<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
REGISTRATION NO. 333-22389
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
AMENDMENT NO. 3 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KEMPER INVESTORS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Illinois 36-3050975
-------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Kemper Drive
Long Grove, Illinois 60049
(847) 550-5500
----------------------------------------------------- 6312
(Address, including zip code, and telephone number, -------------------------
including area code, of registrant's principal executive (Primary Standard Industrial
offices) Classification Code Number)
</TABLE>
Debra P. Rezabek, Esq.
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
(847) 550-7390
---------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
Frank Julian, Esq. Joan E. Boros, Esq.
Kemper Investors Life Insurance Company Jorden Burt Boros
1 Kemper Drive Cicchetti Berensen & Johnson
Long Grove, Illinois 60049 1025 Thomas Jefferson Street, N.W.
Suite 400E
Washington, D.C. 20007
</TABLE>
------------------
Approximate date of commencement of proposed sale to the public: as soon as
practicable after this Registration Statement becomes effective.
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
------------------
================================================================================
<PAGE> 2
KEMPER INVESTORS LIFE INSURANCE COMPANY
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
FORM S-1
ITEM NO. FORM S-1 CAPTION CAPTION IN PROSPECTUS
-------- ---------------- ---------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Facing Page and Outside Front Cover Page of
Prospectus.
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Table of Contents.
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Summary; Not Applicable as to Ratio of
Earnings to Fixed Charges.
4. Use of Proceeds................................... KILICO, The MVA Option, The Separate Account
and The Funds--The MVA Option; Business--
Investments.
5. Determination of Offering Price................... Not Applicable.
6. Dilution.......................................... Not Applicable.
7. Selling of Security Holders....................... Not Applicable.
8. Plan of Distribution.............................. Distribution of Contracts.
9. Description of Securities to be Registered........ Summary; The Contracts; The Accumulation
Period; Contract Charges and Expenses.
10. Interests of Named Experts and Counsel............ Experts; Legal Matters.
11. Information with Respect to the Registrant........ Federal Income Taxes; Business; Management's
Discussion and Analysis of Financial
Condition and Results of Operations; Legal
Proceedings; Financial Statements.
12. Disclosure of Commission Position on
Indemnification For Securities Act Liabilities.... Part II, Item 17.
</TABLE>
<PAGE> 3
PROSPECTUS--
- --------------------------------------------------------------------------------
INDIVIDUAL AND GROUP VARIABLE, FIXED AND MARKET
VALUE ADJUSTED DEFERRED ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
IN CONNECTION WITH
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (847) 550-5500
The types of Variable, Fixed and Market Value Adjusted Deferred Annuity
Contracts ("Contracts") offered by this Prospectus are issued by Kemper
Investors Life Insurance Company ("KILICO") and are designed to provide annuity
benefits under retirement plans which may or may not qualify for the Federal tax
advantages available under Section 408 or 408A of the Internal Revenue Code of
1986, as amended. Depending upon particular state requirements, participation in
a group contract will be accounted for by the issuance of a certificate and
participation in an individual contract will be accounted for by the issuance of
an individual annuity contract. The certificate and individual annuity contract
and values thereunder are hereafter both referred to in terms of the "Contract".
Purchase payments for the Contracts may be allocated to one or more of the
options under which Contract values accumulate on a variable basis, a fixed
basis, or a fixed basis subject to a market value adjustment. These options
consist of the twenty-nine Subaccounts of the Separate Account, the Fixed
Account Option and the Market Value Adjustment Option ("MVA Option"). Each
Subaccount invests in one of the Portfolios of the following funds: the
Investors Fund Series ("IFS"), the Scudder Variable Life Investment Fund
("Scudder VLIF"), the Janus Aspen Series ("Janus") and the Warburg Pincus Trust
("Warburg").
The following Portfolios of the Investors Fund Series are available under the
Contracts: Kemper Money Market, Kemper Government Securities, Kemper Investment
Grade Bond, Kemper Global Income, Kemper Horizon 5, Kemper High Yield, Kemper
Horizon 10+, Kemper Total Return, Kemper Horizon 20+, Kemper Value+Growth,
Kemper Blue Chip, Kemper International, Kemper Contrarian Value (formerly Kemper
Value), Kemper Small Cap Value, Kemper Small Cap Growth, Kemper Growth, Kemper
Global Blue Chip, Kemper International Growth and Income, Kemper-Dreman High
Return Equity and Kemper-Dreman Financial Services. Class A Shares of the
following Portfolios of the Scudder Variable Life Investment Fund are available
under the Contracts: Scudder VLIF Global Discovery, Scudder VLIF Growth and
Income, Scudder VLIF International and Scudder VLIF Capital Growth. The
following Portfolios of the Janus Aspen Series are available under the
Contracts: Janus Growth and Janus Growth and Income. The following Portfolios of
the Warburg Pincus Trust are available under the Contracts: Warburg Emerging
Markets and Warburg Post-Venture Capital.
Subaccounts and Portfolios may be added in the future. Contract values allocated
to any of the Subaccounts will vary to reflect the investment objectives and the
attendant risks of the Funds. Contract values allocated to the Fixed Account or
one or more Guarantee Periods of the MVA Option will accumulate on a fixed
basis.
This Prospectus is designed to provide you with certain essential information
that you should know before investing. A Statement of Additional Information
dated has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. A Statement of Additional Information
is available without charge upon request from KILICO by writing or calling the
address or telephone number listed above. A table of contents for the Statement
of Additional Information is on page 56 of this Prospectus.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS
FOR THE INVESTORS FUND SERIES, SCUDDER VARIABLE LIFE INVESTMENT FUND, JANUS
ASPEN SERIES AND WARBURG PINCUS TRUST. 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 (SEC) CAN BE FOUND IN THE
SEC'S WEB SITE AT HTTP://WWW.SEC.GOV.
THE CONTRACTS ARE NOT INSURED BY THE FDIC. THEY ARE OBLIGATIONS OF THE ISSUING
INSURANCE COMPANY AND ARE NOT A DEPOSIT OF, OR GUARANTEED BY, ANY BANK OR
SAVINGS INSTITUTION AND ARE SUBJECT TO RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
TABLE OF CONTENTS
================================================================================
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS................................................. 1
SUMMARY..................................................... 2
SUMMARY OF EXPENSES......................................... 4
KILICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE
FUNDS..................................................... 6
FIXED ACCOUNT OPTION........................................ 12
THE CONTRACTS............................................... 12
CONTRACT CHARGES AND EXPENSES............................... 19
THE ANNUITY PERIOD.......................................... 22
FEDERAL INCOME TAXES........................................ 25
DISTRIBUTION OF CONTRACTS................................... 30
VOTING RIGHTS............................................... 30
REPORTS TO CONTRACT OWNERS AND INQUIRIES.................... 31
DOLLAR COST AVERAGING....................................... 31
SYSTEMATIC WITHDRAWAL PLAN.................................. 32
EXPERTS..................................................... 32
LEGAL MATTERS............................................... 32
SPECIAL CONSIDERATIONS...................................... 32
AVAILABLE INFORMATION....................................... 32
BUSINESS.................................................... 33
PROPERTIES.................................................. 39
LEGAL PROCEEDINGS........................................... 39
SELECTED FINANCIAL DATA..................................... 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 41
DIRECTORS AND EXECUTIVE OFFICERS OF KILICO.................. 53
EXECUTIVE COMPENSATION...................................... 55
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION...... 56
FINANCIAL STATEMENTS........................................ 56
CHANGE OF ACCOUNTANTS....................................... 56
</TABLE>
<PAGE> 5
DEFINITIONS
The following terms as used in this Prospectus have the indicated meanings:
ACCUMULATED GUARANTEE PERIOD VALUE--The sum of an Owner's Guarantee Period
Values.
ACCUMULATION PERIOD--The period between the Date of Issue of a Contract and
the Annuity Date.
ACCUMULATION UNIT--A unit of measurement used to determine the value of
each Subaccount during the Accumulation Period.
ANNUITANT--The person designated to receive or who is actually receiving
annuity payments and upon the continuation of whose life annuity payments
involving life contingencies depend.
ANNUITY DATE--The date on which annuity payments are to commence.
ANNUITY OPTION--One of several forms in which annuity payments can be made.
ANNUITY PERIOD--The period starting on the Annuity Date.
ANNUITY UNIT--A unit of measurement used to determine the amount of
Variable Annuity payments.
BENEFICIARY--The person designated to receive any benefits under a Contract
upon the death of the Annuitant or the Owner prior to the Annuity Period.
CONTRACT--A Variable, Fixed and Market Value Adjusted Annuity Contract
offered by this Prospectus.
CONTRACT OWNER OR OWNER--The person designated in the Contract as having
the privileges of ownership defined in the Contract.
CONTRACT VALUE--The sum of the values of the Owner's Separate Account
Contract Value, Accumulated Guarantee Period Value and Fixed Account
Contract Value.
CONTRACT YEAR--Period between anniversaries of the Date of Issue of a
Contract.
CONTRACT QUARTER--Periods between quarterly anniversaries of the Date of
Issue of the Contract.
CONTRIBUTION YEAR--Each one year period following the date a Purchase
Payment is made.
DATE OF ISSUE--The date on which the first Contract Year commences.
FIXED ACCOUNT--The General Account of KILICO to which a Contract Owner may
allocate all or a portion of Purchase Payments or Contract Value. KILICO
guarantees a minimum rate of interest on Purchase Payments allocated to the
Fixed Account.
FIXED ACCOUNT CONTRACT VALUE--The value of the Owner's Contract interest in
the Fixed Account.
FIXED ANNUITY--An annuity under which the amount of each annuity payment
does not vary with the investment experience of a Subaccount and is
guaranteed by KILICO.
FUND OR FUNDS--Investors Fund Series, Scudder Variable Life Investment
Fund, Janus Aspen Series and Warburg Pincus Trust including any Portfolios
thereunder.
GENERAL ACCOUNT--All the assets of KILICO other than those allocated to any
separate account.
GUARANTEED INTEREST RATE--The rate of interest established by KILICO for a
given Guarantee Period.
GUARANTEE PERIOD--A period of time during which an amount is to be credited
with a Guaranteed Interest Rate. Guarantee Period options may have
durations of from one to ten years, as offered by KILICO and as elected by
the Owner.
GUARANTEE PERIOD VALUE--The Guarantee Period Value is the sum of the
Owner's: (1) Purchase Payment allocated or amount transferred to a
Guarantee Period; plus (2) interest credited; minus (3) withdrawals,
previously assessed Withdrawal Charges and transfers; and (4) as adjusted
for any applicable Market Value Adjustment previously made.
KILICO--Kemper Investors Life Insurance Company, whose Home Office is at 1
Kemper Drive, Long Grove, Illinois 60049.
MARKET ADJUSTED VALUE--A Guarantee Period Value adjusted by the market
value adjustment formula on any date prior to the end of a Guarantee
Period.
MARKET VALUE ADJUSTMENT--An adjustment of values under a Guarantee Period
in accordance with the market value adjustment formula prior to the end of
that Guarantee Period. The adjustment reflects the change in the value of
the Guarantee Period Value due to changes in interest rates since the date
the Guarantee Period commenced. The adjustment is computed using the market
value adjustment formula stated in the Contract.
1
<PAGE> 6
NON-QUALIFIED PLAN CONTRACT--A Contract issued in connection with a
retirement plan which does not receive favorable tax treatment under
Section 408 or 408A of the Internal Revenue Code.
PORTFOLIO--A series of a Fund with its own objective and policies, which
represents shares of beneficial interest in a separate portfolio of
securities and other assets. Portfolio is sometimes referred to herein as a
Fund.
PURCHASE PAYMENTS--Amounts paid to KILICO by or on behalf of a Contract
Owner.
QUALIFIED PLAN CONTRACT--A Contract issued in connection with a retirement
plan which receives favorable tax treatment under Section 408 or 408A of
the Internal Revenue Code.
SEPARATE ACCOUNT--A unit investment trust registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 known as
the KILICO Variable Annuity Separate Account.
SEPARATE ACCOUNT CONTRACT VALUE--The sum of the Owner's Contract interest
in the Subaccount(s).
SUBACCOUNTS--The twenty-nine subdivisions of the Separate Account available
under the Contract, the assets of which consist solely of shares of the
corresponding Portfolios.
SUBACCOUNT VALUE--The value of the Owner's Contract interest in each
Subaccount.
UNITHOLDER--The person holding the voting rights with respect to an
Accumulation or Annuity Unit.
VALUATION DATE--Each day when the New York Stock Exchange is open for
trading, as well as each day otherwise required. (See "Accumulation Unit
Value.")
VALUATION PERIOD--The interval of time between two consecutive Valuation
Dates.
VARIABLE ANNUITY--An annuity with payments varying in amount in accordance
with the investment experience of the Subaccount(s) in which the Owner's
Contract has an interest.
WITHDRAWAL CHARGE--The "contingent deferred sales charge" assessed against
certain withdrawals of Contract Value in the first seven Contribution Years
after a Purchase Payment is made or against certain annuitizations of
Contract Value in the first seven Contribution Years after a Purchase
Payment is made.
WITHDRAWAL VALUE--Contract Value less any premium tax payable if the
Contract is being annuitized, minus any Withdrawal Charge applicable to
that Contract.
SUMMARY
The Contracts described in the Prospectus provide a way to invest on a
tax-deferred basis and to receive annuity benefits in accordance with the
annuity option selected and the retirement plan under which the Contract has
been purchased. The Prospectus offers both Non-Qualified Plan and Qualified Plan
Contracts. KILICO makes available underlying allocation options, including
twenty-nine variable Subaccounts, a Fixed Account Option and ten durations of
Guarantee Periods, for the Contract Owner to pursue his or her investment
objectives.
The minimum initial Purchase Payment is $1,000 and, subject to certain
exceptions, the minimum subsequent payment is $500. An allocation to a
Subaccount, Fixed Account or Guarantee Period must be at least $500. The maximum
Purchase Payments without KILICO's prior approval is $1,000,000. (See "The
Contracts," page 12.)
KILICO provides for variable accumulations and benefits under the Contracts by
crediting Purchase Payments to one or more Subaccounts of the Separate Account
as selected by the Contract Owner. Each Subaccount invests in one of the
following corresponding Portfolios: Kemper Money Market, Kemper Government
Securities, Kemper Investment Grade Bond, Kemper Global Income, Kemper Horizon
5, Kemper High Yield, Kemper Horizon 10+, Kemper Total Return, Kemper Horizon
20+, Kemper Value+Growth, Kemper Blue Chip, Kemper International, Kemper
Contrarian Value, Kemper Small Cap Value, Kemper Small Cap Growth, Kemper
Growth, Kemper Global Blue Chip, Kemper International Growth and Income,
Kemper-Dreman High Return Equity and Kemper-Dreman Financial Services; Scudder
VLIF Global Discovery, Scudder VLIF Growth and Income, Scudder VLIF
International and Scudder VLIF Capital Growth; Janus Growth and Janus Growth and
Income; Warburg Emerging Markets and Warburg Post-Venture Capital. (See "The
Funds" page 7.) The Contract Values allocated to the Separate Account will vary
with the investment performance of the Portfolios and Funds selected by the
Contract Owner.
KILICO provides for fixed accumulations and benefits under the Contracts in the
Fixed Account. Any portion of the Purchase Payment allocated to the Fixed
Account is credited with interest daily at a rate periodically declared by
KILICO at its sole discretion, but not less than 3%. (See "Fixed Account
Option," page 12.)
2
<PAGE> 7
KILICO also provides for fixed accumulations under the Contracts in the MVA
Option. The MVA Option is only available during the Accumulation Period. An
Owner may allocate amounts to one or more Guarantee Periods available under the
MVA Option with durations of from one to ten years. KILICO may, at its
discretion, offer additional Guarantee Periods or limit, for new Contracts the
number of Guarantee Period options available to no less than three (3). KILICO
will credit interest daily at a rate declared by KILICO at its sole discretion
to amounts allocated to the MVA Option and guarantees these amounts at various
interest rates ("Guaranteed Interest Rates") for the duration of the Guarantee
Period selected by the Owner, subject to any applicable Withdrawal Charge,
Market Value Adjustment or Records Maintenance Charge. KILICO may not change a
Guaranteed Interest Rate for the duration of the Guarantee Period; however,
Guaranteed Interest Rates for subsequent Guarantee Periods will be determined at
the sole discretion of KILICO. At the end of any Owner's Guarantee Period, a
subsequent Guarantee Period automatically renews for the same duration as the
terminating Guarantee Period unless the Owner elects another Guarantee Period
during the designated period after the end of the Guarantee Period. The
interests under the Contract relating to the MVA Option are registered under the
Securities Act of 1933 but are not registered under the Investment Company Act
of 1940. (See "The MVA Option," page 6.)
The investment risk under the Contracts is borne by the Contract Owner, except
to the extent that Contract Values are allocated to the MVA Option and are
guaranteed to receive the Guaranteed Interest Rate or to the Fixed Option and
are guaranteed to earn at least 3% interest.
Transfers between Subaccounts are permitted before and after annuitization,
subject to certain limitations. A transfer from a Guarantee Period is subject to
a Market Value Adjustment unless effected within 30 days after the existing
Guarantee Period ends. Restrictions apply to transfers out of the Fixed Account.
(See "Transfer During Accumulation Period" and "Transfer During Annuity Period,"
pages 15 and 23, respectively.)
A Contract Owner may withdraw all or a portion of the Contract Value subject to
Withdrawal Charges, any applicable Market Value Adjustment and other specified
conditions. (See "Withdrawal During Accumulation Period," page 16.)
No sales charge is deducted from any Purchase Payment. Each Contract Year, a
Contract Owner may withdraw the greater of (i) the excess of Contract Value over
total Purchase Payments subject to Withdrawal Charges less prior withdrawals
that were previously assessed a Withdrawal Charge, and (ii) 10% of the Contract
Value, without assessment of any withdrawal charge. If the Contract Owner
withdraws an amount in excess of the above amount in any Contract Year, the
Purchase Payments withdrawn in excess of the above amount are subject to a
contingent deferred sales charge ("Withdrawal Charge"). The Withdrawal Charge is
7% in the first Contribution Year, 6% in the second Contribution Year, 5% in the
third and fourth Contribution Years, 4% in the fifth Contribution Year, 3% in
the sixth Contribution Year, 2% in the seventh Contribution Year and 0%
thereafter. (See "Withdrawal Charge," page 19.) The Withdrawal Charge also
applies at the annuitization of Accumulation Units in their seventh Contribution
Year or earlier, except as set forth under "Withdrawal Charge." Withdrawals will
have tax consequences, which may include the amount of the withdrawal being
subject to income tax and in some circumstances an additional 10% penalty tax.
(See "Federal Tax Matters.")
KILICO assesses charges under the Contract for assuming the mortality and
expense risk and administrative expenses under the Contract, for records
maintenance, for any applicable premium taxes and for the Guaranteed Retirement
Income Benefit. (See "Charges Against the Separate Account," page 19.) In
addition, the investment advisers to the Funds deduct varying charges against
the assets of the Funds for which they provide investment advisory services.
(See the Funds' prospectuses for such information.)
The Contracts may be purchased in connection with retirement plans which qualify
as individual retirement annuities established under Section 408 of the Code,
including Roth IRAs established under Section 408A of the Code, and are also
offered under other retirement plans which may not qualify for similar tax
advantages. (See "Taxation of Annuities in General," page 25 and "Qualified
Plans," page 28.)
A Contract Owner has the right within the "free look" period (generally ten
days, subject to state variation) after receiving the Contract to cancel the
Contract by delivering or mailing it to KILICO. Upon receipt by KILICO, the
Contract will be cancelled and a refund will be made. The amount of the refund
will depend on the state in which the Contract is issued; however, it generally
will be an amount at least equal to the Separate Account Contract Value plus
amounts allocated to the Fixed Account or to the Guarantee Periods which will
not be subject to a Market Value Adjustment. (See "The Contracts," page 12.) In
addition, a special "free look" period applies in some circumstances to
Contracts issued as individual retirement annuities under Section 408 of the
Code or as Roth IRAs under Section 408A of the Code.
3
<PAGE> 8
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of purchase payments).............................. None
Contingent Deferred Sales Load (as a percentage of amount surrendered)(1)
Year of Withdrawal After Purchase
First year........................... 7%
Second year.......................... 6%
Third year........................... 5%
Fourth year.......................... 5%
Fifth year........................... 4%
Sixth year........................... 3%
Seventh year......................... 2%
Eighth year and following............ 0%
Surrender Fees...................................................................................... None
Exchange Fee(2)..................................................................................... $25
ANNUAL CONTRACT FEE (Records Maintenance Charge)(3)................................................. $30
</TABLE>
FUND ANNUAL EXPENSES(After Fee Waivers and Expense
Reductions)
(as percentage of each Portfolio's average net assets
for the period ended December 31, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL PORTFOLIO
FEES EXPENSES ANNUAL EXPENSES
---------- -------- ---------------
<S> <C> <C> <C> <C>
Kemper Money Market..................... .50% .05% .55%
Kemper Government Securities............ .55 .09 .64
Kemper Investment Grade Bond............ .60 .20 .80
Kemper Global Income(8)................. .75 .30 1.05
Kemper Horizon 5........................ .60 .37 .97
Kemper High Yield....................... .60 .05 .65
Kemper Horizon 10+...................... .60 .23 .83
Kemper Total Return..................... .55 .05 .60
Kemper Horizon 20+...................... .60 .33 .93
Kemper Value+Growth..................... .75 .09 .84
Kemper Blue Chip(8)..................... .65 .30 .95
Kemper International.................... .75 .16 .91
Kemper Contrarian Value................. .75 .05 .80
Kemper Small Cap Value.................. .75 .09 .84
Kemper Small Cap Growth................. .65 .06 .71
Kemper Growth........................... .60 .05 .65
Kemper Global Blue Chip(6)(7)........... .85 .71 1.56
Kemper International Growth and
Income(6)(7)........................... .70 .42 1.12
Kemper-Dreman High Return Equity(7)..... .75 .12 .87
Kemper-Dreman Financial Services(7)..... .75 .24 .99
Scudder VLIF Global Discovery........... .98 .52 1.50
Scudder VLIF Growth and Income.......... .48 .10 .58
Scudder VLIF International.............. .88 .12 1.00
Scudder VLIF Capital Growth............. .48 .03 .51
Janus Growth(4)......................... .65 .05 .70
Janus Growth and Income(4)(7)........... .67 .30 .97
Warburg Emerging Markets(5)............. .81 .59 1.40
Warburg Post-Venture Capital(5)......... 1.07 .33 1.40
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily account value)
<S> <C>
Mortality and Expense
Risk.................................. 1.25%
Administration.......................... .15%
Account Fees and
Expenses.............................. 0%
---------
Total Separate Account
Annual Expenses....................... 1.40%
=========
GUARANTEED RETIREMENT INCOME BENEFIT
CHARGE
Annual Expense (as a percentage of
Contract Value)....................... .25%
</TABLE>
- --------------------------------------------------------------------------------
(1) A Contract Owner may withdraw up to the greater of (i) the excess of
Contract Value over total Purchase Payments subject to Withdrawal Charges
less prior withdrawals that were previously assessed a Withdrawal Charge,
and (ii) 10% of the Contract Value in any Contract Year without assessment
of any charge. Under certain circumstances the contingent deferred sales
charge may be reduced or waived, including when certain annuity options are
selected.
(2) KILICO reserves the right to charge a fee of $25 for each transfer of
Contract Value in excess of 12 transfers per calendar year.
(3) Applies to Contracts with a Contract Value less than $50,000 on the date of
assessment. Under certain circumstances the annual Records Maintenance
Charge may be reduced or waived by KILICO.
(4) The expense figures shown are net of certain fee waivers or reductions from
Janus Capital Corporation. Without such waivers (estimated for Growth and
Income Portfolio), Management Fees, Other Expenses and Total Portfolio
Annual Expenses for the Portfolios for the fiscal year ended December 31,
1997 would have been: .74%, .04% and .78%, respectively, for the Growth
Portfolio; and .75%, .30% and 1.05%, respectively, for the Growth and Income
Portfolio. See the prospectus and Statement of Additional Information of
Janus Aspen Series for a description of these waivers.
(5) The expense figures shown are net of certain fee waivers or reductions from
Warburg Pincus Asset Management, Inc. Without such waivers Management Fees,
Other Expenses and Total Portfolio Annual Expenses for the Portfolios for
the fiscal year ended December 31, 1997 would have been 1.25%, .71% and
1.96%, respectively, for the Emerging Markets Portfolio; and 1.25%, .44% and
1.69%, respectively, for the Post-Venture Capital Portfolio.
(6) The expense figures shown are net of certain fee waivers or reductions from
Scudder Kemper Investments, Inc. Without such waivers, Management Fees,
Other Expenses and Total Portfolio Annual Expenses for the Portfolios for
the fiscal year ended December 31, 1997 would have been: 1.00%, .42% and
1.42% for the Kemper International Growth and Income Portfolio; and 1.00%,
.71% and 1.71% for the Kemper Global Blue Chip Portfolio.
(7) Portfolios commenced operations 5/1/98. "Other Expenses" have been
estimated.
(8) Portfolios commenced operations 5/1/97. "Other Expenses" have been
estimated.
4
<PAGE> 9
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EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
If you surrender your contract at the end of the Kemper Money Market #1(1) $ 93 $119 $156 $237
applicable time period: Kemper Government Securities 94 121 161 247
You would pay the following expenses on a $1,000 Kemper Investment Grade Bond 95 126 169 263
investment, assuming 5% annual return on assets: Kemper Global Income 98 133 181 289
Kemper Horizon 5 97 131 177 281
Kemper High Yield 94 122 161 248
Kemper Horizon 10+ 95 127 170 266
Kemper Total Return 93 120 159 242
Kemper Horizon 20+ 96 130 175 277
Kemper Value+Growth 96 127 171 267
Kemper Blue Chip 97 130 176 278
Kemper International 96 129 174 275
Kemper Contrarian Value 95 126 169 263
Kemper Small Cap Value 96 127 171 267
Kemper Small Cap Growth 94 123 164 254
Kemper Growth 94 122 161 248
Kemper Global Blue Chip 102 148 -- --
Kemper International Growth 98 135 -- --
and Income
Kemper-Dreman High Return 96 128 -- --
Equity
Kemper-Dreman Financial 97 131 -- --
Services
Scudder VLIF Global 102 146 -- --
Discovery
Scudder VLIF Growth and 93 119 -- --
Income
Scudder VLIF International 97 132 -- --
Scudder VLIF Capital Growth 92 117 -- --
Janus Growth 94 123 164 253
Janus Growth and Income 97 131 -- --
Warburg Emerging Markets 101 143 -- --
Warburg Post-Venture Capital 101 143 -- --
If you do not surrender your Contract: Kemper Money Market #1(1) 21 64 110 237
You would pay the following expenses Kemper Government Securities 22 67 115 247
on a $1,000 investment, assuming Kemper Investment Grade Bond 23 72 123 263
5% annual return on assets: Kemper Global Income 26 80 136 289
Kemper Horizon 5 25 77 132 281
Kemper High Yield 22 67 115 248
Kemper Horizon 10+ 24 73 125 266
Kemper Total Return 21 66 113 242
Kemper Horizon 20+ 25 76 130 277
Kemper Value+Growth 24 73 125 267
Kemper Blue Chip 25 76 131 278
Kemper International 24 75 129 275
Kemper Contrarian Value 23 72 123 263
Kemper Small Cap Value 24 73 125 267
Kemper Small Cap Growth 22 69 118 254
Kemper Growth 22 67 115 248
Kemper Global Blue Chip 31 95 -- --
Kemper International Growth 27 82 -- --
and Income
Kemper-Dreman High Return 24 74 -- --
Equity
Kemper-Dreman Financial 25 78 -- --
Services
Scudder VLIF Global 30 93 -- --
Discovery
Scudder VLIF Growth and 21 65 -- --
Income
Scudder VLIF International 25 78 -- --
Scudder VLIF Capital Growth 20 63 -- --
Janus Growth 22 69 118 253
Janus Growth and Income 25 77 -- --
Warburg Emerging Markets 29 90 -- --
Warburg Post-Venture Capital 29 90 -- --
</TABLE>
- --------------------------------------------------------------------------------
The purpose of the preceding table which includes the "SUMMARY OF EXPENSES" on
the prior page, is to assist Contract Owners in understanding the various costs
and expenses that a Contract Owner in a Subaccount will bear directly or
indirectly. The table reflects expenses of both the Separate Account and the
Fund. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND DOES NOT INCLUDE THE DEDUCTION OF STATE PREMIUM TAXES, WHICH
MAY BE ASSESSED BEFORE OR UPON ANNUITIZATION. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. "Management Fees" and "Other Expenses" in the "SUMMARY OF
EXPENSES" for the Portfolios have been provided by Scudder Kemper Investments,
Inc., Janus Capital Corporation and Warburg Pincus Asset Management, Inc., as
applicable, and have not been independently verified. The Example assumes a 5%
annual rate of return pursuant to requirements of the Securities and Exchange
Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of any Subaccount. The Records
Maintenance Charge is a single charge, it is not a separate charge for each
Subaccount. In addition, the effect of the Records Maintenance Charge has been
reflected in the Example by applying the percentage derived by dividing the
total amounts of annual Records Maintenance Charge collected by the total net
assets of all the Subaccounts in the Separate Account. See "Contract Charges and
Expenses" for more information regarding the various costs and expenses.
(1)Money Market Subaccount #2 is not shown because it is available only for
dollar cost averaging that will deplete an Owner's subaccount value entirely
at least by the end of the third Contract Year.
5
<PAGE> 10
KILICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE FUNDS
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 offers annuity and
life insurance products and is admitted to do business in the District of
Columbia and all states except New York. KILICO is a wholly-owned subsidiary of
Kemper Corporation, a nonoperating 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").
THE MVA OPTION
An Owner may allocate amounts in the MVA Option to one or more Guarantee Periods
with durations of one to ten years during the Accumulation Period. KILICO may,
at its discretion, offer additional Guarantee Periods or limit, for new
Contracts, the number of durations of Guarantee Periods available to no less
than three (3).
The amounts allocated to the MVA Option under the Contracts are invested in
accordance with the standards applicable to KILICO's General Account. Assets
supporting the amounts allocated to Guarantee Periods under the Contracts are
held in a "non-unitized" separate account of KILICO. However, all of KILICO's
General Account assets are available to fund benefits under the Contracts. A
non-unitized separate account is a separate account in which the Owner does not
participate in the performance of the assets through unit values. There are no
discrete units for this separate account. The assets of the non-unitized
separate account are held as reserves for the guaranteed obligations of KILICO.
The assets of the separate account are not chargeable with liabilities arising
out of the business conducted by any other separate account or out of any other
business KILICO may conduct.
State insurance laws concerning the nature and quality of investments regulate
KILICO's investments for its General Account and any non-unitized separate
account. Within specified limits and subject to certain standards, these laws
generally permit investment in federal, state and municipal obligations,
preferred and common stocks, corporate bonds, real estate mortgages, real estate
and certain other investments. (See "Management's Discussion and
Analysis--INVESTMENTS" and "FINANCIAL STATEMENTS" for information on KILICO's
investments.) Assets of KILICO's General Account are managed by Scudder Kemper
Investments, Inc. ("SKI") an affiliate of KILICO.
KILICO intends to consider the return available on the instruments in which it
intends to invest the proceeds from the Contracts when it establishes Guaranteed
Interest Rates. Such return is only one of many factors considered in
establishing the Guaranteed Interest Rates. (See "The Accumulation Period--D.
Establishment of Guaranteed Interest Rates.")
KILICO's investment strategy for this non-unitized separate account is generally
to invest in debt instruments that it uses to match its liabilities with regard
to a Guarantee Period. This is done, in KILICO's sole discretion, by investing
in any type of instrument that is authorized under applicable state law. KILICO
expects to invest a substantial portion of the Purchase Payments received in
debt instruments as follows: (1) securities issued by the United States
Government or its agencies or instrumentalities, which issues may or may not be
guaranteed by the United States Government; (2) debt securities which have an
investment grade, at the time of purchase, within the four (4) highest grades
assigned by Moody's Investors Services, Inc. ("Moody's") (Aaa, Aa, A or Baa),
Standard & Poor's Corporation ("Standard & Poor's") (AAA, AA, A or BBB), or any
other nationally recognized rating service; and (3) other debt instruments
including, but not limited to, issues of or guaranteed by banks or bank holding
companies and corporations, which obligations, although not rated by Moody's or
Standard & Poor's, are deemed by KILICO's management to have an investment
quality comparable to securities which may be purchased as stated above. In
addition, KILICO may engage in options and futures transactions on fixed income
securities.
KILICO's invested assets portfolio at December 31, 1997 included approximately
87.4 percent in U.S. Treasuries, investment grade corporate, foreign and
municipal bonds, and commercial paper, .3 percent in below investment grade
(high risk) bonds, 4.9 percent in mortgage loans and other real estate-related
investments and 7.4 percent in all other investments. (See "Management's
Discussion and Analysis--INVESTMENTS.")
KILICO is not obligated to invest the amounts allocated to the MVA Option
according to any particular strategy, except as may be required by applicable
state insurance laws. (See "Management's Discussion and Analysis--INVESTMENTS.")
6
<PAGE> 11
THE SEPARATE ACCOUNT
KILICO originally established the KILICO Variable Annuity Separate Account (the
"Separate Account") on May 29, 1981 pursuant to Illinois law as the KILICO Money
Market Separate Account, initially registered with the Securities and Exchange
Commission ("Commission") as an open-end, diversified management investment
company under the Investment Company Act of 1940 ("1940 Act"). On November 2,
1989, Contract Owners approved a Reorganization under which the Separate Account
was restructured as a unit investment trust registered with the Commission under
the 1940 Act. Such registration does not involve supervision by the Commission
of the management, investment practices or policies of the Separate Account or
KILICO.
The Separate Account is administered and accounted for as part of the general
business of KILICO, but the income and capital gains or capital losses, whether
or not realized, for assets allocated to 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 Contracts are obligations of KILICO. The assets of the
Separate Account are not chargeable with liabilities arising out of the business
conducted by any other separate account or out of any other business KILICO may
conduct.
The Separate Account holds assets that are segregated from all of KILICO's other
assets. The Separate Account is used to support the variable annuity contracts
described herein and certain other variable annuity contracts. The obligations
to Contract Owners and beneficiaries arising under the Contracts are general
corporate obligations of KILICO.
Twenty-nine Subaccounts of the Separate Account are currently available under
this Contract. Each Subaccount invests exclusively in shares of one of the
corresponding Portfolios of the Funds. Additional Subaccounts may be added in
the future.
The Separate Account will purchase and redeem shares from the Funds at net asset
value. KILICO will redeem shares of the Funds as necessary to provide benefits,
to deduct charges under the Contracts and to transfer assets from one Subaccount
to another as requested by Contract Owners. All dividends and capital gains
distributions received by the Separate Account from a Portfolio of a Fund will
be reinvested in such Portfolio at net asset value and retained as assets of the
corresponding Subaccount.
The Separate Account's financial statements appear in the Statement of
Additional Information.
THE FUNDS
The Separate Account invests in shares of the Investors Fund Series, the Scudder
Variable Life Investment Fund, the Janus Aspen Series and the Warburg Pincus
Trust, open-end, management investment companies. Registration of the Funds by
the Securities and Exchange Commission 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 and, in the case of the Janus Aspen Series and the Warburg
Pincus Trust, certain qualified retirement plans. Shares of the Funds are sold
only to insurance company separate accounts and qualified retirement plans. In
addition to selling shares to separate accounts of KILICO and its affiliates,
shares of the Funds may be sold to 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 and variable
annuity 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 foresee 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 Contract Owners, it will take
appropriate action on its own.
A Fund may consist of separate Portfolios. The assets of each Portfolio are held
separate from the assets of the other Portfolios, and each Portfolio has its own
distinct investment objective and policies. Each Portfolio operates as a
separate investment fund, and the investment performance of one Portfolio has no
effect on the investment performance of any other Portfolio.
7
<PAGE> 12
The twenty-nine Portfolios are summarized below:
INVESTORS FUND SERIES
KEMPER MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments.
KEMPER GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.
KEMPER INVESTMENT GRADE BOND PORTFOLIO seeks high current income by investing
primarily in a diversified portfolio of investment grade debt securities.
KEMPER GLOBAL INCOME PORTFOLIO seeks to provide high current income consistent
with prudent total return asset management.
KEMPER HORIZON 5 PORTFOLIO, designed for investors with approximately a 5 year
investment horizon, seeks income consistent with preservation of capital, with
growth of capital as a secondary objective.
KEMPER HIGH YIELD PORTFOLIO seeks to provide a high level of current income by
investing in fixed-income securities.
KEMPER HORIZON 10+ PORTFOLIO, designed for investors with approximately a 10+
year investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.
KEMPER TOTAL RETURN PORTFOLIO seeks a high total return, a combination of income
and capital appreciation, by investing in a combination of debt securities and
common stocks.
