may be able to transfer among investment options more frequently,
than in such rulings. These differences could result in the Owner being treated
as the
30
<PAGE> 35
owner of a portion of the assets of the Separate Account and thus subject to
current taxation on the income and gains from those assets. In addition, KILICO
does not know what standards will be set forth in the regulations or rulings
which the Treasury Department has stated it expects to issue. KILICO therefore
reserves the right to modify the Policy as necessary to attempt to prevent
Owners from being considered the owners of the assets of the Separate Account.
However, there is no assurance that such efforts would be successful.
The remainder of this discussion assumes that the Policy will be treated as
a life insurance contract for Federal tax purposes.
TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS. In general, the
amount of the Death Benefit payable under a Policy by reason of the death of the
Insured is excludable from gross income under Section 101 of the Code. Certain
transfers of the Policy for valuable consideration, however, may result in a
portion of the Death Benefit being taxable. If the Death Benefit is not received
in a lump sum and is, instead, applied under a Settlement Option, generally
payments will be prorated between amounts attributable to the Death Benefit,
which will be excludable from the Beneficiary's income, and amounts attributable
to interest (accruing after the Insured's death), which will be includible in
the Beneficiary's income.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Under existing provisions of the
Code, except as described below, any increase in an Owner's Cash Value is
generally not taxable to the Owner unless amounts are received (or are deemed to
be received) from the Policy prior to the Insured's death. If there is a
surrender of the Policy, an amount equal to the excess of the Cash Value over
the "investment in the contract" will be includible in the Owner's income. The
"investment in the contract" generally is the aggregate premium payments less
the aggregate amount received under the Policy previously to the extent such
amounts received were excludable from gross income. Whether withdrawals (or
other amounts deemed to be distributed) from the Policy constitute income to the
Owner depends, in part, upon whether the Policy is considered a "modified
endowment contract" ("MEC") for Federal income tax purposes.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If the Policy is not a MEC
(described below), the amount of any withdrawal from the Policy generally will
be treated first as non-taxable recovery of premiums paid and then as income
from the Policy. Thus, a withdrawal from a Policy that is not a MEC generally
will not be includible in income except to the extent the withdrawal exceeds the
investment in the contract immediately before the withdrawal.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST 15 POLICY
YEARS. As indicated above, Section 7702 places limitations on the amount of
premiums that may be paid and the Cash Values that can accumulate relative to
the Death Benefit. Where cash distributions are required under Section 7702 in
connection with a reduction in benefits during the first 15 years after the
Policy is issued (or if withdrawals are made in anticipation of a reduction in
benefits, within the meaning of the tax law, during this period), some or all of
such amounts may be includible in income notwithstanding the general rule
described in the preceding paragraph. A reduction in benefits may result upon a
decrease in the Specified Amount, a change from an Option B Death Benefit to an
Option A Death Benefit, if withdrawals are made, and in certain other instances.
TAX TREATMENT OF LOANS. If a Policy is not classified as a MEC, a loan
under the Policy generally will be treated as indebtedness of the Owner. As a
result, no part of any loan under a Policy will constitute income to the Owner
so long as the Policy remains in force. However, in those situations where the
interest rate credited to the Loan Account equals the interest rate charged for
the loan, it is possible that some or all of the loan proceeds may be includible
in income. If a Policy lapses when a loan is outstanding, the amount of the loan
outstanding will be treated as the proceeds of a surrender for purposes of
determining whether any amounts are includible in the Owner's income.
Generally, interest paid on any loans under this Policy will not be tax
deductible. The nondeductibility of interest includes interest paid or accrued
on indebtedness with respect to one or more life insurance policies owned by a
taxpayer covering any individual who is or has been an officer or employee of,
or financially interested in, any trade or business carried on by the taxpayer.
A limited exception to this rule exists for certain interest paid in connection
with certain "key person" insurance. In the case of interest paid in connection
with a loan with respect to a Policy covering the life of any key person,
interest is deductible only to the extent that the aggregate amount of loans
under one or more life insurance policies does not exceed $50,000. Further, even
as to such loans up to $50,000, interest would not be deductible if the Policy
were deemed for Federal tax purposes to be a single premium life insurance
policy or, in certain circumstances, if the loans were treated as "systematic
borrowing" within the meaning of the tax law. A "key person" is an individual
who is either an officer or a twenty percent owner of the taxpayer. The maximum
number of individuals who can be treated as key persons may not
31
<PAGE> 36
exceed the greater of (1) 5 individuals or (2) the lesser of 5 percent of the
total number of officers and employees of the taxpayer or 20 individuals. Owners
should consult a tax adviser regarding the deductibility of interest incurred in
connection with loans under this Policy.
In addition, in the case of Policies issued to a non-natural taxpayer, or
held for the benefit of such an entity, a portion of the taxpayer's otherwise
deductible interest expenses may not be deductible as a result of ownership of a
policy even if no loans are taken under the policy. An exception to the latter
rule is provided for certain life Policies which cover the life of an individual
who is a 20-percent owner, or an officer, director, or employee of, a trade or
business. However, this exception is not applicable to Survivorship Policies,
other than where the Insureds are a 20-percent owner and his or her spouse.
Entities that are considering purchasing the Policy, or entities that will be
beneficiaries under a policy, should consult a tax adviser.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. In general, a Policy will be
considered a MEC for Federal income tax purposes if (1) the Policy is received
in exchange for a life insurance contract that was a MEC, or (2) the Policy is
entered into after June 21, 1988 and premiums are paid into the Policy more
rapidly than the rate defined by a "7-Pay Test." This test generally provides
that a Policy will fail this test (and thus be considered a MEC) if the
accumulated amount paid under the Policy at any time during the first 7 Policy
Years exceeds the cumulative sum of the net level premiums which would have been
paid to that time if the Policy provided for paid-up future benefits after the
payment of 7 level annual premiums. A material change of the Policy (as defined
in the tax law) will generally result in a reapplication of the 7-Pay Test. In
addition, any reduction in benefits during the 7-Pay period will affect the
application of this test.
KILICO will monitor the Policies and will attempt to notify Owners on a
timely basis if a Policy is in jeopardy of becoming a MEC. The Owner may then
request that KILICO take whatever steps are available to avoid treating the
Policy as a MEC, if that is desired.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER MECS. If
the Policy is a MEC, withdrawals from the Policy will be treated first as
withdrawals of income and then as a recovery of premiums paid. Thus, withdrawals
will be includible in income to the extent the Cash Value exceeds the investment
in the contract. The amount of any Policy loan will be treated as a withdrawal
for tax purposes. In addition, the discussion of interest on loans and of lapses
while loans are outstanding under the caption "Policies Which Are Not MECs" also
applies to Policies which are MECs.
If the Owner assigns or pledges any portion of the Cash Value (or agrees to
assign or pledge any portion), such portion will be treated as a withdrawal for
tax purposes. The Owner's investment in the contract is increased by the amount
includible in income with respect to any assignment, pledge, or loan, though it
is not affected by any other aspect of the assignment, pledge, or loan
(including its release or repayment). Before assigning, pledging, or requesting
a loan under a Policy treated as a MEC, an Owner should consult a qualified tax
adviser.
PENALTY TAX. Generally, proceeds of a surrender or a withdrawal (or the
amount of any deemed withdrawal) from a MEC are subject to a penalty tax equal
to 10% of the portion of the proceeds that is includible in income, unless the
surrender or withdrawal is made (1) after the Owner attains age 59 1/2 (2)
because the Owner has become disabled (as defined in the tax law), or (3) as
substantially equal periodic payments over the life or life expectancy of the
Owner (or the joint lives or life expectancies of the Owner and his or her
beneficiary, as defined in the tax law).
AGGREGATION OF POLICIES. All life insurance contracts which are treated as
MECs and which are purchased by the same person from KILICO or any of its
affiliates within the same calendar year will be aggregated and treated as one
contract for purpose of determining the tax on withdrawals (including deemed
withdrawals). The effects of such aggregation are not clear; however, it could
affect the amount of a withdrawal (or a deemed withdrawal) that is taxable and
the amount which might be subject to the 10% penalty tax described above.
SURVIVORSHIP POLICIES. Although KILICO believes that the Policy, when
issued as a Survivorship Policy, complies with Section 7702 of the Code, the
manner in which Section 7702 should be applied to Survivorship Policies is not
directly addressed by Section 7702. In the absence of final regulations or other
guidance issued under Section 7702 regarding this form of Policy, there is
necessarily some uncertainty whether a Survivorship Policy will meet the Section
7702 definition of a life insurance contract. Prospective owners considering the
purchase of the Policy as a Survivorship Policy should consult a qualified tax
adviser.
Where the Owner of the Policy is the last surviving Insured, the Death
Benefit will generally be includible in the Owner's estate on his or her death
for purposes of the Federal estate tax. If the Owner dies and was not the last
surviving Insured, the fair market value of the Policy would be included in the
Owner's estate. In general, no
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<PAGE> 37
part of the Policy's value would be includible in the last surviving Insured's
estate if he or she neither retained incidents of ownership at death nor had
given up ownership within three years before death.
TREATMENT OF MATURITY BENEFITS AND EXTENSION OF MATURITY DATE. At the
Maturity Date, the Surrender Value will be paid to the Owner. This payment will
be taxable in the same manner as a Surrender of the Policy. If the Owner elects
to add at the time of purchase a rider to extend the Maturity Date, it is
possible that the IRS could treat the Owner as being in constructive receipt of
the Cash Value when the Insured reaches age 100. If this were the case, an
amount equal to the excess of the Cash Value over the investment in the contract
could be includible in the Owner's income at that time.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW. KILICO reserves the right to
refund premiums which exceed those permitted by the Federal tax definition of
life insurance. KILICO also reserves the right to increase the Death Benefit
(which may result in larger charges under a Policy) or to take any other action
deemed necessary to ensure the compliance of the Policy with the Federal tax
definition of life insurance.
OTHER CONSIDERATIONS. Changing the Owner, exchanging the Policy, changing
from one Death Benefit option to another, and other changes under the Policy may
have tax consequences (other than those discussed herein) depending on the
circumstances of such change or withdrawal. 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 Owner or Beneficiary.
FEDERAL INCOME TAX WITHHOLDING
KILICO will withhold and remit to the Federal government a part of the
taxable portion of withdrawals made under a Policy unless the Owner notifies
KILICO in writing at or before the time of the withdrawal that he or she elects
not to have any amounts withheld. Regardless of whether the Owner requests that
no taxes be withheld or whether KILICO withholds a sufficient amount of taxes,
the Owner will be responsible for the payment of any taxes and early
distribution penalties that may be due on the amounts received. The Owner may
also be required to pay penalties under the estimated tax rules, if the Owner's
withholding and estimated tax payments are insufficient to satisfy the Owner's
total tax liability.
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.
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<PAGE> 38
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
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 1 of
each year covering the operations and reporting on the financial condition of
KILICO as of December 31 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.
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>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
John B. Scott (53) Chief Executive Officer, President and Director of Federal
Chief Executive Officer since Kemper Life Assurance Company (FKLA) and Fidelity Life
February 1992. President since Association (FLA) since 1988. Chief Executive Officer,
November 1993. Director since President and Director of Zurich Life Insurance Company of
1992. 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 (Kemper) 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 (50) Executive Vice President of FKLA and FLA since 1995.
Executive Vice President since Executive Vice President of ZLICA and ZD since March 1996.
1995. Director of FLA since December 1997. Director of ZD from
March 1996 to March 1997. 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.
</TABLE>
34
<PAGE> 39
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
Frederick L. Blackmon (46) Senior Vice President and Chief Financial Officer of FKLA
Senior Vice President and Chief since December 1995. Senior Vice President and Chief
Financial Officer since December Financial Officer of FLA since January 1996. Senior Vice
1995. President and Chief Financial Officer of ZLICA since March
1996. Senior Vice President and Chief Financial Officer of
ZD since March 1996. Director of ZD from March 1996 to March
1997. Treasurer and Chief Financial Officer of Kemper since
January 1996. Chief Financial Officer of Alexander Hamilton
Life Insurance Company from April 1989 to November 1995.
James C. Harkensee (39) Senior Vice President of FKLA and FLA since January 1996.
Senior Vice President since Senior Vice President of ZLICA since 1995. Senior Vice
January 1996. President of ZD since 1995. Director of ZD from April 1993
to March 1997. 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 (42) Senior Vice President and Chief Actuary of FKLA since
Senior Vice President and Chief December 1995. Senior Vice President and Chief Actuary of
Actuary since December 1995. FLA since January 1996. Senior Vice President and Chief
Actuary of ZLICA since March 1996. Senior Vice President and
Chief Actuary of ZD since March 1996. Director of FLA since
June 1997. Director of ZD from March 1996 to March 1997.
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 (43) Senior Vice President and Corporate Development Officer of
Senior Vice President and FKLA and FLA since January 1996. Senior Vice President and
Corporate Development Officer Corporate Development Officer for ZLICA and ZD since March
since January 1996. 1996. Senior Vice President of Human Resources of
Zurich-American Insurance Group from February 1992 to March
1996.
Debra P. Rezabek (42) Senior Vice President of FKLA and FLA since March 1996.
Senior Vice President since 1996. Corporate Secretary of FKLA and FLA since January 1996. Vice
General Counsel since 1992. President of KILICO, FKLA and FLA since 1995. General
Corporate Secretary since January Counsel and Director of Government Affairs of FKLA and FLA
1996. 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 and Corporate
Secretary of ZD since March 1996. Director of ZD from March
1996 to March 1997. 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 Kemper since January
1996.
Kenneth M. Sapp (52) Senior Vice President of FKLA, FLA and ZLICA since January
Senior Vice President since 1998. Vice President--Aetna Life Brokerage of Aetna Life &
January 1998. Annuity Company from February 1992 to January 1998.
George Vlaisavljevich (55) Senior Vice President of FKLA, FLA and ZLICA since October
Senior Vice President since 1996. Senior Vice President of ZD since March 1997. Director
October 1996. of IBS and IBSIA since October 1996. Executive Vice
President of The Copeland Companies from April 1983 to
September 1996.
Loren J. Alter (59) Director of FKLA, FLA and Scudder Kemper Investments, Inc.
Director since January 1996. (SKI) 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
Kemper since January 1996.
</TABLE>
35
<PAGE> 40
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
William H. Bolinder (54) Chairman of the Board and Director of FKLA and FLA since
Chairman of the Board and Director January 1996. Chairman of the Board of ZLICA and ZD since
since January 1996. March 1995. Chairman of the Board and Director of Kemper
since January 1996. Vice Chairman and Director of SKI 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 (51) Director of FKLA and ZLICA since May 1997. Director of FLA
Director since May 1997. since June 1997. Executive Vice President, Corporate
Secretary and General Counsel of Zurich-American Insurance
Group since August 1985. Vice President, General Council and
Secretary of Kemper since January 1996.
Markus Rohrbasser (43) Director of FKLA, FLA and ZLICA since May 1997. Chief
Director since May 1997. 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>
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. Jorden Burt Boros Cicchetti
Berenson & Johnson, LLP, 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.
YEAR 2000 COMPLIANCE
Many existing computer programs were originally designed without
considering the impact of the year 2000 and currently use only two digits to
identify the year in the date field. This issue affects nearly all companies and
organizations and could cause computer applications and systems to fail or
create erroneous results to occur for any transaction with a date of January 1,
2000, or later.
Many companies must undertake major projects to address the year 2000 issue
and each company's costs and uncertainties will depend on a number of factors,
including its software and hardware, and the nature of the industry. Companies
must also coordinate with other entities with which they electronically
interact, including suppliers, customers, creditors and other financial services
institutions.
If a company does not successfully address its year 2000 issues it could
face material adverse consequences in the form of lawsuits against the company,
lost business, erroneous results and substantial operating problems after
January 1, 2000.
KILICO has taken substantial steps over the last several years to ensure
that its systems will be compliant for the year 2000. Such steps have included
the replacement of older systems with new systems that are already compliant. In
1996, KILICO replaced its investment accounting system and in 1997 KILICO
replaced its general ledger and accounts payable system. KILICO has also ensured
that new systems developed to support new
36
<PAGE> 41
product introductions in 1996 and 1997 are already year 2000 compliant. Data
processing expenses related solely to bringing KILICO's systems in compliance
with the year 2000 amounted to $88 thousand in 1997 and KILICO anticipates that
it will cost an additional $895 thousand to bring all remaining systems into
compliance. KILICO has also undertaken steps which require that all other
entities with which KILICO electronically interacts, including suppliers and
other financial services institutions, attest in writing to KILICO that their
systems are year 2000 compliant.
EXPERTS
The consolidated balance sheet of KILICO as of December 31, 1997 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year ended December 31, 1997 have been included herein and in the
registration statement in reliance upon the report of PricewaterhouseCoopers,
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing. The
consolidated balance sheet of KILICO as of December 31, 1996 and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the period from January 4, 1996 to December 31, 1996 and for the year 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 referred to above 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 period
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. As of
December 31, 1997, the end of KILICO's most recent fiscal year, the Separate
Account had not yet commenced operations, had no assets or liabilities, and had
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.
CHANGE OF ACCOUNTANTS
On September 12, 1997, KILICO appointed the accounting firm of
PricewaterhouseCoopers, LLP (on July 1, 1998, Coopers & Lybrand L.L.P. merged
with Price Waterhouse LLP to form PricewaterhouseCoopers, LLP) as independent
accountants for the year ended December 31, 1997 to replace KPMG Peat Marwick
LLP effective with such appointment. KILICO's Board of Directors approved the
selection of PricewaterhouseCoopers, LLP as the new independent accountants.
Management had not consulted with PricewaterhouseCoopers, LLP on any accounting,
auditing or reporting matter, prior to that time.
During the two most recent fiscal years ended December 31, 1996, there have
been no disagreements with KPMG Peat Marwick LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure or any reportable events. KPMG Peat Marwick LLP's report on the
financial statements for the past two years contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.
There were no disagreements with PricwaterhouseCoopers, LLP on accounting
or financial disclosures for the year ended December 31, 1997.
37
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder
Kemper Investors Life Insurance Company:
We have audited the accompanying consolidated balance sheet of Kemper
Investors Life Insurance Company and subsidiaries as of December 31, 1997, and
the related consolidated statements of operations, stockholder's equity, and
cash flows for the year then ended. 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 audit. The
financial statements of Kemper Investors Life Insurance Company and subsidiaries
for the period from January 4, 1996 to December 31, 1996 (post-acquisition
basis) and for the year ended December 31, 1995 (pre-acquisition basis), were
audited by other auditors, whose unqualified report, dated March 21, 1997,
included an explanatory paragraph that described the acquisition of Kemper
Investors Life Insurance Company as discussed in Note 1 to the financial
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Kemper Investors Life Insurance Company and subsidiaries as of December 31,
1997, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
-----------------------------------------
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 18, 1998
38
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Kemper Investors Life Insurance Company:
We have audited the accompanying consolidated balance sheet of Kemper
Investors Life Insurance Company and subsidiaries as of December 31, 1996 and
the related consolidated statements of operations, stockholder's equity, and
cash flows for the period from January 4, 1996 to December 31, 1996
(post-acquisition), and for the year 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 the results of their operations and their cash flows for the
post-acquisition period, in conformity with generally accepted accounting
principles. Also, in our opinion, the aforementioned pre-acquisition
consolidated financial statements present fairly, in all material respects, the
results of their operations and their cash flows for the pre-acquisition period,
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 Corporation, the parent 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
39
<PAGE> 44
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value
(amortized cost: December 31, 1997, $3,644,075; December
31, 1996, $3,929,650)..................................... $3,668,643 $3,866,431
Short-term investments...................................... 236,057 71,696
Joint venture mortgage loans................................ 72,663 110,971
Third-party mortgage loans.................................. 102,974 106,585
Other real estate-related investments....................... 44,409 50,157
Policy loans................................................ 282,439 288,302
Equity securities........................................... 24,839 9,910
Other invested assets....................................... 20,820 13,597
----------- ----------
Total investments................................. 4,452,844 4,517,649
Cash........................................................ 23,868 2,776
Accrued investment income................................... 117,789 115,199
Goodwill.................................................... 229,393 244,688
Value of business acquired.................................. 138,482 189,639
Deferred insurance acquisition costs........................ 59,459 26,811
Deferred income taxes....................................... 39,993 --
Reinsurance recoverable..................................... 382,609 427,165
Receivable on sales of securities........................... 20,076 32,569
Other assets and receivables................................ 3,187 34,117
Assets held in separate accounts............................ 5,121,950 2,127,247
----------- ----------
Total assets...................................... $10,589,650 $7,717,860
=========== ==========
LIABILITIES
Future policy benefits...................................... $3,856,871 $4,256,521
Ceded future policy benefits................................ 382,609 427,165
Benefits and funds payable.................................. 150,524 36,142
Other accounts payable and liabilities...................... 212,133 59,462
Deferred income taxes....................................... -- 60,362
Liabilities related to separate accounts.................... 5,121,950 2,127,247
----------- ----------
Total liabilities................................. 9,724,087 6,966,899
----------- ----------
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.................................. 806,538 761,538
Unrealized gain (loss) on investments....................... 12,637 (47,498)
Retained earnings........................................... 43,888 34,421
----------- ----------
Total stockholder's equity........................ 865,563 750,961
----------- ----------
Total liabilities and stockholder's equity........ $10,589,650 $7,717,860
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 45
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
PREACQUISITION
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUE
Net investment income...................................... $296,195 $299,688 $ 348,448
Realized investment gains (losses)......................... 10,546 13,602 (318,700)
Premium income............................................. 22,239 7,822 236
Separate account fees and charges.......................... 85,413 25,309 21,909
Other income............................................... 11,087 9,786 16,192
-------- -------- ---------
Total revenue.................................... 425,480 356,207 68,085
-------- -------- ---------
BENEFITS AND EXPENSES
Interest credited to policyholders......................... 199,782 223,094 237,984
Claims incurred and other policyholder benefits............ 28,372 14,255 7,631
Taxes, licenses and fees................................... 52,608 2,173 6,912
Commissions................................................ 32,602 25,962 24,881
Operating expenses......................................... 36,837 24,678 20,837
Deferral of insurance acquisition costs.................... (38,177) (27,820) (36,870)
Amortization of insurance acquisition costs................ 3,204 2,316 14,423
Amortization of value of business acquired................. 24,948 21,530 --
Amortization of goodwill................................... 15,295 10,195 --
-------- -------- ---------
Total benefits and expenses...................... 355,471 296,383 275,798
-------- -------- ---------
Income (loss) before income tax expense (benefit).......... 70,009 59,824 (207,713)
Income tax expense (benefit)............................... 31,292 25,403 (74,664)
-------- -------- ---------
Net income (loss)................................ $ 38,717 $ 34,421 $(133,049)
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 46
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
PREACQUISITION
--------------
DECEMBER 31 DECEMBER 31 JANUARY 4 DECEMBER 31
1997 1996 1996 1995
----------- ----------- --------- -----------
<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...................................... 761,538 743,104 491,994 491,994
Capital contributions from parent............. 45,000 18,434 -- --
Adjustment to reflect purchase accounting
method...................................... -- -- 251,110 --
-------- -------- -------- ---------
End of period....................... 806,538 761,538 743,104 491,994
-------- -------- -------- ---------
UNREALIZED GAIN (LOSS) ON INVESTMENTS,
beginning of period......................... (47,498) -- 68,502 (236,443)
Unrealized gain (loss) on revaluation of
investments, net............................ 60,135 (47,498) -- 304,945
Adjustment to reflect purchase accounting
method...................................... -- -- (68,502) --
-------- -------- -------- ---------
End of period....................... 12,637 (47,498) -- 68,502
-------- -------- -------- ---------
RETAINED EARNINGS, beginning of period........ 34,421 -- 42,880 175,929
Net income (loss)............................. 38,717 34,421 -- (133,049)
Dividends to parent........................... (29,250) -- -- --
Adjustment to reflect purchase accounting
method...................................... -- -- (42,880) --
-------- -------- -------- ---------
End of period....................... 43,888 34,421 -- 42,880
-------- -------- -------- ---------
Total stockholder's equity.......... $865,563 $750,961 $745,604 $ 605,876
======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 47
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
PREACQUISITION
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $ 38,717 $ 34,421 $(133,049)
Reconcilement of net income (loss) to net cash
provided:
Realized investment losses (gains)................ (10,546) (13,602) 318,700
Interest credited and other charges............... 198,206 230,298 237,984
Deferred insurance acquisition costs.............. (34,973) (25,504) (22,447)
Amortization of value of business acquired........ 24,948 21,530 --
Amortization of goodwill.......................... 15,295 10,195 --
Amortization of discount and premium on
investments..................................... 17,866 25,743 4,586
Deferred income taxes............................. (99,370) (897) 38,423
Net change in current Federal income taxes........ 97,386 108,806 (86,990)
Benefits and premium taxes due related to separate
account bank-owned life insurance............... 180,546 -- --
Other, net........................................ 17,168 (22,283) (29,905)
--------- ----------- ---------
Net cash provided from operating
activities................................. 445,243 368,707 327,302
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity................. 229,208 264,383 320,143
Fixed maturities sold prior to maturity........... 633,872 891,995 297,637
Mortgage loans, policy loans and other invested
assets.......................................... 131,866 168,727 450,573
Cost of investments purchased or loans originated:
Fixed maturities.................................. (606,028) (1,369,091) (549,867)
Mortgage loans, policy loans and other invested
assets.......................................... (76,350) (119,044) (131,966)
Short-term investments, net.......................... (164,361) 300,819 (168,351)
Net change in receivable and payable for securities
transactions...................................... 29,746 (31,667) (1,397)
Net reductions in other assets....................... 244 115 1,996
--------- ----------- ---------
Net cash provided by investing activities.... 178,197 106,237 218,768
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits.......................................... 145,687 141,159 247,778
Withdrawals....................................... (745,510) (700,084) (755,917)
Capital contributions from parent.................... 45,000 18,434 --
Dividends to parent.................................. (29,250) -- --
Other................................................ (18,275) 42,512 (35,309)
--------- ----------- ---------
Net cash used in financing activities........ (602,348) (497,979) (543,448)
--------- ----------- ---------
Net increase (decrease) in cash......... 21,092 (23,035) 2,622
CASH, beginning of period.............................. 2,776 25,811 23,189
--------- ----------- ---------
CASH, end of period.................................... $ 23,868 $ 2,776 $ 25,811
========= =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
43
<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 that change in control, Zurich and Insurance Partners owned 80
percent and 20 percent, respectively, of Kemper and therefore the Company. On
February 27, 1998, Zurich acquired Insurance Partner's remaining 20 percent
interest for cash. As a result of this transaction, Kemper and the Company
became wholly-owned subsidiaries of Zurich.
The financial statements include the accounts of the Company on a
consolidated basis. All significant intercompany balances and transactions have
been eliminated. Certain reclassifications have been made to the 1996 and 1995
consolidated financial statements in order for them to conform to the 1997
presentation.
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 years ended December 31, 1996 and 1997, 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 where appropriate 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 values as of the acquisition date. The difference
between the cost of acquiring the Company and the net fair values of the
Company's assets and liabilities as of the acquisition date has been recorded as
goodwill. 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 began to amortize goodwill during 1996 on a straight-line basis over
twenty-five years. In December of 1997, the Company changed its amortization
period to twenty years in order to conform to Zurich's accounting practices and
policies. As a result of the change in amortization periods, the Company
recorded an increase in goodwill amortization expense of $5.1 million during
1997.
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,
1997, 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
44
<PAGE> 49
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, 2002 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 (actual)....................................... $190,222 $(31,427) $9,897 $168,692
1997 (actual)....................................... 168,692 (34,906) 9,958 143,744
1998................................................ 143,744 (25,633) 8,933 127,044
1999................................................ 127,044 (23,701) 7,873 111,216
2000................................................ 111,216 (21,668) 6,876 96,424
2001................................................ 96,424 (19,122) 5,973 83,275
2002................................................ 83,275 (17,835) 5,134 70,574
</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, 1997 and 1996, this adjustment increased (decreased) the value of business
acquired by $(5.3) million and $20.9 million, respectively, and stockholder's
equity by approximately $(3.4) 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, variable life insurance and interest-sensitive life
insurance products consists of investment income, and policy charges such as
mortality, expense and surrender charges and expense loads for premium taxes on
certain contracts. 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.
45
<PAGE> 50
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred insurance acquisition costs
The costs of acquiring new business, 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.
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 3.0 percent to 7.3 percent.
Future minimum guaranteed interest rates vary from 3.0 percent to 4.0 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 and equity securities 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 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; 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.
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.
46
<PAGE> 51
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 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 amounted to $108.8 million and $25.2 million, respectively.
The Company paid Federal income taxes of $29.0 million and $28.1 million
directly to the United States Treasury Department during 1997 and 1996,
respectively.
47
<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, 1997
U.S. treasury securities and obligations of U.S.
government agencies and authorities................. $ 6,258 $ 6,298 $ 4 $ (44)
Obligations of states and political subdivisions,
special revenue and nonguaranteed................... 29,330 29,308 160 (138)
Debt securities issued by foreign governments......... 92,563 92,722 188 (347)
Corporate securities.................................. 1,861,655 1,846,588 24,733 (9,666)
Mortgage and asset-backed securities.................. 1,678,837 1,669,159 10,035 (357)
---------- ---------- ------- --------
Total fixed maturities......................... $3,668,643 $3,644,075 $35,120 $(10,552)
========== ========== ======= ========
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)
========== ========== ======= ========
</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 $220.0 million real estate portfolio at December 31, 1997
consists of joint venture and third-party mortgage loans and other real
estate-related investments. At December 31, 1997 and 1996, total impaired real
estate-related loans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
(in millions) ----------- -----------
<S> <C> <C>
Impaired loans without reserves--gross...................... $39.3 $39.8
Impaired loans with reserves--gross......................... 2.2 7.6
----- -----
Total gross impaired loans........................... 41.5 47.4
Reserves related to impaired loans.......................... (2.1) (4.4)
----- -----
Net impaired loans................................... $39.4 $43.0
===== =====
</TABLE>
48
<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, 1997 and 1996, the
Company's deficit in equity investments considered in determining reserves and
write-downs amounted to $0 and $5.9 million, respectively. The Company had an
average balance of $45.2 million and $30.8 million in impaired loans for 1997
and 1996, respectively. Cash payments received on impaired loans are generally
applied to reduce the outstanding loan balance.
At December 31, 1997 and December 31, 1996, loans on nonaccrual status,
before reserves and write-downs, amounted to $47.4 million and $43.5 million,
respectively. The Company's nonaccrual loans are generally included in impaired
loans.
At December 31, 1997, securities carried at approximately $6.3 million were
on deposit with governmental agencies as required by law.
Proceeds from sales of investments in fixed maturities prior to maturity
were $633.9 million, $892.0 million and $297.6 million during 1997, 1996 and
1995, respectively. Gross gains of $3.1 million, $9.9 million and $21.2 million
and gross losses of $13.7 million, $16.2 million and $11.9 million were realized
on sales and write-downs of fixed maturities in 1997, 1996 and 1995,
respectively.
The carrying value and amortized cost of fixed maturity investments, by
contractual maturity at December 31, 1997, are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties and
because mortgage-backed and asset-backed securities provide for periodic
payments throughout their life.
<TABLE>
<CAPTION>
CARRYING AMORTIZED
VALUE COST VALUE
(in thousands) -------- ----------
<S> <C> <C>
One year or less............................................ $ 47,724 $ 47,797
Over one year through five.................................. 649,279 648,291
Over five years through ten................................. 988,849 984,495
Over ten years.............................................. 303,954 294,333
Securities not due at a single maturity date, primarily
mortgage and asset-backed securities(1)................... 1,678,837 1,669,159
---------- ----------
Total fixed maturities............................... $3,668,643 $3,644,075
========== ==========
</TABLE>
- ---------------
(1) Weighted average maturity of 3.8 years.
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
PREACQUISITION
--------------
1997 1996 1995
(in thousands) -------- -------- --------------
<S> <C> <C> <C>
Interest and dividends on fixed maturities................. $250,170 $250,683 $269,934
Dividends on equity securities............................. 2,123 646 681
Income from short-term investments......................... 4,128 9,130 13,159
Income from mortgage loans................................. 16,283 20,257 40,494
Income from policy loans................................... 20,549 20,700 19,658
Income from other real estate-related investments.......... 6,631 4,917 15,565
Income from other loans and investments.................... 2,045 2,480 1,555
-------- -------- --------
Total investment income............................. 301,929 308,813 361,046
Investment expense......................................... (5,734) (9,125) (12,598)
-------- -------- --------
Net investment income............................... $296,195 $299,688 $348,448
======== ======== ========
</TABLE>
49
<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, 1997, 1996 and
1995, were as follows:
<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
-----------------------------------------------
PREACQUISITION
--------------
1997 1996 1995
(in thousands) -------- ------- --------------
<S> <C> <C> <C>
Real estate-related........................................ $ 19,758 $17,462 $(325,611)
Fixed maturities........................................... (10,656) (6,344) 9,336
Equity securities.......................................... 914 -- (346)
Other...................................................... 530 2,484 (2,079)
-------- ------- ---------
Realized investment gains (losses) before income tax
expense (benefit)..................................... 10,546 13,602 (318,700)
Income tax expense (benefit)............................... 3,691 4,761 (111,545)
-------- ------- ---------
Net realized investment gains (losses)................... $ 6,855 $ 8,841 $(207,155)
======== ======= =========
</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, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED GAINS (LOSSES)
---------------------------------------------------------
PREACQUISITION
--------------
DECEMBER 31 DECEMBER 31 JANUARY 4 DECEMBER 31
1997 1996 1996 1995
(in thousands) ------------ ------------ ---------- --------------
<S> <C> <C> <C> <C>
Fixed maturities..................................... $ 87,787 $(63,219) $ $351,964
Equity and other securities.......................... (103) 1,256 -- 180
Adjustment to deferred insurance acquisition costs... (2,325) 1,307 -- (14,277)
Adjustment to value of business acquired............. (26,209) 20,947 -- --
-------- -------- -- --------
Unrealized gain (loss) before income tax expense... 59,150 (39,709) -- 337,867
Income tax expense (benefit)......................... (985) 7,789 -- 32,922
-------- -------- -- --------
Net unrealized gain (loss) on investments..... $ 60,135 $(47,498) $-- $304,945
======== ======== == ========
</TABLE>
(4) UNCONSOLIDATED INVESTEES
At December 31, 1997 and 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, 1997 and December 31, 1996, the Company's net equity
investment in unconsolidated investees amounted to $19.3 million and $11.7
million, respectively. The Company's share of net income related to such
unconsolidated investees amounted to $835 thousand and $223 thousand in 1997 and
1996, respectively, and a net loss of $453 thousand in 1995.
(5) CONCENTRATION OF CREDIT RISK
The Company generally strives to maintain a diversified invested asset
portfolio; however, certain concentrations of credit risk exist in mortgage and
asset-backed securities and real estate.
Approximately 35.1 percent of the Company's investment-grade fixed
maturities at December 31, 1997 were mortgage-backed securities, down from 36.4
percent at December 31, 1996, due to sales and paydowns during
50
<PAGE> 55
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT RISK (CONTINUED)
1997. These investments consist 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 AAA credit
quality.
Approximately 10.8 percent and 8.8 percent of the Company's
investment-grade fixed maturities at December 31, 1997 and 1996, respectively,
consisted of corporate asset-backed securities. The majority of the Company's
investments in asset-backed securities were backed by home equity loans (27.7%),
auto loans (22.3%), manufactured housing loans (17.2%), equipment loans (13.7%),
and commercial mortgage backed securities (10.7%).
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, 1997
<TABLE>
<S> <C>
California....................... 38.2%
Hawaii........................... 14.2
Colorado......................... 9.8
Oregon........................... 9.2
Washington....................... 9.1
Florida.......................... 6.4
Texas............................ 5.1
Michigan......................... 3.7
Ohio............................. 3.3
Illinois......................... 1.0
-----
Total.................. 100.0%
=====
</TABLE>
DISTRIBUTION BY PROPERTY TYPE AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
Hotel............................ 41.3%
Land............................. 28.2
Residential...................... 13.1
Retail........................... 3.3
Office........................... 3.1
Industrial....................... .9
Other............................ 10.1
-----
Total.................. 100.0%
=====
</TABLE>
Undeveloped land represented approximately 28.2 percent of the Company's
real estate portfolio at December 31, 1997. 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 mortgage 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, 1997, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt"), a third-party real estate
developer, have ownership interests constituted approximately $88.2 million, or
40.1 percent, of the Company's real estate portfolio. The Nesbitt ventures
consist of nine hotel properties and two office buildings. At December 31, 1997,
the Company did not have any Nesbitt-related off-balance-sheet legal funding
commitments outstanding.
At December 31, 1997, loans to a master limited partnership (the "MLP")
between subsidiaries of Kemper and subsidiaries of Lumbermens Mutual Casualty
Company ("Lumbermens"), a former affiliate, constituted approximately $60.5
million, or 27.5 percent, of the Company's real estate portfolio. Kemper's
interest is
51
<PAGE> 56
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
75 percent at December 31, 1997. At December 31, 1997, MLP-related commitments
accounted for approximately $7.4 million of the Company's off-balance-sheet
legal commitments, which the Company expects to fund.
At December 31, 1997, the Company no longer had any outstanding loans or
investments in projects with the Prime Group, Inc. or its affiliates, as all
such investments have been sold or written-down to zero. However, the Company
continues to have Prime Group-related commitments, which accounted for $25.7
million of the Company's off-balance-sheet legal commitments at December 31,
1997. The Company does not expect to fund any of these commitments.
(6) INCOME TAXES
Income tax expense (benefit) was as follows for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
PREACQUISITION
--------------
1997 1996 1995
(in thousands) -------- ------- --------------
<S> <C> <C> <C>
Current................................................ $130,662 $26,300 $(113,087)
Deferred............................................... (99,370) (897) 38,423
-------- ------- ---------
Total........................................ $ 31,292 $25,403 $ (74,664)
======== ======= =========
</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 each filed 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.
The actual income tax expense (benefit) for 1997, 1996 and 1995 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 1997, 1996, and 1995 to income (loss) before
income tax expense (benefit).
<TABLE>
<CAPTION>
PREACQUISITION
--------------
1997 1996 1995
(in thousands) ------- ------- --------------
<S> <C> <C> <C>
Computed expected tax expense (benefit)................. $24,503 $20,938 $(72,700)
Difference between "expected" and actual tax expense
(benefit):
State taxes........................................... 1,801 913 (1,370)
Amortization of goodwill.............................. 5,353 3,568 --
Foreign tax credit.................................... (278) -- (183)
Other, net............................................ (87) (16) (411)
------- ------- --------
Total actual tax expense (benefit)............ $31,292 $25,403 $(74,664)
======= ======= ========
</TABLE>
Deferred tax assets and liabilities are generally determined based on the
difference between the financial statement and tax basis 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 valuation allowance is subject to future adjustments based upon, among other
items, the Company's estimates of future operating earnings and capital gains.
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.
52
<PAGE> 57
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred Federal tax asset or liability were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 JANUARY 4
1997 1996 1996
(in thousands) ----------- ----------- ---------
<S> <C> <C> <C>
Deferred Federal tax assets:
Deferred insurance acquisition costs...................... $ 75,522 $ 4,520 $ --
Unrealized losses on investments.......................... -- 16,624 --
Life policy reserves...................................... 43,337 46,452 46,654
Unearned revenue.......................................... 37,243 -- --
Real estate-related....................................... 13,400 20,642 27,736
Other investment-related.................................. 3,298 5,409 1,773
Other..................................................... 4,371 3,639 9,750
-------- -------- --------
Total deferred Federal tax assets...................... 177,171 97,286 85,913
Valuation allowance....................................... (15,201) (31,825) (15,201)
-------- -------- --------
Total deferred Federal tax assets after valuation
allowance............................................ 161,970 65,461 70,712
-------- -------- --------
Deferred Federal tax liabilities:
Value of business acquired................................ 48,469 66,373 66,578
Deferred insurance acquisition costs...................... 20,811 9,384 --
Depreciation and amortization............................. 20,201 15,473 15,490
Other investment-related.................................. 18,774 28,855 37,919
Unrealized gains on investments........................... 9,002 -- --
Other..................................................... 4,720 5,738 4,197
-------- -------- --------
Total deferred Federal tax liabilities................. 121,977 125,823 124,184
-------- -------- --------
Net deferred Federal tax assets (liabilities)............... $ 39,993 $(60,362) $(53,472)
======== ======== ========
</TABLE>
The net deferred tax assets relate primarily to unearned revenue and the
tax on deferred insurance acquisition costs ("DAC Tax") associated with $2.7
billion of new 1997 sales from a non-registered individual and group variable
bank-owned life insurance contract ("BOLI"). As a result of proposed tax law
changes, as more fully discussed below, the level of DAC Tax experienced in 1997
is not anticipated to occur in future periods and it is expected that the
Company will return to its normalized earnings patterns in 1998. Management
believes that it is more likely, than not, that the results of future operations
will generate sufficient taxable income over the ten year amortization period of
the unearned revenue and DAC Tax to realize such deferred tax assets.
In early 1998, the Clinton Administration's Fiscal Year 1998 Budget
("Budget") was released and contained certain proposals to change the taxation
of non-qualified fixed and variable annuities and variable life insurance
contracts, including BOLI. It is currently unknown whether or not such proposals
will be accepted, amended or omitted in the final 1999 Budget approved by
Congress. If the current Budget proposals are accepted, certain of the Company's
non-qualified fixed and variable annuities and certain of its variable life
insurance products, including BOLI and the non-registered individual variable
universal life insurance contracts introduced during 1997, may no longer be tax
advantaged products and therefore no longer attractive to those customers who
purchase them because of their favorable tax attributes. Additionally, sales of
such products during 1998 may also be negatively impacted until the likelihood
of the current proposals being enacted into law has been determined.
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 $45.0 million and $18.4
million during 1997 and 1996, respectively. The Company paid cash dividends of
$29.3 million to Kemper during 1997.
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, 1997 and December 31, 1996,
53
<PAGE> 58
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) RELATED-PARTY TRANSACTIONS (CONTINUED)
joint venture mortgage loans totaled $72.7 million and $111.0 million,
respectively, and during 1997, 1996 and 1995, the Company earned interest income
on these joint venture loans of $7.5 million, $9.5 million and $19.6 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 Scudder Kemper Investments, Inc. ("SKI"), formerly Zurich
Kemper Investments, Inc., an affiliated company, and the information systems of
Kemper Service Company ("KSvC"), an SKI subsidiary, based on the Company's share
of administrative, legal, marketing, investment management, information systems
and operation and support services. During 1997, 1996 and 1995, expenses
allocated to the Company from SKI and KSvC amounted to $114 thousand, $1.7
million and $4.4 million, respectively. The Company also paid to SKI investment
management fees of $3.5 million, $3.6 million and $3.4 million during 1997, 1996
and 1995, respectively. In addition, expenses allocated to the Company from FKLA
during 1997, 1996 and 1995 amounted to $30.0 million, $10.5 million and $14.3
million, respectively.
During 1995, the Company sold certain mortgages and real estate-related
investments, net of reserves, amounting to approximately $3.5 million 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 an affiliated non-life
realty subsidiary for cash. The Company also paid to Kemper real estate
subsidiaries $2.2 million, $1.8 million and $1.8 million in 1997, 1996 and 1995,
respectively, 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 Fidelity Life Association, a Mutual
Legal Reserve Company ("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, 1997 and 1996, the reinsurance recoverable related to the
fixed-rate annuity liabilities ceded to FLA amounted to $382.6 million and
$427.2 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. Premiums assumed during 1997 under the
terms of the treaty amounted to $21.1 million and the face amount which remained
outstanding at December 31, 1997 amounted to $12.6 billion.
The Company's retention limit on term life insurance prior to 1997 was $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. Effective January 1, 1997, the Company ceded 90 percent of all new
term life insurance premiums to outside reinsurers. Term life reserves ceded to
outside reinsurers on the Company's direct business amounted to approximately
$139 thousand and $102 thousand as of December 31, 1997 and 1996, respectively.
During December 1997, the Company entered into a funds held reinsurance
agreement with a Zurich affiliated company, EPICENTRE Reinsurance (Bermuda)
Limited ("EPICENTRE"). Under the terms of this
54
<PAGE> 59
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
agreement, the Company ceded, on a yearly renewable term basis, ninety percent
of the net amount at risk (death benefit payable to the insured less the
insured's separate account cash surrender value) related to a new product
developed in 1997, a non-registered variable bank-owned life insurance contract
("BOLI"), which is held in the Company's separate accounts. During 1997, the
Company issued $59.3 billion (face amount) of new BOLI business and ceded $51.1
billion (face amount) to EPICENTRE under the terms of the treaty. During 1997,
the Company also ceded $24.3 million of separate account fees (cost of insurance
charges) to EPICENTRE. The Company has also withheld approximately $23.4 million
of such funds due to EPICENTRE under the terms of the reinsurance agreement as a
component of benefits and funds payable in the accompanying consolidated balance
sheet as of December 31, 1997.
(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 $1.9 million and $1.7 million at December 31, 1997 and 1996,
respectively.
The discount rate used in determining the allocated postretirement benefit
obligation was 7.25 percent and 7.75 percent for 1997 and 1996, respectively.
The assumed health care trend rate used was based on projected experience for
1997 and 1998, 8 percent in 1999, gradually declining to 5.0 percent by the year
2002 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, 1997 and 1996 by $242 thousand and $191 thousand,
respectively.
The Company also provides certain severance-related policies to provide
benefits, generally limited in time, to former or inactive employees after
employment but before retirement.
(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 neither 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.
55
<PAGE> 60
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during the years
1997 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, 1997.
(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK
At December 31, 1997, the Company had future legal loan commitments and
stand-by financing agreements totaling $75.3 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 $21.2
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.
(12) 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 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, SKI.
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 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.
56
<PAGE> 61
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 maturities consistent with those
remaining for the contracts being valued. The Company had projected its future
average crediting rate in 1997 and 1996 to be 5.25 percent and 4.75 percent,
respectively, while the assumed average market crediting rate was 6.0 percent
and 5.8 percent in 1997 and 1996, respectively.
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(in thousands) -------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities.............................. $3,668,643 $3,668,643 $3,866,431 $3,866,431
Cash and short-term investments............... 259,925 259,925 74,472 74,472
Mortgage loans and other real estate-related
assets..................................... 220,046 220,046 267,713 267,713
Policy loans.................................. 282,439 282,439 288,302 288,302
Equity securities............................. 24,839 24,839 9,910 9,910
Other invested assets......................... 20,820 24,404 13,597 13,597
Financial instruments recorded as liabilities:
Life policy benefits, excluding term life
reserves................................... 3,846,023 4,050,852 4,249,264 4,101,588
</TABLE>
(13) 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 1998 is $58.4 million. The
Company paid cash dividends of $29.3 million to Kemper during 1997. The Company
paid no cash dividends in 1996 or 1995.
The Company's net income (loss) and capital and surplus as determined in
accordance with statutory accounting principles were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands) ---- ---- ----
<S> <C> <C> <C>
Net income (loss)........................................... $ 58,372 $ 37,287 $(64,707)
======== ======== ========
Statutory capital and surplus............................... $476,924 $411,837 $383,374
======== ======== ========
</TABLE>
57
<PAGE> 62
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) UNAUDITED INTERIM FINANCIAL INFORMATION
The following table sets forth the Company's unaudited quarterly financial
information:
(in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997 OPERATING SUMMARY
Net investment income.............................. $74,249 $74,050 $72,950 $ 74,946
Realized investment gains (losses)................. 889 8,161 (3,032) 4,528
Premium income..................................... 5,008 4,121 3,938 9,172
Separate account fees and other income............. 8,909 12,961 12,215 62,415(1)
------- ------- ------- --------
Total revenue.............................. 89,055 99,293 86,071 151,061
------- ------- ------- --------
Interest credited and benefits to policyholders.... 57,859 56,643 57,965 55,687
Commissions, taxes, licenses and fees.............. 8,023 9,475 8,389 59,323(1)
Operating expenses................................. 7,175 8,780 10,014 10,868
Net deferral of insurance acquisition costs........ (7,216) (6,877) (7,471) (13,409)
Amortization of value of business acquired......... 4,821 6,991 6,743 6,393
Amortization of goodwill........................... 2,547 2,552 2,549 7,647(2)
------- ------- ------- --------
Total benefits and expenses................ 73,209 77,564 78,189 126,509
------- ------- ------- --------
Income before income tax expense................... 15,846 21,729 7,882 24,552
Income tax expense................................. 5,678 8,723 3,778 13,113
------- ------- ------- --------
Net income................................. $10,168 $13,006 $ 4,104 $ 11,439
======= ======= ======= ========
1996 OPERATING SUMMARY
Net investment income.............................. $72,302 $74,647 $76,070 $ 76,669
Realized investment gains (losses)................. (1,248) (2,439) 13,518 3,771
Premium income..................................... 130 109 150 7,433(3)
Separate account fees and other income............. 8,028 9,419 8,478 9,170
------- ------- ------- --------
Total revenue.............................. 79,212 81,736 98,216 97,043
------- ------- ------- --------
Interest credited and benefits to policyholders.... 58,296 57,335 57,512 64,206
Commissions, taxes, licenses and fees.............. 6,868 6,486 6,819 7,962
Operating expenses................................. 5,440 4,920 6,974 7,344
Net deferral of insurance acquisition costs........ (5,032) (7,302) (5,434) (7,736)
Amortization of value of business acquired......... 4,234 2,787 11,582 2,927
Amortization of goodwill........................... 2,547 2,552 2,549 2,547
------- ------- ------- --------
Total benefits and expenses................ 72,353 66,778 80,002 77,250
------- ------- ------- --------
Income before income tax expense................... 6,859 14,958 18,214 19,793
Income tax expense................................. 3,513 6,402 7,391 8,097
------- ------- ------- --------
Net income................................. $ 3,346 $ 8,556 $10,823 $ 11,696
======= ======= ======= ========
</TABLE>
- ---------------
Notes:
(1) Reflects premium tax expense loads received and premium taxes incurred of
$49.1 million related to new BOLI sales of $2.6 billion in the fourth
quarter of 1997.
(2) Reflects the effect of the change in amortization of goodwill from 25 to 20
years.
(3) Reflects the assumption of term life insurance business from FKLA.
58
<PAGE> 63
APPENDIX A
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.
A-1
<PAGE> 64
PART II
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 Distribution Agreement filed as Exhibit 1.(3)(a) to this
Registration Statement, Kemper Investors Life Insurance Company (KILICO) and the
Separate Account will agree to indemnify LIS Securities (LIS) against any
claims, liabilities and expenses which LIS 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.
LIS 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 LIS or of any
registered representative of an NASD member investment dealer which has an
agreement with LIS 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 LIS) 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.
II-1
<PAGE> 65
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 59 pages.
The undertaking to file reports.
The 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. Steven D. Powell, FSA (Exhibit 6.)
B. PricewaterhouseCoopers, LLP, independent accountants (Exhibit
7.)
C. KPMG Peat Marwick LLP, independent auditors (Exhibit 8.)
The following exhibits:
1. Exhibits required by paragraph A of the instructions to exhibits in Form
N-8B-2:
<TABLE>
<S> <C> <C>
(1) KILICO Resolution establishing the Separate Account(3)
(2) Not Applicable
(3)(a) Form of Distribution Agreement between KILICO and LIS Securities(6)
(3)(b) Specimen Selling Group Agreement of LIS Securities(7)
(3)(c) Not Applicable
(3)(d) General Agent Agreement(2)
(4) Not Applicable
(5)(a) Form of Individual Policy(6)
(5)(b) Form of Survivorship Policy(6)
(5)(c) Extended Maturity Option Rider(5)
(5)(d) Accelerated Death Benefit Option Rider(5)
(6)(a) KILICO Articles of Incorporation(1)
(6)(b) By-Laws of KILICO(2)
(7) Not Applicable
(8)(a) Form of Participation Agreement among KILICO and Evergreen Variable Annuity Trust(4)
(8)(b) Form of Participation Agreement among KILICO and Goldman Sachs Variable Insurance
Trust(7)
(8)(c) Form of Participation Agreement among KILICO and Morgan Stanley Universal Funds,
Inc.(7)
(8)(d) Form of Participation Agreement among KILICO and Variable Insurance Products Fund(7)
(8)(e) Form of Participation Agreement among KILICO and Variable Insurance Products Fund
II(7)
(8)(f) Form of Administrative Services Agreement between KILICO and Bancorp Services
L.L.C.(5)
(9) Not Applicable
(10)(a) Form of Application for Individual Policy(5)
(10)(b) Form of Application for Survivorship Policy(5)
2. Opinion and consent of legal officer of KILICO as to legality of policies being
registered(3)
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Opinion and consent of actuarial officer of KILICO regarding prospectus
illustrations and actuarial matters(6)
7. Consent of PricewaterhouseCoopers, LLP, independent accountants(6)
8. Consent of KPMG Peat Marwick LLP, independent auditors(6)
9. Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii)(7)
10. Illustrations of Cash Value, Surrender Value and Death Benefit(6)
</TABLE>
II-2
<PAGE> 66
- -------------------------
(1) Filed with the Registration Statement of the Registrant on Form S-6 filed on
or about December 26, 1995 (File No. 33-65399).
(2) Filed with Amendment No. 2 to the Registration Statement on Form S-1 (File
No. 333-02491) filed on or about April 23, 1997.
(3) Filed with the Registration Statement of the Registrant on Form S-6 filed on
or about September 8, 1997 (File No. 333-35159).
(4) Filed with Pre-Effective Amendment No. 1 to the Registration Statement of
the Registrant on Form S-6 filed on or about December 5, 1997 (File No.
333-35159).
(5) Filed with Post-Effective Amendment No. 1 to the Registration Statement of
the Registrant of Form S-6 filed on or about April 27, 1998 (File No.
333-35159).
(6) Filed herewith.
(7) To be filed by amendment.
II-3
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
KILICO Variable Separate Account-2, has duly caused this Amendment to the
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 24th
day of August, 1998.