KEMPER HORIZON 20+ PORTFOLIO, designed for investors with approximately a 20+
year investment horizon, seeks growth of capital, with income as a secondary
objective.
KEMPER VALUE+GROWTH PORTFOLIO seeks growth of capital through professional
management of a portfolio of growth and value stocks.
KEMPER BLUE CHIP PORTFOLIO seeks growth of capital and of income.
KEMPER INTERNATIONAL PORTFOLIO seeks total return, a combination of capital
growth and income, principally through an internationally diversified portfolio
of equity securities.
KEMPER CONTRARIAN VALUE PORTFOLIO seeks to achieve a high rate of total return
from a portfolio primarily of value stocks of larger companies.
KEMPER SMALL CAP VALUE PORTFOLIO seeks long-term capital appreciation from a
portfolio primarily of value stocks of smaller companies.
KEMPER SMALL CAP GROWTH PORTFOLIO seeks maximum appreciation of investors'
capital from a portfolio primarily of growth stocks of smaller companies.
KEMPER GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
KEMPER GLOBAL BLUE CHIP PORTFOLIO seeks long-term growth of capital through a
diversified worldwide portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks.
KEMPER INTERNATIONAL GROWTH AND INCOME PORTFOLIO seeks a long-term growth of
capital and current income, primarily from foreign equity securities.
KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO seeks to achieve a high rate of total
return.
KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO seeks long-term capital appreciation
by investing primarily in common stocks and other equity securities of companies
in the financial services industry believed by the Portfolio's investment
manager to be undervalued.
SCUDDER VARIABLE LIFE INVESTMENT FUND
SCUDDER VLIF GLOBAL DISCOVERY PORTFOLIO seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of small
companies located throughout the world.
8
<PAGE> 13
SCUDDER VLIF GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital,
current income and growth of income from a portfolio consisting primarily of
common stocks and securities convertible into common stocks.
SCUDDER VLIF INTERNATIONAL PORTFOLIO seeks long-term growth of capital
principally from a diversified portfolio of foreign equity securities.
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO seeks to maximize long-term capital growth
from a portfolio consisting primarily of equity securities.
JANUS ASPEN SERIES
JANUS GROWTH PORTFOLIO seeks long-term growth of capital in a manner consistent
with the preservation of capital. It is a diversified Portfolio that pursues its
objective by investing in common stocks of companies of any size. This Portfolio
generally invests in larger, more established issuers.
JANUS GROWTH AND INCOME PORTFOLIO seeks long-term capital growth and current
income.
WARBURG PINCUS TRUST
WARBURG EMERGING MARKETS PORTFOLIO seeks long-term growth of capital.
WARBURG POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by
investing primarily in equity securities of issuers in their
post-venture-capital stage of development and pursues an aggressive investment
strategy.
------------------
There is no assurance that any of the Portfolios of the Funds will achieve their
objective as stated in their prospectuses. More detailed information, including
a description of risks involved in investing in each of the Subaccounts that
invest in the Funds, may be found in the corresponding prospectuses for the
Funds, attached hereto, and the Funds' Statements of Additional Information
available upon request from KILICO. Read the prospectuses carefully before
investing.
Scudder Kemper Investments, Inc. ("SKI"), an affiliate of KILICO, is the
investment manager for the twenty available Portfolios of the Investors Fund
Series and the four available Portfolios of the Scudder Variable Life Investment
Fund. Zurich Investment Management Limited ("ZIML"), an affiliate of SKI, is the
sub-adviser for the Kemper International Portfolio. Under the terms of the
Sub-Advisory Agreement with SKI, ZIML renders investment advisory and management
services with regard to that portion of this Portfolio's assets as may be
allocated by SKI to ZIML from time to time for management, including services
related to foreign securities, foreign currency transactions and related
investments. Dreman Value Management L.L.C. ("DVM") serves as sub-adviser for
the Kemper-Dreman High Return Equity and Kemper-Dreman Financial Services
Portfolios. Under the terms of the sub-advisory agreement between SKI and DVM
for each Portfolio, DVM manages the investment and reinvestment of each
Portfolio's assets in accordance with the investment objectives, policies and
limitations and subject to the supervision of SKI and the Board of Trustees.
Janus Capital Corporation is the investment adviser for the two available
Portfolios of the Janus Aspen Series. Warburg Pincus Asset Management, Inc. is
the investment adviser for the two available Portfolios of the Warburg Pincus
Trust. The investment advisers are paid fees for their services by the Funds
they manage. KILICO may receive compensation from the Funds or the investment
advisers of the Funds for services related to the Funds. Such compensation will
be consistent with the services rendered or the cost savings resulting from the
arrangement.
For their services to the Portfolios, the managers receive compensation at the
following rates:
INVESTORS FUND SERIES
For its services, SKI is paid a management fee based upon the average daily net
assets of each Portfolio, as follows: Kemper Money Market (.50 of 1%), Kemper
Government Securities (.55 of 1%), Kemper Investment Grade Bond (.60 of 1%),
Kemper Global Income (.75 of 1%), Kemper Horizon 5 (.60 of 1%), Kemper High
Yield (.60 of 1%), Kemper Horizon 10+ (.60 of 1%), Kemper Total Return (.55 of
1%), Kemper Horizon 20+ (.60 of 1%), Kemper Value+Growth (.75 of 1%), Kemper
Blue Chip (.65 of 1%), Kemper International (.75 of 1%), Kemper Contrarian Value
(.75 of 1%), Kemper Small Cap Value (.75 of 1%), Kemper Small Cap Growth (.65 of
1%), Kemper Growth (.60 of 1%), Kemper Global Blue Chip (1.00% for the first
$250 million, .95% for the next $750 million and .90% over $1 billion), Kemper
International Growth and Income (.70 of 1%), Kemper-Dreman High Return Equity
(.75% for the first $250 million, .72% for the next $750 million, .70% for the
next $1.5 billion, .68% for the next $2.5 billion, .65% for the next $2.5
billion, .64% for the next $2.5 billion, .63% for the
9
<PAGE> 14
next $2.5 billion and .62% over $12.5 billion) and Kemper-Dreman Financial
Services (.75% for the first $250 million, .72% for the next $750 million, .70%
for the next $1.5 billion, .68% for the next $2.5 billion, .65% for the next
$2.5 billion, .64% for the next $2.5 billion, .63% for the next $2.5 billion and
.62% over $12.5 billion). SKI pays ZIML for its services as sub-adviser for the
Kemper International Portfolio and the Kemper Global Income Portfolio a
sub-advisory fee, payable monthly, at an annual rate of .35 of 1% and .30 of 1%,
respectively, of the average daily net assets of such Portfolios. SKI pays DVM
for its services to each Portfolio a sub-advisory fee, payable monthly, at the
annual rate of .24% of the first $250 million of each Portfolio's average daily
net assets, .23% of the average daily net assets between $250 million and $1
billion, .224% of average daily net assets between $1 billion and $2.5 billion,
.218% of average daily net assets between $2.5 billion and $5 billion, .208% of
average daily net assets between $5 billion and $7.5 billion, .205% of average
daily net assets between $7.5 billion and $10 billion, .202% of average daily
net assets between $10 billion and $12.5 billion and .198% of each Portfolio's
average daily net assets over $12 billion.
SCUDDER VARIABLE LIFE INVESTMENT FUND
For its advisory services to the Portfolios, SKI receives compensation monthly
at the following annual rate for each Portfolio:
<TABLE>
<CAPTION>
PERCENT OF THE AVERAGE
DAILY NET ASSET VALUES
PORTFOLIO OF EACH PORTFOLIO
--------- ----------------------
<S> <C>
Scudder VLIF Global Discovery.................... .975%
Scudder VLIF Growth and Income................... .475%
Scudder VLIF International....................... .875%
Scudder VLIF Capital Growth...................... .475%
</TABLE>
JANUS ASPEN SERIES
Janus Capital Corporation receives a monthly advisory fee for the Janus Growth
Portfolio and Janus Growth and Income Portfolio based on the following schedule
(expressed as an annual rate):
<TABLE>
<CAPTION>
AVERAGE DAILY NET
ASSETS OF PORTFOLIO ANNUAL RATE
------------------- -----------
<S> <C>
First $300,000,000........................................ .75%
Next $200,000,000........................................ .70%
Over $500,000,000........................................ .65%
</TABLE>
However, Janus Capital Corporation has agreed to reduce each of the above
Portfolios' advisory fees to the extent that such fee exceeds the effective rate
of a fund managed by Janus Capital Corporation with similar investment objective
and policies.
WARBURG PINCUS TRUST
Warburg Pincus Asset Management, Inc. receives a monthly advisory fee based upon
the average daily net assets of each Warburg Portfolio, as follows: Emerging
Markets .81% and Post-Venture Capital 1.07% (after waivers and/or
reimbursements).
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 of the Funds and to substitute shares of
another Portfolio 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 Separate Account. KILICO will not substitute any shares
attributable to a Contract Owner's interest in a Subaccount of the Separate
Account without notice to the Contract 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 Contract 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
10
<PAGE> 15
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 Contract Owners as determined by
KILICO. 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
notify all Contract Owners of any such changes.
If deemed by KILICO to be in the best interests of persons having voting rights
under the Contract, 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 Contract to another separate account,
or to the General Account.
PERFORMANCE INFORMATION
From time to time, the Separate Account may advertise several types of
performance information for the Subaccounts. All Subaccounts may advertise
standardized "average annual total return" and nonstandardized "total return."
The Kemper High Yield Subaccount, Kemper Government Securities Subaccount and
Kemper Investment Grade Bond Subaccount may also advertise "yield". The Kemper
Money Market Subaccount may advertise "yield" and "effective yield." Each of
these figures is based upon historical earnings and is not necessarily
representative of the future performance of a Subaccount.
Standardized average annual total return and nonstandardized total return
calculations measure the net income of a Subaccount plus the effect of any
realized or unrealized appreciation or depreciation of the underlying
investments in the Subaccount for the period in question. Standardized average
annual total return and nonstandardized total return will be quoted for periods
of at least one year, three years, five years and ten years, if applicable, and
a period covering the time the underlying Portfolio has been held in the
Subaccount (life of Subaccount) for standardized average annual total return or
a period covering the time the underlying Portfolio has been in existence (life
of Portfolio) for nonstandardized total return. This information will be current
for a period ending with the most recent calendar quarter for standardized
average annual total return and the most recent calendar month for
nonstandardized total return. Standardized average annual total return figures
are annualized, and therefore, represent the average annual percentage change in
the value of an investment in a Subaccount over the applicable period.
Nonstandardized total return may include annualized and nonannualized
(cumulative) figures. Nonannualized figures represent the actual percentage
change over the applicable period.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period (seven-day period for the Kemper Money
Market Subaccount) expressed as a percentage of the value of the Subaccount's
Accumulation Units. Yield is an annualized figure, which means that it is
assumed that the Subaccount generates the same level of net income over a one
year period which is compounded on a semi-annual basis. The effective yield for
the Kemper Money Market Subaccount is calculated similarly but includes the
effect of assumed compounding calculated under rules prescribed by the
Securities and Exchange Commission. The Kemper Money Market Subaccount's
effective yield will be slightly higher than its yield due to this compounding
effect.
The Subaccounts' units are sold at Accumulation Unit value. The Subaccounts'
performance figures and Accumulation Unit values will fluctuate. Units of the
Subaccounts are redeemable by an investor at Accumulation Unit value, which may
be more or less than original cost. The performance figures include the
deduction of all expenses and fees, including a prorated portion of the Records
Maintenance Charge. Redemptions within the first seven years after purchase may
be subject to a Withdrawal Charge that ranges from 7% the first year to 0% after
seven years. Yield, effective yield and nonstandardized total return figures do
not include the effect of any Withdrawal Charge that may be imposed upon the
redemption of units, and thus may be higher than if such charges were deducted.
Standardized average annual total return figures include the effect of the
applicable Withdrawal Charge that may be imposed at the end of the period in
question.
The Subaccounts may be compared to relevant indices and performance data from
independent sources. From time to time, the Separate Account may quote
information from publications such as MORNINGSTAR, INC., THE WALL STREET
JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE, USA
TODAY, INSTITUTIONAL INVESTOR, NATIONAL UNDERWRITER, SELLING LIFE INSURANCE,
BROKER WORLD, REGISTERED REPRESENTATIVE, INVESTMENT ADVISOR and VARDS.
Additional information concerning a Subaccount's performance and these indices
and independent sources is provided in the Statement of Additional Information.
11
<PAGE> 16
FIXED ACCOUNT OPTION
CONTRIBUTIONS UNDER THE FIXED ACCOUNT OF THE CONTRACT AND TRANSFERS TO THE FIXED
ACCOUNT BECOME PART OF THE GENERAL ACCOUNT OF THE INSURANCE COMPANY, WHICH
SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") NOR IS THE GENERAL
ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS
THEREIN GENERALLY ARE SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND
KILICO HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO THE FIXED
PORTION. DISCLOSURES REGARDING THE FIXED PORTION OF THE CONTRACT AND THE GENERAL
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.
The Contracts offer a Fixed Account Option under which KILICO pays a fixed
interest rate for stated periods. This Prospectus describes only the element of
the Contract pertaining to the Separate Account except where it makes specific
reference to fixed accumulation and annuity elements.
The Contracts guarantee that payments allocated to the Fixed Account will earn a
minimum fixed interest rate of 3%. KILICO, at its discretion, may credit
interest in excess of 3%. KILICO reserves the right to change the rate of excess
interest credited as provided under the terms of the Contract. KILICO also
reserves the right to declare separate rates of excess interest for Purchase
Payments 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 Purchase Payments paid or amounts transferred at any other
designated time.
THE CONTRACTS
A. GENERAL INFORMATION.
The minimum initial Purchase Payment is $1,000 and the minimum subsequent
payment is $500. A Contract Owner may make Purchase Payments by authorizing
KILICO to draw on an account of the Contract Owner via check or electronic
debit, in which case the minimum subsequent payment is $100. Purchase Payments
in excess of $1,000,000 require the prior approval of KILICO. The maximum annual
amount of Purchase Payments may also be limited by the provisions of the
retirement plan pursuant to which the Contract has been purchased. An allocation
to a Subaccount, the Fixed Account or a Guarantee Period must be at least $500.
KILICO may at any time amend the Contract in accordance with changes in the law,
including applicable tax laws, regulations or rulings, and for other purposes.
A Contract Owner is allowed a "free look" period (generally 10 days, subject to
state variation) after receiving the Contract, to review it and decide whether
or not to keep it. If the Contract Owner decides to return the Contract, it may
be cancelled by delivering or mailing it to KILICO. Upon receipt by KILICO, the
Contract will be cancelled and a refund will be made. The amount of the refund
will depend on the state in which the Contract is issued; however, it generally
will be an amount at least equal to the Separate Account Contract Value plus
amounts allocated to the General Account and the Guarantee Periods on the date
of receipt by KILICO, without any deduction for Withdrawal Charges or Records
Maintenance Charges. However, in some states applicable law requires that the
amount of the Purchase Payment be returned. In addition, a special "free look"
period applies in some circumstances to Contracts issued as individual
retirement annuities under Section 408 of the Code or as Roth IRAs under Section
408A of the Code.
During the Accumulation Period, the Contract Owner may assign the Contract or
change a Beneficiary at any time by filing such assignment or change with
KILICO's home office at 1 Kemper Drive, Long Grove, Illinois 60049. No
assignment or Beneficiary change shall be binding on KILICO until received by
KILICO. KILICO assumes no responsibility for the validity of such assignment or
Beneficiary change. An assignment may subject the Owner to immediate tax
liability. (See "Tax Treatment of Withdrawals, Loans and Assignments.")
Amounts payable during the Annuity Period may not be assigned or encumbered and,
to the extent permitted by law, are not subject to levy, attachment or other
judicial process for the payment of the payee's debts or obligations.
The Beneficiary is designated by the Owner. If a Beneficiary is not named, or if
no named Beneficiary survives, the Beneficiary shall be the deceased Annuitant's
or deceased Owner's estate.
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<PAGE> 17
A change of Beneficiary designation under a Qualified Plan Contract may be
prohibited by the provisions of the applicable plan. Generally, an interest in a
Qualified Plan Contract may not be assigned.
B. THE ACCUMULATION PERIOD.
1. APPLICATION OF PURCHASE PAYMENTS.
Purchase Payments are allocated to the Subaccount(s), Guarantee Periods, or
Fixed Account as selected by the Contract Owner. The amount of each Purchase
Payment credited to a Subaccount will be based on the next computed value of an
Accumulation Unit following receipt of payment in proper form by KILICO. The
value of an Accumulation Unit is determined when the net asset values of the
Portfolios of the Fund are calculated, which is generally at 3:00 p.m. Chicago
time on each day that the New York Stock Exchange is open for trading. Purchase
Payments allocated to a Guarantee Period or to the Fixed Account will begin
earning interest one day after receipt in proper form. However, with respect to
initial Purchase Payments, the amount will be credited only after an affirmative
determination by KILICO to issue the Contract, but no later than the second day
following receipt of the Purchase Payment. After the initial purchase, the
number of Accumulation Units credited is determined by dividing the Purchase
Payment amount allocated to a Subaccount by the Accumulation Unit value which is
next computed following receipt by KILICO of any Purchase Payment in good funds.
Purchase Payments will not be received except on those days when the New York
Stock Exchange is open for trading.
The number of Accumulation Units will not change because of a subsequent change
in value. The dollar value of an Accumulation Unit will vary to reflect the
investment experience of the Subaccount and the assessment of charges against
the Subaccount other than the Records Maintenance Charge. The number of
Accumulation Units will be reduced upon assessment of the Records Maintenance
Charge.
If KILICO has not been provided with information sufficient to establish a
Contract or to properly credit such Purchase Payment, it will promptly request
that the necessary information be furnished. If the requested information is not
furnished within five (5) business days of initial receipt of the Purchase
Payment, or if KILICO determines that it cannot otherwise issue the Contract
within the five (5) day period, the Purchase Payment will be returned to the
Owner, unless the Owner specifically consents to KILICO retaining the purchase
payment until the application is made complete.
KILICO will issue a Contract without having previously received a signed
application from the applicant in the following circumstances. A dealer may
inform KILICO of an applicant's answers to the questions necessary to issue a
Contract by transmitting to KILICO the applicable data in writing or by
electronic means. The dealer will also cause the initial Purchase Payment to be
paid to KILICO. If the information is in good order, KILICO will issue the
Contract. The Contract will be delivered to the owner with a letter requesting
the Owner to sign and return to KILICO a confirmation of the correctness of the
information in the Contract.
2. ACCUMULATION UNIT VALUE.
Each Subaccount has an Accumulation Unit value. When Purchase Payments 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. Each Valuation Period has a single
Accumulation Unit value which is applied to each day in the period.
Each Subaccount has its own investment experience factor. The investment
experience of the Separate Account is calculated by applying the investment
experience factor to the Accumulation Unit 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
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<PAGE> 18
c. a charge or credit 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 and
administrative cost charge stated in the Contract for the number of days in
the Valuation Period.
3. GUARANTEE PERIODS OF THE MVA OPTION.
An Owner may select, on the application form or with the initial order to
purchase, one or more Guarantee Periods with durations of one to ten years. Any
subsequently permitted Purchase Payments are allocated to Guarantee Periods as
selected by the Owner. The Guarantee Period, for each Purchase Payment or
portion thereof, selected by the Owner determines the Guaranteed Interest Rate.
KILICO pays interest at the Guaranteed Interest Rates in effect at the time the
Purchase Payment is received. The Guaranteed Interest Rate applies for the
entire duration of the Guarantee Period for that Purchase Payment remaining in
the Guarantee Period. Interest is credited daily at a rate equivalent to the
effective annual rate.
Set forth below is an illustration of how KILICO will credit interest during a
Guarantee Period. For the purpose of this example, certain assumptions were made
as indicated.
EXAMPLE OF GUARANTEED INTEREST RATE ACCUMULATION
<TABLE>
<S> <C>
Purchase Payment: $40,000
Guarantee Period: 5 Years
Guaranteed Interest Rate: 4.0% Effective Annual Rate
</TABLE>
<TABLE>
<CAPTION>
INTEREST CREDITED CUMULATIVE
YEAR DURING YEAR INTEREST CREDITED
- ---- ----------------- -----------------
<S> <C> <C>
1........................................................... $1,600.00 $1,600.00
2........................................................... 1,664.00 3,264.00
3........................................................... 1,730.56 4,994.56
4........................................................... 1,799.78 6,794.34
5........................................................... 1,871.77 8,666.11
</TABLE>
Accumulated Value at the end of 5 years is:
$40,000 + $8,666.11 = $48,666.11
NOTE: THIS EXAMPLE ASSUMES NO WITHDRAWALS OF ANY AMOUNT DURING THE ENTIRE
FIVE-YEAR PERIOD. A MARKET VALUE ADJUSTMENT AND A WITHDRAWAL CHARGE APPLY TO ANY
INTERIM WITHDRAWAL OR TRANSFER (SEE, "WITHDRAWAL DURING ACCUMULATION PERIOD" AND
"TRANSFER DURING ACCUMULATION PERIOD.") THE HYPOTHETICAL INTEREST RATES ARE
ILLUSTRATIVE ONLY AND ARE NOT INTENDED TO PREDICT FUTURE INTEREST RATES TO BE
GUARANTEED UNDER THE CONTRACT. ACTUAL INTEREST RATES GUARANTEED FOR ANY GIVEN
TIME MAY BE MORE OR LESS THAN THOSE SHOWN.
At the end of any Guarantee Period, a subsequent Guarantee Period begins. KILICO
provides written notification of the beginning of a subsequent Guarantee Period.
The subsequent Guarantee Period automatically renews for the same duration as
the terminating Guarantee Period unless the Owner elects another Guarantee
Period within thirty days after the end of the terminating Guarantee Period. The
Owner may choose a different Guarantee Period by preauthorized telephone
instructions or written notification to KILICO within thirty days after the
beginning of the subsequent Guarantee Period (or such longer period as stated in
KILICO's notification). An Owner should not select a subsequent Guarantee Period
that would extend beyond the Annuity Date then in effect for that Contract as
the Guarantee Period Amount available for annuitization in such Guarantee Period
would be subject to a Market Value Adjustment and any applicable Withdrawal
Charge. (See "Market Value Adjustment" below.)
The amount reinvested at the beginning of any subsequent Guarantee Period is
equal to the Guarantee Period Value in the Guarantee Period just ended. The
Guaranteed Interest Rate in effect when the subsequent Guarantee Period begins
applies for the entire duration of the subsequent Guarantee Period.
14
<PAGE> 19
An Owner may call 1-800-621-5001 or write to KILICO, 1 Kemper Drive, Long Grove,
Illinois 60049 for the subsequent Guaranteed Interest Rates.
4. ESTABLISHMENT OF GUARANTEED INTEREST RATES.
KILICO declares the Guaranteed Interest Rates for each of the ten durations of
Guarantee Periods from time to time as market conditions dictate, but once
established, rates will be guaranteed for the duration of the respective
Guarantee Periods. KILICO advises an Owner of the Guaranteed Interest Rate for a
chosen Guarantee Period at the time a Purchase Payment is received, a transfer
is effectuated or a Guarantee Period renews. Any portion of an Owner's
Accumulated Guarantee Period Value withdrawn from the MVA Option will be subject
to any applicable Withdrawal Charge and Records Maintenance Charge and may be
subject to a Market Value Adjustment. (See "Market Value Adjustment" below.)
KILICO has no specific formula for establishing the Guaranteed Interest Rates
for the Guarantee Periods. The determination may be influenced by, but not
necessarily correspond to, interest rates generally available on the types of
investments acquired with the Purchase Payments received under the Contracts.
(See "The MVA Option".) KILICO, in determining Guaranteed Interest Rates, may
also consider, among other factors, the duration of a Guarantee Period,
regulatory and tax requirements, sales commissions and administrative expenses
borne by KILICO, and general economic trends.
KILICO'S MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED INTEREST
RATES TO BE DECLARED. KILICO CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE
GUARANTEED INTEREST RATES.
5. CONTRACT VALUE.
Separate Account Contract Value on any Valuation Date can be determined by
multiplying the total number of Accumulation Units credited to the Contract for
a Subaccount by the value of an Accumulation Unit for that Subaccount on that
Valuation Date, then adding the values of the Owner's Contract interest in each
Subaccount in which the Contract is participating. That amount, when added to
the Owner's Accumulated Guarantee Period Value in the MVA Option and the Owner's
Contract interest in the Fixed Account, equals the Contract Value.
6. TRANSFER DURING ACCUMULATION PERIOD.
During the Accumulation Period, a Contract Owner may transfer the Contract Value
among the Subaccounts, the Guarantee Periods and the Fixed Account subject to
the following provisions: (i) the amount transferred must be at least $100
unless the total Contract Value attributable to a Subaccount, Guarantee Period
or Fixed Account is being transferred; (ii) the Contract Value remaining in a
Subaccount, Guarantee Period or Fixed Account must be at least $500 unless the
total value was transferred; (iii) transfers may not be made from any Subaccount
to the Fixed Account for a period of six months following any transfer from the
Fixed Account into one or more Subaccounts; and (iv) transfers from the Fixed
Account may be made one time during the Contract year in the thirty day period
following an anniversary of a Contract year. KILICO reserves the right to charge
a fee of $25 for each transfer in excess of 12 transfers per calendar year. In
addition, transfers of all or a portion of Guarantee Period Value will be
subject to the Market Value Adjustment described below unless the transfer is
effective within thirty days after the end of the applicable Guarantee Period.
Because a transfer before the end of a Guarantee Period is subject to a Market
Value Adjustment, the amount actually transferred from the Guarantee Period may
be more or less than the requested specific dollar amount.
KILICO will make transfers pursuant to proper written or telephone instructions
which specify in detail the requested changes. Transfers involving a Subaccount
will be based upon the Accumulation Unit values next determined following
receipt of valid, complete transfer instructions by KILICO. The transfer
privilege may be suspended, modified or terminated at any time (subject to state
requirements). 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, a Contract Owner
would bear the risk of loss in the event of a fraudulent telephone transfer.
If a Contract Owner authorizes a third party to transact transfers on the
Contract Owner's behalf, KILICO will reallocate the Contract 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
15
<PAGE> 20
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.
A Contract Owner may elect to have transfers made automatically among the
Subaccounts of the Separate Account on an annual, semiannual or quarterly basis
so that Contract Value is reallocated to match the percentage allocations in the
Contract Owner's predefined allocation elections. Transfers under this program
will not be subject to the $100 minimum transfer amounts described above. 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.
7. WITHDRAWAL DURING ACCUMULATION PERIOD.
The Contract Owner may redeem all or a portion of the Contract Value and
previous withdrawals, plus or minus any applicable Market Value Adjustment and
less any Withdrawal Charge. Withdrawals will have tax consequences, which may
include the amount of the withdrawal being subject to income tax and in some
circumstances an additional 10% penalty tax. (See "Federal Tax Matters.") A
withdrawal of the entire Contract Value is called a surrender.
A Contract Owner may withdraw up to the greater of (i) the excess of Contract
Value over total Purchase Payments subject to Withdrawal Charges, less prior
withdrawals that were previously assessed a Withdrawal Charge, and (ii) 10% of
the Contract Value in any Contract Year, without assessment of any Withdrawal
Charge. If the Contract Owner withdraws an amount in excess of the above amount
in any Contract Year, the excess amount of Purchase Payments withdrawn are
subject to a Withdrawal Charge. The Withdrawal Charge is 7% in the first
Contribution Year, 6% in the second Contribution Year, 5% in the third and
fourth Contribution Years, 4% in the fifth Contribution Year, 3% in the sixth
Contribution Year, 2% in the seventh Contribution Year and 0% in the eighth and
later Contribution Years.
In the case of a Contract invested other than solely in one Subaccount or
Guarantee Period or the Fixed Account, a Contract Owner requesting a partial
withdrawal must specify what portion of the Owner's Contract interest is to be
redeemed. If a Contract Owner does not specify what portion of the Owner's
Contract interest is to be redeemed, KILICO will redeem Accumulation Units from
all Subaccounts, Guarantee Periods and the Fixed Account in which the Contract
Owner has an interest. The number of Accumulation Units redeemed from each
Subaccount and the amount redeemed from the Guarantee Periods and the Fixed
Account will be in approximately the same proportion which the Owner's Contract
interest in each Subaccount, Guarantee Period and in the Fixed Account bears to
the Contract Value. In all cases, the Accumulation Units attributable to the
earliest Contribution Years will be redeemed first.
The Contract Owner may request a partial withdrawal subject to the following
conditions:
(1) Partial withdrawals are not permitted from the Fixed Account in the
first Contract Year.
(2) The amount requested must be at least $100 (before application of the
Market Value Adjustment), or the Owner's entire interest in the Subaccount,
Guarantee Period or the Fixed Account from which withdrawal is requested.
(3) The Owner's Contract interest in the Subaccount, Guarantee Period or
the Fixed Account from which the withdrawal is requested must be at least
$500 after the withdrawal is completed unless the total value was
withdrawn.
Election to withdraw shall be made in writing to KILICO at Suite 102, 1290 Silas
Deane Highway, Wethersfield, CT 06109 and should be accompanied by the Contract
if the request is for total withdrawal. Withdrawal requests will not be received
except on KILICO business days which are those days when the New York Stock
Exchange is open for trading. The Withdrawal Value attributable to the
Subaccounts is determined on the basis of the Accumulation Unit values next
computed following receipt of the request in proper order. The Withdrawal Value
attributable to the Subaccounts will be paid within seven (7) days after the
date a proper written request is received by KILICO provided, however, that
KILICO may suspend the right of withdrawal or delay payment more than seven (7)
days (a) during any period when the New York Stock Exchange is closed (other
than customary weekend and holiday closings), (b) when trading in the markets a
Portfolio of the Fund normally utilizes is restricted or an emergency exists as
determined by the Securities and Exchange Commission, so that disposal of the
Subaccount's investments or determination of its Accumulation Unit value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit for the protection of Contract Owners or
Unitholders. For withdrawal requests from the MVA Option and the Fixed
16
<PAGE> 21
Account, KILICO may defer any payment for the period permitted by the
appropriate state of jurisdiction, but in no event for more than six months
after the written request is received by KILICO. During the period of deferral,
interest at the current Guaranteed Interest Rate for the same Guarantee Period
as declared by KILICO, will continue to be credited.
8. MARKET VALUE ADJUSTMENT.
Any withdrawal (except payments of death benefits), transfer or any
annuitization of Guarantee Period Value other than if effected during the "free
look" period or within 30 days after a Guarantee Period terminates, may be
adjusted up or down by the application of a Market Value Adjustment. The Market
Value Adjustment is applied to the amount being withdrawn before deduction of
any applicable Withdrawal Charge.
The Market Value Adjustment reflects the relationship between (a) the currently
established interest rate ("Current Interest Rate") for a Guarantee Period equal
to the remaining length of the Guarantee Period, rounded to the next higher
number of complete years, and (b) the Guaranteed Interest Rate applicable to the
amount being withdrawn. Generally, if the Guaranteed Interest Rate is the same
or lower than the applicable Current Interest Rate, then the application of the
Market Value Adjustment results in a reduced Market Adjusted Value and hence a
lower payment upon withdrawal. Thus, it is possible that the amount available on
withdrawal could be less than the original Purchase Payment or the original
amount allocated to a Guarantee Period if interest rates increase. Conversely,
if the Guaranteed Interest Rate is higher than the applicable Current Interest
Rate, the application of the Market Value Adjustment results in an increased
Market Adjusted Value and, hence, a higher payment upon withdrawal.
The Market Value Adjustment (MVA) is determined by the application of the
following formula:
(t/365)
(1 + I)
MVA = MPV X [ [ ------- ] -1]
(1 + J)
Where I is the Guaranteed Interest Rate being credited to the Guarantee
Period Value (MPV) subject to the Market Value Adjustment,
J is the Current Interest Rate declared by KILICO, as of the effective date
of the application of the Market Value Adjustment, for current allocations
to a Guarantee Period the length of which is equal to the balance of the
Guarantee Period for the Guarantee Period Value subject to the Market Value
Adjustment, rounded to the next higher number of complete years, and
t is the number of days remaining in the Guarantee Period.
For an illustration showing an upward and a downward adjustment, see Appendix A.
9. GUARANTEED DEATH BENEFIT.
A death benefit will be paid to the designated Beneficiary upon any of the
following events during the Accumulation Period:
1. the death of the Owner, or a joint owner,
2. the death of the Annuitant if no contingent annuitant is
named or if the contingent annuitant does not survive the
Annuitant, or
3. if a contingent annuitant is named and survives the Annuitant, the
death of the contingent annuitant.
The amount of the death benefit will depend on the age of the deceased Owner or
Annuitant at the time the death benefit becomes payable. If the deceased Owner
or Annuitant had not attained age 91 prior to the date of death, the greatest of
the following amounts will be paid to the designated Beneficiary: (a) the total
amount of Purchase Payments, less the aggregate dollar amount of all previous
partial withdrawals; (b) the Contract Value; (c) Purchase Payments less previous
partial withdrawals accumulated at 5.00% interest per year to the earlier of the
deceased's age 80 or the date of death plus the total amount of Purchase
Payments less the aggregate dollar amount of all partial withdrawals from age 80
to the date of death; and (d) the greatest anniversary value immediately
preceding the date of death determined as follows. The highest of the Contract
Values on each Contract anniversary prior to the deceased's attainment of age 81
is determined. The greatest anniversary value is equal to this amount, increased
by the dollar amount of any purchase payments made since that anniversary and
reduced by any withdrawals since that anniversary. If the deceased had attained
age 91 prior to the date of death,
17
<PAGE> 22
the Contract Value will be paid to the designated Beneficiary. The Owner or
Beneficiary, as appropriate, may elect to have all or a part of the death
proceeds paid to the Beneficiary under one of the Annuity Options described
under "Annuity Options" below.
For Non-Qualified Plan Contracts, if the Beneficiary is the surviving spouse of
the Owner, the surviving spouse may elect to be treated as the successor Owner
of the Contract with no requirement to begin Death Benefit distribution.
10. GUARANTEED RETIREMENT INCOME BENEFIT.
Guaranteed Retirement Income Benefit is an optional benefit available under the
Contract which provides a minimum amount of fixed annuity guaranteed lifetime
income to the Annuitant subject to the conditions described below. The
Guaranteed Retirement Income Benefit option must be elected on the initial
application or order to purchase. The Owner may elect to discontinue this
benefit any time after the seventh Contract anniversary by sending a written
notice to KILICO. Once the benefit has been discontinued, it may not be elected
again.
If the Guaranteed Retirement Income Benefit has been elected by the Contract
Owner on the initial application or order to purchase and has not been
discontinued by the Owner, it may be exercised only within thirty days following
the seventh or later Contract anniversary. In addition, it may not be exercised
prior to the Annuitant's attainment of age 60, nor later than attainment of age
91, except that if the age of the Annuitant on the Date of Issue of the Contract
is below age 44, it may be exercised following the 15th or later Contract
anniversary.
If the Guaranteed Retirement Income Benefit is exercised by an eligible Contract
Owner, the amount of the annuity payments will be based on the greater of:
1. the income provided by applying the Guaranteed Retirement Income
Benefit base to the guaranteed annuity factors; and
2. the income provided by applying the Contract Value to the current
annuity factors.
For the above purposes, the Guaranteed Retirement Income Benefit base is equal
to the amount of the Guaranteed Death Benefit that would have been paid under
the Contract. This amount is equal to the greatest of the following amounts: (a)
the total amount of Purchase Payments, less the aggregate dollar amount of all
previous partial withdrawals; (b) the Contract Value; (c) Purchase Payments less
previous partial withdrawals accumulated at 5.00% interest per year to the
earlier of the Annuitant's age 80 or the date of exercise of the benefit plus
the total amount of Purchase Payments less the aggregate dollar amount of all
partial withdrawals from age 80 to the date of exercise; and (d) the greatest
anniversary value immediately preceding the date of exercise of the benefit
determined as follows. The highest of the Contract Values on each Contract
anniversary prior to the Annuitant's attainment of age 81 is determined. The
greatest anniversary value is equal to this amount, increased by the dollar
amount of any purchase payments made since that anniversary and reduced by any
withdrawals since that anniversary. The guaranteed annuity factors are based on
the 1983a table projected using projection scale G, with interest at 2.5% (the
"Annuity 2000" table), except that if the Guaranteed Retirement Income Benefit
is exercised on the 10th year anniversary or later, its interest rate assumption
will be 3.50%.
Because the Guaranteed Retirement Income Benefit is based on conservative
actuarial factors, the level of income that it guarantees may often be less than
the level that would be provided by applying the Contract Value to current
annuity factors.
18
<PAGE> 23
The Guaranteed Retirement Income Benefit will be paid in the amount determined
above and will be paid for the life of the Annuitant with a period certain based
on the Annuitant's age at the time the benefit is exercised and the type of
Contract, as follows:
<TABLE>
<CAPTION>
PERIOD CERTAIN YEARS
--------------------------
INDIVIDUAL
ANNUITANT'S AGE RETIREMENT
AT ELECTION ANNUITY NON-QUALIFIED
- --------------- ---------- -------------
<S> <C> <C>
15 to 75 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
84 6 6
85 to 90 5 5
</TABLE>
CONTRACT CHARGES AND EXPENSES
Charges and deductions under the Contracts are made for KILICO's assumption of
mortality and expense risk and administrative expenses, and for an annual
Records Maintenance Charge. Subject to certain expense limitations, investment
management fees and other expenses of the Funds are indirectly borne by the
Contract Owner. KILICO will deduct state premium taxes from Contract Value when
paid by KILICO. Where applicable, the dollar amount of state premium taxes
previously paid or paid upon annuitization by KILICO will be charged back
against the Contract Value when and if the Contract is annuitized. Additionally,
where applicable, a Withdrawal Charge may be assessed by KILICO in the event of
early withdrawal or early annuitization. A Guaranteed Retirement Income Benefit
charge also applies if the Guaranteed Retirement Income Benefit is elected.
A. CHARGES AGAINST THE SEPARATE ACCOUNT.
During the Accumulation Period and the Annuity Period, KILICO assesses that
portion of each Subaccount with a daily asset charge for mortality and expense
risks and administrative costs, which amounts to an aggregate of 1.40% per annum
(consisting of 1.25% for mortality and expense risks and .15% for administrative
costs). The administrative charge is intended to cover the average anticipated
administrative expenses to be incurred over the period the Contracts are in
force. With an administrative charge based on a percentage of assets, however,
there is not necessarily a direct relationship between the amount of the charge
and the administrative costs of a particular account. Additionally, KILICO
deducts an annual Records Maintenance Charge of $30 for each Contract as
described below. The Records Maintenance Charge is not assessed during the
Annuity Period.
These charges may be decreased by KILICO without notice but may not exceed the
rate or amount shown above. If the daily asset charge is insufficient to cover
the risks and costs, any loss or deficiency will fall on KILICO. Conversely, if
the charges prove more than sufficient, the gain will accrue to KILICO, creating
a profit which would be available for any proper corporate purpose including,
among other things, payment of distribution expenses.
1. RECORDS MAINTENANCE CHARGE.
KILICO will assess an annual Records Maintenance Charge of $30 during the
Accumulation Period against each Contract which has a Contract Value of less
than $50,000 on the date of assessment whether or not any Purchase Payments have
been made during the year. The charge is assessed at the end of each Contract
Year, on surrender of a Contract and on surrender upon annuitization. This
charge is to reimburse KILICO for expenses incurred in establishing and
maintaining the records relating to the Contract. The imposition of the Records
Maintenance Charge will constitute a reduction in the net assets of each
Subaccount, Guarantee Period and the Fixed Account.
At any time the Records Maintenance Charge is assessed, an equal portion of the
applicable charge will be assessed against each Subaccount, Guarantee Period and
the Fixed Account in which the Contract is participating
19
<PAGE> 24
and a number of Accumulation Units sufficient to equal the proper portion of the
charge will be redeemed from each Subaccount, and an amount deducted from the
Fixed Account Contract Value and Guarantee Period Value to meet the assessment.
2. MORTALITY RISK.
Variable Annuity payments reflect the investment experience of each Subaccount
but are not affected by changes in actual mortality experience or by actual
expenses incurred by KILICO.
The mortality risk assumed by KILICO arises from two contractual obligations.
First, in case of the death of the Contract Owner or of the Annuitant prior to
the deceased's 90th birthday, and prior to the Annuity Date, KILICO may, in some
cases, pay an amount greater than the Contract Value. (See "Guaranteed Death
Benefit", page 17) The second contractual obligation assumed by KILICO is to
continue to make annuity payments to each Annuitant for the entire life of the
Annuitant under Annuity Options involving life contingencies.
The latter assures each Annuitant that neither the Annuitant's own longevity nor
an improvement in life expectancy generally will have an adverse effect on the
annuity payments received under a Contract and relieves the Annuitant from the
risk of outliving the amounts accumulated for retirement.
3. EXPENSE RISK.
KILICO also assumes the risk that all actual expenses involved in administering
the Contracts including Contract maintenance costs, administrative costs, data
processing costs and costs of other services may exceed the amount recovered
from the Records Maintenance Charge or the amount recovered from the
administrative cost portion of the daily asset charge.
4. ADMINISTRATIVE COSTS.
The daily asset charge for administrative costs is imposed to reimburse KILICO
for the expenses it incurs for administering the Contracts, which include, among
other things, responding to Contract Owner inquiries, processing changes in
Purchase Payment allocations and providing reports to Contract Owners.
5. EXCEPTIONS.
KILICO may offer, at its discretion, reduced fees and charges, including but not
limited to, Records Maintenance Charge and mortality and expense risk and
administrative charges, for certain sales that may result in savings of certain
costs and expenses. Reductions in these fees and charges will not be unfairly
discriminatory against any Contract Owner.
B. WITHDRAWAL CHARGE.
No sales charge is deducted from any Purchase Payment. However, a contingent
deferred sales charge ("Withdrawal Charge") will be used to cover expenses
relating to the sale of the Contracts, including commissions paid to sales
personnel, and other promotion and acquisition expenses. Also, withdrawals will
have tax consequences, which may include the amount of the withdrawal being
subject to income tax and in some circumstances an additional 10% penalty tax.
(See "Federal Tax Matters.")
Each Contract Year, a Contract Owner may withdraw up to the greater of (i) the
excess of Contract Value over total Purchase Payments subject to Withdrawal
Charges less prior withdrawals that were previously assessed a Withdrawal
Charge, and (ii) 10% of the Contract Value determined at the time the withdrawal
is requested, without assessment of any charge. If the Contract Owner withdraws
an amount in excess of the above amount, the Purchase Payments withdrawn in
excess of the above amount will be subject to a Withdrawal Charge. The
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<PAGE> 25
Withdrawal Charge applies in the first seven Contribution Years following each
Purchase Payment as shown below:
<TABLE>
<CAPTION>
YEAR OF
WITHDRAWAL WITHDRAWAL
AFTER PURCHASE CHARGE
-------------- ----------
<S> <C>
First.................................. 7%
Second................................. 6%
Third.................................. 5%
Fourth................................. 5%
Fifth.................................. 4%
Sixth.................................. 3%
Seventh................................ 2%
Eighth and following................... 0%
</TABLE>
Purchase Payments will be deemed to be surrendered in the order in which they
were received.
When a withdrawal is requested, the recipient will receive a check in the amount
requested. To the extent that any Withdrawal Charge is applicable, the Contract
Value will be reduced by the amount of the Withdrawal Charge in addition to the
actual dollar amount sent to the Owner.
Because the Contribution Years are based on the date each Purchase Payment is
made, Contract Owners may be subject to a Withdrawal Charge as indicated above,
even though the Contract may have been issued many years earlier. (For
additional details, see "Withdrawal During Accumulation Period.")
Subject to certain exceptions and State approvals, withdrawal charges will not
be assessed on withdrawals:
1. after an Owner has been confined in a hospital or skilled health care
facility for at least thirty days and the Owner remains confined at the
time of the request;
2. within thirty days following an Owner's discharge from a hospital or
skilled health care facility after a confinement of at least thirty
days; or
3. if the Owner or Annuitant becomes disabled after the Contract is
issued and before attaining age 65.
Restrictions and provisions related to the nursing care or hospitalization
disability waivers are more fully described in endorsements issued with the
Contract.
The Withdrawal Charges are intended to compensate KILICO for expenses in
connection with distribution of the Contracts. Under current assumptions, KILICO
anticipates Withdrawal Charges will not fully cover distribution expenses. To
the extent that distribution expenses are not recovered from Withdrawal Charges,
those expenses may be recovered from KILICO's general assets. Those assets may
include proceeds from the mortality and expense charge described above.
The Withdrawal Charge also applies at the time of annuitization to amounts
attributable to Accumulation Units in their seventh Contribution Year or
earlier. The amount annuitized is subject to the Withdrawal Charge, as
applicable. There shall be no Withdrawal Charge assessed upon annuitization so
long as annuity payments provide for payment under Annuity Options 2, 3 or 4, or
payments under Annuity Option 1 are scheduled to continue for at least five
years.
The Withdrawal Charge may be reduced or eliminated, but only to the extent
KILICO anticipates that it will incur lower sales expenses or perform fewer
services because of economies arising from the size of the particular group, the
average contribution per participant, or the use of mass enrollment procedures.
Units of a Subaccount sold to officers, directors and employees of KILICO and
Investors Fund Series, IFS investment advisers and principal underwriter or
certain affiliated companies, or to any trust, pension, profit-sharing or other
benefit plan for such persons may be withdrawn without any Withdrawal Charge.
C. GUARANTEED RETIREMENT INCOME BENEFIT CHARGE
If the Guaranteed Retirement Income Benefit option is selected on the initial
application or order to purchase, KILICO will deduct on each Contract Quarter
anniversary a pro rata portion of an annual charge equal to 0.25% of the
Contract Value. The quarterly charge will be deducted on a pro rata basis from
the Subaccounts, the Fixed Account and Guarantee Periods. The charge for the
Guaranteed Retirement Income Benefit will cease after the Annuitant attains age
91.
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<PAGE> 26
D. INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES.
The net asset value of each of the Portfolios of the Funds reflects investment
management fees and certain general operating expenses already deducted from the
assets of the Portfolios. Subject to certain limitations, these fees and
expenses are indirectly borne by the Contract Owners. Investment management fees
are described on pages 9 and 10. Further detail about fees and expenses of the
Portfolios is provided in the attached prospectuses for the Funds and in the
Funds' Statements of Additional Information.
E. STATE PREMIUM TAXES.
Certain state and local governments impose a premium tax ranging from 0% to 3.5%
on the amount of Purchase Payments. Where applicable, the dollar amount of state
premium taxes previously paid or payable upon annuitization by KILICO may be
charged against the Contract Value if not previously assessed, when and if the
Contract is annuitized. See "Appendix--State Premium Tax Chart" in the Statement
of Additional Information.
THE ANNUITY PERIOD
In addition to exercising the Guaranteed Retirement Income Benefit, Contracts
may be annuitized under one of several other Annuity Options. Annuity payments
will begin on the Annuity Date and under the Annuity Option selected by the
Owner. The Annuity Date must be at least one year after the Date of Issue and
may not be deferred beyond the Annuitant's 91st birthday (100th birthday if the
Contract is part of a Charitable Remainder Trust) subject to state variation.
1. ANNUITY PAYMENTS.
Annuity payments will be determined on the basis of (i) the annuity table
specified in the Contract, (ii) the Annuity Option selected, and (iii) if
variable annuitization is elected, the investment performance of the Subaccount
selected. The Annuitant receives the value of a fixed number of Annuity Units
each month. The value of an Annuity Unit will reflect the investment performance
of the Subaccounts selected, and the amount of each annuity payment will vary
accordingly. Annuity payments may be subject to a Withdrawal Charge if made
within the seventh Contribution Year or earlier. If the Owner elects an annuity
which provides either an income benefit period of five years or more, or a
benefit under which payment is contingent upon the life of the payee(s), any
applicable Withdrawal Charges will be waived.
2. ANNUITY OPTIONS.
The Contract Owner may elect to have annuity payments made under any one of the
Annuity Options specified in the Contract and described below. The Contract
Owner may decide at any time (subject to the provisions of any applicable
retirement plan and state variations) to commence annuity payments prior to the
Annuitant's 91st birthday (100th birthday if the Contract is part of a
Charitable Remainder Trust). A change of Annuity Option is permitted if made
before the date annuity payments are to commence. If no other Annuity Option is
elected, monthly annuity payments will be made in accordance with Option 3 below
with a ten (10) year period certain. Generally, annuity payments will be made in
monthly installments. However, if the net proceeds available to apply under an
Annuity Option are less than $2,000, KILICO shall have the right to pay the
annuity in one lump sum. In addition, if the first payment provided would be
less than $25, KILICO shall have the right to change the frequency of payments
to quarterly, semiannual or annual intervals resulting in an initial payment of
at least $25.
The amount of periodic annuity payments will depend upon (a) the type of annuity
option selected; (b) for options involving life contingency, the age and sex of
the payee; and (c) the investment experience of the Subaccounts selected. For
example, if the annuity option selected is income for a specified period, the
shorter the period selected the fewer payments will be made and those payments
will have a higher value. If the annuity option selected is life income, it is
likely the payments will be in a smaller amount than income for a short
specified period. If an individual selects the life income with installments
guaranteed option, the payments will probably be in a smaller amount than for
the life income option. If an individual selects the joint and survivor annuity
option, the payments will be smaller than those measured by an individual life
income option. The age of the payee will also influence the amount of periodic
annuity payments because presumably the older the payee, the shorter the life
expectancy and the larger the payments. The sex of the payee will influence the
amount of periodic payments because females have longer life expectancies than
males and therefore the payments will be smaller. Finally, if the Contract Owner
participates in a Subaccount with higher investment performance, it is likely
the Contract Owner will receive a higher periodic payment.
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<PAGE> 27
If the Owner dies before the Annuity Date, Annuity Options which may be elected
are limited. The Annuity Options available are (a) Option 2 or (b) Option 1 or 3
for a period no longer than the life expectancy of the Beneficiary (but not less
than 5 years from the Owner's death). If the Beneficiary is not an individual,
the entire interest must be distributed within 5 years of the Owner's death. The
Death Benefit distribution must begin no later than one year from the Owner's
death or such later date as prescribed by federal regulation.
OPTION 1--INCOME FOR SPECIFIED PERIOD.
An annuity payable monthly for a selected number of years ranging from five to
thirty. Upon payee's death, if the Beneficiary is a natural person, KILICO will
automatically continue payments for the remainder of the certain period to the
Beneficiary. If the Beneficiary is either an estate or trust, KILICO will pay
the discounted value of the remaining payments in the specified period based on
the discount rates stated in the supplemental contract. Variable Annuity
payments under Option 1 reflect the payment of the mortality and expense risk
charge, even though there is no life contingency risk associated with Option 1.
OPTION 2--LIFE INCOME.
An annuity payable monthly during the lifetime of the payee, terminating with
the last monthly payment due prior to the death of the payee. 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.
An annuity payable monthly during the lifetime of the payee with the provision
that if, at the death of the payee, payments have been made for less than five,
ten, fifteen or twenty years as elected, and the Beneficiary is a natural
person, KILICO will automatically continue payments for the remainder of the
elected period to the Beneficiary. If the Beneficiary is either an estate or
trust, KILICO will pay the discounted value of the remaining payments in the
specified period based on the discount rates stated in the supplemental
contract.
OPTION 4--JOINT AND SURVIVOR ANNUITY.
An annuity payable monthly while both payees are living. Upon the death of
either payee, the monthly income payable will continue during the lifetime of
the surviving payee at the percentage of such full amount chosen at the time of
election of this Option. Annuity payments terminate automatically and
immediately upon the death of the surviving payee without regard to the number
or total amount of payments received.
Payees under Option 1 by written notice to KILICO may cancel all or part of the
remaining payments due and receive that part of the remaining value of the
Contract.
3. ALLOCATION OF ANNUITY.
The Contract Owner may elect to have payments made on a fixed or variable basis,
or a combination of both. An Owner may exercise the transfer privilege during
the Accumulation Period for the purposes of such allocation. Any Fixed Account
Contract Value or Guarantee Period Value will be annuitized on a fixed basis.
Any Separate Account Contract Value will be annuitized on a variable basis.
Transfers during the Annuity Period are permitted subject to stated limitations.
The MVA Option is not available during the Annuity Period.
4. TRANSFER DURING ANNUITY PERIOD.
During the Annuity Period, the payee may transfer the value of the payee's
Contract interest in a Subaccount(s) to another Subaccount or to the Fixed
Account by written request to KILICO subject to the following limitations:
a. No transfer to a Subaccount may be made during the first year of the
Annuity Period; subsequent transfers are limited to one per year during the
Annuity Period.
b. A Contract's entire interest in a Subaccount must be transferred.
c. A transfer to a Subaccount, if notice to KILICO is received more than
seven (7) days prior to any annuity payment date, shall be effective during
the Valuation Period next succeeding the date such notice is received. If
received fewer than seven (7) days before any annuity payment date, the
transfer shall be effective during the Valuation Period next succeeding
that annuity payment date.
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<PAGE> 28
d. A transfer to the Fixed Account may be made effective only on an
anniversary of the first Annuity Date and upon not less than thirty (30)
days prior written notice to KILICO.
The Annuity Unit value of a Subaccount shall be determined as of the end of the
Valuation Period next preceding the effective date of the transfer. The transfer
privilege may be suspended, modified or terminated at any time (subject to state
requirements). Payees should consider the appropriateness of each Subaccount's
investment objectives and risks as an investment during the Annuity Period.
5. ANNUITY UNIT VALUE.
The value of an Annuity Unit is determined independently for each of the
Subaccounts.
For each Subaccount, the Annuity Unit value for any Valuation Period is
determined by multiplying the Annuity Unit value for the immediately preceding
Valuation Period by the net investment factor for the Valuation Period for which
the Annuity Unit value is being calculated, and multiplying the result by an
interest factor which offsets the effect of the assumed investment earnings rate
of 2.5% per annum which is assumed in the annuity tables contained in the
Contract.
The net investment factor for each Subaccount for any Valuation Period is
determined by dividing (a) by (b) where:
(a) Is the value of an Accumulation Unit for the applicable Subaccount as
of the end of the current Valuation Period, plus or minus the per share
charge or credit for taxes reserved.
(b) Is the value of an Accumulation Unit for the applicable Subaccount as
of the end of the immediately preceding Valuation Period, plus or minus the
per share charge or credit for taxes reserved.
6. FIRST PERIODIC PAYMENT UNDER VARIABLE ANNUITY.
At the time annuity payments begin, the value of the Owner's Contract interest
is determined by multiplying the applicable Accumulation Unit values at the end
of the Valuation Period falling on the 20th day of a month or 7th day of a month
immediately preceding the date the first annuity payment is due by the
respective number of Accumulation Units credited to the Owner's Contract
interest as of the end of such Valuation Period, less the dollar amount of
premium taxes not previously deducted, if applicable, and less the amount of the
Withdrawal Charge, if applicable.
There is no Withdrawal Charge assessed so long as annuity payments provide for
payments under Annuity Options 2, 3 or 4 or payments under Annuity Option 1 are
scheduled to continue for at least five years.
The first annuity payment is determined by multiplying the benefit per $1,000 of
value shown in the applicable annuity table by the number of thousands of
dollars of Contract Value less deduction for Debt and premium taxes, if
applicable.
A 2.5% per annum assumed investment rate is built into the annuity tables
contained in the Contracts. If the actual net investment rate exceeds 2.5% per
annum, payments will increase at a rate equal to the amount of such excess.
Conversely, if the actual rate is less than 2.5% per annum, annuity payments
will decrease.
7. SUBSEQUENT PERIODIC PAYMENTS UNDER VARIABLE ANNUITY.
The amount of the second and subsequent annuity payments is determined by
multiplying the number of Annuity Units by the Annuity Unit value as of the
Valuation Period next preceding the date on which each annuity payment is due.
The dollar amount of the first annuity payment as determined above is divided by
the Annuity Unit value as of the Annuity Date to establish the number of Annuity
Units representing each annuity payment. The number of Annuity Units determined
for the first annuity payment remains constant for the second and subsequent
monthly payments.
8. FIXED ANNUITY PAYMENTS.
The amount of each payment under a Fixed Annuity will be determined from tables
prepared by KILICO. Such tables show the monthly payment for each $1,000 of
Contract Value allocated to provide a Fixed Annuity. Payment will be based on
the Contract Value as of the date immediately preceding the date the annuity
payment is due. Fixed Annuity payments will not change regardless of investment,
mortality or expense experience.
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<PAGE> 29
9. DEATH BENEFIT.
If the payee dies after the Annuity Date while the Contract is in force, the
death proceeds, if any, will depend upon the form of annuity payment in effect
at the time of death. (See "Annuity Options.")
FEDERAL INCOME TAXES
A. INTRODUCTION
The following discussion of the federal income tax treatment of the Contract is
not exhaustive, does not purport to cover all situations, and is not intended as
tax advice. A qualified tax adviser should always be consulted with regard to
the application of the 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
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 a Contract. In addition, KILICO MAKES NO GUARANTEE REGARDING ANY
TAX TREATMENT--FEDERAL, STATE, OR LOCAL--OF ANY CONTRACT OR OF ANY TRANSACTION
INVOLVING A CONTRACT.
B. KILICO'S TAX STATUS
KILICO is taxed as a life insurance company under the Code. Since the operations
of the Separate Account are a part of, and are taxed with, the operations of
KILICO, the Separate Account is not separately taxed as a "regulated investment
company" under the Code. Under existing federal income tax laws, investment
income and capital gains of the Separate Account are not taxed to the extent
they are applied under a Certificate. KILICO does not anticipate that it will
incur any federal income tax liability attributable to such income and gains of
the Separate Account, and therefore KILICO does not intend to make provision for
any such taxes. If KILICO is taxed on investment income or capital gains of the
Separate Account, then KILICO may impose a charge against the Separate Account
in order to make provision for such taxes.
C. TAXATION OF ANNUITIES IN GENERAL
1. TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any increase
in the Contract Value of a Non-Qualified Plan Contract is generally not taxable
to the Owner or Annuitant until received, either in the form of annuity
payments, as contemplated by the Contract, or in some other form of
distribution. However, certain requirements must be satisfied in order for this
general rule to apply, including: (1) the Contract must be owned by an
individual (or treated as owned by an individual), (2) the investments of the
Separate Account must be "adequately diversified" in accordance with Treasury
Department regulations, (3) KILICO, rather than the Owner, must be considered
the owner of the assets of the Separate Account for federal tax purposes, and
(4) the Contract must provide for appropriate amortization, through annuity
payments, of the Contract's Purchase Payments and earnings, e.g., the Annuity
Date must not occur at too advanced an age.
NON-NATURAL OWNER. As a general rule, deferred annuity contracts held by
"non-natural persons" such as a corporation, trust or other similar entity, as
opposed to a natural person, are not treated as annuity contracts for federal
income tax purposes. The investment income on Contracts is taxed as ordinary
income that is received or accrued by the Owner during the taxable year. There
are several exceptions to this general rule for non-natural Owners. First,
Contracts will generally be treated as held by a natural person if the nominal
owner is a trust or other entity which holds the Contract as an agent for a
natural person. However, this special exception will not apply in the case of
any employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for non-natural Owners will apply
with respect to (1) Contracts acquired by an estate of a decedent by reason of
the death of the decedent, (2) certain Qualified Plan Contracts, (3) certain
Contracts purchased by employers upon the termination of certain qualified
plans, (4) certain Contracts used in connection with structured settlement
agreements, and (5) Contracts purchased with a single premium when the annuity
starting date (as defined in the tax law) is no later than a year from purchase
of the
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<PAGE> 30
Contract and substantially equal periodic payments are made, not less frequently
than annually, during the annuity period.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for
federal income tax purposes, the investments of the Separate Account must be
"adequately diversified" in accordance with Treasury Department Regulations. The
Secretary of the Treasury has issued regulations which prescribe standards for
determining whether the investments of the Separate Account are "adequately
diversified." If the Separate Account failed to comply with these
diversification standards, a Contract would not be treated as an annuity
contract for federal income tax purposes and the Contract Owner would generally
be taxable currently on the excess of the Contract Value over the Purchase
Payments paid for the Certificate.
Although KILICO does not control the investments of the Fund, it expects that
the Fund will comply with such regulations so that the Separate Account will be
considered "adequately diversified."
OWNERSHIP TREATMENT. In certain circumstances, a variable annuity contract owner
may be considered the owner, for federal income tax purposes, of the assets of
the separate account used to support his or her contract. In those
circumstances, income and gains from such separate account assets would be
includible in the contract owner's gross income. The Internal Revenue Service
(the "Service") has stated in published rulings that a variable contract owner
will be considered the owner of separate account assets 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 separate 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 this Contract are similar to, but different in
certain respects from, those described by the Service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the Owner of this Contract has the choice of many more investment
options to which to allocate Purchase Payments and Contract 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 owner 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 Contract as necessary to attempt to prevent the Owner from being
considered the owner of the assets of the Separate Account.
DELAYED ANNUITY DATES. If the Contract's Annuity Date occurs (or is scheduled to
occur) at a time when the Annuitant has reached an advanced age, E.G., past age
85, it is possible that the Contract would not be treated as an annuity for
federal income tax purposes. In that event, the income and gains under the
Contract could be currently includible in the Owner's income.
The remainder of this discussion assumes that the Contract will be treated as an
annuity Contract for federal income tax purposes and that KILICO will be treated
as the owner of the Separate Account assets.
2. TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal from a Non-Qualified Plan Contract, amounts
received are includible in income to the extent the Contract Value before the
withdrawal exceeds the "investment in the contract." In the case of a full
withdrawal, amounts received are includible in income to the extent they exceed
the "investment in the contract." For these purposes, the investment in the
contract at any time equals the total of the Purchase Payments made under the
Contract to that time (to the extent such payments were neither deductible when
made nor excludible from income as, for example, in the case of certain employer
contributions to Qualified Plan Contracts) less any amounts previously received
from the Contract which were not included in income.
Other than in the case of certain Qualified Plan Contracts, any assignment or
pledge (or agreement to assign or pledge) any portion of the Certificate Value,
is treated as a withdrawal of such amount or portion. (Assignments and pledges
are permitted only in limited circumstances under Qualified Plan Contracts.) The
investment in the contract is increased by the amount includible in income with
respect to such assignment or pledge, though it is not affected by any other
aspect of the assignment or pledge (including its release). If an individual
transfers his or
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<PAGE> 31
her interest in a Contract without adequate consideration to a person other than
the owner's spouse (or to a former spouse incident to divorce), the owner will
be taxed on the difference between the Contract Value and the "investment in the
contract" at the time of transfer. In such case, the transferee's investment in
the Contract will be increased to reflect the increase in the transferor's
income.
The Contract provides a death benefit that in certain circumstances may exceed
the greater of the Purchase Payments and the Contract Value. As described
elsewhere in this Prospectus, KILICO imposes certain charges with respect to the
death benefit. It is possible that those charges (or some portion thereof) could
be treated for federal income tax purposes as a partial withdrawal from the
Contract.
There may be special income tax issues present in situations where the Owner and
the Annuitant are not the same person and are not married to one another. A tax
advisor should be consulted in those situations.
3. TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary income is
equal to the excess of the payment over the exclusion amount. In the case of
variable annuity payments, the exclusion amount is the "investment in the
contract" (defined above) allocated to the variable annuity option, adjusted for
any period certain or refund feature, when payments begin to be made divided by
the number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed annuity payments, the
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the fixed annuity
option, adjusted for any period certain or refund feature, to the total expected
value of annuity payments for the term of the contract (determined under
Treasury Department regulations). A simplified method of determining the taxable
portion of annuity payments applies to certain Qualified Plan Contracts other
than IRAs.
Once the total amount of the investment in the contract is excluded using these
ratios, annuity payments will be fully taxable. If annuity payments cease
because of the death of the Annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the Annuitant in his or her last taxable year.
4. TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of the death of an Owner or
the Annuitant. Prior to the Annuity Date, such death benefit proceeds are
includible in income as follows: (1) if distributed in a lump sum, they are
taxed in the same manner as a full withdrawal, as described above, or (2) if
distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above. After the Annuity Date, where a guaranteed
period exists under an annuity option and the Annuitant dies before the end of
that period, payments made to the Beneficiary for the remainder of that period
are includible in income as follows: (1) if received in a lump sum, they are
includible in income to the extent that they exceed the unrecovered investment
in the contract at that time, or (2) if distributed in accordance with the
existing annuity option selected, they are fully excludable from income until
the remaining investment in the contract is deemed to be recovered, and all
annuity payments thereafter are fully includible in income.
5. PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any payment from a
Non-Qualified Plan Contract unless the payment is: (a) received on or after the
Owner reaches age 59 1/2; (b) attributable to the Owner's becoming disabled (as
defined in the tax law); (c) made to a Beneficiary on or after the death of the
Owner or, if the Owner is not an individual, on or after the death of the
primary Annuitant (as defined in the tax law); (d) made as a series of
substantially equal periodic payments (not less frequently than annually) for
the life (or life expectancy) of the Annuitant or for the joint lives (or joint
life expectancies) of the Annuitant and designated Beneficiary (as defined in
the tax law); (e) made under a Contract purchased with a single premium when the
annuity starting date (as defined in the tax law) is no later than a year from
purchase of the annuity and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period; or (f) made with
respect to certain annuities issued in connection with structured settlement
agreements. (A similar penalty tax, applicable to distributions from certain
Qualified Plan Contracts, is discussed below.)
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<PAGE> 32
6. AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an Annuity Payment or a withdrawal from
a Non-Qualified Plan Contract that is includible in income may be determined by
combining some or all of the Non-Qualified Plan Contracts owned by an
individual. For example, if a person purchases a Contract offered by this
Prospectus and also purchases at approximately the same time an immediate
annuity, the Service may treat the two contracts as one contract. In addition,
if a person purchases two or more deferred annuity contracts from the same
insurance company (or its affiliates) during any calendar year, all such
contracts will be treated as one contract. The effects of such aggregation are
not clear; however, it could affect the amount of a withdrawal or an annuity
payment that is taxable and the amount which might be subject to the penalty tax
described above.
7. LOSS OF INTEREST DEDUCTION WHERE CONTRACTS ARE HELD BY OR FOR THE BENEFIT OF
CERTAIN NON-NATURAL PERSONS
In the case of Contracts issued after June 8, 1997 to a non-natural taxpayer
(such as a corporation or a trust), or held for the benefit of such an entity,
otherwise deductible interest may no longer be deductible by the entity,
regardless of whether the interest relates to debt used to purchase or carry the
Contract. However, this interest deduction disallowance does not affect
Contracts where the income on such Contracts is treated as ordinary income that
is received or accrued by the Owner during the taxable year. Entities that are
considering purchasing the Contract, or entities that will be beneficiaries
under a Contract, should consult a tax advisor.
D. QUALIFIED PLANS
The Contracts are also designed for use in connection with retirement plans
which receive favorable treatment under section 408 or 408A of the Code
("Qualified Plans"). Such Contracts are referred to as "Qualified Plan
Contracts." Numerous special tax rules apply to the participants in Qualified
Plans and to Qualified Plan Contracts. Therefore, no attempt is made in this
Prospectus to provide more than general information about use of the Contract
with the various types of Qualified Plans.
The tax rules applicable to Qualified Plans vary according to the type of plan
and the terms and conditions of the plan itself. For example, for both
withdrawals and annuity payments under certain Qualified Plan Contracts, there
may be no "investment in the contract" and the total amount received may be
taxable. Both the amount of the contribution that may be made, and the tax
deduction or exclusion that the Owner may claim for such contribution, are
limited under Qualified Plans. If this Contract is used in connection with a
Qualified Plan, the Owner and Annuitant must be the same individual. If a joint
Annuitant is named, all distributions made while the Annuitant is alive must be
made to the Annuitant. Also, if a joint Annuitant is named who is not the
Annuitant's spouse, the annuity options which are available may be limited,
depending on the difference in ages between the Annuitant and joint Annuitant.
Furthermore, the length of any guarantee period may be limited in some
circumstances to satisfy certain minimum distribution requirements under the
Code.
In addition, special rules apply to the time at which distributions must
commence under a Qualified Plan Contract and the form in which the distributions
must be paid. For example, failure to comply with minimum distribution
requirements applicable to Qualified Plans will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a
minimum required distribution exceeds the actual distribution from the Qualified
Plan. In the case of "Individual Retirement Annuities" ("IRAs"), distributions
of minimum amounts (as specified in the tax law) must generally commence by
April 1 of the calendar year following the calendar year in which the owner
attains age 70 1/2. In the case of certain other Qualified Plans, distributions
of such minimum amounts must generally commence by the later of this date or
April 1 of the calendar year following the calendar year in which the employee
retires.
There is also a 10% penalty tax on the taxable amount of any payment from
certain Qualified Plan Contracts. There are exceptions to this penalty tax which
vary depending on the type of Qualified Plan. In the case of an IRA, exceptions
provide that the penalty tax does not apply to a payment (a) received on or
after the Owner reaches age 59 1/2, (b) received on or after the Owner's death
or because of the Owner's disability (as defined in the tax law), or (c) made as
a series of substantially equal periodic payments (not less frequently than
annually) for the life (or life expectancy) of the Owner or for the joint lives
(or joint life expectancies) of the Owner and designated beneficiary (as defined
in the tax law). These exceptions, as well as certain others not described
herein, generally apply to taxable distributions from other Qualified Plan
Contracts. In addition, the penalty tax does not apply to certain distributions
from IRAs taken after December 31, 1997 which are used for qualified first time
home purchases or for higher education expenses. Special conditions must be met
to qualify for these two
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<PAGE> 33
exceptions to the penalty tax. Contract Owners wishing to take a distribution
from an IRA for these purposes should consult their tax advisor.
When issued in connection with a Qualified Plan, a Contract will be amended as
generally necessary to conform to the requirements of the plan. However, Owners,
Annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under Qualified Plans may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the Contract. In
addition, KILICO shall not be bound by terms and conditions of Qualified Plans
to the extent such terms and conditions contradict the Contract, unless KILICO
consents.
1. QUALIFIED PLAN TYPES
Following are brief descriptions of the various types of Qualified Plans in
connection with which KILICO may issue a Contract.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an "IRA."
IRAs are subject to limits on the amounts that may be contributed, the persons
who may be eligible and on the time when distributions may commence. Also,
subject to the direct rollover and mandatory withholding requirements (described
below), distributions from certain other types of Qualified Plans may be "rolled
over" on a tax-deferred basis into an IRA. The Contract may not, however, be
used in connection with an "Education IRA" under section 530 of the Code.
IRAs generally may not provide life insurance coverage, but they may provide a
death benefit that equals the greater of the premiums paid and the Certificate
Value. The Certificate provides a death benefit that in certain circumstances
may exceed the greater of the Purchase Payments and the Certificate Value. It is
possible that the Certificate's death benefit could be viewed as violating the
prohibition on investment in life insurance contracts with the result that the
Certificate would not be viewed as satisfying the requirements of an IRA.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAS). Section 408(k) of the Code allows
employers to establish simplified employee pension plans for their employees,
using the employees' IRAs for such purposes, if certain criteria are met. Under
these plans the employer may, within specified limits, make deductible
contributions on behalf of the employees to IRAs. As discussed above (see
Individual Retirement Annuities), there is some uncertainty regarding the
treatment of the Certificate's death benefit for purposes of the tax rules
governing IRAs (which would include SEP-IRAs). Employers and employees intending
to use the Certificate in connection with such plans should seek competent
advice.
ROTH IRAS. Recently enacted Section 408A of the Code permits eligible
individuals to contribute to a type of IRA known as a "Roth IRA." Roth IRAs
differ from other IRAs in several respects. Among the differences is that,
although contributions to a Roth IRA are never deductible, "qualified
distributions" from a Roth IRA will be excludable from income. The eligibility
and mandatory distribution requirements for Roth IRAs also differ from non-Roth
IRAs. Furthermore, a rollover may be made to a Roth IRA only if it is a
"qualified rollover contribution." A "qualified rollover contribution" is a
rollover contribution to a Roth IRA from another Roth IRA or from a non-Roth
IRA, but only if such rollover contribution meets the rollover requirements for
IRAs under section 408(d)(3) of the Code. In the case of a qualified rollover
contribution or a transfer from a non-Roth IRA to a Roth IRA, any portion of the
amount rolled over which would be includible in gross income were it not part of
a qualified rollover contribution or a nontaxable transfer will be includible in
gross income. However, the 10 percent penalty tax on premature distributions
generally will not apply to such amounts.
All or part of amounts in a non-Roth IRA may be converted into a Roth IRA. Such
a conversion can be made without taking an actual distribution from the IRA. For
example, an individual may make a conversion by notifying the IRA issuer or
trustee, whichever is applicable. The conversion of an IRA to a Roth IRA is a
special type of qualified rollover distribution. Hence, the IRA participant must
be eligible to make a qualified rollover distribution in order to convert an IRA
to a Roth IRA. A conversion typically will result in the inclusion of some or
all of the IRA value in gross income, as described above. Persons with adjusted
gross incomes in excess of $100,000 or who are married and file a separate
return are not eligible to make a qualified rollover contribution or a transfer
in a taxable year from a non-Roth IRA to a Roth IRA.
Any "qualified distribution" from a Roth IRA is excludible from gross income. A
"qualified distribution" is a payment or distribution which satisfies two
requirements. First, the payment or distribution must be (a) made after the
Owner attains age 59 1/2, (b) made after the Owner's death, (c) attributable to
the Owner being disabled, or (d) a qualified first-time homebuyer distribution
within the meaning of section 72(t)(2)(F) of the Code.