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 Amendment
to the 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 24th day of August, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/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/ ELIANE C. FRYE Director
- -----------------------------------------------
Eliane C. Frye
/s/ JAMES E. HOHMANN Director
- -----------------------------------------------
James E. Hohmann
/s/ MARKUS ROHRBASSER Director
- -----------------------------------------------
Markus Rohrbasser
</TABLE>
II-4
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<S> <C>
1.(3)(a) Form of Distribution Agreement between KILICO and LIS
Securities
1.(5)(a) Form of Individual Policy
1.(5)(b) Form of Survivorship Policy
6. Opinion and consent of actuarial officer of KILICO regarding
prospectus illustrations and actuarial matters
7. Consent of PricewaterhouseCoopers, LLP, independent
accountants
8. Consent of KPMG Peat Marwick LLP, independent auditors
10. Illustrations of Cash Value, Surrender Value and Death
Benefit
</TABLE>
<PAGE> 1
EXHIBIT 1.(3)(a)
FORM OF DISTRIBUTION AGREEMENT BETWEEN KILICO AND LIS SECURITIES
<PAGE> 2
FORM OF DISTRIBUTION AGREEMENT
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. Additional Definitions..............................................2
SECTION 2. Distribution Activities -- Authority................................3
SECTION 3. Distribution Activities -- Appointment..............................5
SECTION 4. Distribution Activities -- Duties...................................6
SECTION 5. Limitations on Authority............................................7
SECTION 6. Sales Agreements....................................................7
SECTION 7. Forms, Applications, and Licensing..................................8
SECTION 8. Marketing Materials.................................................9
SECTION 9. The Distributor's Compensation.....................................11
SECTION 10. Representations and Warranties.....................................12
SECTION 11. Indemnification....................................................14
SECTION 12. Records............................................................20
SECTION 13. Investigations and Proceedings.....................................20
SECTION 14. Term and Termination...............................................21
SECTION 15. Rights Upon Termination............................................22
SECTION 16. Independent Contractor.............................................23
SECTION 17. Notices............................................................24
SECTION 18. Arbitration........................................................25
SECTION 19. Confidentiality....................................................25
SECTION 20. Severability.......................................................26
SECTION 21. Choice of Law......................................................27
SECTION 22. No Waiver..........................................................27
SECTION 23. Agreement Non-Assignable...........................................27
SECTION 24. Exhibits and Schedules.............................................27
SECTION 25. Headings...........................................................27
SECTION 26. Entire Agreement...................................................27
</TABLE>
i
<PAGE> 4
DISTRIBUTION AGREEMENT
AGREEMENT made as of the _____ day of _______________, 1998, by and
between Kemper Investors Life Insurance Company, an Illinois insurance company
(the "Insurance Company") and Life Insurance Solutions, LLC, a Delaware limited
liability company d/b/a LIS Securities (the "Distributor"), on its own behalf
and on behalf of the individuals and entities listed on Schedule 1 to this
Agreement (the "Distributor Agency Affiliates"), as that Schedule may be amended
from time to time in accordance with this Agreement.
RECITALS:
WHEREAS, the Insurance Company issues certain variable annuity
contracts and variable life insurance policies; and
WHEREAS, [redacted] certain other variable annuity contracts and
variable life insurance policies issued by the Insurance Company are being
offered and sold pursuant to Registration Statements (the "Registered Products")
and their related Prospectuses filed with and declared effective by the
Securities and Exchange Commission (the "Commission") under the provisions of
the 1933 Act and the 1940 Act [redacted] and the "Registered Products" are
referred to as the "Variable Products") (Variable Products are identified in
Schedule 2 to this Agreement); and
WHEREAS, the Distributor is registered as a broker-dealer with the
Commission under the Securities Act of 1934, as amended (the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD") that engages in the distribution of insurance products; and
WHEREAS, the Insurance Company desires to retain the Distributor to
distribute the Variable Products through registered broker-dealers
("Broker-Dealers") and their registered representatives ("Representatives"); and
WHEREAS, the Distributor desires to be retained by the Insurance
Company to distribute the Variable Products on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of mutual promises contained herein,
the parties hereto agree as follows:
<PAGE> 5
1. ADDITIONAL DEFINITIONS
(a) AFFILIATE -- With respect to a person, any other person
controlling, controlled by, or under common control with, such person.
(b) APPLICATIONS -- The forms used by the prospective purchaser to
apply for a variable life insurance policy or a variable annuity
contract.
(c) CONTRACTS -- The variable annuity contracts and certificates set
forth in Schedule 2 to this Agreement as in effect at the time this
Agreement is executed, and such other variable annuity products that
may be added to Schedule 2 from time to time.
(d) POLICIES -- The variable life insurance policies set forth in
Schedule 2 to this Agreement as in effect at the time this Agreement is
executed, and such other variable life insurance products that may be
added to Schedule 2 from time to time.
(e) PREMIUM -- A payment made under a Policy by an applicant or
purchaser to purchase Variable Products.
(f) [redacted]
(g) [redacted]
(h) [redacted]
(i) PROSPECTUS -- The prospectus if any, included within a
Registration Statement or, if more recent, the prospectus filed
pursuant to Rule 497 under the 1933 Act. For purposes of Section 11 of
this Agreement, the term "any Prospectus" means any document which is
or at any time was a Prospectus within the meaning of this Section
1(i).
(j) PURCHASE PAYMENT -- A payment made under a Contract by an
applicant or purchaser to purchase benefits under the Contract.
(k) REGISTRATION STATEMENT -- At any time that this Agreement is in
effect, each currently effective registration statement, or currently
effective post-effective amendment thereto, relating to the Contracts
or Policies, including financial statements included in, and all
exhibits to, that registration statement or post-effective amendment.
For purposes of Section 11 of this Agreement, the term "Registration
Statement" means
2
<PAGE> 6
any document which is or at any time was a Registration Statement
within the meaning of this Section 1(k).
(l) REGULATIONS -- The rules and regulations promulgated by the
Commission under the 1933 Act, the 1934 Act and the 1940 Act as in
effect at the time this Agreement is executed or thereafter
promulgated.
(m) VARIABLE ACCOUNTS -- Separate accounts established pursuant to
Illinois state insurance law supporting the Variable Products specified
in Schedule 2 as in effect at the time this Agreement is executed, or
as it may be amended from time to time.
2. DISTRIBUTION ACTIVITIES -- AUTHORITY
(a) The Insurance Company authorizes the Distributor, and the
Distributor accepts the authority, to act as a distributor of the
Variable Products, subject to any applicable requirements of the 1933
Act and the 1940 Act.
The Insurance Company hereby authorizes the Distributor to
select persons that will be authorized to engage in solicitation
activities with respect to the Variable Products, including the
recruitment and appointment of Broker-Dealers and Representatives which
in turn may be authorized to engage in solicitation activities
involving the solicitation of Applications, Premiums and Purchase
Payments directly from prospective purchasers.
The Distributor shall enter into separate written "Sales
Agreements" with Broker-Dealers for distribution of the Variable
Products. The Distributor shall notify the Insurance Company of its
intention to enter into a Sales Agreement with a Broker-Dealer by
providing to the Insurance Company a copy of that Sales Agreement at
least five (5) business days prior to the date on which the Sales
Agreement is to be executed by the parties thereto. The Distributor
shall not enter into a Sales Agreement with a Broker-Dealer if the
Insurance Company reasonably objects within five (5) days after
delivery of the proposed Sales Agreement with the Broker-Dealer by
notifying the Distributor of its objection and reasons therefor in
writing.
(b) The Insurance Company shall not offer for sale or sell any
Variable Products to or through any of the persons listed on Schedule 4
to this Agreement, as that Schedule may be amended from time to time,
or any of the successors or assigns of those persons, or to or through
any affiliate of such person other than sales (through Broker-Dealers
or directly) pursuant to this Agreement without the prior written
consent of the
3
<PAGE> 7
Distributor. It is understood that Schedule 4 will be re-evaluated each
year after the effective date of this Agreement and will be amended to
add persons with whom a Sales Agreement has been executed (or is
expected to be executed within one year of the annual re-evaluation) or
to delete persons for which no Sales Agreement has been executed during
the one year or longer period that person has been listed on Schedule
4.
(c) Nothing in this Agreement precludes additional distribution and
compensation arrangements among the parties to this Agreement,
including ones that may have compensation arrangements that reward the
Insurance Company for identifying and recruiting new Broker-Dealers to
sell the Variable Products, for identifying potential purchasers of the
Variable Products, or for providing superior support under this
Agreement.
3. DISTRIBUTION ACTIVITIES -- APPOINTMENT
(a) Where required by applicable state insurance law, the Insurance
Company hereby appoints the Distributor as its agent under that state
insurance law to represent the Insurance Company in the distribution
activities contemplated by this Agreement. The Insurance Company hereby
authorizes the Distributor under applicable securities laws to engage
in the activities contemplated by this Agreement relating to the
distribution of the Variable Products.
(b) In states where the Distributor is not licensed as an insurance
agent and applicable state insurance law requires that the Distributor
be so licensed, the Insurance Company hereby appoints each Distributor
Agency Affiliate listed on Schedule 1 to this Agreement (as that
Schedule may be amended from time to time by the Distributor when
required by applicable state insurance law to reflect changes in the
licensing status of the Distributor or the Distributor Agency
Affiliates) as its agent under applicable state insurance laws to
represent the Insurance Company in the distribution activities
contemplated by this Agreement.
(c) The Distributor is hereby vested with the power and authority to
authorize Broker-Dealers to recommend Representatives for appointment
as agents of the Insurance Company. The Insurance Company shall appoint
in the appropriate states or jurisdictions the Representatives
recommended by the Broker-Dealers, provided that the Insurance Company
reserves the right, which right shall not be exercised unreasonably, to
refuse to appoint as agent any Representative, and, once appointed, to
terminate the same at any time for cause. The Distributor shall submit
to the Insurance
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<PAGE> 8
Company a "certificate of good standing" executed by a principal of the
Broker-Dealer for each Representative recommended for appointment. The
Insurance Company shall notify the Distributor of its intent to
terminate a Representative and the reasons therefor not less than two
(2) business days prior to delivering any notice of termination to the
Representative and the Broker-Dealer with whom the Representative is
associated.
(d) The Insurance Company shall not enter into any agent or agency
agreement (an "Agent Agreement") with any Representative,
Broker-Dealer, or affiliate (contractual or otherwise) of a
Broker-Dealer (a "Broker-Dealer Affiliate") in connection with this
Agreement for the sale of the Variable Products, unless that Agent
Agreement (i) is substantially identical to the form of Agent Agreement
attached hereto as Schedule 7 or (ii) is approved by the Distributor,
provided that the approval of the Distributor shall be deemed to have
been given if no written objection to the Agent Agreement has been
delivered by the Distributor to the Insurance Company within five (5)
business days after being provided with a copy of the proposed Agent
Agreement. After entering into an Agent Agreement, the Insurance
Company shall not amend or supplement that agreement without the
Distributor's prior written consent, which consent shall not be
unreasonably withheld. The Insurance Company shall notify the
Distributor of its intent to terminate an Agent Agreement and the
reasons therefor not less than two (2) business days prior to
delivering any notice of termination to the other party to that
agreement.
4. DISTRIBUTION ACTIVITIES -- DUTIES
(a) The Distributor shall use its best efforts to market the Variable
Products actively through Broker-Dealers and Representatives in
accordance with the terms and conditions of this Agreement, subject to
applicable material market and regulatory conditions.
(b) The Distributor shall assist and provide information to
Broker-Dealers and Representatives in connection with servicing the
Variable Products sold or marketed by those Broker-Dealers
Representatives.
(c) Under no circumstances shall the Insurance Company or the
Distributor be responsible under this Agreement for any failure by
Broker-Dealers or Representatives to comply with applicable law.
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<PAGE> 9
(d) Under no circumstances shall the Distributor be responsible under
this Agreement for any failure by the Insurance Company to comply with
applicable law.
(e) Under no circumstances shall the Insurance Company be responsible
under this Agreement for any failure by the Distributor to comply with
applicable law.
5. LIMITATIONS ON AUTHORITY
(a) The Distributor shall not have the authority, and shall not grant
authority to Broker-Dealers or Representatives, on behalf of the
Insurance Company:
(1) to make, alter or discharge any Variable Product or other
contract entered into pursuant to a Variable Product;
(2) to waive any Variable Product forfeiture provision;
(3) to extend the time of paying any Purchase Payments, or
Premiums due under the Variable Products; and
(4) to receive any monies, Purchase Payments or Premiums (except
for the sole purpose of forwarding monies, Purchase Payments or
Premiums to the Insurance Company).
(b) The Distributor shall not expend, nor contract for the
expenditure of, funds of the Insurance Company.
(c) The Distributor shall not possess or exercise any authority on
behalf of the Insurance Company other than that expressly conferred on
the Distributor by this Agreement.
6. SALES AGREEMENTS
(a) The Distributor shall not enter into any Sales Agreement with a
Broker-Dealer relating to the distribution of any Variable Product,
unless that Sales Agreement (i) is substantially identical to the form
of Sales Agreement attached hereto as Schedule 8 or (ii) is approved by
the Insurance Company, provided that the approval of the Insurance
Company shall be deemed to have been given if no written objection to
the Sales Agreement has been delivered by the Insurance Company to the
Distributor within five
6
<PAGE> 10
(5) business days after being provided by facsimile or express courier
with a copy of the proposed Sales Agreement.
(b) The Distributor shall provide to the Insurance Company a copy of
each Sales Agreement entered into by the Distributor and a
Broker-Dealer within five (5) business days following execution
thereof.
7. FORMS, APPLICATIONS, AND LICENSING
(a) The Insurance Company, or its agent, shall forward to the
Distributor, Applications, Policies, Contracts, subscription
agreements, certificates, other administrative forms, and any
amendments or supplements to the foregoing, necessary to carry out the
Distributor's distribution authority and responsibilities with respect
to the Variable Products.
(b) The Insurance Company shall obtain all requisite regulatory
approvals of such materials furnished to the Distributor and shall
comply with all applicable laws, rules, regulations and orders of any
governmental authority relating to the issuance or sale of the Variable
Products.
(c) All Premiums and Purchase Payments paid by check or money order
that are collected by the Distributor, any Broker-Dealer or
Representative shall be remitted promptly, and in any event not later
than two business days, in full, together with any subscription
agreements, Applications, forms, and any other required documentation,
to the Insurance Company. Checks or money orders in payment of Premiums
and Purchase Payments shall be drawn to the order of "Kemper Investors
Life Insurance Company." Premiums and Purchase Payments may be
transmitted by wire order from the purchaser of the Variable Products,
Broker-Dealer or any Representative to the Insurance Company. If any
Premium or Purchase Payment is held at any time by the Distributor,
Broker-Dealer, or any Representative, the Distributor, Broker-Dealer,
or Representative shall hold that Premium or Purchase Payment in a
fiduciary capacity. All Premiums and Purchase Payments whether by
check, money order or wire, shall be the property of the Insurance
Company.
(d) The Distributor acknowledges that the Insurance Company shall
have the unconditional right to reject, in whole or in part, any
Application. The Insurance Company shall return any monies received by
it from an applicant or purchaser whose Application has been rejected.
The Insurance Company shall notify the Distributor in writing one
business day prior to taking any action to return any such monies,
which
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<PAGE> 11
notice shall identify, if applicable, the Broker-Dealer whose
Representative submitted the rejected Application.
(e) If a purchaser exercises its "free look right" under a Variable
Product, any refund of Premiums or Purchase Payments, due as provided
in that Variable Product, shall be made by the Insurance Company to the
purchaser. The Insurance Company shall notify the Distributor in
writing one business day prior to taking any action to refund any such
Premiums or Purchase Payments, which notice shall identify, if
applicable, the Broker-Dealer through which the Variable Product had
been purchased.
8. MARKETING MATERIALS
(a) REGISTERED PRODUCTS
(1) The Distributor shall design, develop, produce, make the
determination whether to file and, if necessary, file for and
obtain all necessary regulatory approvals for, all advertising,
sales literature, and other promotional material (which shall not
be deemed to include any Prospectus) required in connection with
its distribution of the Registered Products.
(2) Prior to use of any advertising, sales literature, or other
promotional material for the Registered Products, the following
procedures shall be observed:
(i) The Distributor shall provide to the Insurance Company
copies of all advertising, sales literature, and other
promotional material developed by the Distributor at least
10 days prior to first use;
(ii) The Insurance Company shall have the right to
disapprove use of any such promotional material, provided
that written notice of the disapproval and basis therefor is
provided to the Distributor within 10 days of receipt by the
Insurance Company of the promotional material;
(iii) If any advertising, sales literature, or other
promotional material names an investment company or an
investment company's investment adviser, the Distributor
shall furnish such material to that investment company or
that investment company's distributor or investment adviser,
and written approval shall be obtained from that investment
company or its distributor or investment adviser before use
or authorization of use by the Broker-Dealers or
Representatives;
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<PAGE> 12
(iv) Any advertising, sales literature, or other promotional
material relating to the Registered Products required to be
filed with the Commission, NASD Regulation, Inc. ("NASDR"),
and any other appropriate securities and insurance
regulatory authorities, shall be timely filed by the
Distributor. The Distributor shall provide the Insurance
Company with a copy of any comments provided by the NASDR or
any securities or insurance regulatory authority on such
material, and the Insurance Company will cooperate in
resolving and implementing any comments, as applicable.
(b) [redacted]
(c) ALLOCATION OF COSTS
(1) The Distributor shall pay for the development and printing
of all advertising, sales literature, and other promotional
material (other than those materials set forth in paragraph 2,
below) and all fees related to NASDR filings. The Distributor
shall also bear the cost of printing and distributing to
prospective purchasers of Variable Contracts or to owners of
Variable Contracts all Prospectuses (including, for this purpose,
prospectuses of registered open-end management investment
companies that serve as funding media for the Variable Contracts,
to the extent not paid by those investment companies) [redacted].
(2) The Insurance Company shall bear the cost of registration
and qualification of the Registered Products; [redacted] the
preparation and filing of all Prospectuses and Registration
Statements; setting the Prospectuses [redacted] in type; the
preparation, filing, printing, and distributing to existing
owners of Policies or Contracts of any proxy materials and
reports and of all statements and notices required by any state
or federal law.
(3) The Insurance Company shall bear the cost of any review by
it, or on its behalf, of any advertising, sales literature, or
other promotional material.
(4) The Distributor shall bear the cost of any review by it, or
on its behalf, of any Prospectuses or [redacted].
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<PAGE> 13
9. THE DISTRIBUTOR'S COMPENSATION
(a) With respect to [redacted] sales of all other Variable Contracts
made on or after the effective date of this Agreement, in consideration
for the services rendered by the Distributor, the Insurance Company
will pay to the Distributor the compensation set forth in Schedule 5
(Part A) to this Agreement, as that schedule may be amended from time
to time, provided, that, any such amendments are in writing and signed
by the parties. [redacted]
(b) [redacted]
10. REPRESENTATIONS AND WARRANTIES
(a) BY THE DISTRIBUTOR
The Distributor represents and warrants to, and covenants with,
the Insurance Company as follows:
(1) The Distributor has taken all action necessary including
without limitation, those necessary under its articles of
incorporation, by-laws and applicable state corporate law, to
authorize the execution, delivery and performance of this
Agreement and all transactions contemplated hereunder.
(2) The Distributor is and shall remain registered during the
term of this Agreement as a broker-dealer under the 1934 Act, a
member in good standing of the NASD, and duly registered under
applicable state securities laws.
(3) The Distributor is and shall remain during the term of this
Agreement in compliance with the eligibility requirements for
certain affiliated persons and underwriters found in Section 9(a)
of the 1940 Act.
(4) The Distributor and each Distributor Agency Affiliate has
all necessary licenses and regulatory approvals to perform the
services required by this Agreement and that the Distributor will
notify the Insurance Company within three business days of
obtaining actual knowledge of any change in the status of such
licenses or regulatory approvals.
(5) The Distributor has, or will have, the authority to bind the
Distributor Agency Affiliates to the terms of this Agreement.
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<PAGE> 14
(b) BY THE INSURANCE COMPANY
The Insurance Company represents and warrants to, and covenants
with, the Distributor as follows:
(1) All necessary regulatory approvals and licenses from any
state or federal governmental body having jurisdiction over the
Insurance Company or the Variable Products have been obtained,
and the Insurance Company will notify the Distributor within one
business day of obtaining actual knowledge of any change in the
status of any approvals or licenses related to the marketing,
sale or distribution of the Variable Products.
(2) The Insurance Company has taken all action necessary
including, without limitation, those necessary under its articles
of incorporation, bylaws and applicable state corporate law, to
authorize the execution, delivery and performance of this
Agreement and all transactions contemplated hereunder.
(3) The Insurance Company is and shall remain during the term of
this Agreement in compliance with the eligibility requirements
for certain affiliated persons and underwriters found in Section
9(a) of the 1940 Act.
(4) [redacted]
11. INDEMNIFICATION
(a) BY THE DISTRIBUTOR
(1) The Distributor agrees to indemnify and hold harmless the
Insurance Company and each director, officer, employee or agent
of the Insurance Company, and each person, if any, who controls
the Insurance Company within the meaning of the federal
securities laws (collectively, the "Indemnified Parties" for
purposes of this Section 11(a)) against any and all losses,
claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Insurance Company) or
litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are
11
<PAGE> 15
related to the offer or sale of the Variable Products or the
operation of the Variable Accounts and:
(i) arise out of, or are based upon, violation(s) by the
Distributor of federal or state securities law(s) or
regulation(s), applicable banking law(s) or regulation(s),
insurance law(s) or regulation(s) or any rule or requirement
of the NASD; or
(ii) arise out of, or are based upon, any oral or written
misrepresentation, or any unlawful sales practices
concerning the Variable Products by the Distributor; or
(iii) arise out of, or are based upon, any untrue statement
or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading, in light of the circumstances in which they
were made, contained in any advertising, sales literature,
or other promotional material designed, developed, and
produced by the Distributor and used by it in the
distribution of the Variable Products; provided that the
Distributor shall not be liable in any such case to the
extent that such losses, claims, damages, liabilities or
expenses arises out of, or are based upon, an untrue
statement or alleged untrue statement or omission or alleged
omission made in reliance upon information furnished in
writing to the Distributor by the Insurance Company
specifically for use in the preparation of any such
promotional material; or
(iv) arise out of, or are based upon, claims by the
Representatives or agents or representatives of the
Distributor for commissions or other compensation or
remuneration of any type; or
(v) arise as a result of any failure on the part of the
Distributor to submit Premiums, Purchase Payments, or
Applications to the Insurance Company, or to submit the
correct amount of a Premium or Purchase Payment, on a timely
basis and in accordance with this Agreement, subject to
applicable law; or
(vi) arise as a result of any failure on the part of the
Distributor to deliver the Variable Products to purchasers
thereof on a timely basis;
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<PAGE> 16
provided that the Distributor shall not be liable in any
such case to the extent that such losses, claims, damages,
liabilities or expenses arise as a result of any failure on
the part of the Insurance Company to perform its obligations
under this Agreement on a timely basis; or
(vii) arise as a result of a material breach by the
Distributor of any provisions of this Agreement; or
(viii) arise as a result of actions of a Broker-Dealer or
its Representatives, if, and to the extent that, the
Distributor has received monies from the Broker-Dealer as
indemnification for losses by, or expenses incurred by, the
Insurance Company;
as limited by and in accordance with the provisions of Sections
11(a)(2) and 11(a)(3) hereof.
(2) The Distributor shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation ("Losses" for purposes of this
Section 11(a)(2)) incurred or assessed against an Indemnified
Party that may arise from any Indemnified Party's willful
misfeasance or bad faith. The Distributor's liability for Losses
in the event of its breach of this Agreement shall be limited to
that portion of Losses caused by its breach, and the Distributor
shall not be liable for that portion of Losses caused by breach
of this Agreement by an Indemnified Party or from any act or
omission by an Indemnified Party.
(3) The Distributor shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless that Indemnified Party shall have
notified the Distributor in writing within five (5) business days
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have
received notice of such service on any designated agent).
Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the
Distributor of its obligations hereunder except to the extent
that the Distributor has been prejudiced by such failure to give
notice. In addition, any failure by the Indemnified Party to
notify the Distributor of any such claim shall not relieve the
Distributor from any liability which it may have to the
Indemnified Party against whom the action is brought otherwise
than on account of this indemnification
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<PAGE> 17
provision. In case any such action is brought against the
Indemnified Parties, the Distributor shall be entitled to
participate, at its own expense, in the defense of the action.
The Distributor also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action; provided, however, that if the Indemnified Party shall
have reasonably concluded that there may be defenses available to
it which are different from or additional to those available to
the Distributor, the Distributor shall not have the right to
assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Distributor be liable for the
fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the
same general allegations or circumstances). After notice from the
Distributor to the Indemnified Party of the Distributor's
election to assume the defense thereof, and in the absence of
such a reasonable conclusion that there may be different or
additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Distributor will not
be liable to that party under this Agreement for any legal or
other expenses subsequently incurred by the party independently
in connection with the defense thereof other than reasonable
costs of investigation.
(4) The Indemnified Parties will notify the Distributor within
five (5) business days of the commencement of any litigation or
proceedings against them in connection with the offer or sale of
the Variable Products or the operation of the Variable Accounts.
(b) BY THE INSURANCE COMPANY
(1) The Insurance Company agrees to indemnify and hold harmless
the Distributor and each director, officer, employee or agent of
the Distributor, and each person, if any, who controls the
Distributor within the meaning of the federal securities laws
(collectively, the "Indemnified Parties" for purposes of this
Section 11(b)) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Insurance Company) or litigation
(including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the offer or sale of the Variable
Products or the operation of the Variable Accounts and arise out
of or a result from:
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<PAGE> 18
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact or omission or
alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading, in light of the circumstances in which they
were made, contained in any: (a) Registration Statement or
Prospectus; (b) blue-sky application or other document
executed by the Insurance Company specifically for the
purpose of [redacted] qualifying any or all of the
Registered Products for sale under, the securities laws of
any jurisdiction; or (c) information furnished in writing to
the Distributor specifically for the purpose of being
included in any advertising, sales literature, or other
promotional material to be used in connection with the
distribution of the Variable Products; provided that the
Insurance Company shall not be liable in any such case to
the extent that such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, an untrue
statement or alleged untrue statement or omission or alleged
omission made in reliance upon information furnished in
writing to the Insurance Company by the Distributor
specifically for use in the preparation of any such
document, application, or promotional material; or
(ii) result because of the provisions of any Variable
Product or because of any material breach by the Insurance
Company of any provision of this Agreement or of any
Variable Product or which result from any activities of the
Insurance Company's officers, directors, employees or agents
or their failure to take any action in connection with the
sale, processing or administration of the Variable Products
including, without limitation, obtaining auditors' reports,
computing accurate separate account and/or underlying fund
performance data, preparation and timely filing and
delivery, as required, of annual and semiannual reports and
reports on Form N-SAR and the timely payment of all state
and federal registration fees;
as limited by and in accordance with the provisions of Sections
11(b)(1) and 11(b)(2) hereof.
(2) The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation ("Losses" for purposes of this
Section 11(b)(2)) incurred or assessed against an
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<PAGE> 19
Indemnified Party that may arise from any Indemnified Party's
willful misfeasance or bad faith. The Insurance Company's
liability for Losses in the event of its breach of this Agreement
shall be limited to that portion of Losses caused by its breach,
and that party shall not be liable for that portion of Losses
caused by breach of this Agreement by an Indemnified Party or
from any act or omission by an Indemnified Party.