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<PAGE> 34
Second, the payment or distribution must be made in a taxable year that is at
least five years after (a) the first taxable year for which a contribution was
made to any Roth IRA established for the Owner, or (b) in the case of a payment
or distribution properly allocable to a qualified rollover contribution from a
non-Roth IRA (or income allocable thereto), the taxable year in which the
rollover contribution was made. A distribution from a Roth IRA which is not a
qualified distribution is generally taxed in the same manner as a distribution
from non-Roth IRAs. Distributions from a Roth IRA need not commence at age
70 1/2.
E. FEDERAL INCOME TAX WITHHOLDING
KILICO will withhold and remit to the U.S. Government a part of the taxable
portion of each distribution made under a Contract unless the distributee
notifies KILICO at or before the time of the distribution that he or she elects
not to have any amounts withheld. In certain circumstances, KILICO may be
required to withhold tax. The withholding rates applicable to the taxable
portion of periodic annuity payments are the same as the withholding rates
generally applicable to payments of wages. In addition, the withholding rate
applicable to the taxable portion of non-periodic payments (including
withdrawals prior to the maturity date and conversions of, or rollovers from,
non-Roth IRAs to Roth IRAs) is 10%. As discussed above, the withholding rate
applicable to eligible rollover distributions is 20%.
DISTRIBUTION OF CONTRACTS
The Contracts are sold by licensed insurance agents, where the Contracts may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. KILICO pays commissions to the
seller which may vary but are not anticipated to exceed in the aggregate an
amount equal to six and one-quarter percent of Purchase Payments. In addition to
commissions, KILICO may, from time to time, pay or allow additional promotional
incentives, in the form of cash or other compensation, to broker-dealers that
sell the Contracts. In some instances, such other incentives may be offered only
to certain licensed broker-dealers that sell or are expected to sell during
specified time periods certain minimum amounts of the Contracts or other
contracts issued by KILICO. The Contracts are distributed through the principal
underwriter for the Separate Account, which is Investors Brokerage Services,
Inc. ("IBS"), 1 Kemper Drive, Long Grove, Illinois, 60010, a wholly-owned
subsidiary of KILICO, which enters into selling group agreements with affiliated
and unaffiliated broker-dealers. All of the investment options are not available
to all Contract Owners. The investment options are available only under
Contracts that are sold or serviced by broker-dealers that have entered into a
selling group agreement that authorizes the sale of Contracts with the
investment options specified in this Prospectus. Other distributors may sell and
service contracts with different investment options.
VOTING RIGHTS
Proxy materials in connection with any shareholder meeting of a Fund will be
delivered to each Contract Owner with Subaccount interests invested in such Fund
as of the record date for voting at such meeting. Such proxy materials will
include an appropriate form which may be used to give voting instructions.
KILICO will vote such Fund shares held in each Subaccount in accordance with
instructions received from persons having a Subaccount interest in such Fund
shares. Fund shares as to which no timely voting instructions are received will
be voted by KILICO in proportion to the voting instructions received from all
persons in a timely manner. KILICO will also vote any Fund shares attributed to
amounts it has accumulated in the Subaccounts in the same proportion that
Contract Owners vote. A Fund is not required to hold annual shareholders'
meetings. They will, however, hold special meetings as required or deemed
desirable for such purposes as electing trustees, changing fundamental policies
or approving an investment advisory agreement.
Contract Owners of all Contracts participating in each Subaccount shall have
voting rights with respect to the Portfolio invested in by that Subaccount,
based upon each Contract Owner's proportionate interest in that Subaccount as
measured by units. The person having such voting rights will be the Contract
Owner before surrender, the Annuity Date or the death of the Annuitant, and
thereafter, the payee entitled to receive Variable Annuity payments under the
Contract. During the Annuity Period, voting rights attributable to a Contract
will generally decrease as Annuity Units attributable to an Annuitant decrease.
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<PAGE> 35
REPORTS TO CONTRACT OWNERS AND INQUIRIES
Immediately after each Contract anniversary, Contract Owners will be sent
statements for their own Contract showing the amount credited to each Subaccount
and to the Fixed Account Option. In addition, Contract Owners transferring
amounts among the investment options or making additional payments will receive
written confirmation of such transactions. Upon request, any Contract Owner will
be sent a current statement in a form similar to that of the annual statement
described above. Each Contract Owner will also be sent annual and semi-annual
reports for the Portfolios that correspond to the Subaccounts in which the
Contract Owner is invested and a list of the securities held in each such
Portfolio, as required by the 1940 Act. In addition, KILICO will calculate for a
Contract Owner the portion of a total amount that must be invested in a selected
Guarantee Period so that the portion grows to equal the original total amount at
the expiration of the Guarantee Period.
A Contract Owner may direct inquiries to the individual who sold him or her the
Contract or may call 1-800-621-5001 or write to Kemper Investors Life Insurance
Company, Customer Service, 1 Kemper Drive, Long Grove, Illinois 60049.
DOLLAR COST AVERAGING
A Contract Owner may predesignate a portion of the Contract Value under a
Contract attributable to a Subaccount to be automatically transferred on a
monthly, quarterly, semiannual or annual basis for a specified duration to one
or more of the other Subaccounts, Guarantee Periods and the Fixed Account during
the Accumulation Period. A Contract Owner may also elect such transfers from the
Fixed Account on a monthly or quarterly basis for a minimum duration of one
year. A Contract Owner may enroll in this program at the time the Contract 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 second Tuesday of a month which is the date that all
dollar cost averaging transfers will be made ("Transfer Date").
A Contract Owner may also for purposes of Dollar Cost Averaging allocate all or
a portion of the initial Purchase Payment to the Kemper Money Market Subaccount
#2 which is the only Subaccount with no deduction for the 1.40% charge for
mortality and expense risks and administrative costs. The Contract Owner must
transfer all of the Subaccount Value out of Kemper Money Market Subaccount #2
within one year from the initial Purchase Payment. If an Owner terminates Dollar
Cost Averaging or does not deplete all Contract Value in Kemper Money Market
Subaccount #2 within one year, KILICO will automatically transfer any remaining
Subaccount Value in Kemper Money Market Subaccount #2 to Kemper Money Market
Subaccount #1.
Transfers will be made in the amounts designated by the Contract Owner and must
be at least $100 per Subaccount, Guarantee Period or Fixed Account. The total
Contract Value in an account at the time Dollar Cost Averaging is elected must
be at least equal to the amount designated to be transferred on each Transfer
Date multiplied by the duration selected. Dollar Cost Averaging will cease
automatically if the Contract 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 Contract Value attributable to the
transferring account is insufficient to complete the next transfer, (iii) the
Contract 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 Contract is surrendered or annuitized.
If the Fixed Account has a balance of at least $10,000, a Contract Owner may
elect automatic calendar quarter transfers of interest accrued in the Fixed
Account to one or more of the Subaccounts or Guarantee Periods. A Contract Owner
may enroll in this program at any time by completing the proper Dollar Cost
Averaging enrollment form and returning it to KILICO at its home office at least
ten (10) days prior to the end of the calendar quarter. The Transfer Date will
be within five business days of the end of the calendar quarter.
Following the Issue Date, a Contract Owner may initiate, reinstate or change
Dollar Cost Averaging or change existing Dollar Cost Averaging terms by properly
completing the new enrollment form and returning it to KILICO at its home office
at least five (5) business days (ten (10) business days for Fixed Account
transfers) prior to the next Transfer Date such transfer is to be made.
Election of Dollar Cost Averaging is not available during the Annuity Period.
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<PAGE> 36
SYSTEMATIC WITHDRAWAL PLAN
KILICO administers a Systematic Withdrawal Plan ("SWP") which allows certain
Contract Owners to pre-authorize periodic withdrawals during the Accumulation
Period. Contract Owners entering into a SWP agreement instruct KILICO to
withdraw selected amounts from the Fixed Account, or from any of the Subaccounts
or Guarantee Periods on a monthly, quarterly, semi-annual or annual basis.
Currently the SWP is available to Contract Owners who request a minimum $100
periodic payment. A market value adjustment will apply to any withdrawals under
the SWP from a Guarantee Period unless effected within 30 days after the
Guarantee Period ends. SWP withdrawals from the Fixed Account are not available
in the first Contract Year and are limited to the amount that is free of
Withdrawal Charges. If the amounts distributed under the SWP from the
Subaccounts or Guarantee Periods exceed the amount free of Withdrawal Charge
then the Withdrawal Charge will be applied on any amounts exceeding the free
withdrawal. WITHDRAWALS TAKEN UNDER THE SWP MAY BE SUBJECT TO THE 10% FEDERAL
TAX PENALTY ON EARLY WITHDRAWALS AND TO INCOME TAXES AND WITHHOLDING. (SEE
"FEDERAL INCOME TAXES.") Contract owners interested in 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 days' notice. The SWP may be terminated at any time by
the Contract Owner or KILICO.
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 Coopers & Lybrand L.L.P.,
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 periods 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 period after the
acquisition is presented on a different cost basis than that for the period
before the acquisition and, therefore, is not comparable.
LEGAL MATTERS
Legal matters with respect to the organization of KILICO, its authority to issue
annuity contracts and the validity of the Contract, have been passed upon by
Frank Julian, Associate General Counsel for KILICO. Jorden Burt Boros Cicchetti
Berensen & Johnson, Washington, D.C., has advised KILICO on certain legal
matters concerning federal securities laws applicable to the issue and sale of
the Contracts.
SPECIAL CONSIDERATIONS
KILICO reserves the right to amend the Contract and Certificates to meet the
requirements of any applicable federal or state laws or regulations. KILICO will
notify the Owner in writing of any such amendments.
An Owner's rights under a Contract may be assigned as provided by applicable
law. An assignment will not be binding upon KILICO until it receives a written
copy of the assignment. The Owner is solely responsible for the validity or
effect of any assignment. The Owner, therefore, should consult a qualified tax
advisor regarding the tax consequences, as an assignment may be a taxable event.
AVAILABLE INFORMATION
KILICO is subject to the informational requirements of the Securities Exchange
Act of 1934 and in accordance therewith files reports and other information with
the Securities and Exchange Commission (the "Commission"). Such reports and
other information can be inspected and copied at the public reference facilities
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. and 500
West Madison, Suite 1400, Northwestern Atrium Center, Chicago, Illinois. Copies
of such materials also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
KILICO has filed registration statements (the "Registration Statements") with
the Commission under the Securities Act of 1933 relating to the Contracts
offered by this Prospectus. This Prospectus has been filed as part of the
Registration Statements and does not contain all of the information set forth in
the Registration Statements, and reference is hereby made to such Registration
Statements for further information relating to KILICO and the Contracts. The
Registration Statements may be inspected and copied, and copies can be obtained
at prescribed rates in the manner set forth in the preceding paragraph.
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<PAGE> 37
BUSINESS
CORPORATE STRUCTURE
KEMPER INVESTORS LIFE INSURANCE COMPANY ("KILICO"), founded in 1947, is
incorporated under the insurance laws of the State of Illinois. KILICO is
licensed in the District of Columbia and all states except New York. KILICO is a
wholly-owned subsidiary of Kemper Corporation ("Kemper"), a nonoperating holding
company.
CORPORATE CONTROL EVENTS
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 KILICO. On February 27, 1998, Zurich
acquired Insurance Partner's remaining 20 percent interest for cash. As a result
of this transaction, Kemper and KILICO became wholly-owned subsidiaries of
Zurich.
The acquisition of KILICO was accounted for using the purchase method of
accounting. The consolidated financial statements of KILICO prior to January 4,
1996, were prepared on a historical cost basis and have been labeled as
"preacquisition" throughout this Prospectus.
Under purchase accounting, KILICO's assets and liabilities have been marked to
their relative fair values as of the acquisition date. The difference between
the allocated cost of $745.6 million of acquiring KILICO and the net fair values
of KILICO's assets and liabilities as of the acquisition date resulted in $254.9
million of goodwill. KILICO originally began to amortize goodwill on a
straight-line basis over twenty-five years, however, in the fourth quarter of
1997, KILICO changed its amortization period to twenty years. The change in
amortization periods was made to conform to Zurich's accounting practices and
policies and resulted in an increase in goodwill amortization of $5.1 million in
1997. KILICO has presented January 4, 1996 (the acquisition date) as the opening
purchase accounting balance sheet for comparative purposes, where appropriate,
throughout this Prospectus.
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.
(See note captioned "Summary of Significant Accounting Policies" in the notes to
the consolidated financial statements below.)
STRATEGIC INITIATIVES
Since the early 1990's, KILICO has intensified the management of its real
estate-related investments due to adverse market conditions. KILICO also
successfully implemented strategies over the last several years to reduce both
its joint venture operating losses and the level of its real estate-related
investments. These strategies included individual property sales, refinancings
and restructurings, as well as bulk sale transactions completed in December 1995
in anticipation of the 1996 change in control. As a result of these strategies,
KILICO reduced its holdings of real estate-related investments from 36.2 percent
of its total invested assets and cash at year-end 1991 to 4.9 percent at
year-end 1997.
The management, operations and strategic directions of KILICO were also
integrated by the end of 1993 with those of another Kemper subsidiary, Federal
Kemper Life Assurance Company ("FKLA"). The integration streamlined management,
controlled costs, improved profitability, increased operating efficiencies and
productivity, and helped to expand both companies' distribution capabilities.
Headquartered in Long Grove, Illinois, FKLA markets term and interest-sensitive
life insurance, as well as certain annuity products through brokerage general
agents and other independent distributors.
Beginning in 1995, KILICO also began to introduce and expand new and existing
product lines. In late 1995, KILICO began to sell term life insurance products
in order to balance its product mix and asset-liability structure. Over the last
three years, KILICO increased the competitiveness of its variable annuity
products by adding multiple variable subaccount investment options and
investment managers to existing variable annuity products. In 1996, KILICO
introduced a registered flexible individual variable life insurance product and
in 1997 KILICO introduced a non-registered individual and group variable
bank-owned life insurance contract ("BOLI") and a series of individual variable
life insurance contracts.
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NARRATIVE DESCRIPTION OF BUSINESS
KILICO offers both individual fixed-rate (general account) and individual and
group variable (separate account) annuity contracts, as well as individual term
life, universal life and individual and group variable life insurance products
through various distribution channels. KILICO offers investment-oriented
products, guaranteed returns or a combination of both, to help policyholders
meet multiple insurance and financial objectives. Financial institutions,
securities brokerage firms, insurance agents and financial planners are
important distribution channels for KILICO's products. KILICO's sales mainly
consist of deposits received on certain long duration annuity and variable life
insurance contracts as well as reinsurance premiums assumed from FKLA beginning
in 1996. (See note captioned "Reinsurance" in the notes to the consolidated
financial statements and see the table captioned "Sales" below.)
KILICO's fixed and variable annuities generally have surrender charges that are
a specified percentage of policy values and decline as the policy ages. General
account annuity and interest-sensitive life policies are guaranteed to
accumulate at specified interest rates but allow for periodic crediting rate
changes.
Over the last several years, in part reflecting the current interest rate
environment, KILICO has increased its emphasis on marketing its existing and new
separate account products. Unlike the fixed-rate annuity business where KILICO
manages spread revenue, variable annuities pose minimal investment risk for
KILICO, as policyholders invest in one or more of several underlying investment
funds. KILICO, in turn, receives administrative fee revenue as well as cost of
insurance charges which compensate KILICO for providing life insurance coverage
to the contractholder potentially in excess of their cash surrender values.
As a result of this strategy, KILICO's separate account assets and related sales
of its variable annuity and life products have increased as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
------------------- ----------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Separate account assets..................................... $5,122.0 $2,127.2 $1,761.1
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
PREACQUISITION
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Variable annuity sales...................................... $ 259.8 $254.6 $ 151.1
Variable life sales......................................... 2,708.6 .2 --
-------- ------ --------
Total separate account sales.............................. $2,968.4 $254.8 $ 151.1
======== ====== ========
</TABLE>
Rating improvements in 1996 (see "Rankings and ratings" below) and the 1996
change in control also helped to increase KILICO's sales in 1997 and 1996,
compared with 1995.
In order to increase variable annuity sales, KILICO introduced Kemper PASSPORT
in 1992. Kemper PASSPORT is a variable and market value adjusted annuity
featuring a choice of investment portfolios, an increasing estate benefit,
tax-free transfers and guaranteed rates for a variety of terms. In 1994, KILICO
changed Kemper PASSPORT from a single premium annuity to one with a flexible
premium structure and also added a small capitalization equity subaccount as
another investment portfolio option. In 1995 and 1996, KILICO also added several
new subaccounts and new investment managers as investment portfolio choices for
certain purchasers of the Kemper Advantage III variable annuity product. During
late 1996, KILICO introduced POWER V, a registered flexible premium variable
life insurance product. During mid-1997, KILICO also introduced variable BOLI
which is primarily marketed to banks and other large corporate entities and a
series of non-registered variable individual universal life insurance contracts
which are marketed primarily to high net worth individuals. These products are
being distributed by Investors Brokerage Services, Inc., ("IBS") a wholly-owned
subsidiary of KILICO. Excluding these contracts distributed by IBS which
accounted for $2,705.8 million of KILICO's first year sales, INVEST Financial
Corporation, ("INVEST") an affiliated company until June 28, 1996, and certain
other unrelated companies of INVEST's new parent First American National Bank,
and EVEREN Securities, Inc., an affiliated company until September 13, 1995,
accounted for approximately 23.0 percent and 5.0 percent, respectively, in 1997
of KILICO's first-year sales, compared with 24 percent and 12 percent,
respectively, in 1996.
34
<PAGE> 39
Current crediting rates, a conservative investment strategy and the interest
rate environment have impacted general account annuity sales for KILICO over the
last several years. KILICO's general account fixed annuity sales were as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
PREACQUISITION
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
General account fixed annuity sales......................... $145.7 $140.6 $247.6
====== ====== ======
</TABLE>
Beginning in early 1995, KILICO began raising crediting rates on certain of its
existing and new general account products, reflecting both competitive
conditions and a rising interest rate environment. As a result of these actions,
sales of general account annuities increased. During late 1995, as interest
rates fell, KILICO began reducing crediting rates on certain of its existing and
new general account products reflecting both competitive conditions and the
falling interest rate environment. As a result of these events, as well as a
strong stock and bond market during 1996 and most of 1997, which influenced
potential buyers of fixed annuity products to purchase variable annuity
products, sales of general account annuities have increased only slightly in
1997, compared with 1996.
Beginning in 1995, KILICO began to sell term life insurance products in order to
balance its product mix and asset-liability structure. During 1997 and 1996,
KILICO also assumed $21.1 million and $7.3 million, respectively, of term life
insurance premiums from FKLA. Excluding the amounts assumed from FKLA, KILICO's
total term life sales, including new and renewal premiums, net of reinsurance
ceded, amounted to $1.1 million in 1997, compared with $565 thousand in 1996 and
$236 thousand in 1995.
FEDERAL INCOME TAX DEVELOPMENTS
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. 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 KILICO's non-qualified
fixed and variable annuities and certain of its variable life insurance
products, including BOLI and the nonregistered individual variable universal
life insurance contract 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 be determined.
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 which 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 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.
35
<PAGE> 40
NAIC RATIOS
The National Association of Insurance Commissioners (the "NAIC") annually
calculates certain statutory financial ratios for most insurance companies in
the United States. These calculations are known as the Insurance Regulatory
Information System ("IRIS") ratios. There presently are twelve IRIS ratios. The
primary purpose of the ratios is to provide an "early warning" of any negative
developments. The NAIC reports the ratios to state regulators who may then
contact the companies if three or more ratios fall outside the NAIC's "usual
ranges".
Based on statutory financial data as of December 31, 1997, KILICO had three
ratios outside the usual ranges, the change in reserving ratio, the change in
premium ratio and the change in product mix ratio. KILICO's change in reserving
ratio reflected the level of interest-sensitive life surrenders and withdrawals
during 1997, as well as the 1997 reinsurance agreement with FKLA. KILICO's
change in premium ratio and change in product mix ratio reflected the $2.7
billion increase in BOLI premiums received during 1997. Other than certain
states requesting quarterly financial reporting and/or explanations of the
underlying causes for certain ratios, no state regulators have taken any action
due to KILICO's IRIS ratios for 1997 or earlier years.
GUARANTY ASSOCIATION ASSESSMENTS
From time to time, mandatory assessments are levied on KILICO by life and health
guaranty associations of most states in which KILICO is licensed, to cover
losses to policyholders of insolvent or rehabilitated insurance companies. These
associations levy assessments (up to prescribed limits) on all member insurers
in a particular state, in order to pay claims on the basis of the proportionate
share of premiums written by member insurers in the lines of business in which
the insolvent or rehabilitated insurer engaged. These assessments may be
deferred or forgiven in certain states if they would threaten an insurer's
financial strength, and, in some states, these assessments can be partially
recovered through a reduction in future premium taxes.
In the early 1990s, there were a number of failures of life insurance companies.
KILICO's financial statements include provisions for all known assessments that
will be levied against KILICO by various state guaranty associations as well as
an estimate of amounts (net of estimated future premium tax recoveries) that
KILICO believes will be assessed in the future for failures which have occurred
to date and for which the life insurance industry has estimated the cost to
cover losses to policyholders. Assessments levied against KILICO and charged to
expense in 1997, 1996 and 1995 amounted to $1.2 million, $601 thousand and $5.8
million, respectively. Such amounts relate to accrued guaranty fund assessments
of $4.8 million, $5.8 million and $5.0 million at December 31, 1997, 1996 and
1995, respectively. Additional assessments charged to expense reflect accruals
for the life insurance industry's new or revised loss estimates for certain
insolvent insurance companies.
RISK-BASED CAPITAL
Since the early 1990s, reflecting a recessionary environment and the
insolvencies of a few large life insurance companies, both state and federal
legislators have increased scrutiny of the existing insurance regulatory
framework. While various initiatives, such as the codification of statutory
accounting principles, are being considered for future implementation by the
NAIC, it is not presently possible to predict the future impact of potential
regulatory changes on KILICO.
Under asset adequacy and risk-based capital rules in Illinois, state regulators
may mandate remedial action for inadequately reserved or inadequately
capitalized companies. The asset adequacy rules are designed to assure that
reserves and assets are adequate to cover liabilities under a variety of
economic scenarios. The focus of the capital rules is a risk-based formula that
applies prescribed factors to various risk elements in an insurer's business and
investments to develop a minimum capital requirement designed to be proportional
to the amount of risk assumed by the insurer. KILICO has capital levels
substantially exceeding any which would mandate action under the risk-based
capital rules and is in compliance with applicable asset adequacy rules.
36
<PAGE> 41
RESERVES AND REINSURANCE
The following table provides a breakdown of KILICO's reserves for future policy
benefits by product type (in millions):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
----------- -----------
<S> <C> <C>
General account annuities................................... $3,137 $3,507
Interest-sensitive life insurance and other................. 709 743
Term life reserves.......................................... 10 7
Ceded future policy benefits................................ 383 427
------ ------
Total............................................. $4,239 $4,684
====== ======
</TABLE>
Ceded future policy benefits shown above reflect coinsurance (indemnity
reinsurance) transactions in which KILICO insured liabilities of approximately
$516 million in 1992 and $416 million in 1991 with Fidelity Life Association, A
Mutual Legal Reserve Company ("FLA"), an affiliated mutual insurance company.
FLA shares directors, management, operations and employees with FKLA pursuant to
an administrative and management services agreement. FLA produces policies not
produced by FKLA or KILICO as well as other policies similar to certain FKLA
policies. At December 31, 1997 and 1996, KILICO's reinsurance recoverable from
FLA related to these coinsurance transactions totaled approximately $382.6
million and $427.2 million, respectively. Utilizing FKLA's employees, KILICO is
the servicing company for this coinsured business and is reimbursed by FLA for
the related servicing expenses.
During December 1997, KILICO entered into a funds held reinsurance agreement
with another Zurich affiliated company, EPICENTRE Reinsurance (Bermuda) Limited
("EPICENTRE"). Under the terms of this agreement, KILICO 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 variable BOLI, which is held in KILICO's separate accounts. During
1997, KILICO ceded to EPICENTRE approximately $24.3 million of separate account
fees (cost of insurance charges) paid to KILICO by these policyholders for the
life insurance coverage provided under the terms of each separate account
contract. KILICO 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 in
this Prospectus. KILICO remains primarily liable to its policyholders for these
amounts.
During 1996, KILICO 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, KILICO also recorded reserves in 1997 and 1996 of approximately
$7.9 million and $7.3 million, respectively. (See the note captioned
"Reinsurance" in the notes to the consolidated financial statements below.)
COMPETITION
KILICO is in a highly competitive business and competes with a large number of
other stock and mutual life insurance companies, many of which are larger
financially, although none is truly dominant in the industry. KILICO, with its
emphasis on annuity products, also competes for savings dollars with securities
brokerage and investment advisory firms as well as other institutions that
manage assets, produce financial products or market other types of investment
products.
KILICO's principal methods of competition continue to be innovative products,
often designed for selected distribution channels and economic conditions, as
well as appropriate product pricing, careful underwriting, expense control and
the quality of services provided to policyholders and agents. Certain of
KILICO's financial strength ratings and claims-paying/performance ratings,
however, were lower in 1995 than in earlier years, and were under review in
1995, due to uncertainty with respect to Kemper's and KILICO's ownership. These
ratings impacted sales efforts in certain markets; however, increases in
KILICO's financial strength ratings and claims-paying/performance ratings in
January 1996 favorably impacted variable annuity sales during 1997 and 1996 and
should continue to favorably impact future sales.
To address its competition, KILICO has adopted certain business strategies.
These include systematic reductions of investment risk and strengthening of its
capital position; continued focus on existing and new variable annuity and
variable life insurance products; distribution through diversified channels; and
ongoing efforts to continue as a low-cost provider of insurance products and
high-quality services to agents and policyholders through the use of technology.
37
<PAGE> 42
RANKINGS AND RATINGS
According to BEST'S AGENTS GUIDE TO LIFE INSURANCE COMPANIES, 1997, as of
December 31, 1996, KILICO ranked 74th of 1,249 life insurers by admitted assets;
156th of 1,034 by insurance in force; and 171st of 1,183 by net premiums
written.
Following the January 1996 change in control, certain of KILICO's financial
strength ratings and claims-paying ability ratings were upgraded. In October
1997, Zurich announced a planned merger with B.A.T. Industries plc. In
connection with that merger, Zurich's and KILICO's claims-paying ability ratings
were placed on ratings watch with negative implications by certain rating
agencies. KILICO's current ratings and their current status are as follows:
<TABLE>
<CAPTION>
CURRENT RATING CURRENT STATUS
-------------- --------------
<S> <C> <C>
A.M. Best Company............... A (Excellent) Affirmed
Moody's Investors Service....... Aa3 (Excellent) Under review -- possible downgrade
Duff & Phelps Credit Rating
Co............................ AA (Very High) Rating watch -- developing
Standard & Poor's............... AA- (Excellent) Affirmed
</TABLE>
EMPLOYEES
At December 31, 1997, KILICO utilized the services of approximately 620
employees of FKLA, which are also shared with FLA and Zurich Life Insurance
Company of America ("ZLICA"). On January 5, 1996, KILICO, FKLA, FLA and ZLICA
began to operate under the trade name Zurich Kemper Life. On July 1, 1996,
Kemper acquired 100 percent of the issued and outstanding common stock of ZLICA
from Zurich.
REGULATION
KILICO is generally subject to regulation and supervision by the insurance
departments of Illinois and other jurisdictions in which KILICO is licensed to
do business. These departments enforce laws and regulations designed to assure
that insurance companies maintain adequate capital and surplus, manage
investments according to prescribed character, standards and limitations and
comply with a variety of operational standards. The departments also make
periodic examinations of individual companies and review annual and other
reports on the financial condition of each company operating within their
respective jurisdictions. Regulations, which often vary from state to state,
cover most aspects of the life insurance business, including market practices,
forms of policies and accounting and financial reporting procedures.
Insurance holding company laws enacted in many states grant additional powers to
state insurance commissioners to regulate acquisition of and by domestic
insurance companies, to require periodic disclosure of relevant information and
to regulate certain transactions with related companies. These laws also impose
prior approval requirements for certain transactions with affiliates and
generally regulate dividend distributions by an insurance subsidiary to its
holding company parent.
In addition, certain of KILICO's variable life insurance and annuity products,
and the related separate accounts, are subject to regulation by the Securities
and Exchange Commission (the "SEC").
KILICO believes it is in compliance in all material respects with all applicable
regulations.
INVESTMENTS
A changing marketplace has affected the life insurance industry and to
accommodate customers' increased preference for safety over higher yields,
KILICO has systematically reduced its investment risk and strengthened its
capital position.
KILICO's cash flow is carefully monitored and its investment program is
regularly and systematically planned to provide funds to meet all obligations
and to optimize investment return. For securities, portfolio management is
handled by an affiliated company, Scudder Kemper Investments, Inc. ("SKI"),
formerly Zurich Kemper Investments, Inc. ("ZKI"), and its subsidiaries and
affiliates, with KILICO's real estate-related investments being handled by a
majority-owned Kemper real estate subsidiary. Investment policy is directed by
KILICO's board of directors. KILICO's investment strategies take into account
the nature of each annuity and life insurance product, the respective crediting
rates and the estimated future policy benefit maturities. See "INVESTMENTS"
below.
38
<PAGE> 43
FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this report
and elsewhere (such as in other filings by KILICO with the Securities and
Exchange Commission, press releases, presentations by KILICO or its management
or oral statements) relative to markets for KILICO's products and trends in
KILICO's operations or financial results, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect," "intend,"
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (i) general economic conditions and other factors, including
prevailing interest rate levels and stock market performance, which may affect
the ability of KILICO to sell its products, the market value of KILICO's
investments and the lapse rate and profitability of KILICO's contracts; (ii)
KILICO's ability to achieve anticipated levels of operational efficiencies
through certain cost-saving initiatives; (iii) customer response to new
products, distribution channels and marketing initiatives; (iv) mortality,
morbidity, and other factors which may affect the profitability of KILICO's
insurance products; (v) changes in the Federal income tax laws and regulations
which may affect the relative tax advantages of some of KILICO's products; (vi)
increasing competition which could affect the sale of KILICO's products; (vii)
regulatory changes or actions, including those relating to regulation of
financial services affecting (among other things) bank sales and underwriting of
insurance products, regulations of the sale and underwriting and pricing of
insurance products; and (viii) the risk factors or uncertainties listed from
time to time in KILICO's other filings with the Securities and Exchange
Commission.
PROPERTIES
KILICO shares 99,000 sq. ft. of office space leased by FKLA from Lumbermens
Mutual Casualty Company, a former affiliate, ("Lumbermens"), located in Long
Grove, Illinois.
LEGAL PROCEEDINGS
KILICO has been named as defendant in certain lawsuits incidental to its
insurance business. Based upon the advice of legal counsel, KILICO's management
believes that the resolution of these various lawsuits will not result in any
material adverse effect on KILICO's consolidated financial position.
39
<PAGE> 44
SELECTED FINANCIAL DATA
The following table sets forth selected financial information for KILICO for the
five years ended December 31, 1997 and for the opening balance sheet as of the
acquisition date, January 4, 1996. Such information should be read in
conjunction with KILICO's consolidated financial statements and notes thereto
included in this Prospectus. All amounts are shown in millions.
<TABLE>
<CAPTION>
PREACQUISITION
----------------------------------
DECEMBER 31
DECEMBER 31 DECEMBER 31 JANUARY 4 ----------------------------------
1997 1996 1996 1995 1994 1993
----------- ----------- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE.................. $ 425.5 $ 356.2 $ -- $ 68.1(1) $ 330.5 $ 337.4
========= ======== ======== ======== ======== ========
NET INCOME EXCLUDING REALIZED
INVESTMENT RESULTS........... $ 31.9 $ 25.6 $ -- $ 74.2 $ 61.9 $ 33.7
========= ======== ======== ======== ======== ========
NET INCOME (LOSS).............. $ 38.7 $ 34.4 $ -- $ (133.0)(1) $ 26.4 $ 14.0
========= ======== ======== ======== ======== ========
FINANCIAL SUMMARY
Total separate account
assets....................... $ 5,122.0 $2,127.2 $1,761.1 $1,761.1 $1,508.0 $1,499.5
========= ======== ======== ======== ======== ========
Total assets................... $10,589.7 $7,717.9 $7,682.7 $7,581.7 $7,537.1 $8,113.7
========= ======== ======== ======== ======== ========
Future policy benefits......... $ 3,856.9 $4,256.5 $4,585.1 $4,573.2 $4,843.7 $5,040.0
========= ======== ======== ======== ======== ========
Stockholder's equity........... $ 865.6 $ 751.0 $ 745.6 $ 605.9 $ 434.0 $ 654.6
========= ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Total revenue and net income (loss) for 1995 were adversely impacted by real
estate-related investment losses. Such losses reflect a change in KILICO's
strategy with respect to its real estate-related investments in connection
with the January 4, 1996 acquisition of Kemper by the Zurich-led investor
group. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
40
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As discussed in the note captioned "Summary of Significant Accounting Policies"
in the notes to the consolidated financial statements, Kemper, and therefore
KILICO, were acquired on January 4, 1996, by an investor group led by Zurich. In
connection with the acquisition, KILICO's assets and liabilities were marked to
their respective fair values as of the acquisition date in conformity with the
purchase accounting method required under generally accepted accounting
principles.
KILICO's financial statements as of January 4, 1996, and as of and for the year
ended December 31, 1996, have been adjusted to reflect the effects of such
purchase accounting adjustments. KILICO's financial statements for the year
ended December 31, 1995 has been prepared on an historical cost basis and do not
reflect such purchase accounting adjustments.
RESULTS OF OPERATIONS
KILICO recorded net income of $38.7 million in 1997, compared with net income of
$34.4 million in 1996 and with a net loss of $133.0 million in 1995. The
increase in net income in 1997, compared with 1996, was due to a significant
increase in operating earnings before the amortization of goodwill, offset by an
increase in goodwill amortization and a slight decline in net realized capital
gains. The increase in net income in 1996, compared with 1995, was primarily due
to a decrease in the level of real estate-related realized investment losses.
KILICO's strategy with respect to its real estate-related investments changed
dramatically as of year-end 1995 in connection with the Zurich-led investor
group's acquisition of Kemper. This change, as further discussed below, resulted
in significant reductions in real estate-related investments and significant
realized capital losses in the second half of 1995.
The following table reflects the components of net income (loss):
NET INCOME (LOSS)
(in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
PREACQUISITION
--------------
1997 1996 1995
------ ------ --------------
<S> <C> <C> <C>
Operating earnings before
amortization of goodwill.... $ 47.2 $ 35.8 $ 74.2
Amortization of goodwill...... (15.3) (10.2) --
Net realized investment gains
(losses).................... 6.8 8.8 (207.2)
------ ------ -------
Net income (loss)... $ 38.7 $ 34.4 $(133.0)
====== ====== =======
</TABLE>
The following table reflects the major components of realized investment results
included in net income (loss) above. (See "INVESTMENTS" below, and the note
captioned "Invested Assets and Related Income" in the notes to the consolidated
financial statements.)
REALIZED INVESTMENT RESULTS, AFTER TAX
(in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
PREACQUISITION
--------------
1997 1996 1995
------ ------ --------------
<S> <C> <C> <C>
Real estate-related gains
(losses).................... $ 12.8 $ 11.4 $(211.6)
Fixed maturity write-downs.... (2.8) (.9) (4.7)
Other gains (losses), net..... (3.2) (1.7) 9.1
------ ------ -------
Total............... $ 6.8 $ 8.8 $(207.2)
====== ====== =======
</TABLE>
The higher level of real estate-related losses in 1995, compared with both 1997
and 1996, reflected realized capital losses predominately from real
estate-related bulk sale transactions in December 1995, as well as a higher
level of write-downs on real estate-related investments. These sales and
write-downs in 1995, reflect Zurich's and Insurance Partners' strategies,
adopted by KILICO, with respect to the disposition of real estate-related
41
<PAGE> 46
investments. Other realized investment gains and losses for 1997, 1996 and 1995
relate primarily to the sale of fixed maturity investments. The fixed maturity
losses generated in 1997 and 1996 arose primarily from the sale of fixed
maturity investments, consisting of lower yielding U.S. Treasury bonds,
collateralized mortgage obligations and corporate bonds, related to ongoing
repositionings of KILICO's fixed maturity investment portfolio. The proceeds
from the repositionings, together with cash and short-term investments, were
reinvested into higher yielding corporate bonds and asset-backed securities in
1997 and 1996. Real estate-related gains in both 1997 and 1996, continue to
reflect KILICO's strategy to reduce its exposure to real estate-related
investments, as well as improving real estate market conditions in most areas of
the country. Fixed maturity write-downs in 1997 primarily reflect
other-than-temporary declines in value of certain U.S. dollar denominated fixed
maturity investments which have significant exposure to countries in Southeast
Asia. (See "INVESTMENTS" below.)
Operating earnings before the amortization of goodwill increased to $47.2
million in 1997, compared with $35.8 million in 1996. Operating earnings
increased in 1997 before the amortization of goodwill, compared with 1996,
primarily due to an increase in spread revenue (investment income earned less
interest credited), an increase in separate account fees and charges, an
increase in premium income and an increase in the deferral of insurance
acquisition costs, offset by an increase in claims incurred and other
policyholder benefits, taxes, licenses and fees, commissions, operating expenses
and an increase in the amortization of the value of business acquired.
Operating earnings before the amortization of goodwill decreased to $35.8
million in 1996, compared with $74.2 million in 1995, primarily due to purchase
accounting adjustments which reduced investment income and increased expenses.
Investment income was lower in 1996, compared with 1995, primarily reflecting
purchase accounting adjustments related to the amortization of premiums on fixed
maturity investments. Under purchase accounting, the fair value of KILICO's
fixed maturity investments as of January 4, 1996 became KILICO's new cost basis
in such investments. The difference between the new cost basis and original par
is then amortized against investment income over the remaining effective lives
of the fixed maturity investments. As a result of the interest rate environment
as of January 4, 1996, the market value of KILICO's fixed maturity investments
was approximately $133.9 million greater than original par. The amortization of
such premiums reduced investment income by approximately $14.1 million in 1997
and $22.7 million in 1996, compared with 1995.
Investment income and interest credited also declined in 1997, compared with
1996 and 1995, as a result of a decrease in both total invested assets and
liabilities for future policy benefits to policyholders. Such decreases were the
result of surrender and withdrawal activity over the last three years.
Investment income was also negatively impacted during 1996, compared with 1995,
by a higher level of cash and short-term investments held in the first quarter
of 1996. The increase in cash and short-term investments in the first quarter of
1996 was caused in part by the cash proceeds received from bulk sales of real
estate-related investments in late December 1995.
Investment income was positively impacted in 1997 and 1996 from the benefits of
capital contributions to KILICO and from the above-mentioned repositionings of
KILICO's investment portfolio.
42
<PAGE> 47
The following table reflects KILICO's sales.
SALES
(in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
PREACQUISITION
--------------
1997 1996 1995
-------- ------ --------------
<S> <C> <C> <C>
Annuities:
General account................ $ 145.7 $140.6 $247.6
Separate account............... 259.8 254.6 151.1
-------- ------ ------
Total annuities............. 405.5 395.2 398.7
-------- ------ ------
Life Insurance:
Separate account bank-owned
variable universal life
("BOLI").................... 2,700.0 -- --
Separate account variable
universal life.............. 8.6 .2 --
Term life...................... 22.2 7.8 .2
Interest-sensitive life........ -- .6 .2
-------- ------ ------
Total life.................. 2,730.8 8.6 .4
-------- ------ ------
Total sales....... $3,136.3 $403.8 $399.1
======== ====== ======
</TABLE>
Sales of annuity products consist of total deposits received. General account
annuity sales increased only slightly in 1997, compared with 1996, due to the
current low interest rate environment. The decrease in 1996 general account
(fixed annuity) sales, compared with 1995, is reflective of the declining
interest rate environments and the stock and bond markets during 1996 and 1995,
respectively, which made variable annuities more attractive to consumers in
1996, and fixed annuities more attractive to consumers during 1995.
The increase in separate account (variable sales) in 1997, compared with 1996
and 1995, was in part due to improvements in KILICO's financial strength and
performance ratings in January 1996, the addition of new separate account
investment fund options, the addition of new investment fund managers and a
strong overall underlying stock and bond market. Sales of variable annuities not
only increase administrative fees earned but they also pose minimal investment
risk for KILICO, as policyholders invest in one or more of several underlying
investment funds which invest in stocks and bonds. KILICO believes that the
increase in its financial strength and performance ratings in January 1996
together with KILICO's association with Zurich, will continue to assist in
KILICO's future sales efforts.
Beginning in late 1995, KILICO introduced a registered flexible individual
variable life insurance product and in 1997 KILICO introduced several
non-registered variable universal life insurance contracts, BOLI and a series of
individual universal life insurance contracts. Sales of these separate account
variable products, like variable annuities, pose minimal investment risk for
KILICO as policyholders also invest in one or more underlying investment funds
which invest in stocks and bonds. KILICO receives premium tax and DAC tax
expense loads from certain contract holders, as well as administrative fees and
cost of insurance charges which compensate KILICO for providing life insurance
coverage to the contractholders in excess of their cash surrender values. Face
amount of new variable universal life insurance business issued amounted to
$59.6 billion in 1997, compared with $4.0 million in 1996.
Beginning in 1995, KILICO began to sell low-cost term life insurance products
offering initial level premiums for 5, 10, 15 and 20 years in order to balance
its product mix and asset-liability structure. In 1997 and 1996, KILICO also
assumed $21.1 million and $7.3 million, respectively, of term life insurance
premiums from FKLA. (See the note captioned "Reinsurance" in the notes to the
consolidated financial statements.) Excluding the amounts assumed from FKLA,
KILICO's total term life sales, including new and renewal premiums, amounted to
$1.1 million in 1997, compared with $565 thousand in 1996 and $236 thousand in
1995. Face amount of new term business issued during 1997, 1996 and 1995
amounted to approximately $278 million, $187 million and $120 million,
respectively.
Included in separate account fees and charges are administrative fees received
from KILICO's separate account products of $31.0 million in 1997, compared with
$25.3 million and $21.9 million in 1996 and 1995, respectively.
43
<PAGE> 48
Administrative fee revenue increased in each of the last three years due to
growth in average separate account assets.
Also included in separate account fees and charges in 1997 are cost of insurance
charges related to variable universal life insurance, primarily BOLI, of $27.6
million, of which $24.3 million of such fees were ceded to EPICENTRE. (See the
note captioned "Reinsurance" in the notes to the consolidated financial
statements.) Separate account fees and charges in 1997 also include premium tax
expense loads of $51.1 million related to BOLI.
Other income includes surrender charge revenue of $5.2 million in 1997, compared
with $5.4 million and $7.7 million in 1996 and 1995, respectively, as total
general account and separate account policyholder surrenders and withdrawals
decreased in 1997 and 1996, compared with 1995. The decrease in surrender charge
revenue in 1997, compared with 1996 and 1995 also reflects that 49 percent of
KILICO's fixed and variable annuity liabilities, excluding BOLI, at December 31,
1997 are subject to minimal (5 percent or less) or no surrender charges,
compared with 57 percent in 1996 and 56 percent in 1995. Also included in other
income in 1995 is a ceding commission experience adjustment which resulted in
income of $4.4 million related to certain reinsurance transactions entered into
by KILICO during 1992. (See the note captioned "Reinsurance" in the notes to the
consolidated financial statements.)
POLICYHOLDER SURRENDERS, WITHDRAWALS AND DEATH BENEFITS
(in millions)
<TABLE>
<CAPTION>
PREACQUISITION
--------------
1997 1996 1995
------ ------ --------------
<S> <C> <C> <C>
General account................. $703.1 $652.0 $755.9
Separate account................ 236.2 196.7 205.6
------ ------ ------
Total...................... $939.3 $848.7 $961.5
====== ====== ======
</TABLE>
Reflecting the current interest rate environment and other competitive market
factors, KILICO adjusts its crediting rates on interest-sensitive products over
time in order to manage spread revenue and policyholder surrender and withdrawal
activity. KILICO can also improve spread revenue over time by increasing
investment income. Beginning in late 1994, as a result of rising interest rates
and other competitive market factors, KILICO began to increase crediting rates
on certain interest-sensitive products which adversely impacted spread income.
The declines in interest rates during the last three quarters of 1995, however,
and the current interest rate environment during 1996 and 1997, have mitigated
at present, competitive pressures to increase existing renewal crediting rates
further.
General account surrenders, withdrawals and death benefits increased $51.1
million in 1997, compared with 1996, reflecting an increase of $18.2 million in
claims incurred as a result of the aforementioned term life insurance business
assumed from FKLA as well as an increase in overall surrenders and withdrawals
in 1997, compared with 1996. KILICO expects that the level of surrender and
withdrawal activity experienced in 1997 should remain at a similar level in 1998
given current projections for relatively stable interest rates.
Taxes licenses and fees increased in 1997 to $52.6 million of which $51.1
million of this increase was related to premium taxes on BOLI. Excluding the
taxes due on BOLI, of which KILICO received a corresponding expense load in
separate account fees and other charges, taxes licenses and fees amounted to
$1.5 million, compared with $2.2 million in 1996 and $6.9 million in 1995.
Taxes, licenses and fees were lower in 1997 and 1996, compared with 1995,
primarily reflecting the level of guaranty fund assessments in each of those
years. Expenses for such assessments totaled $1.2 million, $601 thousand, and
$5.8 million in 1997, 1996 and 1995, respectively. (See "Guaranty association
assessments" above.)
Commissions expense was higher in 1997, compared with both 1996 and 1995, due to
an increase in total sales, excluding BOLI.
Operating expenses declined in 1995, primarily as a result of a decrease in
headcount resulting from the uncertainty concerning KILICO's ownership.
Operating expenses increased in 1997 and 1996, compared with 1995, as a result
of restaffing after the completion of the merger, an increase in evidence costs
related to new term life sales and an increase in data processing expenses. Data
processing expenses increased to $10.8 million in 1997, compared with $4.1
million in 1996 and $3.7 million in 1995, primarily due to infrastructure
improvements related to new product development, a new general ledger and
accounts payable system, development of a data
44
<PAGE> 49
warehouse and costs related to bringing KILICO's systems in compliance with the
year 2000. Data processing expenses related to bringing KILICO's systems in
compliance with the year 2000 amounted to $88 thousand in 1997. KILICO currently
anticipates that it will cost an additional $895 thousand to bring all remaining
systems in compliance. (See "Year 2000 Compliance" above.)
Operating earnings were positively impacted by the deferral of insurance
acquisition costs in 1997, compared with 1996 and 1995. The deferral of
insurance acquisition costs increased in 1997, compared with both 1996 and 1995
reflecting an increase in commissions expense and operating expenses related
directly to the increase in production of new business.
Operating earnings were negatively impacted by the amortization of insurance
acquisition costs and the amortization of the value of business acquired in 1997
and 1996, compared with the amortization of insurance acquisition costs in 1995.
Deferred insurance acquisition costs, and the related amortization thereof, for
policies sold prior to January 4, 1996 have been replaced under purchase
accounting by the value of business acquired. The value of business acquired
reflects the present value of the right to receive future cash flows from
insurance contracts existing at the date of acquisition. The amortization of the
value of business acquired is calculated assuming an interest rate equal to the
liability or contract rate on the value of the business acquired. (See note
captioned "Summary of Significant Accounting Policies" in the notes to the
consolidated financial statements.) Deferred insurance acquisition costs are
established on all new policies sold after January 4, 1996.
The amortization of the value of business acquired increased in 1997, compared
with 1996, as a result of an increase in net operating earnings related to the
business previously acquired. The amortization of the value of business acquired
in 1997 and 1996 was also adversely affected by net realized capital gains in
1997 and 1996, while the net amortization of insurance acquisition costs in
1995, was positively affected by realized capital losses. Net realized capital
gains tend to accelerate the amortization of both the value of business acquired
and deferred insurance acquisition costs as they tend to decrease KILICO's
projected future estimated gross profits. Net realized capital losses tend to
defer such amortization into future periods as they tend to increase KILICO's
projected future estimated gross profits.
The difference between the cost of acquiring KILICO and the net fair value of
KILICO's assets and liabilities as of January 4, 1996 was recorded as goodwill.
During 1996, KILICO began to amortize goodwill on a straight-line basis over
twenty-five years. In December of 1997, KILICO 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, KILICO recorded an
increase in amortization expense of $5.1 million during 1997. The amortization
of goodwill increased expenses by $10.2 million in 1996, compared with 1995.
45
<PAGE> 50
INVESTMENTS
KILICO's principal investment strategy is to maintain a balanced,
well-diversified portfolio supporting the insurance contracts written. KILICO
makes shifts in its investment portfolio depending on, among other factors, its
evaluation of risk and return in various markets, consistency with KILICO's
business strategy and investment guidelines approved by the board of directors,
the interest rate environment, liability durations and changes in market and
business conditions.
INVESTED ASSETS AND CASH
(in millions)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
----------- -----------
<S> <C> <C> <C> <C>
Cash and short-term investments............................. $ 260 5.8% $ 74 1.6%
Fixed maturities:
Investment-grade:
NAIC(1) Class 1........................................ 3,004 67.1 3,231 71.5
NAIC(1) Class 2........................................ 651 14.5 621 13.7
Below investment grade:
Performing............................................. 14 .3 13 .3
Nonperforming.......................................... -- -- 1 --
Joint venture mortgage loans................................ 73 1.6 111 2.4
Third-party mortgage loans.................................. 103 2.3 107 2.4
Other real estate-related investments....................... 44 1.0 50 1.1
Policy loans................................................ 282 6.3 288 6.4
Equity securities........................................... 25 .6 10 .2
Other....................................................... 21 .5 14 .4
------ ----- ------ -----
Total(2).......................................... $4,477 100.0% $4,520 100.0%
====== ===== ====== =====
</TABLE>
- ---------------
(1) National Association of Insurance Commissioners ("NAIC").
-- Class 1 = A- and above
-- Class 2 = BBB- through BBB+
(2) See the note captioned "Financial Instruments--Off-Balance-Sheet Risk" in
the notes to the consolidated financial statements.
FIXED MATURITIES
KILICO is carrying its fixed maturity investment portfolio, which it considers
available for sale, at estimated fair value, with the aggregate unrealized
appreciation or depreciation being recorded as a separate component of
stockholder's equity, net of any applicable income tax expense. The aggregate
unrealized appreciation (depreciation) on fixed maturities at December 31, 1997
and 1996 was $24.6 million and $(63.2) million, respectively, compared with no
unrealized appreciation or depreciation, at January 4, 1996 as a result of
purchase accounting adjustments. KILICO does not record a net deferred tax
benefit for the aggregate unrealized depreciation on investments. Fair values
are sensitive to movements in interest rates and other economic developments and
can be expected to fluctuate, at times significantly, from period to period.
At December 31, 1997, investment-grade fixed maturities and cash and short-term
investments accounted for 87.4 percent of KILICO's invested assets and cash,
compared with 86.8 percent at December 31, 1996. Approximately 54.0 percent of
KILICO's NAIC Class 1 bonds were rated AAA or equivalent at year-end 1997,
compared with 58.4 percent at December 31, 1996.
Approximately 35.1 percent of KILICO'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 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. KILICO has not made any investments in interest-only
or other similarly volatile tranches of mortgage-backed securities. KILICO's
mortgage-backed investments are generally of AAA credit quality, and the markets
for these investments have been and are expected to remain liquid. KILICO plans
to continue to reduce its holding of such investments over time.
46
<PAGE> 51
As a result of the previously discussed repositionings of KILICO's fixed
maturity portfolio, approximately 10.8 percent and 8.8 percent of KILICO's
investment-grade fixed maturities at December 31, 1997 and 1996, respectively,
consisted of corporate asset-backed securities. The majority of KILICO'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 ("CMBs") (10.7%).
Future investment income from mortgage-backed securities and other asset-backed
securities may be affected by the timing of principal payments and the yields on
reinvestment alternatives available at the time of such payments. As a result of
purchase accounting adjustments to fixed maturities, most of KILICO's
mortgage-backed securities are carried at a premium over par. Prepayment
activity resulting from a decline in interest rates on such securities purchased
at a premium would accelerate the amortization of the premiums which would
result in reductions of investment income related to such securities.
At December 31, 1997 and 1996 KILICO had unamortized premiums and discounts
related to mortgage-backed and asset-backed securities as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1997 1996
---- ----
<S> <C> <C>
Unamortized premiums........................................ $19.6 $24.7
===== =====
Unamortized discounts....................................... $ 5.2 $ 5.7
===== =====
</TABLE>
KILICO believes that as a result of the purchase accounting adjustments and the
current interest rate environment, anticipated prepayment activity in 1998 is
expected to result in reductions to future investment income similar to or
greater than those reductions experienced by KILICO in 1997.
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 table below provides information about KILICO's mortgage-backed and
asset-backed securities that are sensitive to changes in interest rates. The
expected maturity dates have been calculated on a security by security basis
using prepayment assumptions obtained from a survey conducted by a securities
information service. These assumptions are consistent with the current interest
rate and economic environment.
<TABLE>
<CAPTION>
CARRYING FAIR VALUE
VALUE AT EXPECTED MATURITY DATE AT
DECEMBER 31, --------------------------------------------------------- DECEMBER 31,
(IN MILLIONS) 1997 1998 1999 2000 2001 2002 THEREAFTER TOTAL 1997
------------- ------------ ---- ---- ---- ---- ---- ---------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Mortgage-backed bonds... $1,283.6 $219.1 $232.5 $145.1 $92.2 $64.5 $530.2 $1,283.6 $1,283.6
Average yield......... 6.58% 6.60% 6.61% 6.64% 6.64% 6.63% 6.67% 6.58% 6.58%
Asset-backed bonds...... $ 353.0 $ 18.9 $ 16.9 $ 30.8 $35.5 $47.2 $203.7 $ 353.0 $ 353.0
Average yield......... 6.81% 6.85% 7.04% 7.05% 7.15% 7.13% 7.20% 6.81% 6.81%
CMBs.................... $ 42.2 $ 0.3 $ 0.4 $ 0.4 $ 0.4 $ 8.0 $ 32.7 $ 42.2 $ 42.2
Average yield......... 6.64% 6.64% 6.64% 6.64% 6.64% 6.63% 6.63% 6.64% 6.64%
-------- -------- --------
$1,678.8 $1,678.8 $1,678.8
======== ======== ========
</TABLE>
47
<PAGE> 52
<TABLE>
<CAPTION>
CARRYING FAIR VALUE
VALUE AT EXPECTED MATURITY DATE AT
DECEMBER 31, ------------------------------------------------------- DECEMBER 31,
(IN MILLIONS) 1996 1997 1998 1999 2000 2001 THEREAFTER TOTAL 1996
------------- ------------ ---- ---- ---- ---- ---- ---------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Mortgage-backed bonds... $1,402.0 $161.4 $239.0 $261.4 $166.1 $ 61.8 $512.3 $1,402.0 $1,402.0
Average yield......... 6.83% 6.83% 6.83% 6.83% 6.83% 6.83% 6.83% 6.83% 6.83%
Asset-backed
bonds................. $ 339.3 $ 31.4 $ 38.1 $ 36.6 $ 44.4 $ 51.0 $137.8 $ 339.3 $ 339.3
Average yield......... 6.82% 6.82% 6.82% 6.82% 6.82% 6.82% 6.82% 6.82% 6.82%
-------- -------- --------
$1,741.3 $1,741.3 $1,741.3
======== ======== ========
</TABLE>
The current weighted average maturity of the mortgage-backed and asset-backed
securities at December 31, 1997, is 3.8 years. A 200 basis point increase in
interest rates would extend the weighted average maturity by approximately 1.0
year, while a 200 basis point decrease in interest rates would decrease the
weighted average maturity by approximately 1.3 years.
The weighted average maturity of the mortgage-backed and asset-backed securities
at December 31, 1996, was 4.6 years. A 200 basis point increase in interest
rates would have extended the weighted average maturity by approximately 1.7
years, while a 200 basis point decrease in interest rates would have decreased
the weighted average maturity by approximately 1.3 years.
As of December 31, 1997, KILICO had $54.7 million of U.S. dollar denominated
fixed maturity investments, after write-downs for other-than-temporary declines
in value, which have significant exposure to countries in Southeast Asia.
Approximately $5.6 million of such securities were from Korea, $21.9 million
were from Hong Kong, China, $20.4 million were from Malaysia and the remainder
of such bonds were from a United Kingdom bank with most of its loans issued to
countries in Southeast Asia. Write-downs on such securities, which were
considered to be other-than-temporary, as of December 31, 1997 amounted to $3.1
million. There can be no assurance that the current estimate for
other-than-temporary declines in value for such securities will prove accurate
over time due to changing economic conditions in Southeast Asia.
Below investment-grade securities holdings (NAIC classes 3 through 6),
representing securities of 9 issuers at December 31, 1997, totaled 0.3 percent
of cash and invested assets at both December 31, 1997 and December 31, 1996.
(See note captioned "Invested Assets and Related Income" in the notes to the
consolidated financial statements.) Below investment-grade securities are
generally unsecured and often subordinated to other creditors of the issuers.
These issuers may have relatively higher levels of indebtedness and be more
sensitive to adverse economic conditions than investment-grade issuers. KILICO
has significantly reduced its exposure to below investment-grade securities
since 1991. This strategy takes into account the more conservative nature of
today's consumer and the resulting demand for higher-quality investments in the
life insurance and annuity marketplace. KILICO expects to increase its holdings
in this category selectively during 1998.
REAL ESTATE-RELATED INVESTMENTS
The $220.0 million real estate-related portfolio held by KILICO, consisting of
joint venture and third-party mortgage loans and other real estate-related
investments, constituted 4.9 percent of cash and invested assets at December 31,
1997, compared with $267.7 million, or 5.9 percent, at December 31, 1996. The
decrease in real estate-related investments during 1997 was primarily due to
asset sales.
As reflected in the "Real estate portfolio" table below, KILICO has continued to
fund both existing projects and legal commitments. The future legal commitments
were $75.3 million at December 31, 1997. This amount represented a net decrease
of $122.1 million since December 31, 1996, primarily due to sales in 1997. As of
December 31, 1997, KILICO expects to fund approximately $21.2 million of these
legal commitments, along with providing capital to existing projects. The
disparity between total legal commitments and the amount expected to be funded
relates principally to standby financing arrangements that provide credit
enhancements to certain tax-exempt bonds, which KILICO does not presently expect
to fund. The total legal commitments, along with estimated working capital
requirements, are considered in KILICO's evaluation of reserves and write-downs.
(See note captioned "Financial Instruments -- Off-Balance-Sheet Risk" in the
notes to the consolidated financial statements.)
48
<PAGE> 53
Excluding the $4.0 million of real estate owned and $19.2 million of net equity
investments in joint ventures, KILICO's real estate loans totaled $196.8 million
at December 31, 1997, after reserves and write-downs. Of this amount, $155.0
million are on accrual status with a weighted average interest rate of
approximately 8.82 percent. Of these accrual loans, 9.7 percent have terms
requiring current periodic payments of their full contractual interest, 53.4
percent require only partial payments or payments to the extent of cash flow of
the borrowers, and 36.9 percent defer all interest to maturity.
The equity investments in real estate at December 31, 1997 consisted of KILICO's
other equity investments in joint ventures. These equity investments include
KILICO's share of periodic operating results. KILICO, as an equity owner or
affiliate thereof, has the ability to fund, and historically has elected to
fund, operating requirements of certain joint ventures.
REAL ESTATE PORTFOLIO
(in millions)
<TABLE>
<CAPTION>
MORTGAGE LOANS OTHER REAL ESTATE-RELATED INVESTMENTS
---------------- ---------------------------------------
JOINT THIRD- OTHER REAL ESTATE EQUITY
VENTURE PARTY LOANS(2) OWNED INVESTMENTS TOTAL
------- ------ --------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.............. $111.0 $106.6 $ 30.9 $ 7.5 $11.7 $267.7(1)
Additions (deductions):
Fundings.................................. 11.8 -- -- -- -- 11.8
Interest added to principal............... 5.6 .7 -- -- -- 6.3
Sales/paydowns/distributions.............. (47.9) (13.8) (10.4) (4.1) (3.0) (79.2)
Operating gain............................ -- -- -- -- .8 .8
Transfers................................. (9.1) 9.1 -- -- -- --
Realized investments gains................ 7.6 .4 2.2 .7 8.8 19.7
Other transactions, net................... (6.3) -- (1.6) (.1) .9 (7.1)
------ ------ ------ ----- ----- ------
Balance at December 31, 1997.............. $ 72.7 $103.0 $ 21.1 $ 4.0 $19.2 $220.0(3)
====== ====== ====== ===== ===== ======
</TABLE>
- ---------------
(1) Net of $11.8 million reserve and write-downs. Excludes $9.7 million of real
estate-related accrued interest.
(2) The other real estate loans were notes receivable evidencing financing,
primarily to joint ventures. These loans were issued by KILICO generally to
provide financing for Kemper's or KILICO's joint ventures for various
purposes.
(3) Net of $9.2 million reserve and write-downs. Excludes $9.5 million of real
estate-related accrued interest.
REAL ESTATE CONCENTRATIONS AND OUTLOOK
KILICO's real estate portfolio is distributed by geographic location and
property type. However, KILICO has concentration exposures in certain states and
in certain types of properties. In addition to these exposures, KILICO also has
exposures to certain real estate developers and partnerships. (See notes
captioned "Unconsolidated Investees" and "Concentration of Credit Risk" in the
notes to the consolidated financial statements.)
As a result of KILICO's ongoing strategy to reduce its exposure to real
estate-related investments, as of December 31, 1997, KILICO had three remaining
properties which account for approximately 83.2 percent of KILICO's $220.0
million real estate-related portfolio.
The largest of these investments at December 31, 1997 amounted to $88.2 million
and consisted of second mortgages on nine hotel properties and two office
buildings in which Patrick M. Nesbitt or his affiliates, a third-party real
estate developer, have ownership interests. These hotels and office buildings
are geographically dispersed and the current market values of the underlying
properties substantially exceed the balances due on KILICO's mortgages. These
loans are on accrual status.
KILICO's loans to a master limited partnership (the "MLP") between subsidiaries
of Kemper and subsidiaries of Lumbermens, amounted to $60.5 million at December
31, 1997. The MLP's underlying investment primarily consists of a water
development project located in California's Sacramento River Valley. This
project is currently in the final stages of a permit process with various
Federal and California State agencies which will determine the long-term
economic viability of the project. KILICO currently anticipates that the permit
process will be successfully completed in 1998. Loans to the MLP are on accrual
status.
The remaining significant real estate-related investment amounted to $34.4
million at December 31, 1997 and consisted of various zoned and unzoned
residential commercial lots located in Hawaii, as well as a sewer
49
<PAGE> 54
treatment plant which is located in the same geographical area as the
residential lots. The sewer treatment plant is currently under a sales contract
and is expected to close in early 1998. Due to certain negative zoning
restriction developments in January 1997 and a continuing economic slump in
Hawaii, KILICO has placed these real estate-related investments on nonaccrual
status as of December 31, 1996. KILICO is currently pursuing the zoning of all
remaining unzoned properties, as well as pursuing steps to sell all remaining
zoned properties. However, due to the state of Hawaii's economy, which has
lagged behind the economic expansion of most of the rest of the United States,
KILICO anticipates that it could be several additional years until all of
KILICO's investments in Hawaii are completely disposed of.
KILICO evaluates its real estate-related investments (including accrued
interest) using an estimate of the investments observable market price, net of
estimated costs to sell. (See note captioned "Summary of Significant Accounting
Policies" in the notes to the consolidated financial statements.) Because
KILICO's real estate review process includes estimates, there can be no
assurance that current estimates will prove accurate over time due to changing
economic conditions and other factors. KILICO's real estate-related investments
are expected to continue to decline further through future sales. KILICO's net
income could be materially reduced in future periods if real estate market
conditions worsen in areas where KILICO's portfolio is located, if Kemper's and
KILICO's plans with respect to certain projects change or if necessary
construction or zoning permits are not obtained.
The following table is a summary of KILICO's troubled real estate-related
investments:
TROUBLED REAL ESTATE-RELATED INVESTMENTS
(BEFORE RESERVES AND WRITE-DOWNS, EXCEPT FOR REAL ESTATE OWNED)
(in millions)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1997 1996
----------- -----------
<S> <C> <C>
Potential problem loans(1)...................... $ -- $ 3.2
Past due loans(2)............................... -- --
Nonaccrual loans (primarily Hawaiian
properties)(3)................................ 47.4 43.5
Real estate owned............................... 4.0 7.5
----- -----
Total................................. $51.4 $54.2
===== =====
</TABLE>
- ---------------
(1) These are real estate-related investments where KILICO, based on known
information, has serious doubts about the borrowers' abilities to comply
with present repayment terms and which KILICO anticipates may go into
nonaccrual, past due or restructured status.
(2) Interest more than 90 days past due but not on nonaccrual status.
(3) KILICO does not accrue interest on real estate-related investments when it
judges that the likelihood of collection of interest is doubtful. Loans on
nonaccrual status after reserves and write-downs amounted to $41.8 million
and $38.2 million at December 31, 1997 and December 31, 1996, respectively.
NET INVESTMENT INCOME
KILICO's pre-tax net investment income totaled $296.2 million in 1997, compared
with $299.7 million in 1996 and $348.4 million in 1995. Included in pre-tax net
investment income is KILICO's share of the operating losses from equity
investments in real estate consisting of other income less depreciation,
interest and other expenses. Such operating results exclude interest expense on
loans by KILICO which are on nonaccrual status. As previously discussed,
KILICO's net investment income in 1997 and 1996, compared with 1995, has been
negatively impacted by purchase accounting adjustments.
50
<PAGE> 55
KILICO's total foregone investment income before tax on both nonperforming fixed
maturity investments and nonaccrual real estate-related investments was as
follows:
FOREGONE INVESTMENT INCOME
(dollars in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
PREACQUISITION
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fixed maturities......................... $ .5 $ .7 $ .4
Real estate-related investments.......... 3.9 .5 20.5
---- ---- -----
Total............................. $4.4 $1.2 $20.9
==== ==== =====
Basis points............................. 10 3 43
==== ==== =====
</TABLE>
Foregone investment income from the nonaccrual of real estate-related
investments is net of KILICO's share of interest expense on these loans excluded
from KILICO's share of joint venture operating results. Based on the level of
nonaccrual real estate-related investments at December 31, 1997, KILICO
estimates foregone investment income in 1998 will be similar to the 1997 level.
Any increase in nonperforming securities, and either worsening or stagnant real
estate conditions, would increase the expected adverse effect on KILICO's future
investment income and realized investment results.
REALIZED INVESTMENT RESULTS
Reflected in net income (loss) are after-tax realized investment gains of $6.8
million and $8.8 million in 1997 and 1996, respectively, compared with after-tax
realized investment losses of $207.2 million in 1995. (See note captioned
"Invested Assets and Related Income" in the notes to the consolidated financial
statements.)
Unrealized gains and losses on fixed maturity investments are not reflected in
KILICO's net income (loss). These changes in unrealized value are included
within a separate component of stockholder's equity, net of any applicable
income taxes. If and to the extent a fixed maturity investment suffers an
other-than-temporary decline in value, however, such security is written down to
net realizable value, and the write-down adversely impacts net income.
KILICO regularly monitors its investment portfolio and as part of this process
reviews its assets for possible impairments of carrying value. Because the
review process includes estimates, there can be no assurance that current
estimates will prove accurate over time due to changing economic conditions and
other factors.
A valuation allowance has been established, and is evaluated as of each reported
period end, to reduce the deferred tax asset for investment losses to the amount
that, based upon available evidence, is in management's judgment more likely
than not to be realized. (See note captioned "Income Taxes" in the notes to the
consolidated financial statements.)
INTEREST RATES
In 1994, rapidly rising short-term interest rates resulted in a much flatter
yield curve as the Federal Reserve Board raised rates five times during the year
and once during first-quarter 1995. Interest rates subsequently declined through
the remainder of 1995. In 1996, however, interest rates again began to rise,
before declining again in 1997.
When maturing or sold investments are reinvested at lower yields in a low
interest rate environment, KILICO can adjust its crediting rates on fixed
annuities and other interest-bearing liabilities. However, competitive
conditions and contractual commitments do not always permit the reduction in
crediting rates to fully or immediately reflect reductions in investment yield,
which can result in narrower spreads.
A rising interest rate environment can increase net investment income as well as
contribute to both realized and unrealized fixed maturity investment losses,
while a declining interest rate environment can decrease net investment income
as well as contribute to both realized and unrealized fixed maturity investment
gains. Also, lower renewal crediting rates on annuities, compared with
competitors' higher new money crediting rates, have influenced certain annuity
holders to seek alternative products. KILICO mitigates this risk somewhat by
charging surrender fees, which decrease over time, when annuity holders withdraw
funds prior to maturity on certain annuity products. Approximately 49 percent of
KILICO's fixed and variable annuity liabilities as of December 31, 1997,
however, were no longer subject to significant surrender fees.
51
<PAGE> 56
LIQUIDITY AND CAPITAL RESOURCES
KILICO carefully monitors cash and short-term investments to maintain adequate
balances for timely payment of policyholder benefits, expenses, taxes and
policyholder's account balances. In addition, regulatory authorities establish
minimum liquidity and capital standards. The major ongoing sources of KILICO's
liquidity are deposits for fixed annuities, premium income, investment income,
separate account fees, other operating revenue and cash provided from maturing
or sold investments. (See the Policyholder surrenders and withdrawals table and
related discussion and "INVESTMENTS" above.)
RATINGS
Ratings are an important factor in establishing the competitive position of life
insurance companies. Rating organizations continue to review the financial
performance and condition of life insurers and their investment portfolios,
including those of KILICO. Any reductions in KILICO's claims-paying ability or
financial strength ratings could result in its products being less attractive to
consumers. Any reductions in KILICO's parent's ratings could also adversely
impact KILICO's financial flexibility.
Ratings reductions for Kemper or its subsidiaries and other financial events can
also trigger obligations to fund certain real estate-related commitments to take
out other lenders. In such events, those lenders can be expected to renegotiate
their loan terms, although they are not contractually obligated to do so.
Each rating is subject to revision or withdrawal at any time by the assigning
organization and should be evaluated independently of any other rating. (See
"Ranking and ratings" above.)
STOCKHOLDER'S EQUITY
Stockholder's equity totaled $865.6 million at December 31, 1997, compared with
$751.0 million at December 31, 1996, and $745.6 million at January 4, 1996. The
1997 increase in stockholder's equity was primarily due to net income of $38.7
million, a $45.0 million capital contribution and an increase in stockholder's
equity related to the change in unrealized appreciation of $60.1 million related
to KILICO's fixed maturity investment portfolio due to falling interest rates
during 1997, offset by a dividend of $29.2 million to Kemper. The 1996 increase
in stockholder's equity was primarily due to net income of $34.4 million and an
$18.4 million capital contribution, offset by a $47.4 million decrease in
stockholder's equity related to the change in the unrealized loss position of
KILICO's fixed maturity investment portfolio due to rising interest rates during
1996.
EMERGING ISSUES
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses).
This statement requires that all items required to be reported be displayed with
the same prominence as other financial statements. This statement is effective
for fiscal years beginning after December 31, 1997. The impact of implementation
is not expected to be material to KILICO's reported net income before reporting
comprehensive income. Comprehensive income, however, by design, could be
materially different from reported net income, as changes in unrealized
appreciation and depreciation of investments for example will now be included as
a component of reported comprehensive income. Full implementation of SFAS No.
130 is expected in the first quarter of 1998.
In June 1997, the FASB also issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
how to report information about operating segments. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. This statement is effective for fiscal years beginning
after December 31, 1997. Full implementation of SFAS No. 131 is expected in
December 1998 and the impact of implementation is not expected to be material to
KILICO.
In February 1998, the FASB issued SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS. SFAS No. 132 revises standards for
disclosures related to pension and other postretirement benefit plans. This
statement is effective for fiscal years beginning after December 31, 1997. Full
implementation of SFAS No. 132 is expected in December 1998 and the impact of
implementation is not expected to be material to KILICO.
52
<PAGE> 57
DIRECTORS AND EXECUTIVE OFFICERS OF KILICO
<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 1992. President and Director of Zurich Life Insurance Company of
America (ZLICA) and Zurich Direct, Inc. (ZD) since March
1996. Chairman of the Board and Director of Investors
Brokerage Services, Inc. (IBS) and Investors Brokerage
Services Insurance Agency, Inc. (IBSIA) since 1993. Chairman
of the Board of FKLA and FLA from April 1988 to January
1996. Chairman of the Board of KILICO from February 1992 to
January 1996. Executive Vice President and Director of
Kemper Corporation (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 1995. Executive Vice President of ZLICA and ZD since March 1996.
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.
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 January Senior Vice President of ZLICA since 1995. Senior Vice
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 Corporate FKLA and FLA since January 1996. Senior Vice President and
Development Officer since January Corporate Development Officer for ZLICA and ZD since March
1996. 1996. Senior Vice President of Human Resources of
Zurich-American Insurance Group from February 1992 to March
1996.
Phillip D. Meserve (47) Senior Vice President of FKLA, FLA, ZLICA and ZD since March
Senior Vice President since March 1997. Director of IBSIA and IBS since March and May, 1997,
1997 respectively. Managing Director of Equitable Distributors
from May 1996 to March 1997. Senior Vice President of
Banker's Trust from April 1995 to April 1996. Senior Vice
President of Fidelity Investments Insurance Services from
February 1992 to March 1995.
</TABLE>
53
<PAGE> 58
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
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. Corporate President of KILICO, FKLA and FLA since 1995. General
Secretary since January 1996. Counsel and Director of Government Affairs of FKLA and FLA
since 1992 and of KILICO since 1993. Senior Vice President,
General Counsel and Corporate Secretary of ZLICA since March
1996. Senior Vice President, General Counsel 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 January 1998. Vice President--Aetna Life Brokerage of Aetna Life &
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 October 1996. Senior Vice President of ZD since March 1997. Director
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.