(3) The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless that Indemnified Party shall have
notified the Insurance Company in writing within five (5)
business days after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon that Indemnified Party (or after the Indemnified
Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of
any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except
to the extent that the Insurance Company has been prejudiced by
such failure to give notice. In addition, any failure by the
Indemnified Party to notify the Insurance Company of any such
claim shall not relieve the Insurance Company from any liability
which it may have to the Indemnified Party against whom the
action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Insurance Company shall be
entitled to participate, at its own expense, in the defense of
the action. The Insurance Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the
party named in the action; provided, however, that if the
Indemnified Party shall have reasonably concluded that there may
be defenses available to it which are different from or
additional to those available to the Insurance Company, the
Insurance Company shall not have the right to assume said
defense, but shall pay the costs and expenses thereof (except
that in no event shall the Insurance Company be liable for the
fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the
same general allegations or circumstances). After notice from the
Insurance Company to the Indemnified Party of the Insurance
Company's election to assume the defense thereof, and in the
absence of such a reasonable conclusion that there may be
different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Insurance Company
will not be liable to that party under this Agreement for any
legal or other expenses subsequently incurred by
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the party independently in connection with the defense thereof
other than reasonable costs of investigation.
(4) The Indemnified Parties will notify the Insurance Company
within five (5) business days of the commencement of any
litigation or proceedings against them in connection with the
offer or sale of the Variable Products or the operation of the
Variable Accounts.
12. RECORDS
The Insurance Company and the Distributor each shall maintain such
accounts, books and other documents as are required to be maintained by each of
them by applicable laws and regulations and shall preserve such accounts, books
and other documents for the periods prescribed by such laws and regulations. The
accounts, books and records of the Insurance Company as to all transactions
hereunder shall be maintained so as to clearly and accurately disclose the
nature and details of the transactions, including such accounting information as
necessary to support the reasonableness of the amounts paid by the Insurance
Company hereunder. Each party shall have the right to inspect and audit such
accounts, books and records of the other party during normal business hours upon
reasonable written notice to the other party. Any party that requests an audit
of the accounts, books and records of the other party shall bear the expense of
conducting such an audit, including the expenses of the other party reasonably
incurred in connection with the audit, but not including the costs associated
with the time spent on audit-related matters by directors, officers, or
employees of the other party and the associated overhead expenses incurred by
such party.
13. INVESTIGATIONS AND PROCEEDINGS
(a) COOPERATION
The Distributor and the Insurance Company shall notify each other
promptly of and cooperate fully in any insurance regulatory
investigation or proceeding or judicial proceeding arising in
connection with the offering, sale or distribution of the Variable
Products pursuant to this Agreement. Further, the Distributor and the
Insurance Company shall cooperate fully in any securities regulatory
investigation or proceeding or judicial proceeding with respect to the
Insurance Company, the Distributor, their affiliates, agents or
employees to the extent that such investigation or proceeding is in
connection with the offering, sale or distribution of the Variable
Products pursuant to this Agreement.
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(b) COMPLAINTS
The Insurance Company and the Distributor shall notify each other
promptly of any complaint received by any party with respect to the
Insurance Company, the Distributor or any of their affiliates, agents
or employees or which may affect the Insurance Company's issuance of
any Variable Product marketed under this Agreement. In the case of a
substantive complaint, the Distributor and the Insurance Company shall
cooperate in investigating such complaint and any such response by any
party to such complaint shall be sent to the other party for written
approval not less than five (5) business days prior to its being sent
to the complainant or any regulatory authority. In any event, neither
party shall release any such response without the other party's prior
written approval.
14. TERM AND TERMINATION
(a) TERM --This Agreement shall be effective from the date hereof
through December 31, 2001, which term shall automatically be extended
for a period of three years and tri-annually thereafter for an
additional period of three years until this Agreement is sooner
terminated in accordance with the terms of the Agreement.
(b) TERMINATION -- No party hereto may terminate this Agreement
except as expressly provided in this Section 14(b).
(1) Any party hereto may terminate this Agreement effective the
date that the term of this Agreement would otherwise
automatically be renewed upon written notice delivered to the
other party not less than 30 nor more than 60 days prior to such
effective date, which notice shall specify that it is being given
pursuant to this Section 14(b)(1).
(2) A party (the "Terminating Party") may terminate this
Agreement for cause if:
(i) another party (the "Breaching Party") materially
breaches this Agreement,
(ii) the Terminating Party has delivered to the Breaching
Party a notice specifying that it is a notice of breach
being given pursuant to this Section 14(b)(2), and
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<PAGE> 22
(iii) the Breaching Party has not cured that breach within
30 days after the delivery of the notice.
(3) A Terminating Party may terminate this Agreement for cause
(upon 30 days' written notice to the other party) if, as a result
of
(i) the voluntary institution by the Distributor of
bankruptcy proceedings or the voluntary institution by the
Insurance Company of insolvency or rehabilitation
proceedings under any state insurance laws or regulations
(each an "Insolvent Party") or
(ii) a formal order or written finding by a court of
competent jurisdiction that the Insolvent Party is bankrupt
or insolvent,
there is a degradation of the Insolvent Party's reputation that
would materially impair the ability of the Insolvent Party to
carry out its obligations under this Agreement.
(c) SOLICITATION AFTER TERMINATION -- Upon termination of this
Agreement for any reason, the Distributor agrees that it will not take
any action designed or calculated to result in the transfer or exchange
of Contracts or Policies.
(d) SURVIVAL -- The provisions of Sections 10, 11, 18 and 19
(Representations and Warranties, Indemnification, Arbitration and
Confidentiality, respectively) shall survive the termination of this
Agreement.
15. RIGHTS UPON TERMINATION
(a) In no event will any further compensation be paid to the
Distributor should the Insurance Company terminate this Agreement for
cause pursuant to Section 14(b)(2) or Section 14(b)(3).
(b) As of the date of termination, the Insurance Company shall have
the right to set off against any monies it owes the Distributor any
amounts owed by the Distributor to the Insurance Company. In the event
that the amounts owed by the Distributor exceed the amounts owed by the
Insurance Company, the difference shall become immediately due and
payable by the Distributor.
19
<PAGE> 23
(c) In the event that either party does not pay within two weeks
after termination the net amount it owes, then the net amount owed will
accrue interest, compounded daily, at the fluctuating prime interest
rate charged by [redacted].
(d) [redacted]
(e) If the Insurance Company terminates this Agreement pursuant to
Section 14(b)(1), the Insurance Company, after the termination of this
Agreement, shall continue to:
(1) pay the Distributor the compensation set forth in Schedule 5
to this Agreement; and
(2) offer all of the Variable Products identified on Schedule 2
to this Agreement for a period of not less than one (1) year from
the date of termination of this Agreement, during which period of
time (i) the Insurance Company shall employ at least the same
level of efforts in offering and supporting the Variable Products
as it did before the termination of this Agreement and (ii) the
terms of this Agreement shall remain in full force and effect as
though the Agreement had not been terminated.
(f) If the Distributor terminates this Agreement pursuant to Section
14(b)(1), the Insurance Company, after the termination of this
Agreement, shall continue to pay the Distributor the compensation set
forth in Schedule 5 to this Agreement.
16. INDEPENDENT CONTRACTOR
The Distributor shall act as an independent contractor in the
performance of its duties and obligations under this Agreement and nothing
herein contained shall constitute the Distributor, Broker-Dealers,
Representatives or employees or officers of the Distributor or Broker-Dealers as
employees of the Insurance Company in connection with the distribution of the
Variable Products.
17. NOTICES
Any notice required or permitted under this Agreement shall be
delivered personally or sent by facsimile or by registered or certified mail,
return receipt requested, with all postage prepaid:
20
<PAGE> 24
(a) TO THE DISTRIBUTOR:
LIS Securities
One Chase Manhattan Plaza
New York, New York 10005
Attention: Michael Hartnett
Fax: (212) 859-2671
(b) TO THE INSURANCE COMPANY:
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
Attention: General Counsel
Fax: (847) 969-3529
A party may change its address or fax number for the delivery of
notices by delivering a written notice to the other party at its last specified
address. All notices shall be effective upon delivery; provided that any notice
sent by facsimile shall be deemed ineffective unless a copy of the notice is
also delivered personally or sent by express courier or mail for delivery on the
same or next business day.
18. ARBITRATION
Any dispute between the Distributor and the Insurance Company arising
under or relating to this Agreement shall be settled by compulsory arbitration
before a panel of three (3) arbitrators in accordance with the Commercial
Arbitration Rules then in force of the American Arbitration Association. The
arbitration shall take place in Chicago, Illinois, unless some other location is
mutually agreed upon by the parties in dispute. Each party shall bear its own
costs and expenses in any such arbitration, except that the Distributor and the
Insurance Company shall bear the expenses of the arbitrators' services equally.
19. CONFIDENTIALITY
(a) GENERALLY. Each party will hold the other party's Confidential
Information (as defined below) in confidence and will safeguard it as
provided herein. The party receiving Confidential Information will not,
directly or indirectly, report, publish, distribute, disclose, or
otherwise disseminate the Confidential Information, or any portion
thereof, to any third party including its affiliates, and will not use
the
21
<PAGE> 25
Confidential Information, or any portion thereof, for the benefit of
itself or any third party including its affiliates or for any purpose,
except only as necessary to perform its duties and exercise its rights
hereunder, or as expressly authorized in writing by the party who owns
such Confidential Information. Disclosure of Confidential Information
internally by a recipient will be limited to those of its and its
affiliates' officers, directors, employees, and agents on a "need to
know" basis who must have access to the Confidential Information to
enable such party to perform its duties and exercise its rights
hereunder. In order to safeguard the Confidential Information, each
party shall (i) inform each recipient of the Confidential Information
of the confidential nature thereof and of the requirements of this
Agreement, (ii) direct such recipients to comply with the terms of this
Agreement, and (iii) exercise any other precautions necessary to
prevent any improper use or disclosure of Confidential Information.
(b) DEFINITION. "Confidential Information" shall mean: (i)
information regarding a party's or such party's affiliates', financial
condition, information systems, business operations, plans and
strategies, products or services, customers and prospective customers,
and marketing and distribution plans, methods and techniques; (ii)
information that is marked "confidential", "proprietary" or in like
words, or that is summarized in writing as being confidential prior to
or promptly after disclosure to the other party; (iii) any and all
related research; and (iv) any and all designs, ideas, concepts, and
technology embodied therein. Confidential Information of the
Distributor or its affiliates that is to be kept confidential by the
Insurance Company shall also include: (v) [redacted]; (vi) specific
marketing and training materials of each Broker-Dealer; (vii) any
information of the Distributor or its affiliates in any form whatsoever
that is covered by a patent issued by the United States Patent and
Trademark Office; and (viii) any information relating to the [redacted]
illustration and case management system.
Information is not considered confidential or proprietary if such
information: (1) is or becomes generally available to the public other
than as a result of disclosure by the recipient; (2) was available to
or already known by the recipient on a non-confidential basis prior to
its receipt from the party claiming confidentiality; (3) is developed
by the recipient independently of any information or data acquired from
the party claiming confidentiality; or (4) is disclosed pursuant to a
court order or the requirement of any federal or state regulatory,
judicial, or government authority.
(c) REMEDIES. Each party acknowledges and agrees that monetary
damages would not be a sufficient or adequate remedy for a breach or
anticipated breach of this Section and that, in addition to any other
legal or equitable remedies which may be available,
22
<PAGE> 26
each party shall be entitled to specific performance and injunctive
relief for any breach or anticipated breach of this Section.
(d) SURVIVAL. The provisions of this Section shall survive the
expiration or other termination of this Agreement.
20. SEVERABILITY
If any provision of this Agreement is held to be unenforceable or
invalid, that provision shall be severed from this Agreement and the remainder
of this Agreement shall remain in full force and effect.
21. CHOICE OF LAW
This Agreement and any disputes, actions or other proceedings arising
under or relating to it shall be governed by law of the State of Illinois
without regard to its principles of conflicts of law.
22. NO WAIVER
No failure or delay on the part of any party hereto in exercising any
power or right under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No waiver
by any party of any provision of this Agreement, nor of any breach or default,
shall be effective unless in writing and signed by the party against whom such
waiver is to be enforced.
23. AGREEMENT NON-ASSIGNABLE
Any assignment of this Agreement in whole or in part by a party without
the prior written consent of the other parties thereto shall be void and shall
vest no rights in the assignee.
24. EXHIBITS AND SCHEDULES
The Exhibits and Schedules to this Agreement are a part of this
Agreement as if set forth in full herein.
23
<PAGE> 27
25. HEADINGS
The headings herein are for the purpose of convenience only and have no
legal force, meaning or effect.
26. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties and there are no warranties,
representations and/or agreements between the parties in conjunction with the
subject matter hereof except as set forth in this Agreement. This Agreement,
including any Schedule or Exhibit hereto, may be amended or modified only by
written instrument, executed by duly authorized officers of the parties.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
executed as of the date first above written.
LIFE INSURANCE SOLUTIONS, LLC KEMPER INVESTORS LIFE INSURANCE
D/B/A LIS SECURITIES COMPANY
By: By:
-------------------------------- --------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
----------------------------- -----------------------------
24
<PAGE> 28
SCHEDULE 1
DISTRIBUTOR AGENCY AFFILIATES
[redacted]
<PAGE> 29
SCHEDULE 2
VARIABLE PRODUCTS
<TABLE>
<CAPTION>
- ---------------- ------------------------- ------- -----------------------------------------------
PRODUCT POLICY/CERTIFICATE NUMBER DESCRIPTION
- ---------------- ------------------------- ------- -----------------------------------------------
<S> <C> <C> <C>
[redacted] [redacted] [redacted]
- ---------------- ------------------------- ------- -----------------------------------------------
FIRST FOUNDATION L - 8161 Registered Individual Variable Universal Life
- ---------------- ------------------------- ------- -----------------------------------------------
L - 8162 Registered Survivorship Variable Universal Life
- ---------------- ------------------------- ------- -----------------------------------------------
</TABLE>
<PAGE> 30
SCHEDULE 3
[redacted]
<PAGE> 31
SCHEDULE 4
[redacted]
<PAGE> 32
SCHEDULE 5
COMPENSATION SCHEDULE
[redacted]
<PAGE> 33
SCHEDULE 6
[redacted]
<PAGE> 34
SCHEDULE 7
[redacted]
<PAGE> 35
SCHEDULE 8
[redacted]
<PAGE> 36
SCHEDULE 9
[redacted]
<PAGE> 1
EXHIBIT 1.(5)(a)
FORM OF INDIVIDUAL POLICY
<PAGE> 2
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049-0001
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01 1998 POLICY NUMBER 7008161
INITIAL SPECIFIED $50,000 DATE OF ISSUE JAN 01 1998
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.
[SIG] [SIG]
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.
Policy Form No. L-8161
<PAGE> 3
INDEX PAGE NO.
Policy Specifications A
Definitions 1
General Provisions 2
Death Benefit Provisions 5
Premium Provisions 6
General Account Provisions 7
Variable Account Provisions 8
Non-Forfeiture Provisions 10
Transfer Provisions 11
Withdrawal Provisions 12
Policy Loan Provisions 12
Surrender Value Provisions 13
Transfer, Withdrawal, Loan & Surrender Procedures 13
Settlement Provisions 14
Settlement Option Table 16
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 Definitions or itemized on the
Policy Specifications page.
L-8161
<PAGE> 4
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
INITIAL SPECIFIED $50,000 DATE OF ISSUE JAN 01, 1998
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, 2063 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 CASH VALUE.
PREMIUM INFORMATION
INITIAL PREMIUM $580.13
PLANNED PREMIUM $580.13 ANNUAL
INSURED RATE CLASS STANDARD NON-TOBACCO
L-8161 CVA Page A
<PAGE> 5
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
MONTHLY PROCESSING DATE 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 [ 6.00%]
MAXIMUM FIXED ACCOUNT TRANSFER AMOUNT [ 30.00%]
MONTHLY ADMINISTRATIVE
CHARGE [FIRST POLICY YEAR OR FIRST YEAR OF INCREASE $20.00]
[POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE PREMIUMS LESS CUMULATIVE WITHDRAWALS LESS
CUMULATIVE LOANS
[UP TO $100,000 0.65%]
[BETWEEN $100,001 AND $250,000 0.50%]
[BETWEEN $250,001 AND $500,000 0.40%]
[IN EXCESS OF $500,000 0.30%]
GUARANTEED 0.90%
ACCOUNT MAINTENANCE CHARGE [0.45%]
MINIMUM PREMIUM [$600.00 PER YEAR]
[$300.00 PER HALF YEAR]
[$150.00 PER QUARTER]
[$150.00 UNSCHEDULED]
[$ 50.00 PER MONTH]
L-8161 CVA Page B1
<PAGE> 6
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
IRC SECTION 7702 TEST CASH VALUE ACCUMULATION
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>
35 4.29338 51 2.53926 67 1.62187 83 1.21202
36 4.15078 52 2.46130 68 1.58427 84 1.19721
37 4.01296 53 2.38649 69 1.54843 85 1.18354
38 3.88005 54 2.31475 70 1.51426 86 1.17094
39 3.75188 55 2.24606 71 1.48174 87 1.15926
40 3.62840 56 2.18031 72 1.45131 88 1.14836
41 3.50943 57 2.11740 73 1.42218 89 1.13801
42 3.39495 58 2.05714 74 1.39483 90 1.12801
43 3.28468 59 1.99941 75 1.36926 91 1.11814
44 3.17857 60 1.94414 76 1.34533 92 1.10815
45 3.07635 61 1.89128 77 1.32290 93 1.09777
46 2.97801 62 1.84074 78 1.30181 94 1.08664
47 2.88340 63 1.79251 79 1.28186 95 1.07459
48 2.79235 64 1.74656 80 1.26291 96 1.06163
49 2.70471 65 1.70288 81 1.24494 97 1.04821
50 2.62040 66 1.66136 82 1.22795 98 1.03587
99 1.02597
</TABLE>
*ATTAINED AGE IS THE AGE NEAREST BIRTHDAY AS OF THE BEGINNING OF THE POLICY
YEAR FOR THE YOUNGER INSURED.
L-8161 CVA Page B2
<PAGE> 7
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
TRADE DATE JAN 31, 1998
FIXED ACCOUNT INITIAL PREMIUM ALLOCATION
SEPARATE ACCOUNT
[MONEY MARKET 100% ]
[EVERGREEN VA ]
[EVERGREEN VA GROWTH AND INCOME ]
[EVERGREEN VA FOUNDATION ]
[EVERGREEN VA GLOBAL LEADERS ]
[EVERGREEN VA STRATEGIC INCOME ]
[EVERGREEN VA AGGRESSIVE GROWTH ]
[TOTAL RETURN ]
[HIGH YIELD ]
[GROWTH ]
[GOVERNMENT SECURITIES ]
[INTERNATIONAL ]
[SMALL CAP GROWTH ]
[INVESTMENT GRADE BOND ]
[VALUE ]
[SMALL CAP VALUE ]
[VALUE+ GROWTH ]
[HORIZON 20+ ]
[HORIZON 10+ ]
[HORIZON 5 ]
[BLUE CHIP ]
[GLOBAL INCOME ]
L-8161 CVA Page C
<PAGE> 8
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE* NON-TOBACCO TOBACCO AGE* NON-TOBACCO TOBACCO AGE* NON-TOBACCO 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
34 0.13428 0.20694 67 2.18574 3.67025
</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.
L-8161 CVA Page D
<PAGE> 9
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
INITIAL SPECIFIED $50,000 DATE OF ISSUE JAN 01, 1998
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, 2063 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 $721.09
PLANNED PREMIUM $721.09 ANNUAL
INSURED RATE CLASS STANDARD NON-TOBACCO
L-8161 GP Page A
<PAGE> 10
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
MONTHLY PROCESSING DATE 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 [ 6.00%]
MAXIMUM FIXED ACCOUNT TRANSFER AMOUNT [ 30.00%]
MONTHLY ADMINISTRATIVE
CHARGE [FIRST POLICY YEAR OR FIRST YEAR OF INCREASE $20.00]
[POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE PREMIUMS LESS CUMULATIVE WITHDRAWALS LESS
CUMULATIVE LOANS
[UP TO $100,000 0.65%]
[BETWEEN $100,001 AND $250,000 0.50%]
[BETWEEN $250,001 AND $500,000 0.40%]
[IN EXCESS OF $500,000 0.30%]
GUARANTEED 0.90%
ACCOUNT MAINTENANCE CHARGE [0.45%]
MINIMUM PREMIUM [$600.00 PER YEAR]
[$300.00 PER HALF YEAR]
[$150.00 PER QUARTER]
[$150.00 UNSCHEDULED]
[$ 50.00 PER MONTH]
L-8161 GP Page B1
<PAGE> 11
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
IRC SECTION 7702 TEST GUIDELINE PREMIUMS
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 75 105
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.
L-8161 GP Page B2
<PAGE> 12
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
TRADE DATE JAN 31, 1998
FIXED ACCOUNT INITIAL PREMIUM ALLOCATION
SEPARATE ACCOUNT
[MONEY MARKET 100% ]
[EVERGREEN VA ]
[EVERGREEN VA GROWTH AND INCOME ]
[EVERGREEN VA FOUNDATION ]
[EVERGREEN VA GLOBAL LEADERS ]
[EVERGREEN VA STRATEGIC INCOME ]
[EVERGREEN VA AGGRESSIVE GROWTH ]
[TOTAL RETURN ]
[HIGH YIELD ]
[GROWTH ]
[GOVERNMENT SECURITIES ]
[INTERNATIONAL ]
[SMALL CAP GROWTH ]
[INVESTMENT GRADE BOND ]
[VALUE ]
[SMALL CAP VALUE ]
[VALUE+ GROWTH ]
[HORIZON 20+ ]
[HORIZON 10+ ]
[HORIZON 5 ]
[BLUE CHIP ]
[GLOBAL INCOME ]
L-8161 GP Page C
<PAGE> 13
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008161
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE* NON-TOBACCO TOBACCO AGE* NON-TOBACCO TOBACCO AGE* NON-TOBACCO 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
34 0.13428 0.20694 67 2.18574 3.67025
</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.
L-8161 GP Page D
<PAGE> 14
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.
CASH VALUE: The sum of the policy assets in the Separate
Account, Fixed Account and Loan Account.
DEBT: The principal of any outstanding loan under this
policy plus 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.
FUND(S): 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: The person whose life is covered by the Policy
and who is named in the Policy Specifications.
ISSUE AGE: The Insured's Age as of his or her nearest
birthday on the Policy Date.
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 Maturity Date is stated in the Policy
Specifications. It is the Policy Date 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.
NET AMOUNT AT RISK: The Death Benefit divided by
1.0024663 minus the Cash Value.
OWNER: The person designated on the application who may
exercise all rights and privileges under the policy.
POLICY DATE: The date shown in the Policy Specifications.
It is used to determine Policy Years and Monthly
Processing Dates. It is the date that insurance coverage
takes effect subject to any principles of conditional
receipt under applicable law.
<PAGE> 15
Page 2
POLICY YEAR: Each year commencing with the Policy Date
and each Policy Date anniversary thereafter.
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 KILICO Variable Separate Account-2
which was established under Law as a separate investment
account of Kemper Investors Life Insurance Company.
SEPARATE ACCOUNT VALUE: The portion of the Cash Value in
the Subaccount(s).
SPECIFIED AMOUNT: The amount shown in the Policy
Specifications chosen by the Owner and used to calculate
the Death Benefit.
SUBACCOUNT: A subdivision of the Separate Account. The
Subaccounts initially 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 30 days following the
Issue Date of this policy. 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 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.
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. Any such change or
waiver must be in writing and signed by one of such
officers. No agent or person other than such officers
can change or waive the terms of this policy.
<PAGE> 16
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 Life 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.
SUICIDE: If the Insured dies by suicide, while san 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, whether sane or insane,
within two years of 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;
L-8161 Page 3
<PAGE> 17
L-8161 Page 4
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
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 or 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.
Currently, no charges are made against the Separate
Account for federal, state or other taxes that may be
attributed to the Separate Account. We may in the
future, however, impose charges for federal income taxes
attributed to the Separate Account. Charges for other
taxes, if any, attributed to this policy may also be
made.
<PAGE> 18
DEATH BENEFIT PROVISIONS
DEATH BENEFIT The Death Benefit is based on the Specified Amount, the
Death Benefit Option, the Death Benefit Qualification
Test chosen by You in the application, and a Death
Benefit percentage (as set forth in the Table of Death
Benefit Factors) applicable at the time of death. The
Initial Specified Amount, the Death Benefit Option, the
Death Benefit Qualification Test, 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 withdrawal.
DEATH BENEFIT
QUALIFICATION TEST One of two Death Benefit Qualification Tests is chosen
by You in the application and is stated in the Policy
Specifications. Once chosen, the Death Benefit
Qualification Test cannot be changed for the duration of
the policy. The Death Benefit Qualification Test is the
method for qualifying the policy as life insurance for
purposes of federal tax law.
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. a Death Benefit percentage (as set forth in 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. a Death Benefit percentage (as set forth in 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:
L-8161 Page 5
<PAGE> 19
L-8161 Page 6
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.
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 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 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.
<PAGE> 20
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 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 Non-Forfeiture
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
L-8161 Page 7
<PAGE> 21
L-8161 Page 8
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 the Fixed
Account Value. 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; minus
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
SEPARATE 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 THE The assets equal to the reserves and other liabilities
SEPARATE ACCOUNT of the Separate Account will not be charged with
liabilities arising out of any other business We may
conduct. The assets of the Separate 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 (defined below) 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
<PAGE> 22
7. any amounts borrowed from the Subaccount during
the Valuation Period.
FUND(S) 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 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.
L-8161 Page 9
<PAGE> 23
L-8161 Page 10
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.
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 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
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 share 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 Maintenance 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 the Policy Date and 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 unless otherwise
requested.
COST OF INSURANCE The Cost of Insurance is determined on the Policy
Date and 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.
<PAGE> 24
COST OF INSURANCE The monthly Cost of Insurance Rate is based on the
RATE 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
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 or to the
Fixed Account 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. The Maximum Fixed
Account Transfer Amount as a percentage of the
Fixed Account Value is shown in the Policy
Specifications;
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.
L-8161 Page 11
<PAGE> 25
L-8161 Page 12
We reserve the right at any time and without prior
notice to any party to terminate, suspend or modify
the transfer provision described above.
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 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 Account 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 equal 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. 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.
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.
<PAGE> 26
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 The Debt on this policy will reduce the amount of Cash
LOANS 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.
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.
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 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.
L-8161 Page 13
<PAGE> 27
L-8161 Page 14
SETTLEMENT PROVISIONS
SETTLEMENT OPTIONS The Owner, 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 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
<PAGE> 28
SUPPLEMENTARY A supplementary contract will be issued to reflect
CONTRACT 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 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 be paid in one lump sum to the estate of the payee
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 Unless otherwise provided in the supplementary contract
BENEFITS 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.
L-8161 Page 15
<PAGE> 29
SETTLEMENT OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - INCOME FOR SPECIFIED PERIOD
<TABLE>
<CAPTION>
Number Number | Number Number
of years Monthly of years Monthly | of years Monthly of years Monthly
selected Payment selected payment | selected Payment selected Payment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> | <C> <C> <C> <C>
5 17.69 12 8.01 | 19 5.48 26 4.33
6 14.92 13 7.48 | 20 5.27 27 4.22
7 12.94 14 7.03 | 21 5.08 28 4.11
8 11.46 15 6.64 | 22 4.90 29 4.02
9 10.31 16 6.29 | 23 4.74 30 3.92
10 9.39 17 5.99 | 24 4.59
11 8.64 18 5.72 | 25 4.46
- -------------------------------------------------------------------------------------------------------------------
OPTIONS TWO AND THREE - LIFE INCOME WITH INSTALLMENTS GUARANTEED:
Age of Monthly payments Guaranteed | Age of Monthly Payment Guaranteed
Male | Female
Payee None 60 120 180 240 | Payee None 60 120 180 240
- -------------------------------------------------------------------------------------------------------------------
<S> | <C> <C> <C> <C> <C> | <C> | <C> <C> <C> <C> <C>
55 | 3.98 3.97 3.94 3.88 3.81 | 55 | 3.62 3.61 3.60 3.58 3.54
56 | 4.05 4.04 4.01 3.95 3.86 | 56 | 3.68 3.67 3.66 3.64 3.59
57 | 4.14 4.12 4.09 4.02 3.92 | 57 | 3.75 3.74 3.73 3.70 3.65
58 | 4.22 4.21 4.17 4.09 3.99 | 58 | 3.82 3.81 3.79 3.76 3.71
59 | 4.31 4.30 4.25 4.17 4.05 | 59 | 3.89 3.88 3.86 3.83 3.77
60 | 4.41 4.39 4.34 4.25 4.11 | 60 | 3.97 3.96 3.94 3.90 3.83
61 | 4.51 4.50 4.44 4.33 4.18 | 61 | 4.05 4.04 4.02 3.97 3.89
62 | 4.62 4.60 4.54 4.42 4.26 | 62 | 4.14 4.13 4.10 4.05 3.96
63 | 4.74 4.72 4.64 4.51 4.31 | 63 | 4.23 4.22 4.19 4.13 4.03
64 | 4.86 4.84 4.75 4.60 4.38 | 64 | 4.33 4.32 4.28 4.21 4.10
65 | 4.99 4.96 4.87 4.69 4.45 | 65 | 4.44 4.42 4.38 4.30 4.17
66 | 5.14 5.10 4.99 4.79 4.51 | 66 | 4.55 4.53 4.48 4.39 4.24
67 | 5.29 5.25 5.12 4.89 4.58 | 67 | 4.67 4.65 4.59 4.48 4.31
68 | 5.45 5.40 5.25 4.99 4.64 | 68 | 4.79 4.77 4.70 4.58 4.39
69 | 5.62 5.57 5.39 5.09 4.71 | 69 | 4.93 4.90 4.82 4.68 4.46
70 | 5.81 5.74 5.54 5.20 4.77 | 70 | 5.07 5.04 4.95 4.78 4.53
71 | 6.00 5.93 5.69 5.30 4.83 | 71 | 5.23 5.19 5.09 4.89 4.61
72 | 6.21 6.12 5.85 5.41 4.88 | 72 | 5.39 5.35 5.23 5.00 4.68
73 | 6.44 6.33 6.01 5.51 4.93 | 73 | 5.57 5.52 5.38 5.11 4.74
74 | 6.68 6.55 6.17 5.61 4.98 | 74 | 5.76 5.71 5.53 5.23 4.81
75 | 6.94 6.79 6.35 5.71 5.02 | 75 | 5.96 5.90 5.70 5.34 4.87
76 | 7.21 7.03 6.52 5.80 5.06 | 76 | 6.19 6.11 5.87 5.46 4.93
77 | 7.50 7.29 6.70 5.90 5.09 | 77 | 6.43 6.34 6.05 5.57 4.98
78 | 7.82 7.57 6.68 5.98 5.12 | 78 | 6.69 6.58 6.24 5.68 5.03
79 | 8.16 7.86 7.06 6.06 5.15 | 79 | 6.97 6.84 6.43 5.79 5.07
80 | 8.52 8.46 7.20 6.14 5.17 | 80 | 7.28 7.12 6.63 5.90 5.11
81 | 8.90 8.48 7.42 6.21 5.19 | 81 | 7.61 7.41 6.83 5.99 5.14
82 | 9.32 8.84 7.59 6.27 5.21 | 82 | 7.97 7.73 7.03 6.09 5.17
83 | 9.77 9.16 7.76 6.33 5.22 | 83 | 8.36 8.06 7.24 6.17 5.19
84 | 10.24 9.52 7.93 6.38 5.24 | 84 | 8.78 8.42 7.44 6.24 5.21
85 | 10.75 9.90 8.09 6.43 5.24 | 85 | 9.24 8.79 7.64 6.31 5.22
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR INCOME
<TABLE>
<CAPTION>
Age of | Age of Female Payee
Male |
Payee | 55 60 65 70 75 80 85
<S> | <C> <C> <C> <C> <C> <C> <C>
55 | 3.32 3.47 3.60 3.71 3.80 3.87 3.91
60 | 3.41 3.60 3.79 3.96 4.11 4.22 4.30
65 | 3.47 3.71 3.96 4.22 4.45 4.64 4.78
70 | 3.52 3.80 4.11 4.46 4.80 5.12 5.38
75 | 3.56 3.86 4.23 4.66 5.14 5.63 6.07
80 | 3.58 3.90 4.31 4.81 5.42 6.11 6.80
85 | 3.60 3.93 4.36 4.92 5.63 6.51 7.51
</TABLE>
L-8161 Page 16
<PAGE> 30
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 is a legal contract between you and us.
READ YOUR POLICY CAREFULLY
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive, Long Grove, Illinois 60049-0001
Policy Form No. L-8161
<PAGE> 1
EXHIBIT 1.(5)(b)
FORM OF SURVIVORSHIP POLICY
<PAGE> 2
[ZURICH KEMPER LOGO]
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049-0001
INSURED NO. 1 JOHN DOE ISSUE AGE 35
NO. 2 JANE DOE 35
POLICY DATE JAN 01 1998 POLICY NUMBER 7008162
INITIAL SPECIFIED $1,000,000 DATE OF ISSUE JAN 01 1998
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.
[SIG] [SIG]
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. L-8162
<PAGE> 3
<TABLE>
<S> <C>
INDEX PAGE NO.
Policy Specifications A
Definitions 1
General Provisions 2
Death Benefit Provisions 5
Premium Provisions 6
General Account Provisions 8
Variable Account Provisions 8
Non-Forfeiture Provisions 11
Transfer Provisions 12
Withdrawal Provisions 12
Policy Loan Provisions 12
Surrender Value Provisions 13
Transfer, Withdrawal, Loan and Surrender Procedures 13
Settlement Provisions 14
Settlement Option Table 16
</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 Definitions or itemized
on the Policy Specifications page.
L-8162
<PAGE> 4
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
INITIAL SPECIFIED $1,000,000 DATE OF ISSUE JAN 01, 1998
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, 2063 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 $8,550.21
PLANNED PREMIUM $8,550.21 ANNUAL
INSURED RATE CLASS STANDARD NON-TOBACCO
STANDARD NON-TOBACCO
L-8162 GP Page A
<PAGE> 5
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
MONTHLY PROCESSING DATE DAY 01 OF EACH MONTH
DEDUCTION PERIOD 65 YEARS, 00 MONTHS
MINIMUM SPECIFIED AMOUNT [$1,000,000.00]
MINIMUM CHANGE IN SPECIFIED AMOUNT [$25,000.00]
MINIMUM WITHDRAWAL AMOUNT [$ 500.00]
MINIMUM LOAN AMOUNT [$ 500.00]
PREMIUM CHARGES [ 6.00%]
MAXIMUM FIXED ACCOUNT TRANSFER AMOUNT [ 30.00%]
MONTHLY ADMINISTRATIVE CHARGE [FIRST POLICY YEAR OR FIRST YEAR
OF INCREASE $20.00]
[POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE PREMIUMS CUMULATIVE WITHDRAWALS LESS
CUMULATIVE LOANS
[UP TO $100,000 0.65%]
[BETWEEN $100,001 AND $250,000 0.50%]
[BETWEEN $250,001 AND $500,000 0.40%]
[IN EXCESS OF $500,000 0.30%]
GUARANTEED 0.90%
ACCOUNT MAINTENANCE CHARGE [0.45%]
MINIMUM PREMIUM [$600.00 PER YEAR]
[$300.00 PER HALF YEAR]
[$150.00 PER QUARTER]
[$150.00 UNSCHEDULED]
[$ 50.00 PER MONTH]
L-8162 GP Page B1
<PAGE> 6
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
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
45 215 55 150 65 120 75 105
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
L-8162 GP Page B2
<PAGE> 7
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
TRADE DATE JAN 31, 1998
INITIAL PREMIUM ALLOCATION
FIXED ACCOUNT
SEPARATE ACCOUNT
[MONEY MARKET 100% ]
[EVERGREEN VA ]
[EVERGREEN VA GROWTH AND INCOME ]
[EVERGREEN VA FOUNDATION ]
[EVERGREEN VA GLOBAL LEADERS ]
[EVERGREEN VA STRATEGIC INCOME ]
[EVERGREEN VA AGGRESSIVE GROWTH ]
[TOTAL RETURN ]
[HIGH YIELD ]
[GROWTH ]
[GOVERNMENT SECURITIES ]
[INTERNATIONAL ]
[SMALL CAP GROWTH ]
[INVESTMENT GRADE BOND ]
[VALUE ]
[SMALL CAP VALUE ]
[VALUE+GROWTH ]
[HORIZON 20+ ]
[HORIZON 10+ ]
[HORIZON 5 ]
[BLUE CHIP ]
[GLOBAL INCOME ]
L-8162 GP Page C
<PAGE> 8
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY
AGE* RATE AGE* RATE AGE* RATE
<S> <C> <C> <C> <C> <C>
35 0.01000 56 0.08796 77 3.00219
36 0.01000 57 0.10405 78 3.49949
37 0.01000 58 0.12230 79 4.05867
38 0.01000 59 0.14365 80 4.69924
39 0.01000 60 0.16895 81 5.44086
40 0.01000 61 0.19908 82 6.30715
41 0.01000 62 0.23597 83 7.31754
42 0.01000 63 0.28156 84 8.46288
43 0.01000 64 0.33723 85 9.73941
44 0.01000 65 0.40308 86 11.12947
45 0.01184 66 0.47990 87 12.63400
46 0.01443 67 0.56784 88 14.23436
47 0.01748 68 0.66736 89 15.95027
48 0.02105 69 0.78170 90 17.78897
49 0.02522 70 0.91701 91 19.78599
50 0.03015 71 1.08841 92 22.00633
51 0.03603 72 1.27876 93 24.56619
52 0.04312 73 1.52262 94 27.80325
53 0.05169 74 1.81657 95 32.43368
54 0.06186 75 2.16058 96 40.11855
55 0.07389 76 2.55596 97 55.18812
98 83.33333
99 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.
L-8162 GP Page D
<PAGE> 9
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
INITIAL SPECIFIED $1,000,000 DATE OF ISSUE JAN 01, 1998
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, 2063 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 $7,068.88
PLANNED PREMIUM $7,068.88 ANNUAL
INSURED RATE CLASS STANDARD NON-TOBACCO
STANDARD NON-TOBACCO
L-8162 CVA Page A
<PAGE> 10
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
MONTHLY PROCESSING DATE DAY 01 OF EACH MONTH
DEDUCTION PERIOD 65 YEARS, 00 MONTHS
MINIMUM SPECIFIED AMOUNT [$1,000,000.00]
MINIMUM CHANGE IN SPECIFIED AMOUNT [$25,000.00]
MINIMUM WITHDRAWAL AMOUNT [$ 500.00]
MINIMUM LOAN AMOUNT [$ 500.00]
PREMIUM CHARGES [ 6.00%]
MAXIMUM FIXED ACCOUNT TRANSFER AMOUNT [ 30.00%]
MONTHLY ADMINISTRATIVE CHARGE [FIRST POLICY YEAR OR FIRST
YEAR OF INCREASE $20.00]
[POLICY YEARS TWO AND LATER $5.00]
MORTALITY AND EXPENSE RISK CHARGE
CURRENT BASED ON CUMULATIVE PREMIUMS LESS CUMULATIVE WITHDRAWALS LESS
CUMULATIVE LOANS
[UP TO $100,000 0.65%]
[BETWEEN $100,001 AND $250,000 0.50%]
[BETWEEN $250,001 AND $500,000 0.40%]
[IN EXCESS OF $500,000 0.30%]
GUARANTEED 0.90%
ACCOUNT MAINTENANCE CHARGE [0.45%]
MINIMUM PREMIUM [$600.00 PER YEAR]
[$300.00 PER HALF YEAR]
[$150.00 PER QUARTER]
[$150.00 UNSCHEDULED]
[$ 50.00 PER MONTH]
L-8162 CVA Page B1
<PAGE> 11
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
IRC SECTION 7702 TEST CASH VALUE ACCUMULATION
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>
35 6.41760 51 3.45818 67 1.92995 83 1.25917
36 6.17469 52 3.32861 68 1.86710 84 1.23722
37 5.94080 53 3.20434 69 1.80734 85 1.21718
38 5.71561 54 3.08519 70 1.75054 86 1.19892
39 5.49882 55 2.97099 71 1.69663 87 1.18223
40 5.29011 56 2.86158 72 1.64570 88 1.16692
41 5.08920 57 2.75677 73 1.59753 89 1.15273
42 4.89580 58 2.65638 74 1.55225 90 1.13941
43 4.70965 59 2.56024 75 1.50987 91 1.12670
44 4.53048 60 2.46819 76 1.47030 92 1.11432
45 4.35803 61 2.38011 77 1.43341 93 1.10198
46 4.19236 62 2.29588 78 1.39901 94 1.08934
47 4.03328 63 2.21543 79 1.36691 95 1.07617
48 3.88056 64 2.13870 80 1.33695 96 1.06244
49 3.73395 65 2.06561 81 1.30903 97 1.04852
50 3.59323 66 1.99607 82 1.28310 98 1.03587
99 1.02597
</TABLE>
*ATTAINED AGE IS THE AGE NEAREST BIRTHDAY AS OF THE BEGINNING OF THE POLICY
YEAR FOR THE YOUNGER INSURED.
L-8162 CVA Page B2
<PAGE> 12
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
TRADE DATE JAN 31, 1998
INITIAL PREMIUM ALLOCATION
FIXED ACCOUNT
SEPARATE ACCOUNT
[MONEY MARKET 100% ]
[EVERGREEN VA ]
[EVERGREEN VA GROWTH AND INCOME ]
[EVERGREEN VA FOUNDATION ]
[EVERGREEN VA GLOBAL LEADERS ]
[EVERGREEN VA STRATEGIC INCOME ]
[EVERGREEN VA AGGRESSIVE GROWTH ]
[TOTAL RETURN ]
[HIGH YIELD ]
[GROWTH ]
[GOVERNMENT SECURITIES ]
[INTERNATIONAL ]
[SMALL CAP GROWTH ]
[INVESTMENT GRADE BOND ]
[VALUE ]
[SMALL CAP VALUE ]
[VALUE+GROWTH ]
[HORIZON 20+ ]
[HORIZON 10+ ]
[HORIZON 5 ]
[BLUE CHIP ]
[GLOBAL INCOME ]
L-8162 CVA Page C
<PAGE> 13
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
POLICY DATE JAN 01, 1998 POLICY NUMBER 7008162
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY
AGE* RATE AGE* RATE AGE* RATE
<S> <C> <C> <C> <C> <C>
35 0.01000 56 0.08796 *77 3.00219
36 0.01000 57 0.10405 78 3.49949
37 0.01000 58 0.12230 79 4.05867
38 0.01000 59 0.14365 80 4.69924
39 0.01000 60 0.16895 81 5.44086
40 0.01000 61 0.19908 82 6.30715
41 0.01000 62 0.23597 83 7.31754
42 0.01000 63 0.28156 84 8.46288
43 0.01000 64 0.33723 85 9.73941
44 0.01000 65 0.40308 86 11.12947
45 0.01184 66 0.47990 87 12.63400
46 0.01443 67 0.56784 88 14.23436
47 0.01748 68 0.66736 89 15.95027
48 0.02105 69 0.78170 90 17.78897
49 0.02522 70 0.91701 91 19.78599
50 0.03015 71 1.08841 92 22.00633
51 0.03603 72 1.27876 93 24.56619
52 0.04312 73 1.52262 94 27.80325
53 0.05169 74 1.81657 95 32.43368
54 0.06186 75 2.16058 96 40.11855
55 0.07389 76 2.55596 97 55.18812
98 83.33333
99 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.
L-8162 CVA Page D
<PAGE> 14
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.
CASH VALUE: The sum of the policy assets in the Separate
Account, Fixed Account and Loan Account.
DEBT: The principal of any outstanding loan under this
policy plus 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.
FUND(S): 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 persons whose lives are covered by the
Policy and who are named in the Policy Specifications.
ISSUE AGES: Ages as of the Lives Insured nearest
birthdays on the Policy Date.
ISSUE DATE: The date shown in the Policy Specifications.
Incontestability and suicide periods for the initial
Insured Amount are measured from the Issue 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.
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 Maturity Date is stated in the Policy
Specifications. It is the Policy Date 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.
NET AMOUNT AT RISK: The Death Benefit divided by
1.0024663 minus the Cash Value.
OWNER: The person designated on the application who may
exercise all rights and privileges under the policy.
L-8162
<PAGE> 15
L-8162 Page 2
POLICY DATE: The date shown in the Policy Specifications.
It is used to determine Policy Years and Monthly
Processing Dates. It 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.
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 KILICO Variable Separate Account-2
which was established under Law as a separate investment
account of Kemper Investors Life Insurance Company.
SEPARATE ACCOUNT VALUE: The portion of the Cash Value in
the Subaccounts(s).
SPECIFIED AMOUNT: The amount shown in the Policy
Specifications chosen by the Owner and used to calculate
the Death Benefit.
SUBACCOUNT: A subdivision of the Separate Account. The
Subaccounts initially 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 30 days following the
Issue Date of this policy. 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 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.
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.
<PAGE> 16
MODIFICATION OF POLICY Only our President, Secretary
or Assistant Secretaries have power to approve a change
in or waive the provisions of this policy. Any such
change or waiver must be in writing and signed by one of
such officers. 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.
MISSTATEMENT OF AGE AND/OR SEX If the age and/or sex
of either of the Lives 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 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 as thereafter as is reasonably possible.
L-8162 Page 3
<PAGE> 17
L-8162 Page 4
BENEFICIARY DESIGNATION The original beneficiary is named in the
application for this policy. If a beneficiary is not
named, the original beneficiary is Your estate. 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
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 Life 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 Life 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 or 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.
<PAGE> 18
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.
Currently, no charges are made against the
Separate Account for federal, state or
other taxes that may be attributed to the
Separate Account. We may in the future,
however, impose charges for federal income
taxes attributed to the Separate 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, the Death
Benefit Qualification Test chosen by You in
the application, and a Death Benefit
percentage (as set forth in the Table of
Death Benefit Factors) applicable at the
time of death. The Initial Specified
Amount, the Death Benefit Option, the Death
Benefit Qualification Test, 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 withdrawal.
DEATH BENEFIT QUALIFICATION TEST One of two Death Benefit Qualification
Tests is chosen by You in the application
and is stated in the Policy Specifications.
Once chosen, the Death Benefit
Qualification Test cannot be changed for
the duration of the policy. The Death
Benefit Qualification Test is the method
for qualifying the policy as life insurance
for purposes of federal tax laws.
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. a Death Benefit percentage (as set
forth in 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. a Death Benefit percentage (as set
forth in the Table of Death Benefit
Factors) times the Cash Value of this
policy on the date of the Life
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.
L-8162 Page 5
<PAGE> 19
L-8162 Page 6
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.
PAYMENT OF THE Death Benefits will be paid following receipt by Us at
DEATH BENEFIT Our 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 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.
<PAGE> 20
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 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 Non-Forfeiture
provisions. If death of the Life 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.
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.
L-8162 Page 7
<PAGE> 21
L-8162 Page 8
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 the Fixed
Account Value. 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 Fixed Account; plus
3. the total interest credited to the Fixed Account;
minus
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
SEPARATE 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.
<PAGE> 22
LIABILITIES OF THE The assets equal to the reserves and other liabilities
SEPARATE ACCOUNT of the Separate Account will not be charged with
liabilities arising out of any other business We may
conduct. The assets of the Separate 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
(defined below) 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(S) 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 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;
L-8162 Page 9
<PAGE> 23
L-8162 Page 10
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.
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 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
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 share 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.
<PAGE> 24
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 the Policy Date and 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 unless otherwise
requested.
COST OF INSURANCE The Cost of Insurance is determined on the Policy
Date and 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
sexes, Issue Ages, Attained Ages (in the case
of increases), and Rate Classes of the Lives Insured as
well as 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 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.
L-8162 Page 11
<PAGE> 25
TRANSFER PROVISIONS You may transfer all or part of the value of each
Subaccount at any time to another Subaccount or the
Fixed Account 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. The Maximum Fixed
Account Transfer Amount as a percentage of the
Fixed Account Value is in the Policy
Specifications;
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 transfer provision described above.
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 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 Account to the Loan Account held in the
General Account until the loan is repaid. Unless
directed otherwise, the loaned
<PAGE> 26
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 equal 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. 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.
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 Subaccount
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.
L-8162 Page 13
<PAGE> 27
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 Owner, 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> 28
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 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, 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 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 be paid in one lump sum to the estate of the payee
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.
L-8162 Page 15
<PAGE> 29
SETTLEMENT OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - INCOME FOR SPECIFIED PERIOD
<TABLE>
<CAPTION>
Number Number | Number Number
of years Monthly of years Monthly | of years Monthly of years Monthly
selected Payment selected payment | selected Payment selected Payment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> | <C> <C> <C> <C>
5 17.69 12 8.01 | 19 5.48 26 4.33
6 14.92 13 7.48 | 20 5.27 27 4.22
7 12.94 14 7.03 | 21 5.08 28 4.11
8 11.46 15 6.64 | 22 4.90 29 4.02
9 10.31 16 6.29 | 23 4.74 30 3.92
10 9.39 17 5.99 | 24 4.59
11 8.64 18 5.72 | 25 4.46
- -------------------------------------------------------------------------------------------------------------------
OPTIONS TWO AND THREE - LIFE INCOME WITH INSTALLMENTS GUARANTEED:
Age of Monthly payments Guaranteed | Age of Monthly Payment Guaranteed
Male | Female
Payee None 60 120 180 240 | Payee None 60 120 180 240
- -------------------------------------------------------------------------------------------------------------------
<S> | <C> <C> <C> <C> <C> | <C> | <C> <C> <C> <C> <C>
55 | 3.98 3.97 3.94 3.88 3.81 | 55 | 3.62 3.61 3.60 3.58 3.54
56 | 4.05 4.04 4.01 3.95 3.86 | 56 | 3.68 3.67 3.66 3.64 3.59
57 | 4.14 4.12 4.09 4.02 3.92 | 57 | 3.75 3.74 3.73 3.70 3.65
58 | 4.22 4.21 4.17 4.09 3.99 | 58 | 3.82 3.81 3.79 3.76 3.71
59 | 4.31 4.30 4.25 4.17 4.05 | 59 | 3.89 3.88 3.86 3.83 3.77
60 | 4.41 4.39 4.34 4.25 4.11 | 60 | 3.97 3.96 3.94 3.90 3.83
61 | 4.51 4.50 4.44 4.33 4.18 | 61 | 4.05 4.04 4.02 3.97 3.89
62 | 4.62 4.60 4.54 4.42 4.26 | 62 | 4.14 4.13 4.10 4.05 3.96
63 | 4.74 4.72 4.64 4.51 4.31 | 63 | 4.23 4.22 4.19 4.13 4.03
64 | 4.86 4.84 4.75 4.60 4.38 | 64 | 4.33 4.32 4.28 4.21 4.10
65 | 4.99 4.96 4.87 4.69 4.45 | 65 | 4.44 4.42 4.38 4.30 4.17
66 | 5.14 5.10 4.99 4.79 4.51 | 66 | 4.55 4.53 4.48 4.39 4.24
67 | 5.29 5.25 5.12 4.89 4.58 | 67 | 4.67 4.65 4.59 4.48 4.31
68 | 5.45 5.40 5.25 4.99 4.64 | 68 | 4.79 4.77 4.70 4.58 4.39
69 | 5.62 5.57 5.39 5.09 4.71 | 69 | 4.93 4.90 4.82 4.68 4.46
70 | 5.81 5.74 5.54 5.20 4.77 | 70 | 5.07 5.04 4.95 4.78 4.53
71 | 6.00 5.93 5.69 5.30 4.83 | 71 | 5.23 5.19 5.09 4.89 4.61
72 | 6.21 6.12 5.85 5.41 4.88 | 72 | 5.39 5.35 5.23 5.00 4.68
73 | 6.44 6.33 6.01 5.51 4.93 | 73 | 5.57 5.52 5.38 5.11 4.74
74 | 6.68 6.55 6.17 5.61 4.98 | 74 | 5.76 5.71 5.53 5.23 4.81
75 | 6.94 6.79 6.35 5.71 5.02 | 75 | 5.96 5.90 5.70 5.34 4.87
76 | 7.21 7.03 6.52 5.80 5.06 | 76 | 6.19 6.11 5.87 5.46 4.93
77 | 7.50 7.29 6.70 5.90 5.09 | 77 | 6.43 6.34 6.05 5.57 4.98
78 | 7.82 7.57 6.68 5.98 5.12 | 78 | 6.69 6.58 6.24 5.68 5.03
79 | 8.16 7.86 7.06 6.06 5.15 | 79 | 6.97 6.84 6.43 5.79 5.07
80 | 8.52 8.46 7.20 6.14 5.17 | 80 | 7.28 7.12 6.63 5.90 5.11
81 | 8.90 8.48 7.42 6.21 5.19 | 81 | 7.61 7.41 6.83 5.99 5.14
82 | 9.32 8.84 7.59 6.27 5.21 | 82 | 7.97 7.73 7.03 6.09 5.17
83 | 9.77 9.16 7.76 6.33 5.22 | 83 | 8.36 8.06 7.24 6.17 5.19
84 | 10.24 9.52 7.93 6.38 5.24 | 84 | 8.78 8.42 7.44 6.24 5.21
85 | 10.75 9.90 8.09 6.43 5.24 | 85 | 9.24 8.79 7.64 6.31 5.22
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR INCOME
<TABLE>
<CAPTION>
Age of | Age of Female Payee
Male |
Payee | 55 60 65 70 75 80 85
<S> | <C> <C> <C> <C> <C> <C> <C>
55 | 3.32 3.47 3.60 3.71 3.80 3.87 3.91
60 | 3.41 3.60 3.79 3.96 4.11 4.22 4.30
65 | 3.47 3.71 3.96 4.22 4.45 4.64 4.78
70 | 3.52 3.80 4.11 4.46 4.80 5.12 5.38
75 | 3.56 3.86 4.23 4.66 5.14 5.63 6.07
80 | 3.58 3.90 4.31 4.81 5.42 6.11 6.80
85 | 3.60 3.93 4.36 4.92 5.63 6.51 7.51
</TABLE>
L-8162 Page 16
<PAGE> 30
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 is a legal contract between you and us.
READ YOUR POLICY CAREFULLY
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive, Long Grove, Illinois 60049-0001
Policy Form No. L-8162
<PAGE> 1
EXHIBIT 6.