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>
54
<PAGE> 59
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ --------------------------
OTHER LONG TERM
ANNUAL INCENTIVE PLAN OPTIONS/ ALL OTHER
NAME AND COMPENSATION PAYOUTS SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(2) ($)(3) ($)(2) (#)(4) ($)(5)(6)(7)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John B. Scott.............. 1997 $171,000 $ -- $-- $-- $ -- $ 64,089
Chief Executive Officer(1) 1996 212,500 94,000 -- 212,500 -- 142,498
1995 172,800 129,600 20,035 -- 15,360 260,106
Eliane C. Frye............. 1997 98,040 -- -- -- -- 30,311
Executive Vice President(1) 1996 105,000 41,750 -- 69,750 -- 58,520
1995 91,200 67,200 9,261 -- 10,560 41,546
Frederick L. Blackmon...... 1997 96,300 -- -- -- -- 19,543
Senior Vice President and
Chief Financial 1996 100,583 47,000 27,924 71,250 -- 11,226
Officer(1)
George Vlaisavljevich...... 1997 252,500 -- 39,922 -- -- 9,165
Senior Vice President(1)
Phillip D. Meserve......... 1997 231,818 -- 172,526 -- -- --
Senior Vice President(1)
</TABLE>
- ---------------
(1) Also served in same positions for FKLA, ZLICA and FLA. An allocation of the
time devoted to duties as executive officer of KILICO has been made. All
compensation items reported in the Summary Compensation Table reflect this
allocation.
(2) Annual bonuses are paid pursuant to annual incentive plans. The amounts of
the bonuses earned in 1997 were not available as of the date of this filing.
(3) The amounts disclosed in this column include:
(a) Amounts paid as non-preferential dividend equivalents on shares of
restricted stock and phantom stock units.
(b) The cash value of shares of Kemper common stock when awarded under the
Kemper Anniversary Award Plan. Employees were awarded shares on an
increasing scale beginning with their 10th year of employment and every 5
years thereafter, with a pro rata award at retirement.
(c) The taxable benefit from personal use of an employer-provided automobile
and certain estate planning services facilitated for executives.
(d) Relocation expense reimbursements of $21,437 in 1996 for Mr. Blackmon
and $24,498 and $52,526, respectively, for Messrs. Vlaisavljevich and
Meserve in 1997.
(e) Sign-on payment of $120,000 for Mr. Meserve in 1997.
(4) Options were granted under Kemper stock option plans maintained for selected
officers and employees of Kemper and its subsidiaries.
(5) The amounts in this column include:
(a) The amounts of employer contributions allocated to the accounts of the
named persons under profit sharing plans or under supplemental plans
maintained to provide benefits in excess of applicable ERISA limitations.
(b) Distributions from the Kemper and FKLA supplemental plans.
(6) Pursuant to the Conseco Merger Agreement, which was an agreement that was
subsequently terminated as the result of a failed merger attempt by Conseco,
the restricted stock awards for 1993 and 1994 were cancelled. To replace
these awards, on June 30, 1994, the Committee, under the Kemper Bonus
Restoration Plan and in its sole discretion, granted cash awards to the
named executive officers and other affected executives entitling each of
them to receive an amount in cash immediately prior to the effective time of
the then-planned Conseco merger equal to the product of the number of shares
of restricted stock previously
55
<PAGE> 60
granted to such individual under the 1993 Senior Executive Long-Term
Incentive Plan multiplied by the consideration payable in the merger. As a
result of the termination of the Conseco Merger Agreement, no cash awards
were paid pursuant to the Kemper Bonus Restoration Plan.
In January 1995, the board of directors, upon the advice of the Committee,
approved the adoption of the Kemper 1995 Executive Incentive Plan under
which active employee holders of the previously cancelled shares of
restricted stock were granted phantom stock units by the Committee equal to
the number of shares cancelled plus an added amount representing 20 percent
of the aggregate cancelled shares. The 20 percent supplement was awarded in
recognition of the imposition of new vesting periods on the phantom awards
(to the extent the restricted stock held prior to cancellation would
otherwise have vested in June 1994 had stockholder approval of the affected
restricted stock plan been obtained as earlier anticipated).
By their terms, the phantom stock units associated with cancelled shares of
restricted stock originally awarded in 1993, as supplemented, would have
vested on December 31, 1995 and entitle the holders to a cash payment (net
of any required tax withholding) determined by the value of Kemper's common
stock based on an average trading range to December 31, 1995, and those
phantom stock units associated with the cancelled restricted stock
originally awarded in 1994 could similarly have vested and been paid on
December 31, 1996, subject to ongoing employment to the respective vesting
dates. Notwithstanding these vesting provisions, the phantom stock units
earlier vested and entitled payment upon the consummation of a "change of
control" of Kemper. Dividend equivalents were payable to holders of the
phantom stock units as compensation income when and as dividends were paid
on Kemper's outstanding common stock, and the Executive Incentive Plan
provided for standard anti-dilution adjustments.
Phantom stock units awarded to the named executive officers subject to
vesting on December 31, 1995 and December 31, 1996, were Mr. Scott 5,400 and
12,600 phantom units, respectively, and Ms. Frye 1,680 and 1,680 phantom
units, respectively. All phantom stock units vested and were paid
immediately prior to the effectiveness of the January 4, 1996 acquisition of
Kemper by Zurich and Insurance Partners. Mr. Scott and Ms. Frye received
allocated cash out payments of $430,272, and $80,317, respectively, in 1996.
(7) Pursuant to the terms of a Termination Protection Agreement with Kemper
dated March 17, 1994, Mr. Scott received payments in 1995 and 1996. These
payments were made by Kemper and no portion of the payments were allocated
to KILICO.
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information, Table of Contents is: Services to the
Separate Account; Performance Information of Subaccounts; State Regulation;
Experts; Financial Statements; Independent Auditors' Report, Financial
Statements of the Separate Account. The Statement of Additional Information
should be read in conjunction with this Prospectus.
FINANCIAL STATEMENTS
The financial statements of KILICO that are included in this Prospectus should
be considered primarily as bearing on the ability of KILICO to meet its
obligations under the Contracts. The Contracts are not entitled to participate
in earnings, dividends or surplus of KILICO.
CHANGE OF ACCOUNTANTS
On September 12, 1997, Kemper Investors Life Insurance Company ("KILICO")
appointed the accounting firm of Coopers & Lybrand L.L.P. 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 Coopers & Lybrand L.L.P. as the new independent accountants.
Management had not consulted with Coopers & Lybrand L.L.P. 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 Coopers & Lybrand L.L.P. on accounting or
financial disclosures for the year ended December 31, 1997.
56
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder's
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. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedules as listed in
the accompanying index. These consolidated financial statements and the
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules 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. In addition, in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 18, 1998
57
<PAGE> 62
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, 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). In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedules as of December 31, 1996 and 1995 as listed in the
accompanying index. These consolidated financial statements and the financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedules 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. Further, in our
opinion, the aforementioned financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
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
58
<PAGE> 63
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.
59
<PAGE> 64
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.
60
<PAGE> 65
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.
61
<PAGE> 66
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.
62
<PAGE> 67
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.
63
<PAGE> 68
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A 15 percent discount rate was used to determine such value and represents the
rate of return required by Zurich and Insurance Partners to invest in the
business being acquired. In selecting the rate of return used to value the
policies purchased, the Company considered the magnitude of the risks associated
with each of the actuarial assumptions used in determining expected future cash
flows, the cost of capital available to fund the acquisition, the perceived
likelihood of changes in insurance regulations and tax laws, the complexity of
the Company's business, and the prices paid (i.e., discount rates used in
determining other life insurance company valuations) on similar blocks of
business sold in recent periods.
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".)
64
<PAGE> 69
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums for term life policies are reported as earned when due. Profits for
such policies are recognized over the duration of the insurance policies by
matching benefits and expenses to premium income.
DEFERRED INSURANCE ACQUISITION COSTS
The costs of acquiring new business, 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
65
<PAGE> 70
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
66
<PAGE> 71
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>
67
<PAGE> 72
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>
68
<PAGE> 73
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.
69
<PAGE> 74
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT RISK (CONTINUED)
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 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.
70
<PAGE> 75
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT RISK (CONTINUED)
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 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.
71
<PAGE> 76
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
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.
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 contract 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.
72
<PAGE> 77
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
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, 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
73
<PAGE> 78
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) REINSURANCE (CONTINUED)
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 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.
74
<PAGE> 79
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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.
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
75
<PAGE> 80
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
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.
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KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) STOCKHOLDER'S EQUITY--RETAINED EARNINGS (CONTINUED)
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>
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<PAGE> 82
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.
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<PAGE> 83
APPENDIX A
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Purchase Payment: $40,000
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
The following examples illustrate how the Market Value Adjustment and the
Withdrawal Charge may affect the values of a Certificate upon a withdrawal. The
5% assumed Guaranteed Interest Rate is the rate required to be used in the
"Summary of Expenses." In these examples, the withdrawal occurs one year after
the Date of Issue. The Market Value Adjustment operates in a similar manner for
transfers. No Withdrawal Charge applies to transfers.
The Guarantee Period Value for this $40,000 Purchase Payment is $51,051.26 at
the end of the five-year Guarantee Period. After one year, when the withdrawals
occur in these examples, the Guarantee Period Value is $42,000.00. It is also
assumed, for the purposes of these examples, that no prior partial withdrawals
or transfers have occurred.
The Market Value Adjustment will be based on the rate KILICO is then crediting
(at the time of the withdrawal) on new Certificates with the same Guarantee
Period as the time remaining in your Guarantee Period rounded to the next higher
number of complete years. One year after the Purchase Payment there would have
been four years remaining in your Guarantee Period. These examples also show the
Withdrawal Charge (if any) which would be calculated separately after the Market
Value Adjustment.
EXAMPLE OF A DOWNWARD MARKET VALUE ADJUSTMENT
A downward Market Value Adjustment results from a full or partial withdrawal
that occurs when interest rates have increased. Assume interest rates have
increased one year after the Purchase Payment and KILICO is then crediting 6.5%
for a four-year Guarantee Period. Upon a full withdrawal, the market value
adjustment factor would be:
(4)
[ (1 + .05) ]
-.0551589* = [ --------- ] -1
[ (1 + .065) ]
The Market Value Adjustment is a reduction of $2,316.67 from the Guarantee
Period Value:
- 2,316.67 = -.0551589 X 42,000.00
The Market Adjusted Value would be:
$39,683.33 = $42,000.00 - $2,316.67
A Withdrawal Charge of 6% would be assessed against the Market Adjusted Value in
excess of the amount available as a free withdrawal. In this case, there are no
prior withdrawals, so 10% of the Market Adjusted Value is not subject to a
Withdrawal Charge. The Withdrawal Charge is thus:
$2,142.90 = $39,683.33 X .90 X .06
Thus, the amount payable on a full withdrawal would be:
$37,540.43 = $39,683.33 - $2,142.90
If instead of a full withdrawal, 50% of the Guarantee Period Value was withdrawn
(partial withdrawal of 50%), the Market Value Adjustment would be 50% of that of
the full withdrawal:
-$1,158.34 = -.0551589 X $21,000.00
The Market Adjusted Value would be:
$19,841.66 = $21,000.00 - $1,158.34
- ---------------
* Actual calculation utilizes 10 decimal places.
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<PAGE> 84
The Withdrawal Charge of 6% would apply to the Market Adjusted Value being
withdrawn, less 10% of the full Market Adjusted Value as there are no prior
withdrawals:
$952.39 = ($19,841.46 - .10 X $39,683.33) X .06
Thus, the amount payable on this partial withdrawal would be:
$18.889.07 = $19,841.46 -$952.39
EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT
An upward Market Value Adjustment results from a withdrawal that occurs when
interest rates have decreased. Assume interest rates have decreased one year
later and KILICO is then crediting 4% for a four-year Guarantee Period. Upon a
full withdrawal, the market value adjustment factor would be:
(4)
[ (1 + .05) ]
+.0390198 = [ --------- ] -1
[ (1 + .04) ]
The Market Value Adjustment is an increase of $1638.83 to the Guarantee Period
Value:
$1,638.83 = $42,000.00 X .0390198
The Market Adjusted Value would be:
$43,638.33 = $42,000.00 +$1,638.83
A Withdrawal Charge of 6% would apply to the Market Adjusted Value being
withdrawn, less 10% of the full Market Adjusted Value, as there were no prior
withdrawals:
$2,356.47 = $43,638.33 X .90 X .06
Thus, the amount payable on withdrawal would be:
$41,281.85 = $43,638.33 - $2,356.47
If instead of a full withdrawal, 50% of the Guarantee Period Value was withdrawn
(partial withdrawal of 50%), the Market Value Adjustment would be:
$819.42 = $21,000.00 X .0390198
The Market Adjusted Value of $21,000.00 would be:
$21,819.42 = $21,000.00 + $819.42
The Withdrawal Charge of 6% would apply to the Market Adjusted Value being
withdrawn, less 10% of the full Market Adjusted Value as there are no prior
withdrawals:
$1,047.34 = ($21,819.42 - .1 X $43,638.33) X .06
Thus, the amount payable on this partial withdrawal would be:
$20,772.08 = $21,819.42 - $1,047.34
Actual Market Value Adjustment may have a greater or lesser impact than that
shown in the Examples, depending on the actual change in interest crediting
rates and the timing of the withdrawal or transfer in relation to the time
remaining in the Guarantee Period.
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APPENDIX B
KEMPER INVESTORS LIFE INSURANCE COMPANY DEFERRED FIXED AND
VARIABLE ANNUITY IRA, ROTH IRA AND SIMPLE IRA DISCLOSURE STATEMENT
This Disclosure Statement describes the statutory and regulatory provisions
applicable to the operation of Individual Retirement Annuities (IRAs), Roth
Individual Retirement Annuities (Roth IRAs) and Simple Individual Retirement
Annuities (SIMPLE IRAs). Internal Revenue Service regulations require that this
be given to each person desiring to establish an IRA, Roth IRA or a SIMPLE IRA.
Further information can be obtained from Kemper Investors Life Insurance Company
and from any district office of the Internal Revenue Service.
A. REVOCATION
Within 7 days of the date you signed your enrollment application, you may revoke
the Contract and receive back 100% of your money. To do so, wire Kemper
Investors Life Insurance Company, 1 Kemper Drive, Long Grove, Illinois 60049, or
call 1-800-621-5001.
B. STATUTORY REQUIREMENTS
This Contract is intended to meet the requirements of Section 408(b) of the
Internal Revenue Code (Code), Section 408A of the Code for use as a Roth IRA, or
of Section 408(p) of the Code for use as a SIMPLE IRA, whichever is applicable.
The Contract has not been approved as to form for use as an IRA, Roth IRA or a
SIMPLE IRA by the Internal Revenue Service. Such approval by the Internal
Revenue Service is a determination only as to form of the Contract, and does not
represent a determination on the merits of the Contract.
1. The amount in your IRA, Roth IRA, and SIMPLE IRA, whichever is applicable,
must be fully vested at all times and the entire interest of the owner must be
nonforfeitable.
2. The Contract must be nontransferable by the owner.
3. The Contract must have flexible premiums.
4. For IRAs and SIMPLE IRAs, you must start receiving distributions on or before
April 1 of the year following the year in which you reach age 70 1/2 (the
required beginning date)(see "Required Distributions"). However, section
401(a)(9)(A) of the Code (relating to minimum distributions required to commence
at age 70 1/2), and the incidental death benefit requirements of section 401(a)
of the Code, do not apply to Roth IRAs.
If you die before your entire interest in your Contract is distributed, unless
otherwise permitted under applicable law, any remaining interest in the Contract
must be distributed to your beneficiary by December 31 of the calendar year
containing the fifth anniversary of your death; except that: (1) if the interest
is payable to an individual who is your designated beneficiary (within the
meaning of section 401(a)(9) of the Code), the designated beneficiary may elect
to receive the entire interest over his or her life, or over a period certain
not extending beyond his or her life expectancy, commencing on or before
December 31 of the calendar year immediately following the calendar year in
which you die; and (2) if the designated beneficiary is your spouse, the
Contract will be treated as his or her own IRA, or, where applicable, Roth IRA.
5. Except in the case of a rollover contribution or a direct transfer (see
"Rollovers and Direct Transfers"), or a contribution made in accordance with the
terms of a Simplified Employee Pension (SEP), (1) all contributions to an IRA,
including a Roth IRA, must be cash contributions which do not exceed $2,000 for
any taxable year, and (2) all contributions to a SIMPLE IRA must be cash
contributions, including matching or nonelective employer contributions (see
"SIMPLE IRAs"), which do not exceed $6,000 for any year (as adjusted for
inflation).
6. The Contract must be for the exclusive benefit of you and your beneficiaries.
C. ROLLOVERS AND DIRECT TRANSFERS FOR IRAS AND SIMPLE IRAS
1. A rollover is a tax-free transfer from one retirement program to another that
you cannot deduct on your tax return. There are two kinds of tax-free rollover
payments under an IRA. In one, you transfer amounts from one IRA to another.
With the other, you transfer amounts from a qualified employee benefit plan or
tax-sheltered annuity to an IRA. Tax-free rollovers can be made from a SIMPLE
IRA to another SIMPLE IRA or to a SIMPLE Individual Retirement Account under
section 408(p) of the Code. An individual can make a tax-free rollover to an IRA
from a SIMPLE IRA after a two-year period has expired since the individual first
participated in a SIMPLE plan.
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<PAGE> 86
2. You must complete the transfer by the 60th day after the day you receive the
distribution from your IRA or other qualified employee benefit plan or SIMPLE
IRA.
3. A rollover distribution may be made to you only once a year. The one-year
period begins on the date you receive the rollover distribution, not on the date
you roll it over (reinvest it).
4. A direct transfer to an IRA of funds in an IRA from one trustee or insurance
company to another is not a rollover. It is a transfer that is not affected by
the one-year waiting period.
5. All or a part of the premium for this Contract used as an IRA may be paid
from a rollover from an IRA, qualified pension or profit-sharing plan or
tax-sheltered annuity, or from a direct transfer from another IRA. All or part
of the premium for this Contract used as a SIMPLE IRA may be paid from a
rollover from a SIMPLE IRA or SIMPLE Individual Retirement Account or, to the
extent permitted by law, from a direct transfer from a SIMPLE IRA or SIMPLE
Individual Retirement Account.
6. Beginning January 1, 1993, a distribution that is eligible for rollover
treatment from a qualified employee benefit plan or tax-sheltered annuity will
be subject to twenty percent (20%) withholding by the Internal Revenue Service
even if you roll the distribution over within the 60-day rollover period. One
way to avoid this withholding is to make the distribution as a direct transfer
to the IRA trustee or insurance company.
D. CONTRIBUTION LIMITS AND ALLOWANCE OF DEDUCTION FOR IRAS
1. In general, the amount you can contribute each year to an IRA is the lesser
of $2,000 or your taxable compensation for the year. If you have more than one
IRA, the limit applies to the total contributions made to your own IRAs for the
year. Generally, if you work the amount that you earn is compensation. Wages,
salaries, tips, professional fees, bonuses and other amounts you receive for
providing personal services are compensation. If you own and operate your own
business as a sole proprietor, your net earnings reduced by your deductible
contributions on your behalf to self-employed retirement plans is compensation.
If you are an active partner in a partnership and provide services to the
partnership, your share of partnership income reduced by deductible
contributions made on your behalf to qualified retirement plans is compensation.
All taxable alimony and separate maintenance payments received under a decree of
divorce or separate maintenance is compensation.
2. Beginning in 1997, in the case of a married couple filing a joint return, up
to $2,000 can be contributed to each spouse's IRA, even if one spouse has little
or no compensation. This means that the total combined contributions that can be
made to both IRAs can be as much as $4,000 for the year. Previously, if one
spouse had no compensation or elected to be treated as having no compensation,
the total combined contributions to both IRAs could no be more than $2,250.
3. Also beginning in 1997, in the case of a married couple with unequal
compensation who file a joint return, the limit on the deductible contributions
to the IRA of the spouse with less compensation is the smaller of:
a. $2,000, or
b. The total compensation of both spouses, reduced by any deduction allowed
for contributions to IRAs of the spouse with more compensation.
The deduction for contributions to both spouses' IRAs may be further limited if
either spouse is covered by an employer retirement plan.
4. Beginning in 1998, even if your spouse is covered by an employer retirement
plan, you may be able to deduct your contributions to an IRA if you are not
covered by an employer plan. The deduction is limited to $2,000 and it must be
reduced if your adjusted gross income on a joint return is more than $150,000
but less than $160,000. Your deduction is eliminated if your income on a joint
return is $160,000 or more.
5. Contributions to your IRA can be made at any time. If you make the
contribution between January 1 and April 15, however, you may elect to treat the
contribution as made either in that year or in the preceding year. You may file
a tax return claiming a deduction for your IRA contribution before the
contribution is actually made. You must, however, make the contribution by the
due date of your return not including extensions.
6. You cannot make a contribution other than a rollover contribution to your IRA
for the year in which you reach age 70 1/2 or thereafter.
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E. SEP-IRA'S
1. The maximum deductible contribution for a Simplified Employee Pension (SEP)
IRA is the lesser of $30,000 or 15% of compensation.
2. A SEP must be established and maintained by an employer (corporation,
partnership, sole proprietor). Information about the Kemper SEP is available
upon request.
F. SIMPLE IRAS
1. A SIMPLE IRA must be established with your employer using a qualified salary
reduction agreement.
2. You may elect to have your employer contribute to your SIMPLE IRA, under a
qualified salary reduction agreement, an amount (expressed as a percentage of
your compensation) not to exceed $6,000 (as adjusted for inflation) for the
year. In addition to these employee elective contributions, your employer is
required to make each year either (1) a matching contribution equal to up to 3
percent, and not less than 1 percent, of your SIMPLE IRA contribution for the
year, or (2) a nonelective contribution equal to 2 percent of your compensation
for the year (up to $150,000 of compensation, as adjusted for inflation). No
other contributions may be made to a SIMPLE IRA.
3. Employee elective contributions and employer contributions (i.e., matching
contributions and nonelective contributions) to your SIMPLE IRA are excluded
from your gross income.
4. To the extent an individual with a SIMPLE IRA is no longer participating in a
SIMPLE plan (e.g., the individual has terminated employment), and two years has
passed since the individual first participated in the plan, the individual may
treat the SIMPLE IRA as an IRA.
G. TAX STATUS OF THE CONTRACT AND DISTRIBUTIONS FOR IRAS AND SIMPLE IRAS
1. Earnings of your IRA annuity contract are not taxed until they are
distributed to you.
2. In general, taxable distributions are included in your gross income in the
year you receive them.
3. Distributions under your IRA are non-taxable to the extent they represent a
return of non-deductible contributions (if any). The non-taxable percentage of a
distribution is determined by dividing your total undistributed, non-deductible
IRA contributions by the value of all your IRAs (including SEPs and rollovers).
4. You cannot choose the special five-year or ten-year averaging that may apply
to lump sum distributions from qualified employer plans.
H. REQUIRED DISTRIBUTIONS FOR IRAS AND SIMPLE IRAS
You must start receiving minimum distributions required under the Contract and
Section 401(a)(9) of the Code from your IRA and SIMPLE IRA starting with the
year you reach age 70 1/2 (your 70 1/2 year). Ordinarily, the required minimum
distribution for a particular year must be received by December 31 of that year.
However, you may delay the required minimum distribution for the year you reach
age 70 1/2 until April 1 of the following year (i.e., the required beginning
date).
Annuity payments which begin by April 1 of the year following your 70 1/2 year
satisfy the minimum distribution requirement if they provide for non-increasing
payments over the life or the lives of you and your spouse, provided that, if
installments are guaranteed, the guaranty period does not exceed the lesser of
20 years or the applicable life expectancy.
The applicable life expectancy is your remaining life expectancy or the
remaining joint life and last survivor expectancy of you and your designated
beneficiary. Life expectancies are determined using the expected return multiple
tables shown in IRS Publication 590 "Individual Retirement Arrangements." To
obtain a free copy of IRS Publication 590 and other IRS forms, phone the IRS
toll free at 1-800-729-3676 or write the IRS Forms Distribution Center for your
area as shown in your income tax return instructions.
If you have more than one IRA, you must determine the required minimum
distribution separately for each IRA; however, you can take the actual
distributions of these amounts from any one or more of your IRAs.
If the actual distribution from your Contract is less than the minimum amount
that should be distributed in accordance with the minimum distribution
requirements mentioned above, the difference generally is an excess
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<PAGE> 88
accumulation. There is a 50% excise tax on any excess accumulations. If the
excess accumulation is due to reasonable error, and you have taken (or are
taking) steps to remedy the insufficient distribution, you can request that this
50% excise tax be excused by filing with your tax return an IRS Form 5329,
together with a letter of explanation and the excise tax payment.
I. ROTH IRAS
1. If your contract is a special type of individual retirement plan known as a
Roth IRA, it will be administered in accordance with the requirements of section
408A of the Code. (Except as otherwise indicated, reference herein to an "IRA"
are to an "individual retirement plan," within the meaning of section
7701(a)(37) of the Code, other than a Roth IRA.) Roth IRAs are treated the same
as other IRAs, except as described here. However, the provisions of the Code
governing Roth IRAs may be modified by pending legislation. We will notify you
of any such changes.
2. The IRS is not presently accepting submissions for opinion letters approving
annuities as Roth IRAs, but will issue in the future procedures for requesting
such opinion letters. We will apply for approval as soon as possible after the
IRS issues its procedures on this matter. Such approval will be a determination
only as to the form of the annuity, and will not represent a determination of
the merits of the annuity.
3. If your Contract is a Roth IRA, we will send you a Roth IRA endorsement to be
attached to, and to amend, your contract after we obtain approval of the
endorsement from the IRS and your state insurance department. The Company
reserves the right to amend the contract as necessary or advisable from time to
time to comply with future changes in the Internal Revenue Code, regulations or
other requirements imposed by the IRS to obtain or maintain its approval of the
annuity as a Roth IRA.
4. Earnings in your Roth IRA are not taxed until they are distributed to you,
and will not be taxed if they are paid as a "qualified distribution," as
described to you in section L, below.
J. ELIGIBILITY AND CONTRIBUTIONS FOR ROTH IRAS
1. Generally, you are eligible to make a contribution to your Roth IRA on or
after January 1, 1998, only if you meet certain income limits. No deduction is
allowed for contributions to your Roth IRA. Contributions to your Roth IRA may
be made even after you attain age 70 1/2.
2. The aggregate amount of contributions for any taxable year to all IRAs,
including all Roth IRAs, maintained for your benefit (the "contribution limit")
generally is the lesser of $2,000 and 100% of your compensation for the taxable
year. However, if you file a joint return and receive less compensation for the
taxable year than your spouse, the contribution limit for the taxable year is
the lesser of $2,000 and the sum of (1) your compensation for the taxable year,
and (2) your spouse's compensation for the taxable year reduced by any
deductible contributions to an IRA of your spouse, and by any contributions to a
Roth IRA for your spouse, for the taxable year.
The contribution limit for any taxable year is reduced (but not below zero) by
the amount which bears the same ratio to such amount as:
(a) the excess of (i) your adjusted gross income for the taxable year, over
(ii) the "applicable dollar amount," bears to
(b) $15,000 (or $10,000 if you are married).
For this purpose, "adjusted gross income" is determined in accordance with
section 219(g)(3) of the Code and (1) excludes any amount included in gross
income as a result of any rollover from, transfer from, or conversion of an IRA
to a Roth IRA, and (2) is reduced by any deductible IRA contribution. In
addition, the "applicable dollar amount" is equal to $150,000 for a married
individual filing a joint return, $0 for a married individual filing a separate
return, and $95,000 for any other individual.
A "qualified rollover contribution" (discussed in section K, below), and a
non-taxable transfer from another Roth IRA, are not taken into account for
purposes of determining the contribution limit.
K. ROLLOVERS, TRANSFERS AND CONVERSIONS TO ROTH IRAS
1. Rollovers And Transfers--A rollover may be made to a Roth IRA only if it is
"qualified rollover contribution." A "qualified rollover contribution" is a
rollover to a Roth IRA from another Roth IRA or from an
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<PAGE> 89
IRA, but only if such rollover contribution also meets the rollover requirements
for IRAs under section 408(d)(3). In addition, a transfer may be made to a Roth
IRA directly from another Roth IRA or from an IRA.
You may not make a qualified rollover contribution or transfer in a taxable year
from an IRA to a Roth IRA if (a) your adjusted gross income for the taxable year
exceeds $100,000 or (b) you are married and file a separate return.
The rollover requirements of section 408(d)(3) are complex and should be
carefully considered before you make a rollover. One of the requirements is that
the amount received be paid into another IRA (or Roth IRA) within 60 days after
receipt of the distribution. In addition, a rollover contribution from a Roth
IRA may be made by you only once a year. The one-year period begins on the date
you receive the Roth IRA distribution, not on the date you roll it over
(reinvest it) into another Roth IRA. If you withdraw assets from a Roth IRA, you
may roll over part of the withdrawal tax free into another Roth IRA and keep the
rest of it. A portion of the amount you keep may be included in your gross
income.
2. Taxation of Rollovers And Transfers to Roth IRAs--A qualified rollover
contribution or transfer from a Roth IRA maintained for your benefit to another
Roth IRA maintained for your benefit which meets the rollover requirements for
IRAs under section 408(d)(3) is tax-free.
In the case of a qualified rollover contribution or a transfer from an IRA
maintained for your benefit to a Roth IRA maintained for your benefit, any
portion of the amount rolled over or transferred which would be includible in
your gross income were it not part of a qualified rollover contribution or a
nontaxable transfer will be includible in your gross income. However, section
72(t) of the Code (relating to the 10 percent penalty tax on premature
distributions) will not apply. If such a rollover or transfer occurs before
January 1, 1999, any portion of the amount rolled over or transferred which is
required to be included in gross income will be so included ratably over the
4-taxable year period beginning with the taxable year in which the rollover or
transfer is made.
Pending legislation may modify these rules retroactively to January 1, 1998. In
particular, this legislation may provide that if amounts rolled over,
transferred or converted from a non-Roth IRA (a "conversion") are withdrawn from
a Roth IRA within the 5-year period beginning with the date of conversion, then
amounts withdrawn which were includible in income due to the conversion would be
subject to the 10 percent penalty tax on premature distributions and, if the
4-year income inclusion rule applied to the conversion, an additional 10 percent
tax.
3. Transfers of Excess IRA Contributions to Roth IRAs--If, before the due date
of your federal income tax return for any taxable year (not including
extensions), you transfer, from an IRA, contributions for such taxable year (and
earnings thereon) to a Roth IRA, such amounts will not be includible in gross
income to the extent that no deduction was allowed with respect to such amount.
4. Taxation of Conversions of IRAs to Roth IRAs--All or part of amounts in an
IRA maintained for your benefit may be converted into a Roth IRA maintained for
your benefit. The conversion of an IRA to a Roth IRA is treated as special type
of qualified rollover contribution. Hence, you must be eligible to make a
qualified rollover contribution in order to convert an IRA to a Roth IRA. A
conversion typically will result in the inclusion of some or all of your IRA's
value in gross income, as described above.
A conversion of an IRA to a Roth IRA can be made without taking an actual
distribution from your IRA. For example, an individual may make a conversion by
notifying the IRA issuer or trustee, whichever is applicable.
UNDER SOME CIRCUMSTANCES, IT MIGHT NOT BE ADVISABLE TO ROLLOVER, TRANSFER, OR
CONVERT ALL OR PART OF AN IRA TO A ROTH IRA. WHETHER YOU SHOULD DO SO WILL
DEPEND ON YOUR PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED
TO, SUCH FACTORS AS WHETHER YOU QUALIFY TO MAKE SUCH A ROLLOVER, TRANSFER, OR
CONVERSION, YOUR FINANCIAL SITUATION, AGE, CURRENT AND FUTURE INCOME NEEDS,
YEARS TO RETIREMENT, CURRENT AND FUTURE TAX RATES, YOUR ABILITY AND DESIRE TO
PAY CURRENT INCOME TAXES WITH RESPECT TO AMOUNTS ROLLED OVER, TRANSFERRED, OR
CONVERTED, AND WHETHER SUCH TAXES MIGHT NEED TO BE PAID WITH WITHDRAWALS FROM
YOUR ROTH IRA (SEE DISCUSSION BELOW OF "NONQUALIFIED DISTRIBUTIONS"). YOU SHOULD
CONSULT A QUALIFIED TAX ADVISOR BEFORE ROLLING OVER, TRANSFERRING, OR CONVERTING
ALL OR PART OF AN IRA TO A ROTH IRA.
85
<PAGE> 90
5. Separate Roth IRAs--Due to the complexity of, and proposed changes to, the
tax law, it may be advantageous to maintain amounts rolled over, transferred, or
converted from an IRA in separate Roth IRAs from those containing regular Roth
IRA contributions. For the same reason, you should consider maintaining a
separate Roth IRA for each amount rolled over, transferred, or converted from an
IRA. These considerations should be balanced against the additional costs you
may incur from maintaining multiple Roth IRAs. You should consult your tax
advisor if you intend to contribute rollover, transfer, or conversion amounts to
your Policy, or if you intend to roll over or transfer amounts from your Policy
to another Roth IRA maintained for your benefit.
L. INCOME TAX CONSEQUENCES OF ROTH IRAS
1. Qualified Distributions--Any "qualified distribution" from a Roth IRA is
excludible from gross income. A "qualified distribution" is a payment or
distribution which satisfies two requirements. First, the payment or
distribution must be (a) made after you attain 59 1/2, (b) made after your
death, (c) attributable to your being disabled, or (d) a "qualified special
purpose distribution" (I.E., a qualified first-time homebuyer distribution under
section 72(t)(2)(F) of the Code). Second, the payment or distribution must be
made in a taxable year that is at least five years after (1) the first taxable
year for which a contribution was made to any Roth IRA established for you, or
(2) in the case of a rollover from, or a conversion of, an IRA to a Roth IRA,
the taxable year in which the rollover or conversion was made if the payment or
distribution is allocable (as determined in the manner set forth in guidance
issued by the IRS) to the rollover contribution or conversion (or to income
allocable thereto).
2. Nonqualified Distributions--A distribution from a Roth IRA which is not a
qualified distribution is taxed under Section 72 (relating to annuities), except
that such distribution is treated as made first from contributions to the Roth
IRA to the extent that such distribution, when added to all previous
distributions from the Roth IRA, does not exceed the aggregate amount of
contributions to the Roth IRA. For purposes of determining the amount taxed, (a)
all Roth IRAs established for you will be treated as one contract, (b) all
distributions during any taxable year from Roth IRAs established for you will be
treated as one distribution, and (c) the value of the contract, income on the
contract, and investment in the contract, if applicable, will be computed as of
the close of the calendar year in which the taxable year begins.
An additional tax of 10% is imposed on nonqualified distributions (including
amounts deemed distributed as the result of a prohibited loan or use of your
Roth IRA as security for a loan) made before the benefited individual has
attained age 59 1/2, unless one of the exceptions discussed in Section N
applies.
M. TAX ON EXCESS CONTRIBUTIONS
1. You must pay a 6% excise tax each year on excess contributions that remain in
your Contract. Generally, an excess contribution is the amount contributed to
your Contract that is more than you can contribute. The excess is taxed for the
year of the excess contribution and for each year after that until you correct
it.
2. You will not have to pay the 6% excise tax if you withdraw the excess amount
by the date your tax return is due including extensions for the year of the
contribution. You do not have to include in your gross income an excess
contribution that you withdraw from your Contract before your tax return is due
if the income earned on the excess was also withdrawn and no deduction was
allowed for the excess contribution. You must include in your gross income the
income earned on the excess contribution.
N. TAX ON PREMATURE DISTRIBUTIONS
There is an additional tax on premature distributions from your IRA, Roth IRA,
or SIMPLE IRA, equal to 10% of the amount of the premature distribution that you
must include in your gross income. For premature distributions from a SIMPLE IRA
made within the first 2 years you participate in a SIMPLE plan, the additional
tax is equal to 25% of the amount of the premature distribution that must be
included in gross income. Premature distributions are generally amounts you
withdraw before you are age 59 1/2. However, the tax on premature distributions
does not apply:
1. To amounts that are rolled over tax free.
2. To a distribution which is made on or after your death, or on account of you
being disabled within the meaning of section 72(m)(7) of the Code.
3. To a distribution which is part of a series of substantially equal periodic
payments (made at least annually) over your life or your life expectancy or the
joint life or joint life expectancy of you and your beneficiary.
86
<PAGE> 91
4. To a distribution which is used for qualified first-time homebuyer expenses,
qualified higher education expenses, certain medical expenses, or by an
unemployed individual to pay health insurance premiums.
O. EXCISE TAX REPORTING
Use Form 5329, Additional Taxes Attributable to Qualified Retirement Plans
(Including IRAs), Annuities, and Modified Endowment Contracts, to report the
excise taxes on excess contributions, premature distributions, and excess
accumulations. If you do not owe any IRA, SIMPLE IRA or Roth IRA excise taxes,
you do not need Form 5329. Further information can be obtained from any district
office of the Internal Revenue Service.