OPINION AND CONSENT OF ACTUARIAL OFFICER
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 Exhibit 10
to the Registration Statement, 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 non-tobacco preferred males ages
50 and 70, than prospective non-tobacco preferred males and females ages 55 and
50 and 75 and 70, respectively, than to non-tobacco preferred males and females
at other ages. The non-tobacco risk class generally has a more favorable rate
structure than male risk classes. Preferred risk classes generally have a more
favorable rate structure than non-preferred risk classes.
The current and guaranteed monthly mortality rates used in the
illustrations have not been designed so to make the relationship between current
and guaranteed rates more favorable for the ages and sexes illustrated than for
a non-tobacco male or female at other ages. The non-tobacco risk classes
generally have lower monthly mortality rates than the male risk classes.
Preferred risk classes generally have lower monthly mortality rates than
non-preferred 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
EXHIBIT 7.
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Flexible Premium Variable Life Insurance Policy
(Individual Life and Survivorship)-KILICO Variable Separate Account-2
We consent to the inclusion in this registration statement on Form S-6 (File
No. 333-35159) of our report dated March 18, 1998, on our audit of the
consolidated financial statements of Kemper Investors Life Insurance Company
and to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
August 24, 1998
<PAGE> 1
EXHIBIT 8.
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Kemper Investors Life Insurance Company
We consent to the use of our report included herein on the consolidated
financial statements of Kemper Investors Life Insurance Company (KILICO) and to
the reference to our firm under the heading "Experts" in the prospectus. Our
report on KILICO's financial statements dated March 21, 1997, 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 period
before the acquisition and, therefore, is not comparable.
KPMG PEAT MARWICK LLP
Chicago, Illinois
August 24, 1998
<PAGE> 1
EXHIBIT 10.
ILLUSTRATIONS OF CASH VALUE,
SURRENDER VALUE AND DEATH BENEFIT
The tables in this Registration Statement have been prepared to help show
how values under Individual and Survivorship Policies change with investment
experience. The tables illustrate how Cash Value, Surrender Value, and Death
Benefit 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 Value, Surrender Value and Death Benefit
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 0.90% as the average of actual and estimated Fund investment
advisory fees and other Fund expenses, including any caps or reimbursements. The
tables also reflect applicable charges and deductions including a 3.18%
deduction against premiums (1% of which represents the charge for Federal taxes
and 2.18% 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 -2.00%, 4.00% and 10.00%,
on a current basis. On a guaranteed basis, these rates of return would be
- -2.25%, 3.75% and 9.75%, 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 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> 2
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION TEST
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 2,997 2,997 250,000 3,190 3,190 250,000 3,383 3,383 250,000
2 7,534 6,088 6,088 250,000 6,666 6,666 250,000 7,268 7,268 250,000
3 11,585 9,073 9,073 250,000 10,236 10,236 250,000 11,495 11,495 250,000
4 15,840 11,970 11,970 250,000 13,921 13,921 250,000 16,117 16,117 250,000
5 20,307 14,784 14,784 250,000 17,728 17,728 250,000 21,176 21,176 250,000
6 24,997 17,520 17,520 250,000 21,666 21,666 250,000 26,721 26,721 250,000
7 29,922 20,175 20,175 250,000 25,737 25,737 250,000 32,797 32,797 250,000
8 35,093 22,752 22,752 250,000 29,947 29,947 250,000 39,461 39,461 250,000
9 40,523 25,246 25,246 250,000 34,297 34,297 250,000 46,768 46,768 250,000
10 46,224 27,657 27,657 250,000 38,791 38,791 250,000 54,780 54,780 250,000
11 52,210 29,981 29,981 250,000 43,431 43,431 250,000 63,570 63,570 250,000
12 58,495 32,212 32,212 250,000 48,215 48,215 250,000 73,210 73,210 250,000
13 65,095 34,339 34,339 250,000 53,142 53,142 250,000 83,782 83,782 250,000
14 72,025 36,363 36,363 250,000 58,216 58,216 250,000 95,387 95,387 250,000
15 79,301 38,290 38,290 250,000 63,450 63,450 250,000 108,139 108,139 250,000
16 86,941 39,996 39,996 250,000 68,739 68,739 250,000 122,049 122,049 266,984
17 94,963 41,596 41,596 250,000 74,193 74,193 250,000 137,253 137,253 291,569
18 103,387 43,102 43,102 250,000 79,830 79,830 250,000 153,880 153,880 317,577
19 112,231 44,510 44,510 250,000 85,657 85,657 250,000 172,061 172,061 345,122
20 121,517 45,815 45,815 250,000 91,681 91,681 250,000 191,936 191,936 374,333
25 175,397 50,434 50,434 250,000 124,945 124,945 250,000 322,442 322,442 550,699
30 244,163 50,753 50,753 250,000 164,824 164,824 250,262 525,283 525,283 797,568
35 331,927 44,492 44,492 250,000 212,531 212,531 291,710 840,632 840,632 1,153,809
40 443,939 26,802 26,802 250,000 267,318 267,318 338,312 1,325,020 1,325,020 1,676,919
45 -- -- -- -- 329,893 329,893 392,319 2,065,649 2,065,649 2,449,282
</TABLE>
2
<PAGE> 3
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.
(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.
3
<PAGE> 4
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION TEST
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 2,517 2,517 250,000 2,695 2,695 250,000 2,873 2,873 250,000
2 7,534 5,118 5,118 250,000 5,636 5,636 250,000 6,176 6,176 250,000
3 11,585 7,624 7,624 250,000 8,651 8,651 250,000 9,765 9,765 250,000
4 15,840 10,030 10,030 250,000 11,736 11,736 250,000 13,662 13,662 250,000
5 20,307 12,339 12,339 250,000 14,895 14,895 250,000 17,899 17,899 250,000
6 24,997 14,545 14,545 250,000 18,124 18,124 250,000 22,504 22,504 250,000
7 29,922 16,646 16,646 250,000 21,421 21,421 250,000 27,511 27,511 250,000
8 35,093 18,642 18,642 250,000 24,788 24,788 250,000 32,959 32,959 250,000
9 40,523 20,529 20,529 250,000 28,225 28,225 250,000 38,892 38,892 250,000
10 46,224 22,304 22,304 250,000 31,727 31,727 250,000 45,355 45,355 250,000
11 52,210 23,963 23,963 250,000 35,295 35,295 250,000 52,402 52,402 250,000
12 58,495 25,496 25,496 250,000 38,921 38,921 250,000 60,086 60,086 250,000
13 65,095 26,890 26,890 250,000 42,594 42,594 250,000 68,464 68,464 250,000
14 72,025 28,135 28,135 250,000 46,308 46,308 250,000 77,607 77,607 250,000
15 79,301 29,216 29,216 250,000 50,050 50,050 250,000 87,591 87,591 250,000
16 86,941 30,121 30,121 250,000 53,813 53,813 250,000 98,505 98,505 250,000
17 94,963 30,837 30,837 250,000 57,587 57,587 250,000 110,455 110,455 250,000
18 103,387 31,357 31,357 250,000 61,369 61,369 250,000 123,558 123,558 254,998
19 112,231 31,668 31,668 250,000 65,153 65,153 250,000 137,768 137,768 276,337
20 121,517 31,748 31,748 250,000 68,923 68,923 250,000 153,130 153,130 298,650
21 131,268 31,572 31,572 250,000 72,665 72,665 250,000 169,723 169,723 321,999
22 141,507 31,116 31,116 250,000 76,363 76,363 250,000 187,632 187,632 346,451
23 152,257 30,339 30,339 250,000 79,991 79,991 250,000 206,939 206,939 372,070
24 163,545 29,194 29,194 250,000 83,522 83,522 250,000 227,727 227,727 398,934
25 175,397 27,632 27,632 250,000 86,923 86,923 250,000 250,081 250,081 427,114
26 187,842 25,600 25,600 250,000 90,167 90,167 250,000 274,097 274,097 456,696
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27 200,909 23,053 23,053 250,000 93,231 93,231 250,000 299,887 299,887 487,763
28 214,629 19,934 19,934 250,000 96,087 96,087 250,000 327,564 327,564 520,404
29 229,036 16,180 16,180 250,000 98,707 98,707 250,000 357,258 357,258 554,715
30 244,163 11,708 11,708 250,000 101,051 101,051 250,000 389,098 389,098 590,791
31 260,046 6,390 6,390 250,000 103,053 103,053 250,000 423,197 423,197 628,735
32 276,723 0 0 0 104,540 104,540 250,000 459,526 459,526 668,637
33 294,234 -- -- -- 105,579 105,579 250,000 498,425 498,425 710,655
34 -- -- -- -- 105,949 105,949 250,000 539,850 539,850 754,866
35 -- -- -- -- 105,495 105,495 250,000 583,882 583,882 801,407
36 -- -- -- -- 104,063 104,063 250,000 630,658 630,658 850,424
37 -- -- -- -- 101,467 101,467 250,000 680,333 680,333 902,053
38 -- -- -- -- 97,482 97,482 250,000 733,093 733,093 956,459
39 -- -- -- -- 91,831 91,831 250,000 789,170 789,170 1,013,784
40 -- -- -- -- 84,128 84,128 250,000 848,785 848,785 1,074,205
41 -- -- -- -- 73,815 73,815 250,000 912,118 912,118 1,137,886
42 -- -- -- -- 60,111 60,111 250,000 979,321 979,321 1,204,995
43 -- -- -- -- 41,900 41,900 250,000 1,050,490 1,050,490 1,275,715
44 -- -- -- -- 17,600 17,600 250,000 1,125,690 1,125,690 1,350,266
45 -- -- -- -- 0 0 0 1,205,034 1,205,034 1,428,833
46 -- -- -- -- -- -- -- 1,288,706 1,288,706 1,511,678
47 -- -- -- -- -- -- -- 1,376,975 1,376,975 1,599,012
48 -- -- -- -- -- -- -- 1,470,179 1,470,179 1,691,118
49 -- -- -- -- -- -- -- 1,568,808 1,568,808 1,788,252
50 -- -- -- -- -- -- -- 1,673,416 1,673,416 1,890,709
51 -- -- -- -- -- -- -- 1,784,668 1,784,668 1,998,757
52 -- -- -- -- -- -- -- 1,903,400 1,903,400 2,112,736
53 -- -- -- -- -- -- -- 2,030,655 2,030,655 2,232,970
54 -- -- -- -- -- -- -- 2,167,818 2,167,818 2,359,844
55 -- -- -- -- -- -- -- 2,316,190 2,316,190 2,493,633
56 -- -- -- -- -- -- -- 2,476,794 2,476,794 2,634,689
57 -- -- -- -- -- -- -- 2,649,702 2,649,702 2,783,221
58 -- -- -- -- -- -- -- 2,831,628 2,831,628 2,939,116
59 -- -- -- -- -- -- -- 3,018,626 3,018,626 3,102,393
60 -- -- -- -- -- -- -- 3,270,825 3,270,825 3,281,521
</TABLE>
5
<PAGE> 6
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.
6
<PAGE> 7
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM TEST
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 2,997 2,997 250,000 3,190 3,190 250,000 3,383 3,383 250,000
2 7,534 6,088 6,088 250,000 6,666 6,666 250,000 7,268 7,268 250,000
3 11,585 9,073 9,073 250,000 10,236 10,236 250,000 11,495 11,495 250,000
4 15,840 11,970 11,970 250,000 13,921 13,921 250,000 16,117 16,117 250,000
5 20,307 14,784 14,784 250,000 17,728 17,728 250,000 21,176 21,176 250,000
6 24,997 17,520 17,520 250,000 21,666 21,666 250,000 26,721 26,721 250,000
7 29,922 20,175 20,175 250,000 25,737 25,737 250,000 32,797 32,797 250,000
8 35,093 22,752 22,752 250,000 29,947 29,947 250,000 39,461 39,461 250,000
9 40,523 25,246 25,246 250,000 34,297 34,297 250,000 46,768 46,768 250,000
10 46,224 27,657 27,657 250,000 38,791 38,791 250,000 54,780 54,780 250,000
11 52,210 29,981 29,981 250,000 43,431 43,431 250,000 63,570 63,570 250,000
12 58,495 32,212 32,212 250,000 48,215 48,215 250,000 73,210 73,210 250,000
13 65,095 34,339 34,339 250,000 53,142 53,142 250,000 83,782 83,782 250,000
14 72,025 36,363 36,363 250,000 58,216 58,216 250,000 95,387 95,387 250,000
15 79,301 38,290 38,290 250,000 63,450 63,450 250,000 108,139 108,139 250,000
16 86,941 39,996 39,996 250,000 68,739 68,739 250,000 122,080 122,080 250,000
17 94,963 41,596 41,596 250,000 74,193 74,193 250,000 137,426 137,426 250,000
18 103,387 43,102 43,102 250,000 79,830 79,830 250,000 154,341 154,341 250,000
19 112,231 44,510 44,510 250,000 85,657 85,657 250,000 173,000 173,000 250,000
20 121,517 45,815 45,815 250,000 91,681 91,681 250,000 193,590 193,590 259,410
25 175,397 50,434 50,434 250,000 124,945 124,945 250,000 331,270 331,270 404,150
30 244,163 50,753 50,753 250,000 164,824 164,824 250,000 551,951 551,951 640,263
35 331,927 44,492 44,492 250,000 214,963 214,963 250,000 908,894 908,894 972,517
40 443,939 26,802 26,802 250,000 279,764 279,764 293,753 1,486,012 1,486,012 1,560,313
</TABLE>
7
<PAGE> 8
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.
(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.
8
<PAGE> 9
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $3,500. ANNUAL PREMIUM ISSUE AGE 40
$250,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 2,517 2,517 250,000 2,695 2,695 250,000 2,873 2,873 250,000
2 7,534 5,118 5,118 250,000 5,636 5,636 250,000 6,176 6,176 250,000
3 11,585 7,624 7,624 250,000 8,651 8,651 250,000 9,765 9,765 250,000
4 15,840 10,030 10,030 250,000 11,736 11,736 250,000 13,662 13,662 250,000
5 20,307 12,339 12,339 250,000 14,895 14,895 250,000 17,899 17,899 250,000
6 24,997 14,545 14,545 250,000 18,124 18,124 250,000 22,504 22,504 250,000
7 29,922 16,646 16,646 250,000 21,421 21,421 250,000 27,511 27,511 250,000
8 35,093 18,642 18,642 250,000 24,788 24,788 250,000 32,959 32,959 250,000
9 40,523 20,529 20,529 250,000 28,225 28,225 250,000 38,892 38,892 250,000
10 46,224 22,304 22,304 250,000 31,727 31,727 250,000 45,355 45,355 250,000
11 52,210 23,963 23,963 250,000 35,295 35,295 250,000 52,402 52,402 250,000
12 58,495 25,496 25,496 250,000 38,921 38,921 250,000 60,086 60,086 250,000
13 65,095 26,890 26,890 250,000 42,594 42,594 250,000 68,464 68,464 250,000
14 72,025 28,135 28,135 250,000 46,308 46,308 250,000 77,607 77,607 250,000
15 79,301 29,216 29,216 250,000 50,050 50,050 250,000 87,591 87,591 250,000
16 86,941 30,121 30,121 250,000 53,813 53,813 250,000 98,505 98,505 250,000
17 94,963 30,837 30,837 250,000 57,587 57,587 250,000 110,455 110,455 250,000
18 103,387 31,357 31,357 250,000 61,369 61,369 250,000 123,563 123,563 250,000
19 112,231 31,668 31,668 250,000 65,153 65,153 250,000 137,970 137,970 250,000
20 121,517 31,748 31,748 250,000 68,923 68,923 250,000 153,833 153,833 250,000
21 131,268 31,572 31,572 250,000 72,665 72,665 250,000 171,337 171,337 250,000
22 141,507 31,116 31,116 250,000 76,363 76,363 250,000 190,700 190,700 250,000
23 152,257 30,339 30,339 250,000 79,991 79,991 250,000 212,084 212,084 267,226
24 163,545 29,194 29,194 250,000 83,522 83,522 250,000 235,453 235,453 291,961
25 175,397 27,632 27,632 250,000 86,923 86,923 250,000 260,974 260,974 318,389
26 187,842 25,600 25,600 250,000 90,167 90,167 250,000 288,856 288,856 346,627
27 200,909 23,053 23,053 250,000 93,231 93,231 250,000 319,256 319,256 379,915
28 214,629 19,934 19,934 250,000 96,087 96,087 250,000 352,398 352,398 415,830
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
29 229,036 16,180 16,180 250,000 98,707 98,707 250,000 388,528 388,528 454,578
30 244,163 11,708 11,708 250,000 101,051 101,051 250,000 427,913 427,913 496,379
31 260,046 6,390 6,390 250,000 103,053 103,053 250,000 470,838 470,838 541,463
32 276,723 0 0 0 104,540 104,540 250,000 517,774 517,774 585,085
33 294,234 -- -- -- 105,579 105,579 250,000 569,246 569,246 631,863
34 -- -- -- -- 105,949 105,949 250,000 625,736 625,736 682,052
35 -- -- -- -- 105,495 105,495 250,000 687,871 687,871 736,022
36 -- -- -- -- 104,063 104,063 250,000 756,412 756,412 794,232
37 -- -- -- -- 101,467 101,467 250,000 831,154 831,154 872,712
38 -- -- -- -- 97,482 97,482 250,000 912,615 912,615 958,246
39 -- -- -- -- 91,831 91,831 250,000 1,001,349 1,001,349 1,051,417
40 -- -- -- -- 84,128 84,128 250,000 1,097,943 1,097,943 1,152,840
41 -- -- -- -- 73,815 73,815 250,000 1,203,000 1,203,000 1,263,150
42 -- -- -- -- 60,111 60,111 250,000 1,317,144 1,317,144 1,383,001
43 -- -- -- -- 41,900 41,900 250,000 1,440,999 1,440,999 1,513,049
44 -- -- -- -- 17,600 17,600 250,000 1,575,193 1,575,193 1,653,953
45 -- -- -- -- 0 0 0 1,720,377 1,720,377 1,806,395
46 -- -- -- -- -- -- -- 1,877,229 1,877,229 1,971,090
47 -- -- -- -- -- -- -- 2,046,463 2,046,463 2,148,786
48 -- -- -- -- -- -- -- 2,228,817 2,228,817 2,340,257
49 -- -- -- -- -- -- -- 2,425,073 2,425,073 2,546,327
50 -- -- -- -- -- -- -- 2,636,003 2,636,003 2,767,803
51 -- -- -- -- -- -- -- 2,862,341 2,862,341 3,005,458
52 -- -- -- -- -- -- -- 3,113,192 3,113,192 3,237,720
53 -- -- -- -- -- -- -- 3,392,781 3,392,781 3,494,564
54 -- -- -- -- -- -- -- 3,706,349 3,706,349 3,780,476
55 -- -- -- -- -- -- -- 4,060,505 4,060,505 4,101,110
56 -- -- -- -- -- -- -- 4,460,061 4,460,061 4,460,061
57 -- -- -- -- -- -- -- 4,898,573 4,898,573 4,898,573
58 -- -- -- -- -- -- -- 5,379,839 5,379,839 5,379,839
59 -- -- -- -- -- -- -- 5,908,030 5,908,030 5,908,030
60 -- -- -- -- -- -- -- 6,487,719 6,487,719 6,487,719
</TABLE>
10
<PAGE> 11
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.
11
<PAGE> 12
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION TEST
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 31,210 31,210 1,000,000 33,180 33,180 1,000,000 35,150 35,150 1,000,000
2 75,338 61,290 61,290 1,000,000 67,172 67,172 1,000,000 73,294 73,294 1,000,000
3 115,854 89,970 89,970 1,000,000 101,727 101,727 1,000,000 114,460 114,460 1,000,000
4 158,397 117,548 117,548 1,000,000 137,165 137,165 1,000,000 159,282 159,282 1,000,000
5 203,067 143,899 143,899 1,000,000 173,399 173,399 1,000,000 208,037 208,037 1,000,000
6 249,970 169,555 169,555 1,000,000 210,998 210,998 1,000,000 261,700 261,700 1,000,000
7 299,219 194,236 194,236 1,000,000 249,761 249,761 1,000,000 320,566 320,566 1,000,000
8 350,930 218,109 218,109 1,000,000 289,986 289,986 1,000,000 385,559 385,559 1,000,000
9 405,226 240,997 240,997 1,000,000 331,555 331,555 1,000,000 457,175 457,175 1,000,000
10 462,238 262,626 262,626 1,000,000 374,332 374,332 1,000,000 536,077 536,077 1,000,000
11 522,099 282,702 282,702 1,000,000 418,197 418,197 1,000,000 623,113 623,113 1,000,000
12 584,954 301,402 301,402 1,000,000 463,459 463,459 1,000,000 719,459 719,459 1,046,856
13 650,952 318,685 318,685 1,000,000 510,285 510,285 1,000,000 824,697 824,697 1,175,853
14 720,250 334,689 334,689 1,000,000 559,008 559,008 1,000,000 939,603 939,603 1,313,837
15 793,012 349,051 349,051 1,000,000 610,024 610,024 1,000,000 1,065,552 1,065,552 1,462,523
16 869,413 361,752 361,752 1,000,000 663,413 663,413 1,000,000 1,202,866 1,202,866 1,622,029
17 949,633 373,109 373,109 1,000,000 719,769 719,769 1,000,000 1,352,802 1,352,802 1,793,680
18 1,033,865 383,009 383,009 1,000,000 779,335 779,335 1,016,790 1,516,455 1,516,455 1,978,504
19 1,122,308 391,334 391,334 1,000,000 840,744 840,744 1,080,036 1,695,031 1,695,031 2,177,471
20 1,215,174 397,957 397,957 1,000,000 904,031 904,031 1,144,123 1,889,852 1,889,852 2,391,759
25 1,753,971 399,878 399,878 1,000,000 1,250,696 1,250,696 1,482,975 3,163,973 3,163,973 3,751,587
30 2,441,628 320,024 320,024 1,000,000 1,652,775 1,652,775 1,867,388 5,128,263 5,128,263 5,794,168
35 3,319,271 21,460 21,460 1,000,000 2,118,191 2,118,191 2,280,465 8,150,317 8,150,317 8,774,713
40 -- -- -- -- 2,703,701 2,703,701 2,712,542 13,024,546 13,024,546 13,067,136
45 -- -- -- -- -- -- -- -- -- --
</TABLE>
12
<PAGE> 13
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.
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.
13
<PAGE> 14
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION TEST
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 20,696 20,696 1,000,000 22,333 22,333 1,000,000 23,976 23,976 1,000,000
2 75,338 40,120 40,120 1,000,000 44,703 44,703 1,000,000 49,501 49,501 1,000,000
3 115,854 57,984 57,984 1,000,000 66,813 66,813 1,000,000 76,450 76,450 1,000,000
4 158,397 74,155 74,155 1,000,000 88,516 88,516 1,000,000 104,867 104,867 1,000,000
5 203,067 88,495 88,495 1,000,000 109,661 109,661 1,000,000 134,821 134,821 1,000,000
6 249,970 100,882 100,882 1,000,000 130,115 130,115 1,000,000 166,432 166,432 1,000,000
7 299,219 111,225 111,225 1,000,000 149,780 149,780 1,000,000 199,903 199,903 1,000,000
8 350,930 119,396 119,396 1,000,000 168,533 168,533 1,000,000 235,467 235,467 1,000,000
9 405,226 125,265 125,265 1,000,000 186,252 186,252 1,000,000 273,429 273,429 1,000,000
10 462,238 128,631 128,631 1,000,000 202,758 202,758 1,000,000 314,134 314,134 1,000,000
11 522,099 129,156 129,156 1,000,000 217,754 217,754 1,000,000 357,933 357,933 1,000,000
12 584,954 125,877 125,877 1,000,000 230,378 230,378 1,000,000 404,867 404,867 1,000,000
13 650,952 119,254 119,254 1,000,000 241,056 241,056 1,000,000 456,206 456,206 1,000,000
14 720,250 108,022 108,022 1,000,000 248,706 248,706 1,000,000 512,314 512,314 1,000,000
15 793,012 91,354 91,354 1,000,000 252,635 252,635 1,000,000 574,220 574,220 1,000,000
16 869,413 68,459 68,459 1,000,000 252,184 252,184 1,000,000 643,432 643,432 1,000,000
17 949,633 38,385 38,385 1,000,000 246,556 246,556 1,000,000 721,952 721,952 1,000,000
18 1,033,865 10 10 1,000,000 234,797 234,797 1,000,000 810,425 810,425 1,057,354
19 1,122,308 0 0 0 215,753 215,753 1,000,000 904,724 904,724 1,162,226
20 -- -- -- -- 187,780 187,780 1,000,000 1,005,210 1,005,210 1,272,174
21 -- -- -- -- 148,472 148,472 1,000,000 1,112,204 1,112,204 1,387,497
22 -- -- -- -- 94,455 94,455 1,000,000 1,225,993 1,225,993 1,508,510
23 -- -- -- -- 20,897 20,897 1,000,000 1,346,795 1,346,795 1,635,548
24 -- -- -- -- 0 0 0 1,474,782 1,474,782 1,769,001
25 -- -- -- -- -- -- -- 1,610,181 1,610,181 1,909,223
26 -- -- -- -- -- -- -- 1,753,315 1,753,315 2,056,674
27 -- -- -- -- -- -- -- 1,904,631 1,904,631 2,211,752
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28 -- -- -- -- -- -- -- 2,064,676 2,064,676 2,374,955
29 -- -- -- -- -- -- -- 2,234,224 2,234,224 2,546,747
30 -- -- -- -- -- -- -- 2,414,162 2,414,162 2,727,641
31 -- -- -- -- -- -- -- 2,605,553 2,605,553 2,918,115
32 -- -- -- -- -- -- -- 2,809,733 2,809,733 3,118,747
33 -- -- -- -- -- -- -- 3,028,374 3,028,374 3,330,091
34 -- -- -- -- -- -- -- 3,263,690 3,263,690 3,552,788
35 -- -- -- -- -- -- -- 3,517,806 3,517,806 3,787,305
36 -- -- -- -- -- -- -- 3,792,450 3,792,450 4,034,219
37 -- -- -- -- -- -- -- 4,087,901 4,087,901 4,293,890
38 -- -- -- -- -- -- -- 4,399,193 4,399,193 4,566,186
39 -- -- -- -- -- -- -- 4,720,224 4,720,224 4,851,210
40 -- -- -- -- -- -- -- 5,145,565 5,145,565 5,162,391
</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.
15
<PAGE> 16
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM TEST
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 31,210 31,210 1,000,000 33,180 33,180 1,000,000 35,150 35,150 1,000,000
2 75,338 61,290 61,290 1,000,000 67,172 67,172 1,000,000 73,294 73,294 1,000,000
3 115,854 89,970 89,970 1,000,000 101,727 101,727 1,000,000 114,460 114,460 1,000,000
4 158,397 117,548 117,548 1,000,000 137,165 137,165 1,000,000 159,282 159,282 1,000,000
5 203,067 143,899 143,899 1,000,000 173,399 173,399 1,000,000 208,037 208,037 1,000,000
6 249,970 169,555 169,555 1,000,000 210,998 210,998 1,000,000 261,700 261,700 1,000,000
7 299,219 194,236 194,236 1,000,000 249,761 249,761 1,000,000 320,566 320,566 1,000,000
8 350,930 218,109 218,109 1,000,000 289,986 289,986 1,000,000 385,559 385,559 1,000,000
9 405,226 240,997 240,997 1,000,000 331,555 331,555 1,000,000 457,175 457,175 1,000,000
10 462,238 262,626 262,626 1,000,000 374,332 374,332 1,000,000 536,077 536,077 1,000,000
11 522,099 282,702 282,702 1,000,000 418,197 418,197 1,000,000 623,113 623,113 1,000,000
12 584,954 301,402 301,402 1,000,000 463,459 463,459 1,000,000 719,635 719,635 1,000,000
13 650,952 318,685 318,685 1,000,000 510,285 510,285 1,000,000 827,104 827,104 1,000,000
14 720,250 334,689 334,689 1,000,000 559,008 559,008 1,000,000 947,235 947,235 1,032,486
15 793,012 349,051 349,051 1,000,000 610,024 610,024 1,000,000 1,081,061 1,081,061 1,156,736
16 869,413 361,752 361,752 1,000,000 663,413 663,413 1,000,000 1,228,887 1,228,887 1,290,331
17 949,633 373,109 373,109 1,000,000 719,769 719,769 1,000,000 1,391,673 1,391,673 1,461,256
18 1,033,865 383,009 383,009 1,000,000 779,515 779,515 1,000,000 1,570,889 1,570,889 1,649,434
19 1,122,308 391,334 391,334 1,000,000 843,179 843,179 1,000,000 1,768,146 1,768,146 1,856,553
20 1,215,174 397,957 397,957 1,000,000 911,412 911,412 1,000,000 1,985,198 1,985,198 2,084,458
25 1,753,971 399,878 399,878 1,000,000 1,306,555 1,306,555 1,371,883 3,440,972 3,440,972 3,613,021
30 2,441,628 320,024 320,024 1,000,000 1,780,038 1,780,038 1,869,040 5,763,476 5,763,476 6,051,650
35 3,319,271 21,460 21,460 1,000,000 2,361,688 2,361,688 2,385,305 9,522,246 9,522,246 9,617,469
40 -- -- -- -- 3,114,568 3,114,568 3,114,568 15,810,709 15,810,709 15,810,709
45 -- -- -- -- -- -- -- -- -- --
</TABLE>
16
<PAGE> 17
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.
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.
17
<PAGE> 18
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO $35,000. ANNUAL PREMIUM ISSUE AGE 60
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM TEST
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 20,696 20,696 1,000,000 22,333 22,333 1,000,000 23,976 23,976 1,000,000
2 75,338 40,120 40,120 1,000,000 44,703 44,703 1,000,000 49,501 49,501 1,000,000
3 115,854 57,984 57,984 1,000,000 66,813 66,813 1,000,000 76,450 76,450 1,000,000
4 158,397 74,155 74,155 1,000,000 88,516 88,516 1,000,000 104,867 104,867 1,000,000
5 203,067 88,495 88,495 1,000,000 109,661 109,661 1,000,000 134,821 134,821 1,000,000
6 249,970 100,882 100,882 1,000,000 130,115 130,115 1,000,000 166,432 166,432 1,000,000
7 299,219 111,225 111,225 1,000,000 149,780 149,780 1,000,000 199,903 199,903 1,000,000
8 350,930 119,396 119,396 1,000,000 168,533 168,533 1,000,000 235,467 235,467 1,000,000
9 405,226 125,265 125,265 1,000,000 186,252 186,252 1,000,000 273,429 273,429 1,000,000
10 462,238 128,631 128,631 1,000,000 202,758 202,758 1,000,000 314,134 314,134 1,000,000
11 522,099 129,156 129,156 1,000,000 217,754 217,754 1,000,000 357,933 357,933 1,000,000
12 584,954 125,877 125,877 1,000,000 230,378 230,378 1,000,000 404,867 404,867 1,000,000
13 650,952 119,254 119,254 1,000,000 241,056 241,056 1,000,000 456,206 456,206 1,000,000
14 720,250 108,022 108,022 1,000,000 248,706 248,706 1,000,000 512,314 512,314 1,000,000
15 793,012 91,354 91,354 1,000,000 252,635 252,635 1,000,000 574,220 574,220 1,000,000
16 869,413 68,459 68,459 1,000,000 252,184 252,184 1,000,000 643,432 643,432 1,000,000
17 949,633 38,385 38,385 1,000,000 246,556 246,556 1,000,000 721,952 721,952 1,000,000
18 1,033,865 10 10 1,000,000 234,797 234,797 1,000,000 812,449 812,449 1,000,000
19 1,122,308 0 0 0 215,753 215,753 1,000,000 918,461 918,461 1,000,000
20 -- -- -- -- 187,780 187,780 1,000,000 1,040,689 1,040,689 1,092,723
21 -- -- -- -- 148,472 148,472 1,000,000 1,173,773 1,173,773 1,232,462
22 -- -- -- -- 94,455 94,455 1,000,000 1,318,532 1,318,532 1,384,459
23 -- -- -- -- 20,897 20,897 1,000,000 1,475,796 1,475,796 1,549,586
24 -- -- -- -- 0 0 0 1,646,405 1,646,405 1,728,725
25 -- -- -- -- -- -- -- 1,831,226 1,831,226 1,922,788
26 -- -- -- -- -- -- -- 2,031,166 2,031,166 2,132,724
27 -- -- -- -- -- -- -- 2,247,169 2,247,169 2,359,528
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28 -- -- -- -- -- -- -- 2,480,214 2,480,214 2,604,225
29 -- -- -- -- -- -- -- 2,731,333 2,731,333 2,867,900
30 -- -- -- -- -- -- -- 3,001,550 3,001,550 3,151,628
31 -- -- -- -- -- -- -- 3,291,849 3,291,849 3,456,442
32 -- -- -- -- -- -- -- 3,612,932 3,612,932 3,757,449
33 -- -- -- -- -- -- -- 3,970,020 3,970,020 4,089,121
34 -- -- -- -- -- -- -- 4,369,604 4,369,604 4,456,996
35 -- -- -- -- -- -- -- 4,819,867 4,819,867 4,868,066
36 -- -- -- -- -- -- -- 5,326,932 5,326,932 5,326,932
37 -- -- -- -- -- -- -- 5,883,436 5,883,436 5,883,436
38 -- -- -- -- -- -- -- 6,494,199 6,494,199 6,494,199
39 -- -- -- -- -- -- -- 7,164,511 7,164,511 7,164,511
40 -- -- -- -- -- -- -- 7,900,179 7,900,179 7,900,179
</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.
19
<PAGE> 20
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 45
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION TEST
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 8,679 8,679 1,000,000 9,220 9,220 1,000,000 9,761 9,761 1,000,000
2 20,449 17,363 17,363 1,000,000 18,993 18,993 1,000,000 20,688 20,688 1,000,000
3 31,446 25,874 25,874 1,000,000 29,158 29,158 1,000,000 32,710 32,710 1,000,000
4 42,993 34,216 34,216 1,000,000 39,731 39,731 1,000,000 45,935 45,935 1,000,000
5 55,118 42,392 42,392 1,000,000 50,728 50,728 1,000,000 60,484 60,484 1,000,000
6 67,849 50,405 50,405 1,000,000 62,166 62,166 1,000,000 76,490 76,490 1,000,000
7 81,217 58,252 58,252 1,000,000 74,056 74,056 1,000,000 94,091 94,091 1,000,000
8 95,252 65,921 65,921 1,000,000 86,401 86,401 1,000,000 113,431 113,431 1,000,000
9 109,990 73,416 73,416 1,000,000 99,219 99,219 1,000,000 134,687 134,687 1,000,000
10 125,464 80,743 80,743 1,000,000 112,533 112,533 1,000,000 158,053 158,053 1,000,000
11 141,713 88,044 88,044 1,000,000 126,549 126,549 1,000,000 183,996 183,996 1,000,000
12 158,773 95,211 95,211 1,000,000 141,149 141,149 1,000,000 212,578 212,578 1,000,000
13 176,687 102,247 102,247 1,000,000 156,359 156,359 1,000,000 244,067 244,067 1,000,000
14 195,496 109,155 109,155 1,000,000 172,202 172,202 1,000,000 278,759 278,759 1,000,000
15 215,246 115,935 115,935 1,000,000 188,707 188,707 1,000,000 316,980 316,980 1,000,000
16 235,983 122,592 122,592 1,000,000 205,899 205,899 1,000,000 359,088 359,088 1,000,000
17 257,758 129,083 129,083 1,000,000 223,768 223,768 1,000,000 405,442 405,442 1,052,896
18 280,621 135,402 135,402 1,000,000 242,335 242,335 1,000,000 456,447 456,447 1,142,810
19 304,627 141,541 141,541 1,000,000 261,619 261,619 1,000,000 512,559 512,559 1,237,646
20 329,833 147,491 147,491 1,000,000 281,643 281,643 1,000,000 574,280 574,280 1,337,825
21 356,300 153,243 153,243 1,000,000 302,430 302,430 1,000,000 642,156 642,156 1,443,803
22 384,090 158,782 158,782 1,000,000 324,000 324,000 1,000,000 716,786 716,786 1,556,084
23 413,269 164,104 164,104 1,000,000 346,384 346,384 1,000,000 798,832 798,832 1,675,255
24 443,907 169,195 169,195 1,000,000 369,609 369,609 1,000,000 889,017 889,017 1,801,975
25 476,078 174,038 174,038 1,000,000 393,700 393,700 1,000,000 988,128 988,128 1,936,967
26 509,857 178,617 178,617 1,000,000 418,687 418,687 1,000,000 1,097,027 1,097,027 2,081,017
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27 545,325 183,074 183,074 1,000,000 445,013 445,013 1,000,000 1,217,734 1,217,734 2,237,110
28 582,566 187,173 187,173 1,000,000 472,307 472,307 1,000,000 1,350,360 1,350,360 2,404,126
29 621,669 190,864 190,864 1,000,000 500,596 500,596 1,000,000 1,496,024 1,496,024 2,583,139
30 662,728 194,090 194,090 1,000,000 529,910 529,910 1,000,000 1,655,939 1,655,939 2,775,204
31 705,839 196,776 196,776 1,000,000 560,275 560,275 1,000,000 1,831,408 1,831,408 2,981,478
32 751,106 198,885 198,885 1,000,000 591,754 591,754 1,000,000 2,023,920 2,023,920 3,203,399
33 798,636 200,358 200,358 1,000,000 624,408 624,408 1,000,000 2,235,074 2,235,074 3,442,573
34 848,543 201,102 201,102 1,000,000 658,298 658,298 1,000,000 2,466,580 2,466,580 3,700,758
35 900,945 201,004 201,004 1,000,000 693,457 693,457 1,014,562 2,720,281 2,720,281 3,979,907
36 955,967 199,933 199,933 1,000,000 729,774 729,774 1,042,307 2,998,168 2,998,168 4,282,164
37 1,013,741 197,742 197,742 1,000,000 767,262 767,262 1,070,998 3,302,409 3,302,409 4,609,733
38 1,074,403 194,302 194,302 1,000,000 805,948 805,948 1,100,739 3,635,420 3,635,420 4,965,148
39 1,138,098 189,437 189,437 1,000,000 845,849 845,849 1,131,586 3,999,789 3,999,789 5,350,958
40 1,204,978 182,938 182,938 1,000,000 886,984 886,984 1,163,564 4,398,319 4,398,319 5,769,803
41 1,275,202 174,582 174,582 1,000,000 929,377 929,377 1,196,741 4,834,096 4,834,096 6,224,768
42 1,348,937 164,128 164,128 1,000,000 973,060 973,060 1,231,204 5,310,508 5,310,508 6,719,333
43 1,426,359 150,939 150,939 1,000,000 1,017,960 1,017,960 1,266,902 5,830,643 5,830,643 7,256,527
44 1,507,651 134,729 134,729 1,000,000 1,064,133 1,064,133 1,303,999 6,398,572 6,398,572 7,840,874
45 1,593,009 114,699 114,699 1,000,000 1,111,516 1,111,516 1,342,422 7,017,971 7,017,971 8,475,884
46 1,682,635 90,303 90,303 1,000,000 1,160,153 1,160,153 1,382,229 7,693,475 7,693,475 9,166,160
47 1,776,741 60,724 60,724 1,000,000 1,210,054 1,210,054 1,423,338 8,429,907 8,429,907 9,915,762
48 1,875,553 24,952 24,952 1,000,000 1,261,241 1,261,241 1,465,701 9,232,548 9,232,548 10,729,237
49 1,979,306 0 0 0 1,313,752 1,313,752 1,509,199 10,107,269 10,107,269 11,610,927
50 -- -- -- -- 1,367,648 1,367,648 1,553,757 11,060,610 11,060,610 12,565,737
51 -- -- -- -- 1,423,016 1,423,016 1,599,370 12,099,945 12,099,945 13,599,491
52 -- -- -- -- 1,479,667 1,479,667 1,645,730 13,230,859 13,230,859 14,715,759
53 -- -- -- -- 1,539,248 1,539,248 1,694,604 14,475,661 14,475,661 15,936,690
54 -- -- -- -- 1,600,659 1,600,659 1,744,479 15,834,775 15,834,775 17,257,529
55 -- -- -- -- 1,664,358 1,664,358 1,794,627 17,322,782 17,322,782 18,678,636
56 -- -- -- -- 1,731,103 1,731,103 1,843,070 18,959,401 18,959,401 20,185,695
57 -- -- -- -- 1,801,432 1,801,432 1,892,873 20,764,538 20,764,538 21,818,546
58 -- -- -- -- 1,876,285 1,876,285 1,947,565 22,765,457 22,765,457 23,630,317
59 -- -- -- -- 1,956,214 1,956,214 2,010,499 24,988,373 24,988,373 25,681,801
60 -- -- -- -- 2,044,707 2,044,707 2,051,393 27,502,191 27,502,191 27,592,123
</TABLE>
21
<PAGE> 22
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.
22
<PAGE> 23
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 45
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION TEST
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 8,637 8,637 1,000,000 9,177 9,177 1,000,000 9,717 9,717 1,000,000
2 20,449 17,258 17,258 1,000,000 18,883 18,883 1,000,000 20,573 20,573 1,000,000
3 31,446 25,686 25,686 1,000,000 28,954 28,954 1,000,000 32,488 32,488 1,000,000
4 42,993 33,926 33,926 1,000,000 39,404 39,404 1,000,000 45,567 45,567 1,000,000
5 55,118 41,981 41,981 1,000,000 50,247 50,247 1,000,000 59,923 59,923 1,000,000
6 67,849 49,846 49,846 1,000,000 61,489 61,489 1,000,000 75,670 75,670 1,000,000
7 81,217 57,498 57,498 1,000,000 73,114 73,114 1,000,000 92,916 92,916 1,000,000
8 95,252 64,932 64,932 1,000,000 85,131 85,131 1,000,000 111,799 111,799 1,000,000
9 109,990 72,146 72,146 1,000,000 97,546 97,546 1,000,000 132,473 132,473 1,000,000
10 125,464 79,133 79,133 1,000,000 110,365 110,365 1,000,000 155,104 155,104 1,000,000
11 141,713 85,886 85,886 1,000,000 123,590 123,590 1,000,000 179,874 179,874 1,000,000
12 158,773 92,397 92,397 1,000,000 137,224 137,224 1,000,000 206,982 206,982 1,000,000
13 176,687 98,653 98,653 1,000,000 151,269 151,269 1,000,000 236,647 236,647 1,000,000
14 195,496 104,640 104,640 1,000,000 165,722 165,722 1,000,000 269,110 269,110 1,000,000
15 215,246 110,341 110,341 1,000,000 180,579 180,579 1,000,000 304,634 304,634 1,000,000
16 235,983 115,735 115,735 1,000,000 195,836 195,836 1,000,000 343,510 343,510 1,000,000
17 257,758 120,800 120,800 1,000,000 211,483 211,483 1,000,000 386,065 386,065 1,002,576
18 280,621 125,507 125,507 1,000,000 227,511 227,511 1,000,000 432,568 432,568 1,083,025
19 304,627 129,829 129,829 1,000,000 243,909 243,909 1,000,000 483,309 483,309 1,167,017
20 329,833 133,726 133,726 1,000,000 260,658 260,658 1,000,000 538,635 538,635 1,254,789
21 356,300 137,148 137,148 1,000,000 277,733 277,733 1,000,000 598,916 598,916 1,346,584
22 384,090 140,038 140,038 1,000,000 295,103 295,103 1,000,000 664,540 664,540 1,442,663
23 413,269 142,319 142,319 1,000,000 312,724 312,724 1,000,000 735,908 735,908 1,543,295
24 443,907 143,890 143,890 1,000,000 330,537 330,537 1,000,000 813,431 813,431 1,648,767
25 476,078 144,635 144,635 1,000,000 348,474 348,474 1,000,000 897,530 897,530 1,759,375
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26 509,857 144,427 144,427 1,000,000 366,465 366,465 1,000,000 988,651 988,651 1,875,431
27 545,325 143,058 143,058 1,000,000 384,387 384,387 1,000,000 1,087,183 1,087,183 1,997,275
28 582,566 140,481 140,481 1,000,000 402,244 402,244 1,000,000 1,193,732 1,193,732 2,125,272
29 621,669 136,458 136,458 1,000,000 419,913 419,913 1,000,000 1,308,751 1,308,751 2,259,781
30 662,728 130,770 130,770 1,000,000 437,296 437,296 1,000,000 1,432,760 1,432,760 2,401,176
31 705,839 123,148 123,148 1,000,000 454,281 454,281 1,000,000 1,566,288 1,566,288 2,549,870
32 751,106 113,251 113,251 1,000,000 470,726 470,726 1,000,000 1,709,852 1,709,852 2,706,302
33 798,636 100,626 100,626 1,000,000 486,444 486,444 1,000,000 1,863,922 1,863,922 2,870,906
34 848,543 84,717 84,717 1,000,000 501,218 501,218 1,000,000 2,028,947 2,028,947 3,044,151
35 900,945 64,837 64,837 1,000,000 514,793 514,793 1,000,000 2,205,349 2,205,349 3,226,536
36 955,967 40,162 40,162 1,000,000 526,881 526,881 1,000,000 2,393,547 2,393,547 3,418,608
37 1,013,741 9,717 9,717 1,000,000 537,167 537,167 1,000,000 2,593,995 2,593,995 3,620,880
38 1,074,403 0 0 0 545,292 545,292 1,000,000 2,807,201 2,807,201 3,833,991
39 -- -- -- -- 550,841 550,841 1,000,000 3,033,736 3,033,736 4,058,562
40 -- -- -- -- 553,297 553,297 1,000,000 3,274,227 3,274,227 4,295,197
41 -- -- -- -- 551,972 551,972 1,000,000 3,529,293 3,529,293 4,544,600
42 -- -- -- -- 545,944 545,944 1,000,000 3,799,541 3,799,541 4,807,522
43 -- -- -- -- 533,937 533,937 1,000,000 4,085,513 4,085,513 5,084,625
44 -- -- -- -- 514,200 514,200 1,000,000 4,387,728 4,387,728 5,376,766
45 -- -- -- -- 484,414 484,414 1,000,000 4,706,941 4,706,941 5,684,761
46 -- -- -- -- 441,332 441,332 1,000,000 5,044,007 5,044,007 6,009,530
47 -- -- -- -- 380,442 380,442 1,000,000 5,400,132 5,400,132 6,351,959
48 -- -- -- -- 295,128 295,128 1,000,000 5,776,648 5,776,648 6,713,101
49 -- -- -- -- 175,721 175,721 1,000,000 6,175,318 6,175,318 7,094,020
50 -- -- -- -- 7,149 7,149 1,000,000 6,597,818 6,597,818 7,495,649
51 -- -- -- -- 0 0 0 7,046,029 7,046,029 7,919,244
52 -- -- -- -- -- -- -- 7,521,748 7,521,748 8,365,914
53 -- -- -- -- -- -- -- 8,026,728 8,026,728 8,836,865
54 -- -- -- -- -- -- -- 8,563,991 8,563,991 9,333,466
55 -- -- -- -- -- -- -- 9,142,207 9,142,207 9,857,768
56 -- -- -- -- -- -- -- 9,779,571 9,779,571 10,412,114
57 -- -- -- -- -- -- -- 0,463,333 10,463,333 10,994,452
58 -- -- -- -- -- -- -- 1,180,999 11,180,999 11,605,766
59 -- -- -- -- -- -- -- 1,915,114 11,915,114 12,245,758
60 -- -- -- -- -- -- -- 12,906,255 12,906,255 12,948,459
</TABLE>
24
<PAGE> 25
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.
25
<PAGE> 26
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 45
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM TEST
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 8,679 8,679 1,000,000 9,220 9,220 1,000,000 9,761 9,761 1,000,000
2 20,449 17,363 17,363 1,000,000 18,993 18,993 1,000,000 20,688 20,688 1,000,000
3 31,446 25,874 25,874 1,000,000 29,158 29,158 1,000,000 32,710 32,710 1,000,000
4 42,993 34,216 34,216 1,000,000 39,731 39,731 1,000,000 45,935 45,935 1,000,000
5 55,118 42,392 42,392 1,000,000 50,728 50,728 1,000,000 60,484 60,484 1,000,000
6 67,849 50,405 50,405 1,000,000 62,166 62,166 1,000,000 76,490 76,490 1,000,000
7 81,217 58,252 58,252 1,000,000 74,056 74,056 1,000,000 94,091 94,091 1,000,000
8 95,252 65,921 65,921 1,000,000 86,401 86,401 1,000,000 113,431 113,431 1,000,000
9 109,990 73,416 73,416 1,000,000 99,219 99,219 1,000,000 134,687 134,687 1,000,000
10 125,464 80,743 80,743 1,000,000 112,533 112,533 1,000,000 158,053 158,053 1,000,000
11 141,713 88,044 88,044 1,000,000 126,549 126,549 1,000,000 183,996 183,996 1,000,000
12 158,773 95,211 95,211 1,000,000 141,149 141,149 1,000,000 212,578 212,578 1,000,000
13 176,687 102,247 102,247 1,000,000 156,359 156,359 1,000,000 244,067 244,067 1,000,000
14 195,496 109,155 109,155 1,000,000 172,202 172,202 1,000,000 278,759 278,759 1,000,000
15 215,246 115,935 115,935 1,000,000 188,707 188,707 1,000,000 316,980 316,980 1,000,000
16 235,983 122,592 122,592 1,000,000 205,899 205,899 1,000,000 359,088 359,088 1,000,000
17 257,758 129,083 129,083 1,000,000 223,768 223,768 1,000,000 405,446 405,446 1,000,000
18 280,621 135,402 135,402 1,000,000 242,335 242,335 1,000,000 456,485 456,485 1,000,000
19 304,627 141,541 141,541 1,000,000 261,619 261,619 1,000,000 512,680 512,680 1,000,000
20 329,833 147,491 147,491 1,000,000 281,643 281,643 1,000,000 574,558 574,558 1,000,000
21 356,300 153,243 153,243 1,000,000 302,430 302,430 1,000,000 642,704 642,704 1,000,000
22 384,090 158,782 158,782 1,000,000 324,000 324,000 1,000,000 717,768 717,768 1,000,000
23 413,269 164,104 164,104 1,000,000 346,384 346,384 1,000,000 800,473 800,473 1,008,596
24 443,907 169,195 169,195 1,000,000 369,609 369,609 1,000,000 891,572 891,572 1,105,549
25 476,078 174,038 174,038 1,000,000 393,700 393,700 1,000,000 991,871 991,871 1,210,083
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26 509,857 178,617 178,617 1,000,000 418,687 418,687 1,000,000 1,102,300 1,102,300 1,322,760
27 545,325 183,074 183,074 1,000,000 445,013 445,013 1,000,000 1,224,966 1,224,966 1,457,709
28 582,566 187,173 187,173 1,000,000 472,307 472,307 1,000,000 1,360,098 1,360,098 1,604,915
29 621,669 190,864 190,864 1,000,000 500,596 500,596 1,000,000 1,508,948 1,508,948 1,765,469
30 662,728 194,090 194,090 1,000,000 529,910 529,910 1,000,000 1,672,893 1,672,893 1,940,556
31 705,839 196,776 196,776 1,000,000 560,275 560,275 1,000,000 1,853,441 1,853,441 2,131,457
32 751,106 198,885 198,885 1,000,000 591,754 591,754 1,000,000 2,052,360 2,052,360 2,319,167
33 798,636 200,358 200,358 1,000,000 624,408 624,408 1,000,000 2,271,556 2,271,556 2,521,427
34 848,543 201,102 201,102 1,000,000 658,298 658,298 1,000,000 2,513,145 2,513,145 2,739,328
35 900,945 201,004 201,004 1,000,000 693,496 693,496 1,000,000 2,779,492 2,779,492 2,974,057
36 955,967 199,933 199,933 1,000,000 730,091 730,091 1,000,000 3,073,254 3,073,254 3,226,917
37 1,013,741 197,742 197,742 1,000,000 768,200 768,200 1,000,000 3,396,768 3,396,768 3,566,607
38 1,074,403 194,302 194,302 1,000,000 807,979 807,979 1,000,000 3,752,993 3,752,993 3,940,643
39 1,138,098 189,437 189,437 1,000,000 849,613 849,613 1,000,000 4,145,163 4,145,163 4,352,421
40 1,204,978 182,938 182,938 1,000,000 893,329 893,329 1,000,000 4,576,813 4,576,813 4,805,653
41 1,275,202 174,582 174,582 1,000,000 939,417 939,417 1,000,000 5,051,811 5,051,811 5,304,401
42 1,348,937 164,128 164,128 1,000,000 987,919 987,919 1,037,315 5,574,384 5,574,384 5,853,103
43 1,426,359 150,939 150,939 1,000,000 1,038,284 1,038,284 1,090,198 6,149,026 6,149,026 6,456,477
44 1,507,651 134,729 134,729 1,000,000 1,090,551 1,090,551 1,145,078 6,780,753 6,780,753 7,119,791
45 1,593,009 114,699 114,699 1,000,000 1,144,741 1,144,741 1,201,978 7,474,850 7,474,850 7,848,592
46 1,682,635 90,303 90,303 1,000,000 1,200,890 1,200,890 1,260,934 8,237,175 8,237,175 8,649,033
47 1,776,741 60,724 60,724 1,000,000 1,259,019 1,259,019 1,321,970 9,074,005 9,074,005 9,527,705
48 1,875,553 24,952 24,952 1,000,000 1,319,141 1,319,141 1,385,098 9,992,103 9,992,103 10,491,708
49 1,979,306 0 0 0 1,381,263 1,381,263 1,450,326 10,998,745 10,998,745 11,548,683
50 -- -- -- -- 1,445,378 1,445,378 1,517,647 12,101,732 12,101,732 12,706,818
51 -- -- -- -- 1,511,470 1,511,470 1,587,043 13,309,407 13,309,407 13,974,877
52 -- -- -- -- 1,580,604 1,580,604 1,643,828 14,640,807 14,640,807 15,226,439
53 -- -- -- -- 1,654,827 1,654,827 1,704,472 16,126,555 16,126,555 16,610,352
54 -- -- -- -- 1,733,270 1,733,270 1,767,935 17,774,165 17,774,165 18,129,648
55 -- -- -- -- 1,816,647 1,816,647 1,834,813 19,607,075 19,607,075 19,803,146
56 -- -- -- -- 1,905,207 1,905,207 1,905,207 21,646,494 21,646,494 21,646,494
57 -- -- -- -- 1,997,621 1,997,621 1,997,621 23,896,993 23,896,993 23,896,993
58 -- -- -- -- 2,094,054 2,094,054 2,094,054 26,380,418 26,380,418 26,380,418
59 -- -- -- -- 2,194,682 2,194,682 2,194,682 29,120,878 29,120,878 29,120,878
60 -- -- -- -- 2,299,687 2,299,687 2,299,687 32,144,976 32,144,976 32,144,976
</TABLE>
27
<PAGE> 28
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.