P. BORROWING
If you borrow money against your Contract or use it as security for a loan, the
Contract will lose its classification as an IRA, Roth IRA, or SIMPLE IRA,
whichever is applicable, and you must include in gross income the fair market
value of the Contract as of the first day of your tax year. In addition, you may
be subject to the tax on premature distributions described above. (Note: This
Contract does not allow borrowings against it, nor may it be assigned or pledged
as collateral for a loan.)
Q. REPORTING
We will provide you with any reports required by the Internal Revenue Service.
R. ESTATE TAX
Generally, the value of your IRA, including your Roth IRA, is included in your
gross estate for federal estate tax purposes.
S. FINANCIAL DISCLOSURE
1. If contributions to the Contract are made by other than rollover
contributions and direct transfers, the following information based on the
charts shown on the next pages, which assumes you were to make a level
contribution to the fixed account at the beginning of each year of $1,000 must
be completed prior to your signing the enrollment application.
<TABLE>
<CAPTION>
END OF LUMP SUM TERMINATION AT LUMP SUM TERMINATION
YEAR VALUE OF CONTRACT * AGE VALUE OF CONTRACT *
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 60
- ------------------------------------------------------------------------------------------------------
2 65
- ------------------------------------------------------------------------------------------------------
3 70
- ------------------------------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------------
5
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Includes applicable withdrawal charges as described in Item O below.
2. If contributions to the Contract are made by rollover contributions and/or
direct transfers, the following information, based on the charts shown on the
next page, and all of which assumes you make one contribution to
87
<PAGE> 92
the fixed account of $1,000 at the beginning of this year, must be completed
prior to your signing the enrollment application.
<TABLE>
<CAPTION>
END OF LUMP SUM TERMINATION AT LUMP SUM TERMINATION
YEAR VALUE OF CONTRACT * AGE VALUE OF CONTRACT *
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 60
- ------------------------------------------------------------------------------------------------------
2 65
- ------------------------------------------------------------------------------------------------------
3 70
- ------------------------------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------------
5
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Includes applicable withdrawal charges as described in Item O below.
T. FINANCIAL DISCLOSURE FOR THE SEPARATE ACCOUNT (VARIABLE ACCOUNT)
1. If on the enrollment application you indicated an allocation to a Subaccount,
this Contract will be assessed a daily charge of an amount which will equal an
aggregate of 1.40% per annum. If you elected the Guaranteed Retirement Income
Benefit option, an additional charge of .25% of the Contract Value will be
assessed against the Separate Account, Fixed Account and Guarantee Periods on a
pro-rata basis.
2. An annual records maintenance charge of $30.00 will be assessed ratably each
quarter against the Separate Account, Fixed Account and Guarantee Periods.
3. Withdrawal (early annuitization) charges will be assessed based on the years
elapsed since the purchase payments (in a given contract year) were received by
KILICO; under 1 year, 7%; over 1 to 2 years, 6%; over 2 to 3 years, 5%; over 3
to 4 years, 5%; over 4 to 5 years, 4%; over 5 to 6 years, 3%; over 6 to 7 years,
2%; over 7 years and thereafter, 0%.
4. The method used to compute and allocate the annual earnings is contained in
the Prospectus under the heading "Accumulation Unit Value."
5. The growth in value of your contract is neither guaranteed nor projected but
is based on the investment experience of the Separate Account.
88
<PAGE> 93
GUARANTEED LUMP SUM TERMINATION OF DEFERRED FIXED AND VARIABLE ANNUITY
COMPLETELY ALLOCATED TO THE GENERAL ACCOUNT WITH 3% GUARANTEED EACH YEAR.
(TERMINATION VALUES ARE BASED ON $1,000 ANNUAL CONTRIBUTIONS AT THE BEGINNING OF
EACH YEAR.)
<TABLE>
<CAPTION>
END OF TERMINATION END OF TERMINATION END OF TERMINATION END OF TERMINATION
YEAR VALUES* YEAR VALUES* YEAR VALUES* YEAR VALUES*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 937.00 14 $16,798.32 27 $40,421.63 40 $ 75,113.26
2 1,913.00 15 18,310.91 28 42,642.92 41 78,375.30
3 2,928.90 16 19,868.88 29 44,930.85 42 81,735.20
4 3,976.63 17 21,473.59 30 47,287.42 43 85,195.89
5 5,066.14 18 23,126.44 31 49,714.68 44 88,760.41
6 6,198.41 19 24,828.87 32 52,214.76 45 92,431.86
7 7,374.46 20 26,582.37 33 54,789.84 46 96,213.46
8 8,604.34 21 28,388.49 34 57,442.18 47 100,108.50
9 9,871.11 22 30,248.78 35 60,174.08 48 104,120.40
10 11,175.88 23 32,164.88 36 62,987.94 49 108,252.65
11 12,519.80 24 34,138.47 37 65,886.22 50 112,508.87
12 13,904.03 25 36,171.26 38 68,871.45
13 15,329.79 26 38,265.04 39 71,946.23
</TABLE>
GUARANTEED LUMP SUM TERMINATION OF DEFERRED FIXED AND VARIABLE ANNUITY
COMPLETELY ALLOCATED TO THE GENERAL ACCOUNT WITH 3% GUARANTEED EACH YEAR.
(TERMINATION VALUES ARE BASED ON $1,000 SINGLE PREMIUM.)
<TABLE>
<CAPTION>
END OF TERMINATION END OF TERMINATION END OF TERMINATION END OF TERMINATION
YEAR VALUES* YEAR VALUES* YEAR VALUES* YEAR VALUES*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 937 14 $1,000 27 $1,000 40 $1,000
2 946 15 1,000 28 1,000 41 1,000
3 955 16 1,000 29 1,000 42 1,000
4 955 17 1,000 30 1,000 43 1,000
5 964 18 1,000 31 1,000 44 1,000
6 973 19 1,000 32 1,000 45 1,000
7 982 20 1,000 33 1,000 46 1,000
8 1,000 21 1,000 34 1,000 47 1,000
9 1,000 22 1,000 35 1,000 48 1,000
10 1,000 23 1,000 36 1,000 49 1,000
11 1,000 24 1,000 37 1,000 50 1,000
12 1,000 25 1,000 38 1,000
13 1,000 26 1,000 39 1,000
</TABLE>
* Includes applicable withdrawal charges.
89
<PAGE> 94
STATEMENT OF ADDITIONAL INFORMATION
------------------------, 1998
- --------------------------------------------------------------------------------
INDIVIDUAL AND GROUP VARIABLE, FIXED AND MARKET VALUE
ADJUSTED DEFERRED ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
IN CONNECTION WITH
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (847) 550-5500
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information should be read in conjunction with the Prospectus of the
Separate Account dated . The Prospectus may be obtained
from Kemper Investors Life Insurance Company by writing or calling the address
or telephone number listed above.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services to the Separate Account............................ B-1
Performance Information of Subaccounts...................... B-1
State Regulation............................................ B-18
Experts..................................................... B-18
Financial Statements........................................ B-18
</TABLE>
<PAGE> 95
SERVICES TO THE SEPARATE ACCOUNT
Kemper Investors Life Insurance Company ("KILICO") maintains the books and
records of the KILICO Variable Annuity Separate Account (the "Separate
Account"). 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 shares of each Fund by
each of the Subaccounts. All expenses incurred in the operations of the Separate
Account, except the charge for mortality and expense risk and administrative
expenses, and records maintenance charge (as described in the Prospectus) are
borne by KILICO.
The independent auditors for the Separate Account are Coopers & Lybrand L.L.P.,
Chicago, Illinois, for the year ended December 31, 1997. The firm performed the
annual audit of the financial statements of the Separate Account and KILICO for
the year ended December 31, 1997.
The independent auditors for the Separate Account prior to 1997 were KPMG Peat
Marwick LLP, Chicago, Illinois, for the periods through December 31, 1996. The
firm also performed the annual audit of the financial statements of the Separate
Account and KILICO for the periods through December 31, 1996.
The Contracts are sold by licensed insurance agents, where the Contracts may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. The Contracts are distributed
through the principal underwriter for the Separate Account, Investors Brokerage
Services, Inc. ("IBS"), a wholly owned subsidiary of KILICO, which enters into
selling group agreements with affiliated and unaffiliated broker-dealers.
Subject to the provisions of the Contracts, units of the Subaccounts under the
Contract are offered on a continuous basis.
KILICO pays commissions to the seller which may vary but are not anticipated to
exceed in the aggregate an amount equal to six and one-quarter percent (6 1/4%)
of Purchase Payments.
PERFORMANCE INFORMATION OF SUBACCOUNTS
As described in the Prospectus, a Subaccount's historical performance may be
shown in the form of standardized "average annual total return" and
nonstandardized "total return" calculations in the case of all Subaccounts;
"yield" information may be provided in the case of the Kemper High Yield
Subaccount, the Kemper Investment Grade Bond Subaccount and the Kemper
Government Securities Subaccount; and "yield" and "effective yield" information
may be provided in the case of the Kemper Money Market Subaccount. These various
measures of performance are described below.
A Subaccount's standardized average annual total return quotation is computed in
accordance with a standard method prescribed by rules of the Securities and
Exchange Commission. The standardized average annual total return for a
Subaccount for a specific period is found by first taking a hypothetical $1,000
investment in each of the Subaccount's units on the first day of the period at
the maximum offering price, which is the Accumulation Unit value per unit
("initial investment") and computing the ending redeemable value ("redeemable
value") of that investment at the end of the period. The redeemable value
reflects the effect of the applicable Withdrawal Charge that may be imposed at
the end of the period as well as all other recurring charges and fees applicable
under the Contract to all Contract Owner accounts. Premium taxes are not
included in the term charges. The redeemable value is then divided by the
initial investment and this quotient is taken to the Nth root (N represents the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. Standardized average annual total return figures
are annualized and, therefore, represent the average annual percentage change in
the value of a Subaccount over the applicable period.
No standard formula has been prescribed for calculating nonstandardized total
return performance. Nonstandardized total return performance for a specific
period is calculated by first taking an investment (assumed to be $40,000 below)
in each Subaccount's units on the first day of the period at the maximum
offering price, which is the Accumulation Unit value per unit ("initial
investment") and computing the ending value ("ending value") of that investment
at the end of the period. The ending value does not include the effect of the
applicable Withdrawal Charge that may be imposed at the end of the period, and
thus may be higher than if such charge were deducted. Premium taxes are not
included in the term charges. The nonstandardized total return percentage is
then determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as a
percentage. An assumed investment of $40,000 was chosen because that
approximates the size of a typical account. The account size used affects the
performance figure because the Records Maintenance Charge is a fixed per account
charge. Both annualized and nonannualized
B-1
<PAGE> 96
(cumulative) nonstandardized total return figures may be provided. Annualized
nonstandardized total return figures represent the average annual percentage
charge in the value of a Subaccount over the applicable period while
nonannualized (cumulative) figures represent the actual percentage change over
the applicable period.
Standardized average annual total return quotations will be current to the last
day of the calendar quarter and nonstandardized total return quotations will be
current to the last day of the calendar month preceding the date on which an
advertisement is submitted for publication. Standardized average annual total
return will cover periods of one, three, five and ten years, if applicable, and
a period covering the time the underlying Portfolio has been held in a
Subaccount (life of Subaccount). Nonstandardized total return will cover periods
of one, three, five and ten years, if applicable, and a period covering the time
the underlying Portfolio held in a Subaccount has been in existence (life of
Portfolio). For those underlying Portfolios which have not been held as
Subaccounts within the Separate Account for one of the quoted periods, the
nonstandardized total return quotations will show the investment performance
such underlying Portfolios would have achieved (reduced by the applicable
charges) had they been held as Subaccounts within the Separate Account for the
period quoted.
Performance information will be shown for periods from April 6, 1982 (inception)
for the Kemper Money Market Subaccount, Kemper Total Return Subaccount and
Kemper High Yield Subaccount, and for periods from December 9, 1983 (inception)
for the Kemper Growth Subaccount. This performance information is stated to
reflect that the Separate Account was reorganized on November 3, 1989 as a unit
investment trust with Subaccounts investing in corresponding Portfolios of the
Fund. In addition, on that date the Kemper Government Securities Subaccount was
added to the Separate Account to invest in the Fund's Government Securities
Portfolio. For the Kemper Government Securities Subaccount, performance figures
will reflect investment experience as if the Kemper Government Securities
Subaccount had been available under the Contracts since September 3, 1987, the
inception date of the Kemper Government Securities Portfolio.
The yield for the Kemper High Yield Subaccount, the Kemper Investment Grade Bond
Subaccount and the Kemper Government Securities Subaccount is computed in
accordance with a standard method prescribed by rules of the Securities and
Exchange Commission. The yields for the Kemper High Yield Subaccount, the Kemper
Investment Grade Bond Subaccount and the Kemper Government Securities
Subaccount, based upon the one month period ended December 31, 1997, were 6.12%,
3.44% and 4.06%, respectively. The yield quotation is computed by dividing the
net investment income per unit earned during the specified one month or 30-day
period by the Accumulation unit values on the last day of the period, according
to the following formula that assumes a semi-annual reinvestment of income:
a - b (6)
YIELD = 2[( ------- +1) - 1
cd
a = net dividends and interest earned during the period by the Fund attributable
to the Subaccount
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Accumulation Units outstanding during the period
d = the Accumulation Unit value per unit on the last day of the period
The yield of each Subaccount reflects the deduction of all recurring fees and
charges applicable to each Subaccount, but does not reflect the deduction of
Withdrawal Charges or premium taxes.
The Kemper Money Market Subaccount's yield is computed in accordance with a
standard method prescribed by rules of the Securities and Exchange Commission.
Under that method, the current yield quotation is based on a seven-day period
and computed as follows: the net change in the Accumulation Unit value during
the period is divided by the Accumulation Unit value at the beginning of the
period ("base period return") and the result is divided by 7 and multiplied by
365 and the current yield figure carried to the nearest one-hundredth of one
percent. Realized capital gains or losses and unrealized appreciation or
depreciation of the Separate Account's portfolio are not included in the
calculation. The Kemper Money Market Subaccount's yield for the seven-day period
ended December 31, 1997 was 3.90% and average portfolio maturity was 27 days.
The Kemper Money Market Subaccount's effective yield is determined by taking the
base period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period return
+1) (365) / (7) - 1. The Kemper Money Market Subaccount's effective yield for
the seven day period ended December 31, 1997 was 3.98%.
B-2
<PAGE> 97
In computing yield, the Separate Account follows certain standard accounting
practices specified by Securities and Exchange Commission rules. These practices
are not necessarily consistent with the accounting practices that the Separate
Account uses in the preparation of its annual and semi-annual financial
statements.
A Subaccount's performance quotations are based upon historical earnings and are
not necessarily representative of future performance. The Subaccount's units are
sold at Accumulation Unit value. Performance figures and Accumulation Unit value
will fluctuate. Factors affecting a Subaccount's performance include general
market conditions, operating expenses and investment management. Units of a
Subaccount are redeemable at Accumulation Unit value, which may be more or less
than original cost. The performance figures include the deduction of all
expenses and fees, including a prorated portion of the Records Maintenance
Charge. Redemptions within the first seven years after purchase may be subject
to a Withdrawal Charge that ranges from 7% the first year to 0% after seven
years. Yield, effective yield and total return do not reflect the effect of the
Withdrawal Charge or premium taxes that may be imposed upon the redemption of
units. Standardized average annual total return reflects the effect of the
applicable Withdrawal Charge (but not premium tax) that may be imposed at the
end of the period in question.
The Subaccounts may also provide comparative information on an annualized or
nonannualized (cumulative) basis with regard to various indexes, including the
Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index, the
Consumer Price Index, the CDA Certificate of Deposit Index, the Salomon Brothers
High Grade Corporate Bond Index, the Lehman Brothers Government/Corporate Bond
Index, the Merrill Lynch Government/Corporate Master Index, the Lehman Brothers
Long Government/Corporate Bond Index, the Lehman Brothers Government/Corporate
1-3 Year Bond Index, the Standard & Poor's Midcap 400 Index, the NASDAQ
Composite Index, the Russell 2000 Index and the Morgan Stanley Capital
International Europe, Australia, Far East Index. In addition, the Subaccounts
may provide performance analysis rankings of Lipper Analytical Services, Inc.,
the VARDS Report, MORNINGSTAR, INC., Ibbotson Associates or Micropal. Please
note the differences and similarities between the investments which a Subaccount
may purchase and the investments measured by the indexes which are described
below. In particular, it should be noted that certificates of deposit may offer
fixed or variable yields and principal is guaranteed and may be insured. The
units of the Subaccounts are not insured. Also, the value of the Subaccounts
will fluctuate. From time to time, the Separate Account may quote information
from publications such as MORNINGSTAR, INC., THE WALL STREET JOURNAL, MONEY
MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE, USA TODAY,
INSTITUTIONAL INVESTOR, NATIONAL UNDERWRITER, SELLING LIFE INSURANCE, BROKER
WORLD, REGISTERED REPRESENTATIVE, INVESTMENT ADVISOR and VARDS.
The following tables include standardized average annual total return and
nonstandardized total return quotations for various periods as of December 31,
1997, and compares these quotations to various indexes.
B-3
<PAGE> 98
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL RETURN(1) TOTAL
(NON-STANDARDIZED) RETURN(2)
----------------------- (STANDARDIZED)
YEAR TO DATE CUMULATIVE --------------
(%) ENDING (%) ANNUALIZED ANNUALIZED
RETURN(3) VALUE(4) RETURN (%) RETURN (%) RETURN
------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER CONTRARIAN VALUE SUBACCOUNT...................... 28.61%
Life of Subaccount (from 05/01/96).................... $59,838 49.52% 27.26% 23.14%
Life of Portfolio (from 05/01/96)..................... 59,838 49.52% 27.26% 23.14%
One Year.............................................. 51,446 28.54% 28.54% 20.89%
KEMPER VALUE+GROWTH SUBACCOUNT.......................... 23.76%
Life of Subaccount (from 05/01/96).................... 56,224 40.49% 22.60% 18.39%
Life of Portfolio (from 05/01/96)..................... 56,224 40.49% 22.60% 18.39%
One Year.............................................. 49,504 23.68% 23.68% 16.05%
KEMPER HORIZON 20+ SUBACCOUNT........................... 18.83%
Life of Subaccount (from 05/01/96).................... 54,346 35.79% 20.13% 15.87%
Life of Portfolio (from 05/01/96)..................... 54,346 35.79% 20.13% 15.87%
One Year.............................................. 47,532 18.75% 18.75% 11.13%
JANUS GROWTH SUBACCOUNT................................. 19.89%
Life of Subaccount (from 09/15/95).................... 57,865 44.66% 17.40% 14.73%
Life of Portfolio (from 09/13/93)..................... 75,123 87.73% 15.78% N/A
Three Year............................................ 71,914 79.71% 21.58% N/A
One Year.............................................. 47,957 19.82% 19.82% 12.19%
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investments return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-4
<PAGE> 99
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
COMPARED TO
----------------------------------------------------------------------------------------------
STANDARD & CONSUMER
DOW JONES DOW JONES POOR'S STANDARD & PRICE CONSUMER
INDUSTRIAL(5) INDUSTRIAL(5) 500(6) POOR'S 500(6) INDEX(7) PRICE INDEX(7)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
------------- ------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER CONTRARIAN VALUE
SUBACCOUNT
Life of Portfolio (from
05/01/96).................... 41.85 23.31 48.25 26.62 3.72 2.21
One Year....................... 22.64 22.64 31.01 31.01 1.70 1.70
KEMPER VALUE+GROWTH SUBACCOUNT
Life of Portfolio (from
05/01/96).................... 41.85 23.31 48.25 26.62 3.72 2.21
One Year....................... 22.64 22.64 31.01 31.01 1.70 1.70
KEMPER HORIZON 20+ SUBACCOUNT
Life of Portfolio (from
05/01/96).................... 41.85 23.31 48.25 26.62 3.72 2.21
One Year....................... 22.64 22.64 31.01 31.01 1.70 1.70
JANUS GROWTH SUBACCOUNT
Life of Portfolio (from
09/13/93).................... 117.61 19.83 110.62 18.85 11.66 2.60
Three Years.................... 106.24 27.29 113.30 28.32 7.72 2.51
One Year....................... 22.64 22.64 31.01 31.01 1.70 1.70
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investments return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-5
<PAGE> 100
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL
TOTAL RETURN(1) RETURN(2)
(NON-STANDARDIZED) (STANDARDIZED)
------------------------------- --------------
YEAR TO DATE (%) ENDING CUMULATIVE (%) ANNUALIZED (%) ANNUALIZED (%)
RETURN(3) VALUE(4) RETURN RETURN RETURN
---------------- -------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
KEMPER MONEY MARKET SUBACCOUNT(20)......... 3.81%
Life of Subaccount (from 04/06/82)....... $91,778 126.87% 5.34% 5.07%
Life of Portfolio (from 04/06/82)........ 91,778 126.87% 5.34% 5.07%
Ten Years................................ 60,635 51.51% 4.24% 3.97%
Five Years............................... 46,660 16.58% 3.11% 2.09%
Three Years.............................. 44,822 11.98% 3.84% 1.98%
One Year................................. 41,524 3.73% 3.73% -3.11%
KEMPER MONEY MARKET SUBACCOUNT #2(20)...... 5.21%
Life of Subaccount (from 04/06/82)....... 100,417 150.97% 6.02% 5.75%
Life of Portfolio (from 04/06/82)........ 100,417 150.97% 6.02% 5.75%
Ten Years................................ 66,548 66.29% 5.22% 4.94%
Five Years............................... 49,527 23.74% 4.35% 3.32%
Three Years.............................. 46,522 16.23% 5.14% 3.26%
One Year................................. 42,083 5.13% 5.13% -1.80%
KEMPER HIGH YIELD SUBACCOUNT(19)........... 10.08%
Life of Subaccount (from 04/06/82)....... 241,465 503.59% 12.11% 11.82%
Life of Portfolio (from 04/06/82)........ 241,465 503.59% 12.11% 11.82%
Ten Years................................ 106,143 165.28% 10.25% 9.96%
Five Years............................... 65,537 63.77% 10.37% 9.27%
Three Years.............................. 57,336 43.26% 12.73% 10.71%
One Year................................. 44,032 10.01% 10.01% 2.75%
KEMPER GOVERNMENT SECURITIES SUBACCOUNT.... 7.46%
Life of Subaccount (from 11/03/89)....... 67,043 67.61% 6.54% 6.26%
Life of Portfolio (from 09/03/87)........ 76,290 90.65% 6.44% N/A
Ten Years................................ 76,075 90.11% 6.64% N/A
Five Years............................... 51,435 28.51% 5.15% 4.10%
Three Years.............................. 51,126 27.74% 8.50% 6.56%
One Year................................. 43,984 7.38% 7.38% .29%
KEMPER INVESTMENT GRADE BOND SUBACCOUNT.... 7.54%
Life of Subaccount (from 05/01/96)....... 44,143 10.28% 6.04% 2.26%
Life of Portfolio (from 05/01/96)........ 44,143 10.28% 6.04% 2.26%
One Year................................. 43,014 7.46% 7.46% .37%
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investments return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-6
<PAGE> 101
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
COMPARED TO
------------------------------------------------------------------------------------------------------
SALOMON BROS SALOMON BROS LEHMAN BROS.
CONSUMER CONSUMER CDA CERT CDA CERT HIGH GRADE HIGH GRADE GOVT/CORP
PRICE PRICE OF DEPOSIT OF DEPOSIT CORP BOND CORP BOND BOND
INDEX(7) INDEX(7) INDEX(8) INDEX(8) INDEX(9) INDEX(9) INDEX(10)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE %
RETURN RETURN RETURN RETURN RETURN RETURN RETURN
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMPER MONEY MARKET
SUBACCOUNT(20)
Life of Portfolio
(from 04/06/82)..... N/A
Ten Years............. 39.93 3.42 180.09 10.85 N/A
Five Years............ 13.69 2.60 55.46 9.23 N/A
Three Years........... 7.72 2.51 45.69 13.36 N/A
One Year.............. 1.70 1.70 12.96 12.96 N/A
KEMPER MONEY MARKET
SUBACCOUNT #2(20)
Life of Portfolio
(from 04/06/82).....
Ten Years............. 39.93 3.42 180.09 10.85
Five Years............ 13.69 2.60 55.46 9.23
Three Years........... 7.72 2.51 45.69 13.36
One Year.............. 1.70 1.70 12.96 12.96
KEMPER HIGH YIELD
SUBACCOUNT(19)
Life of Portfolio
(from 04/06/82)..... N/A N/A N/A N/A
Ten Years............. 39.93 3.42 N/A N/A N/A N/A
Five Years............ 13.69 2.60 N/A N/A N/A N/A
Three Years........... 7.72 2.51 N/A N/A N/A N/A
One Year.............. 1.70 1.70 N/A N/A N/A N/A
KEMPER GOVERNMENT
SECURITIES SUBACCOUNT
Life of Portfolio
(from 09/03/87)..... N/A N/A
Ten Years............. 39.93 3.42 180.09 10.85
Five Years............ 13.69 2.60 N/A N/A 55.46 9.23
Three Years........... 7.72 2.51 N/A N/A 45.69 13.36
One Year.............. 1.70 1.70 N/A N/A 12.96 12.96
KEMPER INVESTMENT GRADE
BOND SUBACCOUNT
Life of Portfolio
(from 05/01/96)..... 3.72 2.21 N/A N/A 22.33 12.85
One Year.............. 1.70 1.70 N/A N/A 12.96 12.96
<CAPTION>
COMPARED TO
------------
LEHMAN BROS.
GOVT/CORP
BOND
INDEX(10)
ANNUALIZED %
RETURN
------------
<S> <C>
KEMPER MONEY MARKET
SUBACCOUNT(20)
Life of Portfolio
(from 04/06/82)..... N/A
Ten Years............. N/A
Five Years............ N/A
Three Years........... N/A
One Year.............. N/A
KEMPER MONEY MARKET
SUBACCOUNT #2(20)
Life of Portfolio
(from 04/06/82).....
Ten Years.............
Five Years............
Three Years...........
One Year..............
KEMPER HIGH YIELD
SUBACCOUNT(19)
Life of Portfolio
(from 04/06/82).....
Ten Years.............
Five Years............
Three Years...........
One Year..............
KEMPER GOVERNMENT
SECURITIES SUBACCOUNT
Life of Portfolio
(from 09/03/87).....
Ten Years.............
Five Years............
Three Years...........
One Year..............
KEMPER INVESTMENT GRADE
BOND SUBACCOUNT
Life of Portfolio
(from 05/01/96).....
One Year..............
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-7
<PAGE> 102
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
COMPARED TO
--------------------------------------------------------------------------------------
LEHMAN BROS
MERRILL LYNCH MERRILL LYNCH LEHMAN BROS LEHMAN BROS GOVT/CORP
GOVT/CORP GOVT/CORP LONG GOVT LONG GOVT 1-3 YEAR
MASTER INDEX(11) MASTER INDEX(11) BOND INDEX(12) BOND INDEX(12) BOND INDEX(13)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE %
RETURN RETURN RETURN RETURN RETURN
---------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
KEMPER MONEY MARKET SUBACCOUNT(20)
Life of Portfolio (from
04/06/82)...................... N/A N/A N/A N/A N/A
Ten Years........................ N/A N/A N/A N/A N/A
Five Years....................... N/A N/A N/A N/A N/A
Three Years...................... N/A N/A N/A N/A N/A
One Year......................... N/A N/A N/A N/A N/A
KEMPER MONEY MARKET SUBACCOUNT
#2(20)
Life of Portfolio (from
04/06/82)...................... N/A N/A N/A N/A N/A
Ten Years........................ N/A N/A N/A N/A N/A
Five Years....................... N/A N/A N/A N/A N/A
Three Years...................... N/A N/A N/A N/A N/A
One Year......................... N/A N/A N/A N/A N/A
KEMPER HIGH YIELD SUBACCOUNT(19)
Life of Portfolio (from
04/06/82)...................... N/A N/A N/A
Ten Years........................ N/A N/A N/A
Five Years....................... N/A N/A N/A
Three Years...................... N/A N/A N/A
One Year......................... N/A N/A N/A
KEMPER GOVERNMENT SECURITIES
SUBACCOUNT
Life of Portfolio (from
09/03/87)...................... N/A N/A N/A
Ten Years........................
Five Years....................... N/A
Three Years...................... N/A
One Year......................... N/A
KEMPER INVESTMENT GRADE BOND
SUBACCOUNT
Life of Portfolio (from
05/01/96)...................... N/A N/A N/A
One Year......................... N/A N/A N/A
<CAPTION>
COMPARED TO
--------------
LEHMAN BROS
GOVT/CORP
1-3 YEAR
BOND INDEX(13)
ANNUALIZED %
RETURN
--------------
<S> <C>
KEMPER MONEY MARKET SUBACCOUNT(20)
Life of Portfolio (from
04/06/82)...................... N/A
Ten Years........................ N/A
Five Years....................... N/A
Three Years...................... N/A
One Year......................... N/A
KEMPER MONEY MARKET SUBACCOUNT
#2(20)
Life of Portfolio (from
04/06/82)...................... N/A
Ten Years........................ N/A
Five Years....................... N/A
Three Years...................... N/A
One Year......................... N/A
KEMPER HIGH YIELD SUBACCOUNT(19)
Life of Portfolio (from
04/06/82)...................... N/A
Ten Years........................ N/A
Five Years....................... N/A
Three Years...................... N/A
One Year......................... N/A
KEMPER GOVERNMENT SECURITIES
SUBACCOUNT
Life of Portfolio (from
09/03/87)...................... N/A
Ten Years........................
Five Years....................... N/A
Three Years...................... N/A
One Year......................... N/A
KEMPER INVESTMENT GRADE BOND
SUBACCOUNT
Life of Portfolio (from
05/01/96)...................... N/A
One Year......................... N/A
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-8
<PAGE> 103
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL RETURN(1) TOTAL
(NON-STANDARDIZED) RETURN(2)
------------------------ (STANDARDIZED)
CUMULATIVE ANNUALIZED --------------
YEAR TO DATE(%) (%) (%) ANNUALIZED
RETURN(3) ENDING VALUE(4) RETURN RETURN (%) RETURN
--------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER GROWTH SUBACCOUNT.................. 19.69%
Life of Subaccount (from 12/09/83)...... $243,929 509.75% 13.72% 13.42%
Life of Portfolio (from 12/09/83)....... 243,929 509.75% 13.72% 13.42%
Ten Years............................... 161,985 304.89% 15.01% 14.71%
Five Years.............................. 80,764 101.83% 15.08% 13.94%
Three Years............................. 76,176 90.37% 23.94% 22.00%
One Year................................ 47,874 19.61% 19.61% 11.99%
KEMPER BLUE CHIP SUBACCOUNT............... N/A
Life of Subaccount (from 05/01/97)...... 44,209 10.45% N/A N/A
Life of Portfolio (from 05/01/97)....... 44,209 10.45% N/A N/A
SCUDDER VLIF CAPITAL GROWTH SUBACCOUNT.... 33.88%
Life of Subaccount (from 05/01/98)...... N/A N/A N/A N/A
Life of Portfolio (from 07/16/85)....... 210,213 425.46% 14.23% N/A
Ten Years............................... 164,262 310.58% 15.17% N/A
Five Years.............................. 85,484 113.63% 16.39% N/A
Three Years............................. 80,491 101.15% 26.23% N/A
One Year................................ 53,554 33.81% 33.81% N/A
WARBURG POST-VENTURE CAPITAL SUBACCOUNT... 11.77%
Life of Subaccount (from 05/01/98)...... N/A N/A N/A N/A
Life of Portfolio (from 09/30/96)....... 43,483 8.63% 6.84% N/A
One Year................................ 44,709 11.70% 11.70% N/A
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
------------------------------------------------------------------------------------------
STANDARD & STANDARD &
STANDARD & STANDARD & CONSUMER POOR'S POOR'S
POOR'S 500 POOR'S 500 CONSUMER PRICE INDEX MIDCAP MIDCAP
(5) (6) PRICE INDEX (7) (7) INDEX (14) INDEX (14)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
------------ ------------ --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER GROWTH SUBACCOUNT
Life of Portfolio (from
12/09/83)..............
Ten Years................
Five Years...............
Three Years..............
One Year.................
KEMPER BLUE CHIP
SUBACCOUNT
Life of Portfolio (from
05/01/97)..............
SCUDDER VLIF CAPITAL
GROWTH SUBACCOUNT........
Life of Portfolio (from
07/16/85)..............
Ten Years................
Five Years...............
Three Years..............
One Year.................
WARBURG POST-VENTURE
CAPITAL SUBACCOUNT.......
Life of Portfolio (from
09/30/96)..............
One Year.................
<CAPTION>
COMPARED TO
---------------------------
NASDAQ NASDAQ
COMPOS (15) COMPOS (15)
CUMULATIVE % ANNUALIZED %
RETURN RETURN
------------ ------------
<S> <C> <C>
KEMPER GROWTH SUBACCOUNT
Life of Portfolio (from
12/09/83)..............
Ten Years................
Five Years...............
Three Years..............
One Year.................
KEMPER BLUE CHIP
SUBACCOUNT
Life of Portfolio (from
05/01/97)..............
SCUDDER VLIF CAPITAL
GROWTH SUBACCOUNT........
Life of Portfolio (from
07/16/85)..............
Ten Years................
Five Years...............
Three Years..............
One Year.................
WARBURG POST-VENTURE
CAPITAL SUBACCOUNT.......
Life of Portfolio (from
09/30/96)..............
One Year.................
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investments return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-9
<PAGE> 104
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL RETURN(1) TOTAL
(NON-STANDARDIZED) RETURN(2)
----------------------- (STANDARDIZED)
YEAR TO DATE CUMULATIVE --------------
(%) ENDING (%) ANNUALIZED ANNUALIZED
RETURN(3) VALUE(4) RETURN (%) RETURN (%) RETURN
------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER SMALL CAP GROWTH SUBACCOUNT...................... 32.39%
Life of Subaccount (from 05/02/94).................... $88,491 121.15% 24.15% 22.57%
Life of Portfolio (from 05/02/94)..................... 88,491 121.15% 24.15% 22.57%
Three Years........................................... 85,886 114.64% 28.99% 27.14%
One Year.............................................. 52,954 32.31% 32.31% 24.64%
KEMPER SMALL CAP VALUE SUBACCOUNT....................... 20.08%
Life of Subaccount (from 05/01/96).................... 48,477 21.12% 12.17% 8.17%
Life of Portfolio (from 05/01/96)..................... 48,477 21.12% 12.17% 8.17%
One Year.............................................. 48,031 20.00% 20.00% 12.38%
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------------------------------
CONSUMER PRICE CONSUMER PRICE RUSSELL 2000 RUSSELL 2000 NASDAQ NASDAQ
INDEX(7) INDEX(7) INDEX(16) INDEX(16) COMPOS(15) COMPOS(15)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
-------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER SMALL CAP GROWTH SUBACCOUNT
Life of Portfolio (from
05/02/94).......................
Three Years.......................
One Year..........................
KEMPER SMALL CAP VALUE SUBACCOUNT
Life of Portfolio (from
05/01/96).......................
One Year..........................
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investments return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-10
<PAGE> 105
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL
TOTAL RETURN(1) RETURN(2)
(NON-STANDARDIZED) (STANDARDIZED)
------------------------------- --------------
YEAR TO DATE(%) CUMULATIVE (%) ANNUALIZED (%) ANNUALIZED
RETURN(3) ENDING VALUE(4) RETURN RETURN (%) RETURN
--------------- --------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL SUBACCOUNT(18)... 7.96%
Life of Subaccount (from
01/06/92)......................... $67,606 68.94% 9.15% 8.34%
Life of Portfolio (from 01/06/92)... 67,606 68.94% 9.15% 8.34%
Five Years.......................... 68,891 72.15% 11.48% 10.36%
Three Years......................... 55,264 38.08% 11.36% 9.36%
One Year............................ 43,184 7.88% 7.88% .83%
KEMPER GLOBAL INCOME SUBACCOUNT....... N/A
Life of Subaccount
(from 05/01/97)................... 40,769 1.85% N/A N/A
Life of Portfolio (from 05/01/97)... 40,769 1.85% N/A N/A
SCUDDER VLIF GLOBAL DISCOVERY
SUBACCOUNT.......................... 10.83%
Life of Subaccount
(from 05/01/98)................... N/A N/A N/A N/A
Life of Portfolio (from 05/01/98)... 46,339 15.77% 9.17% N/A
One Year............................ 44,333 10.76% 10.76% N/A
SCUDDER VLIF INTERNATIONAL
SUBACCOUNT.......................... 7.56%
Life of Subaccount (from
05/01/96)......................... N/A N/A N/A N/A
Life of Portfolio (from 05/01/87)... 93,997 134.92% 8.33% N/A
Ten Years........................... 106,185 165.39% 10.25% N/A
Five Years.......................... 70,925 77.24% 12.13% N/A
Three Years......................... 53,364 33.34% 10.06% N/A
One Year............................ 43,024 7.49% 7.49% N/A
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
------------------------------------------------------------------
STANDARD & STANDARD & CONSUMER PRICE CONSUMER PRICE
POOR'S 500(6) POOR'S 500(6) INDEX(7) INDEX(7)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
KEMPER INTERNATIONAL SUBACCOUNT(18)
Life of Portfolio (from 01/06/92)......................