28
<PAGE> 29
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 45
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 40
ANNUAL PREMIUM $9,500
$1,000,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM TEST
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUM --------------------------------- ---------------------------------- ----------------------------------
PAID 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 8,637 8,637 1,000,000 9,177 9,177 1,000,000 9,717 9,717 1,000,000
2 20,449 17,258 17,258 1,000,000 18,883 18,883 1,000,000 20,573 20,573 1,000,000
3 31,446 25,686 25,686 1,000,000 28,954 28,954 1,000,000 32,488 32,488 1,000,000
4 42,993 33,926 33,926 1,000,000 39,404 39,404 1,000,000 45,567 45,567 1,000,000
5 55,118 41,981 41,981 1,000,000 50,247 50,247 1,000,000 59,923 59,923 1,000,000
6 67,849 49,846 49,846 1,000,000 61,489 61,489 1,000,000 75,670 75,670 1,000,000
7 81,217 57,498 57,498 1,000,000 73,114 73,114 1,000,000 92,916 92,916 1,000,000
8 95,252 64,932 64,932 1,000,000 85,131 85,131 1,000,000 111,799 111,799 1,000,000
9 109,990 72,146 72,146 1,000,000 97,546 97,546 1,000,000 132,473 132,473 1,000,000
10 125,464 79,133 79,133 1,000,000 110,365 110,365 1,000,000 155,104 155,104 1,000,000
11 141,713 85,886 85,886 1,000,000 123,590 123,590 1,000,000 179,874 179,874 1,000,000
12 158,773 92,397 92,397 1,000,000 137,224 137,224 1,000,000 206,982 206,982 1,000,000
13 176,687 98,653 98,653 1,000,000 151,269 151,269 1,000,000 236,647 236,647 1,000,000
14 195,496 104,640 104,640 1,000,000 165,722 165,722 1,000,000 269,110 269,110 1,000,000
15 215,246 110,341 110,341 1,000,000 180,579 180,579 1,000,000 304,634 304,634 1,000,000
16 235,983 115,735 115,735 1,000,000 195,836 195,836 1,000,000 343,510 343,510 1,000,000
17 257,758 120,800 120,800 1,000,000 211,483 211,483 1,000,000 386,065 386,065 1,000,000
18 280,621 125,507 125,507 1,000,000 227,511 227,511 1,000,000 432,657 432,657 1,000,000
19 304,627 129,829 129,829 1,000,000 243,909 243,909 1,000,000 483,692 483,692 1,000,000
20 329,833 133,726 133,726 1,000,000 260,658 260,658 1,000,000 539,618 539,618 1,000,000
21 356,300 137,148 137,148 1,000,000 277,733 277,733 1,000,000 600,940 600,940 1,000,000
22 384,090 140,038 140,038 1,000,000 295,103 295,103 1,000,000 668,230 668,230 1,000,000
23 413,269 142,319 142,319 1,000,000 312,724 312,724 1,000,000 742,138 742,138 1,000,000
24 443,907 143,890 143,890 1,000,000 330,537 330,537 1,000,000 823,403 823,403 1,021,019
25 476,078 144,635 144,635 1,000,000 348,474 348,474 1,000,000 912,546 912,546 1,113,306
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26 509,857 144,427 144,427 1,000,000 366,465 366,465 1,000,000 1,010,151 1,010,151 1,212,181
27 545,325 143,058 143,058 1,000,000 384,387 384,387 1,000,000 1,116,913 1,116,913 1,329,127
28 582,566 140,481 140,481 1,000,000 402,244 402,244 1,000,000 1,233,686 1,233,686 1,455,750
29 621,669 136,458 136,458 1,000,000 419,913 419,913 1,000,000 1,361,358 1,361,358 1,592,789
30 662,728 130,770 130,770 1,000,000 437,296 437,296 1,000,000 1,500,907 1,500,907 1,741,052
31 705,839 123,148 123,148 1,000,000 454,281 454,281 1,000,000 1,653,397 1,653,397 1,901,406
32 751,106 113,251 113,251 1,000,000 470,726 470,726 1,000,000 1,820,321 1,820,321 2,056,963
33 798,636 100,626 100,626 1,000,000 486,444 486,444 1,000,000 2,003,157 2,003,157 2,223,504
34 848,543 84,717 84,717 1,000,000 501,218 501,218 1,000,000 2,203,600 2,203,600 2,401,924
35 900,945 64,837 64,837 1,000,000 514,793 514,793 1,000,000 2,423,627 2,423,627 2,593,281
36 955,967 40,162 40,162 1,000,000 526,881 526,881 1,000,000 2,665,578 2,665,578 2,798,857
37 1,013,741 9,717 9,717 1,000,000 537,167 537,167 1,000,000 2,929,898 2,929,898 3,076,393
38 1,074,403 0 0 0 545,292 545,292 1,000,000 3,218,465 3,218,465 3,379,389
39 -- -- -- -- 550,841 550,841 1,000,000 3,533,281 3,533,281 3,709,945
40 -- -- -- -- 553,297 553,297 1,000,000 3,876,468 3,876,468 4,070,291
41 -- -- -- -- 551,972 551,972 1,000,000 4,250,254 4,250,254 4,462,766
42 -- -- -- -- 545,944 545,944 1,000,000 4,656,964 4,656,964 4,889,812
43 -- -- -- -- 533,937 533,937 1,000,000 5,098,988 5,098,988 5,353,938
44 -- -- -- -- 514,200 514,200 1,000,000 5,578,773 5,578,773 5,857,712
45 -- -- -- -- 484,414 484,414 1,000,000 6,098,859 6,098,859 6,403,802
46 -- -- -- -- 441,332 441,332 1,000,000 6,661,834 6,661,834 6,994,926
47 -- -- -- -- 380,442 380,442 1,000,000 7,270,373 7,270,373 7,633,891
48 -- -- -- -- 295,128 295,128 1,000,000 7,927,124 7,927,124 8,323,480
49 -- -- -- -- 175,721 175,721 1,000,000 8,634,751 8,634,751 9,066,488
50 -- -- -- -- 7,149 7,149 1,000,000 9,395,605 9,395,605 9,865,385
51 -- -- -- -- 0 0 0 10,211,655 10,211,655 10,722,238
52 -- -- -- -- -- -- -- 11,111,974 11,111,974 11,556,453
53 -- -- -- -- -- -- -- 12,111,084 12,111,084 12,474,417
54 -- -- -- -- -- -- -- 13,228,230 13,228,230 13,492,795
55 -- -- -- -- -- -- -- 14,489,395 14,489,395 14,634,289
56 -- -- -- -- -- -- -- 15,912,143 15,912,143 15,912,143
57 -- -- -- -- -- -- -- 17,473,608 17,473,608 17,473,608
58 -- -- -- -- -- -- -- 19,187,316 19,187,316 19,187,316
59 -- -- -- -- -- -- -- 21,068,111 21,068,111 21,068,111
60 -- -- -- -- -- -- -- 23,132,284 23,132,284 23,132,284
</TABLE>
30
<PAGE> 31
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.
31
<PAGE> 32
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 65
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 47,012 47,012 2,000,000 49,903 49,903 2,000,000 52,793 52,793 2,000,000
2 107,625 93,409 93,409 2,000,000 102,137 102,137 2,000,000 111,213 111,213 2,000,000
3 165,506 138,694 138,694 2,000,000 156,280 156,280 2,000,000 175,297 175,297 2,000,000
4 226,282 182,701 182,701 2,000,000 212,225 212,225 2,000,000 245,437 245,437 2,000,000
5 290,096 225,525 225,525 2,000,000 270,151 270,151 2,000,000 322,394 322,394 2,000,000
6 357,100 266,826 266,826 2,000,000 329,780 329,780 2,000,000 406,507 406,507 2,000,000
7 427,455 306,317 306,317 2,000,000 390,899 390,899 2,000,000 498,268 498,268 2,000,000
8 501,328 344,295 344,295 2,000,000 453,868 453,868 2,000,000 598,807 598,807 2,000,000
9 578,895 380,731 380,731 2,000,000 518,753 518,753 2,000,000 709,084 709,084 2,000,000
10 660,339 416,250 416,250 2,000,000 586,412 586,412 2,000,000 831,137 831,137 2,000,000
11 745,856 450,299 450,299 2,000,000 656,355 656,355 2,000,000 965,565 965,565 2,000,000
12 835,649 483,531 483,531 2,000,000 729,307 729,307 2,000,000 1,114,286 1,114,286 2,000,000
13 929,932 516,063 516,063 2,000,000 805,528 805,528 2,000,000 1,278,990 1,278,990 2,000,000
14 1,026,928 548,190 548,190 2,000,000 885,431 885,431 2,000,000 1,460,965 1,460,965 2,211,799
15 1,132,875 579,940 579,940 2,000,000 969,216 969,216 2,000,000 1,661,591 1,661,591 2,449,219
16 1,242,018 610,092 610,092 2,000,000 1,056,185 1,056,185 2,000,000 1,882,046 1,882,046 2,704,500
17 1,356,619 638,085 638,085 2,000,000 1,146,235 1,146,235 2,000,000 2,123,914 2,123,914 2,979,300
18 1,476,950 663,769 663,769 2,000,000 1,239,625 1,239,625 2,000,000 2,389,163 2,389,163 3,275,685
19 1,603,298 686,941 686,941 2,000,000 1,336,664 1,336,664 2,000,000 2,679,910 2,679,910 3,595,903
20 1,735,963 707,370 707,370 2,000,000 1,437,752 1,437,752 2,000,000 2,998,454 2,998,454 3,942,217
21 1,875,261 724,817 724,817 2,000,000 1,543,412 1,543,412 2,000,000 3,347,313 3,347,313 4,317,264
22 2,021,524 739,032 739,032 2,000,000 1,653,086 1,653,086 2,093,980 3,729,252 3,729,252 4,723,880
23 2,175,100 749,277 749,277 2,000,000 1,766,212 1,766,212 2,199,747 4,146,899 4,146,899 5,164,797
24 2,336,355 755,284 755,284 2,000,000 1,882,900 1,882,900 2,308,304 4,603,552 4,603,552 5,643,632
25 2,505,673 756,142 756,142 2,000,000 2,003,059 2,003,059 2,419,655 5,102,296 5,102,296 6,163,472
26 2,683,456 751,306 751,306 2,000,000 2,126,771 2,126,771 2,533,920 5,646,900 5,646,900 6,727,943
27 2,870,129 739,913 739,913 2,000,000 2,254,069 2,254,069 2,651,101 6,241,321 6,241,321 7,340,667
</TABLE>
32
<PAGE> 33
<TABLE>
<S> C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28 3,066,136 720,910 720,910 2,000,000 2,385,003 2,385,003 2,771,111 6,889,890 6,889,890 8,005,294
29 3,271,942 693,017 693,017 2,000,000 2,519,658 2,519,658 2,893,777 7,597,412 7,597,412 8,725,476
30 3,488,039 654,626 654,626 2,000,000 2,658,163 2,658,163 3,019,036 8,369,238 8,369,238 9,505,445
31 3,714,941 603,718 603,718 2,000,000 2,800,708 2,800,708 3,146,848 9,211,391 9,211,391 10,349,827
32 3,953,189 535,043 535,043 2,000,000 2,946,925 2,946,925 3,276,716 10,128,532 10,128,532 11,262,016
33 4,203,348 444,501 444,501 2,000,000 3,097,152 3,097,152 3,408,942 11,128,083 11,128,083 12,248,347
34 4,466,015 327,013 327,013 2,000,000 3,251,933 3,251,933 3,543,664 12,218,972 12,218,972 13,315,136
35 4,741,816 176,332 176,332 2,000,000 3,412,209 3,412,209 3,679,249 13,412,636 13,412,636 14,462,309
36 5,031,407 0 0 0 3,579,610 3,579,610 3,811,139 14,724,690 14,724,690 15,677,083
37 -- -- -- -- 3,755,413 3,755,413 3,946,038 16,171,300 16,171,300 16,992,155
38 -- -- -- -- 3,941,700 3,941,700 4,091,445 17,774,256 17,774,256 18,449,500
39 -- -- -- -- 4,139,765 4,139,765 4,254,643 19,554,574 19,554,574 20,097,213
40 -- -- -- -- 4,357,174 4,357,174 4,371,422 21,566,862 21,566,862 21,637,386
</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 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.
33
<PAGE> 34
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 65
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A - CASH VALUE ACCUMULATION
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUM ----------------------- ----------------------- ----------------------------------
PAID 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 46,738 46,738 2,000,000 49,623 49,623 2,000,000 52,510 52,510 2,000,000
2 107,625 91,830 91,830 2,000,000 100,497 100,497 2,000,000 109,512 109,512 2,000,000
3 165,506 134,988 134,988 2,000,000 152,340 152,340 2,000,000 171,117 171,117 2,000,000
4 226,282 176,070 176,070 2,000,000 205,012 205,012 2,000,000 237,609 237,609 2,000,000
5 290,096 214,900 214,900 2,000,000 258,340 258,340 2,000,000 309,286 309,286 2,000,000
6 357,100 251,277 251,277 2,000,000 312,129 312,129 2,000,000 386,483 386,483 2,000,000
7 427,455 284,904 284,904 2,000,000 366,096 366,096 2,000,000 469,518 469,518 2,000,000
8 501,328 315,659 315,659 2,000,000 420,134 420,134 2,000,000 558,968 558,968 2,000,000
9 578,895 343,215 343,215 2,000,000 473,961 473,961 2,000,000 655,353 655,353 2,000,000
10 660,339 367,253 367,253 2,000,000 527,319 527,319 2,000,000 759,365 759,365 2,000,000
11 745,856 387,394 387,394 2,000,000 579,921 579,921 2,000,000 871,852 871,852 2,000,000
12 835,649 403,157 403,157 2,000,000 631,426 631,426 2,000,000 993,860 993,860 2,000,000
13 929,932 413,910 413,910 2,000,000 681,402 681,402 2,000,000 1,126,686 1,126,686 2,000,000
14 1,028,928 418,873 418,873 2,000,000 729,354 729,354 2,000,000 1,272,020 1,272,020 2,000,000
15 1,132,875 417,102 417,102 2,000,000 774,723 774,723 2,000,000 1,430,896 1,430,896 2,109,170
16 1,242,018 407,466 407,466 2,000,000 816,896 816,896 2,000,000 1,601,022 1,601,022 2,300,669
17 1,356,619 388,653 388,653 2,000,000 855,232 855,232 2,000,000 1,782,822 1,782,822 2,500,835
18 1,476,950 359,108 359,108 2,000,000 889,038 889,038 2,000,000 1,976,761 1,976,761 2,710,258
19 1,603,298 316,953 316,953 2,000,000 917,540 917,540 2,000,000 2,183,353 2,183,353 2,929,624
20 1,735,963 259,828 259,828 2,000,000 939,806 939,806 2,000,000 2,403,154 2,403,154 3,159,547
21 1,875,261 184,623 184,623 2,000,000 954,607 954,607 2,000,000 2,636,723 2,636,723 3,400,766
22 2,021,524 87,197 87,197 2,000,000 960,307 960,307 2,000,000 2,884,621 2,884,621 3,653,978
23 2,175,100 0 0 0 954,641 954,641 2,000,000 3,147,368 3,147,368 3,919,922
24 -- -- -- -- 934,516 934,516 2,000,000 3,425,480 3,425,480 4,199,399
25 -- -- -- -- 895,886 895,886 2,000,000 3,719,654 3,719,654 4,493,267
26 -- -- -- -- 833,078 833,078 2,000,000 4,030,684 4,030,684 4,802,318
27 -- -- -- -- 738,238 738,238 2,000,000 4,359,658 4,359,658 5,127,569
28 -- -- -- -- 599,800 599,800 2,000,000 4,707,783 4,707,783 5,469,927
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
29 -- -- -- -- 400,836 400,836 2,000,000 5,076,634 5,076,634 5,830,413
30 -- -- -- -- 114,787 114,787 2,000,000 5,467,726 5,467,726 6,210,024
31 -- -- -- -- 0 0 0 5,882,731 5,882,731 6,609,777
32 -- -- -- -- -- -- -- 6,323,224 6,323,224 7,030,856
33 -- -- -- -- -- -- -- 6,790,691 6,790,691 7,474,310
34 -- -- -- -- -- -- -- 7,287,702 7,287,702 7,941,481
35 -- -- -- -- -- -- -- 7,822,050 7,822,050 8,434,204
36 -- -- -- -- -- -- -- 8,410,692 8,410,692 8,954,695
37 -- -- -- -- -- -- -- 9,042,027 9,042,027 9,501,000
38 -- -- -- -- -- -- -- 9,705,398 9,705,398 10,074,106
39 -- -- -- -- -- -- -- 10,385,665 10,385,665 10,673,868
40 -- -- -- -- -- -- -- 11,293,293 11,293,293 11,330,222
</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.
35
<PAGE> 36
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 65
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM TEST
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 47,012 47,012 2,000,000 49,903 49,903 2,000,000 52,793 52,793 2,000,000
2 107,625 93,409 93,409 2,000,000 102,137 102,137 2,000,000 111,213 111,213 2,000,000
3 165,506 138,694 138,694 2,000,000 156,280 156,280 2,000,000 175,297 175,297 2,000,000
4 226,282 182,701 182,701 2,000,000 212,225 212,225 2,000,000 245,437 245,437 2,000,000
5 290,096 225,525 225,525 2,000,000 270,151 270,151 2,000,000 322,394 322,394 2,000,000
6 357,100 266,826 266,826 2,000,000 329,780 329,780 2,000,000 406,507 406,507 2,000,000
7 427,455 306,317 306,317 2,000,000 390,899 390,899 2,000,000 498,268 498,268 2,000,000
8 501,328 344,295 344,295 2,000,000 453,868 453,868 2,000,000 598,807 598,807 2,000,000
9 578,895 380,731 380,731 2,000,000 518,753 518,753 2,000,000 709,084 709,084 2,000,000
10 660,339 416,250 416,250 2,000,000 586,412 586,412 2,000,000 831,137 831,137 2,000,000
11 745,856 450,299 450,299 2,000,000 656,355 656,355 2,000,000 965,565 965,565 2,000,000
12 835,649 483,531 483,531 2,000,000 729,307 729,307 2,000,000 1,114,286 1,114,286 2,000,000
13 929,932 516,063 516,063 2,000,000 805,528 805,528 2,000,000 1,278,990 1,278,990 2,000,000
14 1,028,928 548,190 548,190 2,000,000 885,431 885,431 2,000,000 1,461,610 1,461,610 2,000,000
15 1,132,875 579,940 579,940 2,000,000 969,216 969,216 2,000,000 1,664,110 1,664,110 2,000,000
16 1,242,018 610,092 610,092 2,000,000 1,056,185 1,056,185 2,000,000 1,888,460 1,888,460 2,000,000
17 1,356,619 638,085 638,085 2,000,000 1,146,235 1,146,235 2,000,000 2,136,552 2,136,552 2,243,380
18 147,950 663,769 663,769 2,000,000 1,239,625 1,239,625 2,000,000 2,410,051 2,410,051 2,530,553
19 1,603,298 686,941 686,941 2,000,000 1,336,664 1,336,664 2,000,000 2,711,502 2,711,502 2,847,077
20 1,735,963 707,370 707,370 2,000,000 1,437,752 1,437,752 2,000,000 3,043,692 3,043,692 3,195,877
21 1,875,261 724,817 724,817 2,000,000 1,543,412 1,543,412 2,000,000 3,409,672 3,409,672 3,580,156
22 2,021,524 739,032 739,032 2,000,000 1,654,313 1,654,313 2,000,000 3,812,778 3,812,778 4,003,416
23 2,175,100 749,277 749,277 2,000,000 1,771,194 1,771,194 2,000,000 4,256,580 4,256,580 4,469,409
24 2,336,355 755,284 755,284 2,000,000 1,895,190 1,895,190 2,000,000 4,745,046 4,745,046 4,982,298
25 2,505,673 756,142 756,142 2,000,000 2,025,349 2,025,349 2,126,617 5,282,379 5,282,379 5,546,498
26 2,683,456 751,306 751,306 2,000,000 2,160,508 2,160,508 2,268,533 5,873,223 5,873,223 6,166,884
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27 2,870,129 739,913 739,913 2,000,000 2,300,749 2,300,749 2,415,787 6,522,567 6,522,567 6,848,695
28 3,066,136 720,910 720,910 2,000,000 2,446,141 2,446,141 2,568,448 7,235,789 7,235,789 7,597,579
29 3,271,942 693,017 693,017 2,000,000 2,596,731 2,596,731 2,726,568 8,018,685 8,018,685 8,419,619
30 3,488,039 654,626 654,626 2,000,000 2,752,545 2,752,545 2,890,172 8,877,468 8,877,468 9,321,342
31 3,714,941 603,718 603,718 2,000,000 2,913,581 2,913,581 3,059,261 9,818,797 9,818,797 10,309,737
32 3,953,189 535,043 535,043 2,000,000 3,081,901 3,081,901 3,205,177 10,857,132 10,857,132 11,291,417
33 4,203,348 444,501 444,501 2,000,000 3,258,492 3,258,492 3,356,246 12,005,000 12,005,000 12,365,150
34 4,466,015 327,013 327,013 2,000,000 3,444,606 3,444,606 3,513,498 13,277,422 13,277,422 13,542,970
35 4,741,816 176,332 176,332 2,000,000 3,641,785 3,641,785 3,678,202 14,692,419 14,692,419 14,839,343
36 5,031,407 0 0 0 3,850,657 3,850,657 3,850,657 16,266,442 16,266,442 16,266,442
37 -- -- -- -- 4,068,615 4,068,615 4,068,615 18,003,376 18,003,376 18,003,376
38 -- -- -- -- 4,296,054 4,296,054 4,296,054 19,920,082 19,920,082 19,920,082
39 -- -- -- -- 4,533,387 4,533,387 4,533,387 22,035,168 22,035,168 22,035,168
40 -- -- -- -- 4,781,043 4,781,043 4,781,043 24,369,165 24,369,165 24,369,165
</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 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.
37
<PAGE> 38
SURVIVORSHIP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-TOBACCO ISSUE AGE 65
FEMALE PREFERRED NON-TOBACCO ISSUE AGE 60
ANNUAL PREMIUM $50,000
$2,000,000 INITIAL DEATH BENEFIT:
OPTION A - GUIDELINE PREMIUM TEST
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID 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 46,738 46,738 2,000,000 49,623 49,623 2,000,000 52,510 52,510 2,000,000
2 107,625 91,830 91,830 2,000,000 100,497 100,497 2,000,000 109,512 109,512 2,000,000
3 165,506 134,988 134,988 2,000,000 152,340 152,340 2,000,000 171,117 171,117 2,000,000
4 226,282 176,070 176,070 2,000,000 205,012 205,012 2,000,000 237,609 237,609 2,000,000
5 290,096 214,900 214,900 2,000,000 258,340 258,340 2,000,000 309,286 309,286 2,000,000
6 357,100 251,277 251,277 2,000,000 312,129 312,129 2,000,000 386,483 386,483 2,000,000
7 427,455 284,904 284,904 2,000,000 366,096 366,096 2,000,000 469,518 469,518 2,000,000
8 501,328 315,659 315,659 2,000,000 420,134 420,134 2,000,000 558,968 558,968 2,000,000
9 578,895 343,215 343,215 2,000,000 473,961 473,961 2,000,000 655,353 655,353 2,000,000
10 660,339 367,253 367,253 2,000,000 527,319 527,319 2,000,000 759,365 759,365 2,000,000
11 745,856 387,394 387,394 2,000,000 579,921 579,921 2,000,000 871,852 871,852 2,000,000
12 835,649 403,157 403,157 2,000,000 631,426 631,426 2,000,000 993,860 993,860 2,000,000
13 929,932 413,910 413,910 2,000,000 681,402 681,402 2,000,000 1,126,686 1,126,686 2,000,000
14 1,028,928 418,873 418,873 2,000,000 729,354 729,354 2,000,000 1,272,020 1,272,020 2,000,000
15 1,132,875 417,102 417,102 2,000,000 774,723 774,723 2,000,000 1,432,096 1,432,096 2,000,000
16 1,242,018 407,466 407,466 2,000,000 816,896 816,896 2,000,000 1,609,913 1,609,913 2,000,000
17 1,356,619 388,653 388,653 2,000,000 855,232 855,232 2,000,000 1,809,514 1,809,514 2,000,000
18 1,476,950 359,108 359,108 2,000,000 889,038 889,038 2,000,000 2,034,410 2,034,410 2,136,130
19 1,603,298 316,953 316,953 2,000,000 917,540 917,540 2,000,000 2,280,359 2,280,359 2,394,376
20 1,735,963 259,828 259,828 2,000,000 939,806 939,806 2,000,000 2,548,659 2,548,659 2,676,091
21 1,875,261 184,623 184,623 2,000,000 954,607 954,607 2,000,000 2,841,080 2,841,080 2,983,134
22 2,021,524 87,197 87,197 2,000,000 960,307 960,307 2,000,000 3,159,472 3,159,472 3,317,446
23 2,175,100 0 0 0 954,641 954,641 2,000,000 3,505,743 3,505,743 3,681,030
24 -- -- -- -- 934,516 934,516 2,000,000 3,881,851 3,881,851 4,075,943
25 -- -- -- -- 895,886 895,886 2,000,000 4,289,828 4,289,828 4,504,319
26 -- -- -- -- 833,078 833,078 2,000,000 4,731,748 4,731,748 4,968,335
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7 -- -- -- -- 738,238 738,238 2,0 5,209,754 5,209,754 5,470,242
8 -- -- -- -- 599,800 599,800 2,0 5,725,977 5,725,977 6,012,276
9 -- -- -- -- 400,836 400,836 2,0 6,282,560 6,282,560 6,596,688
0 -- -- -- -- 114,787 114,787 2,0 6,881,414 6,881,414 7,225,485
1 -- -- -- -- 0 0 7,524,153 7,524,153 7,900,360
2 -- -- -- -- -- -- 8,232,507 8,232,507 8,561,807
3 -- -- -- -- -- -- 9,017,662 9,017,662 9,288,191
4 -- -- -- -- -- -- 9,894,484 9,894,484 10,092,373
5 -- -- -- -- -- -- 10,883,104 10,883,104 10,991,935
6 -- -- -- -- -- -- 11,997,274 11,997,274 11,997,274
7 -- -- -- -- -- -- 13,220,075 13,220,075 13,220,075
8 -- -- -- -- -- -- 14,562,099 14,562,099 14,562,099
9 -- -- -- -- -- -- 16,034,970 16,034,970 16,034,970
0 -- -- -- -- -- -- 17,651,447 17,651,447 17,651,447
</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.
39