Five Years.............................................
Three Years............................................
One Year...............................................
KEMPER GLOBAL INCOME SUBACCOUNT
Life of Portfolio (from 05/01/97)......................
SCUDDER VLIF GLOBAL DISCOVERY SUBACCOUNT
Life of Portfolio (from 05/01/96)......................
One Year...............................................
SCUDDER VLIF INTERNATIONAL SUBACCOUNT
Life of Portfolio (from 05/01/87)......................
Ten Years..............................................
Five Years.............................................
Three Years............................................
One Year...............................................
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-11
<PAGE> 106
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------
MORGAN STANLEY MORGAN STANLEY
MORGAN STANLEY MORGAN STANLEY INTER'L WORLD INTER'L WORLD
EAFE INDEX (17) EAFE INDEX (17) INDEX (21) INDEX (21)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
KEMPER INTERNATIONAL SUBACCOUNT(18)
Life of Portfolio (from 01/06/92)......... 53.34 7.40 72.34 9.52
Five Years................................ 73.96 11.71 88.40 13.51
Three Years............................... 21.09 6.59 51.41 14.84
One Year.................................. 2.06 2.06 14.17 14.17
KEMPER GLOBAL INCOME SUBACCOUNT
Life of Portfolio (from 05/01/97)......... 2.42 1.44 20.83 12.01
SCUDDER VLIF GLOBAL DISCOVERY SUBACCOUNT
Life of Portfolio (from 05/01/96).........
One Year.................................. 2.06 2.06 14.17 14.17
SCUDDER VLIF INTERNATIONAL SUBACCOUNT
Life of Portfolio (from 05/01/87).........
Ten Years................................. 88.77 6.56
Five Years................................ 73.96 11.71 88.40 13.51
Three Years............................... 21.04 6.59 51.41 14.84
One Year.................................. 2.06 2.06 14.17 14.17
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-12
<PAGE> 107
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL
TOTAL RETURN(1) RETURN(2)
(NON-STANDARDIZED) (STANDARDIZED)
---------------------------------- --------------
YEAR TO DATE ENDING CUMULATIVE (%) ANNUALIZED (%) ANNUALIZED (%)
(%) RETURN(3) VALUE(4) RETURN RETURN RETURN
------------- -------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN SUBACCOUNT(19)......... 18.32%
Life of Subaccount (from 04/06/82)....... $247,567 518.84% 12.29% 12.00%
Life of Portfolio (from 04/06/82)........ 247,567 518.84% 12.29% 12.00%
Ten Years................................ 128,367 220.84% 12.36% 12.07%
Five Years............................... 66,944 67.29% 10.84% 9.74%
Three Years.............................. 68,093 70.16% 19.39% 17.33%
One Year................................. 47,329 18.25% 18.25% 10.63%
KEMPER HORIZON 10+ SUBACCOUNT.............. 15.17%
Life of Subaccount (from 05/01/96)....... 50,846 27.04% 15.42% 11.31%
Life of Portfolio (from 05/01/96)........ 50,846 27.04% 15.42% 11.31%
One Year................................. 46,070 15.10% 15.10% 7.51%
KEMPER HORIZON 5 SUBACCOUNT................ 11.16%
Life of Subaccount (from 05/01/96)....... 48,284 20.63% 11.90% 7.91%
Life of Portfolio (from 05/01/96)........ 48,284 20.63% 11.90% 7.91%
One Year................................. 44,462 11.08% 11.08% 3.75%
SCUDDER VLIF GROWTH & INCOME SUBACCOUNT.... 28.67%
Life of Subaccount (from 05/01/98)....... N/A N/A N/A N/A
Life of Portfolio (from 05/02/94)........ 83,736 109.27% 22.30% N/A
Three Years.............................. 80,557 101.32% 26.27% N/A
One Year................................. 51,469 28.60% 28.60% N/A
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-----------------------------------------------------------------------------------------------
CONSUMER CONSUMER LEHMAN BROS LEHMAN BROS
STANDARD & STANDARD & PRICE PRICE GOVT/CORP 1-3 GOVT/CORP 1-3
POOR'S 500(6) POOR'S 500(6) INDEX(7) INDEX(7) YEAR BOND(13) YEAR BOND(13)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN RETURN RETURN
------------- ------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN
SUBACCOUNT(19)
Life of Portfolio (from
04/06/82)..................
Ten Years....................
Five Years...................
Three Years..................
One Year.....................
KEMPER HORIZON 10+ SUBACCOUNT
Life of Portfolio (from
05/01/96)..................
One Year.....................
KEMPER HORIZON 5 SUBACCOUNT
Life of Portfolio (from
05/01/96)..................
One Year.....................
SCUDDER VLIF GROWTH & INCOME
SUBACCOUNT
Life of Portfolio (from
05/02/94)..................
Three Years..................
One Year.....................
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-13
<PAGE> 108
PERFORMANCE FIGURES
(AS OF DECEMBER 31, 1997)
(STANDARDIZED AND NON-STANDARDIZED)
(CONTINUED)
<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------------
MERRILL LYNCH MERRILL LYNCH LEHMAN BROS LEHMAN BROS
GOVT/CORP GOVT/CORP GOVT/CORP GOVT/CORP
MASTER INDEX (11) MASTER INDEX (11) BOND INDEX (10) BOND INDEX (10)
CUMULATIVE % ANNUALIZED % CUMULATIVE % ANNUALIZED %
RETURN RETURN RETURN RETURN
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN SUBACCOUNT(19)
Life of Portfolio (from 04/06/82)......
Ten Years..............................
Five Years.............................
Three Years............................
One Year...............................
KEMPER HORIZON 10+ SUBACCOUNT
Life of Portfolio (from 05/01/96)......
One Year...............................
KEMPER HORIZON 5 SUBACCOUNT
Life of Portfolio (from 05/01/96)......
One Year...............................
SCUDDER VLIF GROWTH & INCOME SUBACCOUNT
Life of Portfolio (from 05/02/94)......
Three Years............................
One Year...............................
</TABLE>
The performance data quoted for the Subaccounts is based on past performance and
is not representative of future
results. Investment return and principal value will fluctuate so that unit
values, when redeemed, may be worth
more or less than their original cost. Information regarding the indexes used
for comparison were obtained
from outside sources, have not been independently verified and do not reflect
the deduction of
any Contract charges or fees. See page B-15 for additional information.
B-14
<PAGE> 109
PERFORMANCE FIGURES--NOTES
* N/A Not Applicable
(1) The Non standardized Total Return figures quoted are based on a
hypothetical $10,000 initial investment and assumes the deduction of all
recurring charges and fees applicable under the Contract except for the
Withdrawal Charge and any charge for applicable premium taxes which may be
imposed in certain states.
(2) The Standardized Average Annual Total Return figures quoted are based on a
hypothetical $1,000 initial investment and assumes the deduction of all
recurring charges and fees applicable under the Contract including the
applicable Withdrawal Charge that may be imposed at the end of the quoted
period. Premium taxes are not reflected.
(3) The Year to Date percentage return figures quoted are based on the change
in unit values.
(4) The Ending Values quoted are based on a $10,000 initial investment and
assumes the deduction of all recurring charges and fees applicable under
the Contract except for the Withdrawal Charge and any charge for applicable
premium taxes which may be imposed in certain states.
(5) The Dow Jones Industrial Average is an unmanaged unweighted average of
thirty blue chip industrial corporations listed on the New York Stock
Exchange. Assumes reinvestment of dividends.
(6) The Standard & Poor's 500 Stock Index is an unmanaged weighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends.
(7) The Consumer Price Index, published by the U.S. Bureau of Labor Statistics,
is a statistical measure of change, over time, in the prices of goods and
services in major expenditure groups.
(8) The CDA Certificate of Deposit Index is provided by CDA Investment
Technologies, Inc., Silver Spring, Maryland, and is based upon a
statistical sampling of the yield of 30-day certificates of deposit of
major commercial banks. Yield is based upon a monthly compounding of
interest.
(9) The Salomon Brothers High Grade Corporate Bond Index is on a total return
basis with all dividends reinvested and is comprised of high grade
long-term industrial and utility bonds rated in the top two rating
categories.
(10) The Lehman Brothers Government/Corporate Bond Index is on a total return
basis and is comprised of all publicly issued, non-convertible, domestic
debt of the U.S. Government or any agency thereof, quasi-Federal
corporation, or corporate debt guaranteed by the U.S. Government and all
publicly issued, fixed-rate, non-convertible, domestic debt of the three
major corporate classifications: industrial, utility, and financial. Only
notes and bonds with a minimum outstanding principal amount of $1,000,000
and a minimum of one year are included. Bonds included must have a rating
of at least Baa by Moody's Investors Service, BBB by Standard & Poor's
Corporation or in the case of bank bonds not rated by either Moody's or
Standard & Poor's, BBB by Fitch Investors Service.
(11) The Merrill Lynch Government/Corporate Master Index is based upon the total
returns with all dividends reinvested of 4,000 corporate and 300 government
bonds issued with an intermediate average maturity and an average quality
rating of Aa (Moody's Investors Service, Inc.) /AA (Standard & Poor's
Corporation).
(12) The Lehman Brothers Long Government/Corporate Bond Index is composed of all
bonds covered by the Lehman Brothers Government/Corporate Bond Index with
maturities of 10 years or greater. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indexes are balanced monthly by market capitalization.
(13) The Lehman Brothers Government/Corporate 1-3 Year Bond Index is composed of
all bonds covered by the Lehman Brothers Government/Corporate Bond Index
with maturities between one and three years.
(14) The Standard & Poor's Midcap 400 Index is a capitalization-weighted index
that measures the performance of the mid-range sector of the U.S. stock
market where the median market capitalization is approximately $700
million. The index was developed with a base level of 100 as of December
31, 1990.
(15) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ stocks. The index was developed with a base level of 100 as
of February 5, 1971. (23) From May 1, 1996 to December 31, 1996.
(16) The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index, representing approximately 11% of the Russell 3000
total market capitalization. The index was developed with a base value of
135.00 as of December 31, 1986.
(17) The Morgan Stanley EAFE is the Morgan Stanley Capital International Europe,
Australia, Far East index. This index is an unmanaged index that is
considered to be generally representative of major non-United States stock
markets.
(18) There are special risks associated with investing in non-U.S. companies,
including fluctuating foreign currency exchange rates, foreign governmental
regulations and differing degrees of liquidity that may adversely affect
portfolio securities.
(19) The high yield potential offered by these Subaccounts reflect the
substantial risks associated with investments in high-yield bonds.
(20) An investment in the IFS Money Market Subaccount is neither insured nor
guaranteed by the U.S. government. There can be no assurance that the Money
Market Portfolio will be able to maintain a stable net asset value of $1.00
per share.
(21) The Morgan Stanley International World Index is an arithmetic, market
value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, New
Zealand, Norway, Singapore/Malaysia, South Africa Gold, Spain, Switzerland,
United Kingdom, and the United States. The index is calculated on a total
return basis, which includes reinvestment of gross dividends before
deduction of withholding taxes. The index covers about 60% of the issues
listed on the exchanges of the countries included.
B-15
<PAGE> 110
The following tables illustrate an assumed $40,000 investment in shares of
certain Subaccounts. The ending value does not include the effect of the
applicable Withdrawal Charge that may be imposed at the end of the period, and
thus may be higher than if such charge were deducted. Each table covers the
period from the inception date of each Fund to December 31, 1997.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER MONEY MARKET SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1982 ............................... $43,058
1983 ............................... 46,405
1984 ............................... 50,670
1985 ............................... 54,094
1986 ............................... 56,926
1987 ............................... 59,885
1988 ............................... 63,514
1989 ............................... 68,402
1990 ............................... 72,994
1991 ............................... 76,270
1992 ............................... 77,820
1993 ............................... 78,968
1994 ............................... 81,012
1995 ............................... 84,434
1996 ............................... 87,447
1997 ............................... 90,778
</TABLE>
<TABLE>
<CAPTION>
KEMPER GOVERNMENT SECURITIES
SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1987 ............................... $40,113
1988 ............................... 40,801
1989 ............................... 46,074
1990 ............................... 49,929
1991 ............................... 56,785
1992 ............................... 59,330
1993 ............................... 62,326
1994 ............................... 59,688
1995 ............................... 70,150
1996 ............................... 70,995
1997 ............................... 76,290
</TABLE>
<TABLE>
<CAPTION>
KEMPER INVESTMENT GRADE BOND
SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $41,050
1997 ............................... 44,143
</TABLE>
<TABLE>
<CAPTION>
KEMPER GLOBAL INCOME SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1997 ............................... $40,769
</TABLE>
<TABLE>
<CAPTION>
KEMPER HORIZON 5 SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $43,438
1997 ............................... 48,284
</TABLE>
<TABLE>
<CAPTION>
KEMPER HIGH YIELD SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1982 .............................. $ 49,485
1983 .............................. 56,063
1984 .............................. 62,318
1985 .............................. 74,895
1986 .............................. 87,061
1987 .............................. 90,996
1988 .............................. 104,077
1989 .............................. 101,381
1990 .............................. 84,537
1991 .............................. 126,794
1992 .............................. 147,376
1993 .............................. 174,554
1994 .............................. 168,457
1995 .............................. 195,187
1996 .............................. 219,553
1997 .............................. 241,465
</TABLE>
<TABLE>
<CAPTION>
KEMPER HORIZON 10+ SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $44,147
1997 ............................... 50,846
</TABLE>
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1982 .............................. $ 49,393
1983 .............................. 57,379
1984 .............................. 53,853
1985 .............................. 68,340
1986 .............................. 77,673
1987 .............................. 77,143
1988 .............................. 85,302
1989 .............................. 104,435
1990 .............................. 108,255
1991 .............................. 147,444
1992 .............................. 147,925
1993 .............................. 163,685
1994 .............................. 145,429
1995 .............................. 182,252
1996 .............................. 209,232
1997 .............................. 247,567
</TABLE>
<TABLE>
<CAPTION>
KEMPER HORIZON 20+ SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $45,734
1997 ............................... 54,346
</TABLE>
<TABLE>
<CAPTION>
KEMPER VALUE+GROWTH SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $45,430
1997 ............................... 56,224
</TABLE>
B-16
<PAGE> 111
<TABLE>
<CAPTION>
KEMPER BLUE CHIP SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1997 ............................... $44,209
</TABLE>
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1992 ............................... $39,254
1993 ............................... 51,478
1994 ............................... 48,933
1995 ............................... 54,820
1996 ............................... 62,622
1997 ............................... 67,606
</TABLE>
<TABLE>
<CAPTION>
KEMPER CONTRARIAN VALUE SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $46,525
1997 ............................... 59,838
</TABLE>
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $40,371
1997 ............................... 48,477
</TABLE>
<TABLE>
<CAPTION>
KEMPER SMALL CAP GROWTH SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1994 ............................... $41,213
1995 ............................... 52,892
1996 ............................... 66,844
1997 ............................... 88,491
</TABLE>
<TABLE>
<CAPTION>
KEMPER GROWTH SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1983 .............................. $ 41,162
1984 .............................. 45,032
1985 .............................. 55,642
1986 .............................. 60,009
1987 .............................. 60,235
1988 .............................. 59,688
1989 .............................. 75,584
1990 .............................. 75,035
1991 .............................. 118,212
1992 .............................. 120,811
1993 .............................. 136,674
1994 .............................. 128,086
1995 .............................. 170,516
1996 .............................. 203,807
1997 .............................. 243,929
</TABLE>
<TABLE>
<CAPTION>
SCUDDER VLIF GLOBAL
DISCOVERY SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $41,810
1997 ............................... 46,339
</TABLE>
<TABLE>
<CAPTION>
SCUDDER VLIF GROWTH AND INCOME
SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1994 ............................... $41,578
1995 ............................... 54,351
1996 ............................... 65,077
1997 ............................... 83,736
</TABLE>
<TABLE>
<CAPTION>
SCUDDER VLIF INTERNATIONAL SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1987 ............................... $35,409
1988 ............................... 40,769
1989 ............................... 55,419
1990 ............................... 50,462
1991 ............................... 55,468
1992 ............................... 53,012
1993 ............................... 72,052
1994 ............................... 70,457
1995 ............................... 77,786
1996 ............................... 87,390
1997 ............................... 943,997
</TABLE>
<TABLE>
<CAPTION>
SCUDDER VLIF CAPITAL GROWTH
SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1985 .............................. $ 43,878
1986 .............................. 52,927
1987 .............................. 51,190
1988 .............................. 61,634
1989 .............................. 74,624
1990 .............................. 68,087
1991 .............................. 93,734
1992 .............................. 98,364
1993 .............................. 117,263
1994 .............................. 103,424
1995 .............................. 133,489
1996 .............................. 157,011
1997 .............................. 210,213
</TABLE>
<TABLE>
<CAPTION>
JANUS GROWTH SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1993 ............................... $41,230
1994 ............................... 41,700
1995 ............................... 53,835
1996 ............................... 62,659
1997 ............................... 75,123
</TABLE>
<TABLE>
<CAPTION>
WARBURG PINCUS POST-VENTURE CAPITAL
SUBACCOUNT
YEAR
ENDED TOTAL
12/31 VALUE
- ----- -----
<C> <S> <C>
1996 ............................... $38,903
1997 ............................... 43,483
</TABLE>
B-17
<PAGE> 112
TAX-DEFERRED ACCUMULATION
<TABLE>
<CAPTION>
NON-QUALIFIED
ANNUITY CONVENTIONAL
AFTER-TAX CONTRIBUTIONS SAVINGS PLAN
AND TAX-DEFERRED EARNINGS. AFTER-TAX
-------------------------------- CONTRIBUTIONS
TAXABLE LUMP AND TAXABLE
NO WITHDRAWALS SUM WITHDRAWAL EARNINGS.
-------------- -------------- -------------
<S> <C> <C> <C>
10 Years.......................................... $107,946 $ 86,448 $ 81,693
20 Years.......................................... 233,048 165,137 133,476
30 Years.......................................... 503,133 335,021 218,082
</TABLE>
This chart compares the accumulation of a $50,000 initial investment into a
Non-Qualified Annuity and a Conventional Savings Plan. Contributions to the
Non-Qualified Annuity and the Conventional Savings Plan are made after-tax. Only
the gain in the Non-Qualified Annuity will be subject to income tax in a taxable
lump sum withdrawal. The chart assumes a 37.1% federal marginal tax rate and an
8% annual return. The 37.1% federal marginal tax is based on a marginal tax rate
of 36%, representative of the target market, adjusted to reflect a decrease of
$3 of itemized deductions for each $100 of income over $117,950. Tax rates are
subject to change as is the tax-deferred treatment of the Contracts. Income on
Non-Qualified Annuities is taxed as ordinary income upon withdrawal. A 10% tax
penalty may apply to early withdrawals. See "Federal Income Taxes" in the
prospectus. The chart does not reflect the following annuity charges and
expenses: 1.25% mortality and expense risk; .10% administration charges; 7%
maximum deferred withdrawal charge; and $30 annual records maintenance charge.
The tax-deferred accumulation would be reduced if these charges were reflected.
No implication is intended by the use of these assumptions that the return shown
is guaranteed in any way or that the return shown represents an average or
expected rate of return over the period of the Contracts. [IMPORTANT--THIS IS
NOT AN ILLUSTRATION OF YIELD OR RETURN].
Unlike savings plans, contributions to Non-Qualified Annuities provide
tax-deferred treatment on earnings. In addition, contributions to tax-deferred
retirement annuities are not subject to current tax in the year of contribution.
When monies are received from a Non-Qualified Annuity (and you have many
different options on how you receive your funds), they are subject to income
tax. At the time of receipt, if the person receiving the monies is retired, not
working or has additional tax exemptions, these monies may be taxed at a lesser
rate.
STATE REGULATION
KILICO is subject to the laws of Illinois governing insurance companies and to
regulation by the Illinois Department of Insurance. An annual statement in a
prescribed form is filed with the Illinois Department of Insurance each year.
KILICO's books and accounts are subject to review by the Department of Insurance
at all times, and a full examination of its operations is conducted
periodically. Such regulation does not, however, involve any supervision of
management or investment practices or policies. In addition, KILICO is subject
to regulation under the insurance laws of other jurisdictions in which it may
operate.
EXPERTS
The statements of assets and liabilities and contract owners' equity of the
Separate Account as of December 31, 1997 and the related statements of
operations for the year then ended and the statements of changes in contract
owners' equity for the year then ended has been included herein in reliance upon
the report of Coopers & Lybrand L.L.P., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The statement of changes in contract owners' equity of the Separate Account for
the year ended December 31, 1996 has been included herein 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.
FINANCIAL STATEMENTS
This Statement of Additional Information contains financial statements for the
Separate Account which reflect assets attributable to other variable annuity
contracts offered by KILICO through the Separate Account. As of the date of this
Statement of Additional Information, no assets attributable to the Contracts are
reflected as the Contracts were not offered prior to such date. In addition, the
financial statements for the Separate Account reflect Subaccounts that are not
available under the Contracts.
B-18
<PAGE> 113
[THIS PAGE INTENTIONALLY LEFT BLANK]
B-19
<PAGE> 114
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS OF
KEMPER INVESTORS LIFE INSURANCE COMPANY AND
CONTRACT OWNERS OF KILICO VARIABLE ANNUITY SEPARATE ACCOUNT:
We have audited the accompanying statements of assets and liabilities and
contract owners' equity of the Money Market Subaccount, Money Market Subaccount
#2, Total Return Subaccount, High Yield Subaccount, Growth Subaccount,
Government Securities Subaccount, International Subaccount, Small Cap Growth
Subaccount, Investment Grade Bond Subaccount, Contrarian Value Subaccount, Small
Cap Value Subaccount, Value+Growth Subaccount, Horizon 20+ Subaccount, Horizon
10+ Subaccount, Horizon 5 Subaccount, Global Income Subaccount and Blue Chip
Subaccount (investment options within the Investors Fund Series), and the Growth
Subaccount (investment option within Janus Aspen Series), of KILICO Variable
Annuity Separate Account as of December 31, 1997 and the related statements of
operations and the statements of changes in contract owners' equity for the year
then ended, except for Global Income Subaccount and Blue Chip Subaccount as to
which the period is May 1, 1997 (commencement of operations) to December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The statement of changes in contract owners'
equity for the year ended December 31, 1996 was audited by other auditors, whose
report, dated March 26, 1997, expressed an unqualified opinion on that
statement.
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. Our procedures included
confirmation of investments owned at December 31, 1997 by correspondence with
the transfer agent. 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 December 31, 1997 financial statements referred to above
present fairly, in all material respects, the financial position of the
subaccounts of KILICO Variable Annuity Separate Account at December 31, 1997 and
the results of their operations and changes in their contract owners' equity for
the year then ended, except for Global Income Subaccount and Blue Chip
Subaccount as to which the period is May 1, 1997 (commencement of operations) to
December 31, 1997, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 20, 1998
B-20
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
KEMPER INVESTORS LIFE INSURANCE COMPANY:
We have audited the accompanying statement of changes in contract owners' equity
of the Money Market Subaccount, Money Market Subaccount #2, Total Return
Account, High Yield Subaccount, Growth Subaccount, Government Securities
Subaccount, International Subaccount, Small Cap Growth Subaccount, Investment
Grade Bond Subaccount, Contrarian Value Subaccount, Small Cap Value Subaccount,
Value+Growth Subaccount, Horizon 20+ Subaccount, Horizon 10+ Subaccount, and
Horizon 5 Subaccount (investment options within the Investors Fund Series), and
the Growth Subaccount, (investment option within Janus Aspen Series), of KILICO
Variable Annuity Separate Account (the Account) for the year ended December 31,
1996. This financial statement is the responsibility of the Account's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 financial statement referred to above presents fairly, in
all material respects, the changes in the contract owners' equity of the
subaccounts of KILICO Variable Annuity Separate Account for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 26, 1997
B-21
<PAGE> 116
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
------------------------------------------------------------------------------
MONEY MONEY TOTAL HIGH GOVERNMENT
MARKET MARKET RETURN YIELD GROWTH SECURITIES
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in underlying
portfolio funds, at current
values..................... $73,754 6,379 743,633 306,171 527,701 72,906
Dividends and other
receivables................ 200 17 142 40 69 5
------- ----- ------- ------- ------- ------
Total assets.......... 73,954 6,396 743,775 306,211 527,770 72,911
------- ----- ------- ------- ------- ------
LIABILITIES AND CONTRACT
OWNERS' EQUITY
Liabilities:
Mortality and expense risk
and administrative
charges.................. 82 -- 796 327 564 78
Other payables............. 118 2 195 63 106 12
------- ----- ------- ------- ------- ------
Total liabilities..... 200 2 991 390 670 90
------- ----- ------- ------- ------- ------
Contract owners' equity...... $73,754 6,394 742,784 305,821 527,100 72,821
======= ===== ======= ======= ======= ======
ANALYSIS OF CONTRACT OWNERS'
EQUITY
Excess of proceeds from units
sold over payments for
units redeemed............. $ 3,881 5,218 203,480 96,788 187,968 39,559
Accumulated net investment
income (loss).............. 69,873 1,176 301,262 181,924 202,725 30,968
Accumulated net realized gain
on sales of investments.... -- -- 88,300 6,525 61,033 1,024
Unrealized appreciation of
investments................ -- -- 149,742 20,584 75,374 1,270
------- ----- ------- ------- ------- ------
Contract owners' equity...... $73,754 6,394 742,784 305,821 527,100 72,821
======= ===== ======= ======= ======= ======
<CAPTION>
INVESTORS FUND SERIES
--------------------------
SMALL CAP
INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT
------------- ----------
<S> <C> <C>
ASSETS
Investments in underlying
portfolio funds, at current
values..................... 160,865 112,970
Dividends and other
receivables................ 28 25
------- -------
Total assets.......... 160,893 112,995
------- -------
LIABILITIES AND CONTRACT
OWNERS' EQUITY
Liabilities:
Mortality and expense risk
and administrative
charges.................. 172 115
Other payables............. 125 17
------- -------
Total liabilities..... 297 132
------- -------
Contract owners' equity...... 160,596 112,863
======= =======
ANALYSIS OF CONTRACT OWNERS'
EQUITY
Excess of proceeds from units
sold over payments for
units redeemed............. 107,157 72,054
Accumulated net investment
income (loss).............. 7,987 7,311
Accumulated net realized gain
on sales of investments.... 18,107 11,120
Unrealized appreciation of
investments................ 27,345 22,378
------- -------
Contract owners' equity...... 160,596 112,863
======= =======
</TABLE>
See accompanying notes to financial statements.
B-22
<PAGE> 117
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
---------------------------------------------------------------------------------------------------------------------
INVESTMENT CONTRARIAN SMALL CAP VALUE+ HORIZON HORIZON
GRADE BOND VALUE VALUE GROWTH 20+ 10+ HORIZON 5 GLOBAL INCOME BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5,463 78,165 33,296 27,952 6,474 9,169 4,902 326 2,080
1 20 14 21 5 4 3 -- 3
----- ------ ------ ------ ----- ----- ----- --- -----
5,464 78,185 33,310 27,973 6,479 9,173 4,905 326 2,083
----- ------ ------ ------ ----- ----- ----- --- -----
5 68 35 29 7 10 5 -- 2
1 35 25 23 4 3 2 -- 3
----- ------ ------ ------ ----- ----- ----- --- -----
6 103 60 52 11 13 7 -- 5
----- ------ ------ ------ ----- ----- ----- --- -----
5,458 78,082 33,250 27,921 6,468 9,160 4,898 326 2,078
===== ====== ====== ====== ===== ===== ===== === =====
5,144 64,882 28,513 23,759 5,342 7,793 4,402 307 2,017
(37) (395) (220) (224) (86) (83) (47) (7) (20)
73 2,762 1,143 618 177 138 98 21 27
278 10,833 3,814 3,768 1,035 1,312 445 5 54
----- ------ ------ ------ ----- ----- ----- --- -----
5,458 78,082 33,250 27,921 6,468 9,160 4,898 326 2,078
===== ====== ====== ====== ===== ===== ===== === =====
<CAPTION>
JANUS ASPEN SERIES
------------------
GROWTH
SUBACCOUNT
----------
<S> <C>
29,665
13
------
29,678
------
31
--
------
31
------
29,647
======
23,713
668
916
4,350
------
29,647
======
</TABLE>
B-23
<PAGE> 118
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
------------------------------------------------------------------------------
MONEY MONEY TOTAL GOVERNMENT
MARKET MARKET RETURN HIGH YIELD GROWTH SECURITIES
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions.................... $3,938 374 107,616 23,900 112,090 6,229
Expenses:
Mortality and expense risk and
administrative charges......... 999 1 9,756 3,824 6,893 1,011
------ --- ------- ------ ------- -----
Net investment income (loss)....... 2,939 373 97,860 20,076 105,197 5,218
------ --- ------- ------ ------- -----
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on sales
of investments................. -- -- 21,466 5,634 13,791 (133)
Change in unrealized appreciation
(depreciation) of
investments.................... -- -- 1,837 2,376 (29,191) 284
------ --- ------- ------ ------- -----
Net realized and unrealized gain
(loss) on investments............ -- -- 23,303 8,010 (15,400) 151
------ --- ------- ------ ------- -----
Net increase in contract owners'
equity resulting from
operations....................... $2,939 373 121,163 28,086 89,797 5,369
====== === ======= ====== ======= =====
<CAPTION>
INVESTORS FUND SERIES
--------------------------
SMALL CAP
INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT
------------- ----------
<S> <C> <C>
Dividends and capital gains
distributions.................... 9,141 8,510
Expenses:
Mortality and expense risk and
administrative charges......... 2,301 1,226
------ ------
Net investment income (loss)....... 6,840 7,284
------ ------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on sales
of investments................. 9,738 8,226
Change in unrealized appreciation
(depreciation) of
investments.................... (2,788) 8,507
------ ------
Net realized and unrealized gain
(loss) on investments............ 6,950 16,733
------ ------
Net increase in contract owners'
equity resulting from
operations....................... 13,790 24,017
====== ======
</TABLE>
- ---------------
(a) For the period from May 1, 1997 (commencement of operations) to December 31,
1997.
See accompanying notes to financial statements.
B-24
<PAGE> 119
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT CONTRARIAN SMALL CAP VALUE+ HORIZON HORIZON GLOBAL
GRADE BOND VALUE VALUE GROWTH 20+ 10+ HORIZON 5 INCOME BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(A) SUBACCOUNT(A)
---------- ---------- ---------- ------------ ----------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28 303 181 121 40 60 29 -- --
54 621 357 282 98 113 62 7 20
--- ------ ----- ----- --- ----- --- -- ---
(26) (318) (176) (161) (58) (53) (33) (7) (20)
--- ------ ----- ----- --- ----- --- -- ---
71 2,750 1,194 619 161 129 97 21 27
248 9,122 3,077 3,038 777 945 320 5 54
--- ------ ----- ----- --- ----- --- -- ---
319 11,872 4,271 3,657 938 1,074 417 26 81
--- ------ ----- ----- --- ----- --- -- ---
293 11,554 4,095 3,496 880 1,021 384 19 61
=== ====== ===== ===== === ===== === == ===
<CAPTION>
JANUS ASPEN SERIES
- --- ------------------
GROWTH
SUBACCOUNT
------------------
<S> <C>
741
312
-----
429
-----
842
3,150
-----
3,992
-----
4,421
=====
</TABLE>
B-25
<PAGE> 120
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTOR FUND SERIES
------------------------------------------------------------------------------
MONEY MONEY TOTAL HIGH GOVERNMENT
MARKET MARKET RETURN YIELD GROWTH SECURITIES
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income
(loss)..................... $ 2,939 373 97,860 20,076 105,197 5,218
Net realized gain (loss) on
sales of investments....... -- -- 21,466 5,634 13,791 (133)
Change in unrealized
appreciation (depreciation)
of investments............. -- -- 1,837 2,376 (29,191) 284
-------- ------- ------- ------- ------- -------
Net increase in contract
owners' equity resulting
from operations.......... 2,939 373 121,163 28,086 89,797 5,369
-------- ------- ------- ------- ------- -------
Account unit transactions:
Proceeds from units sold..... 21,938 7,884 36,774 26,456 32,804 6,125
Net transfers (to) from
affiliated divisions and
subaccounts................ 7,054 (10,145) (30,823) (473) (35,916) (6,847)
Payments for units
redeemed................... (17,525) (213) (75,741) (34,745) (43,779) (11,513)
-------- ------- ------- ------- ------- -------
Net increase (decrease) in
contract owners' equity
from account unit
transactions............. 11,467 (2,474) (69,790) (8,762) (46,891) (12,235)
-------- ------- ------- ------- ------- -------
Total increase (decrease) in
contract owners' equity...... 14,406 (2,101) 51,373 19,324 42,906 (6,866)
Beginning of period............ 59,348 8,495 691,411 286,497 484,194 79,687
-------- ------- ------- ------- ------- -------
End of period.................. $ 73,754 6,394 742,784 305,821 527,100 72,821
======== ======= ======= ======= ======= =======
<CAPTION>
INVESTOR FUND SERIES
--------------------------
SMALL CAP
INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT
------------- ----------
<S> <C> <C>
Operations:
Net investment income
(loss)..................... 6,840 7,284
Net realized gain (loss) on
sales of investments....... 9,738 8,226
Change in unrealized
appreciation (depreciation)
of investments............. (2,788) 8,507
------- -------
Net increase in contract
owners' equity resulting
from operations.......... 13,790 24,017
------- -------
Account unit transactions:
Proceeds from units sold..... 14,396 14,943
Net transfers (to) from
affiliated divisions and
subaccounts................ (14,865) 11,461
Payments for units
redeemed................... (15,633) (6,408)
------- -------
Net increase (decrease) in
contract owners' equity
from account unit
transactions............. (16,102) 19,996
------- -------
Total increase (decrease) in
contract owners' equity...... (2,312) 44,013
Beginning of period............ 162,908 68,850
------- -------
End of period.................. 160,596 112,863
======= =======
</TABLE>
- ---------------
(a) For the period from May 1, 1997 (commencement of operations) to December 31,
1997.
See accompanying notes to financial statements.
B-26
<PAGE> 121
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
------------------------------------------------------------------------------------------------------------------------
INVESTMENT CONTRARIAN SMALL CAP VALUE+ HORIZON HORIZON
GRADE BOND VALUE VALUE GROWTH 20+ 10+ HORIZON 5 GLOBAL INCOME BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(A) SUBACCOUNT(A)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(26) (318) (176) (161) (58) (53) (33) (7) (20)
71 2,750 1,194 619 161 129 97 21 27
248 9,122 3,077 3,038 777 945 320 5 54
----- ------ ------ ------ ----- ----- ----- --- -----
293 11,554 4,095 3,496 880 1,021 384 19 61
----- ------ ------ ------ ----- ----- ----- --- -----
1,403 16,729 8,235 8,265 1,223 1,730 1,182 44 1,073
2,113 31,875 9,674 7,531 1,114 1,220 1,152 263 1,027
(224) (2,935) (1,625) (1,266) (179) (395) (200) -- (83)
----- ------ ------ ------ ----- ----- ----- --- -----
3,292 45,669 16,284 14,530 2,158 2,555 2,134 307 2,017
----- ------ ------ ------ ----- ----- ----- --- -----
3,585 57,223 20,379 18,026 3,038 3,576 2,518 326 2,078
1,873 20,859 12,871 9,895 3,430 5,584 2,380 -- --
----- ------ ------ ------ ----- ----- ----- --- -----
5,458 78,082 33,250 27,921 6,468 9,160 4,898 326 2,078
===== ====== ====== ====== ===== ===== ===== === =====
<CAPTION>
JANUS ASPEN SERIES
------------------
GROWTH
SUBACCOUNT
----------
<S><C>
429
842
3,150
------
4,421
------
5,841
2,785
(1,058)
------
7,568
------
11,989
17,658
------
29,647
======
</TABLE>
B-27
<PAGE> 122
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
------------------------------------------------------------------------------
MONEY MONEY TOTAL HIGH GOVERNMENT
MARKET MARKET RETURN YIELD GROWTH SECURITIES
SUBACCOUNT SUBACCOUNT #2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss)....... $ 2,493 243 33,796 21,101 57,547 4,982
Net realized gain (loss) on sales
of investments................... -- -- 17,341 4,321 11,516 117
Change in unrealized appreciation
(depreciation) of investments.... -- -- 42,597 5,924 10,026 (4,343)
-------- ------ ------- ------- ------- -------
Net increase in contract owners'
equity resulting from
operations..................... 2,493 243 93,734 31,346 79,089 756
-------- ------ ------- ------- ------- -------
Account unit transactions:
Proceeds from units sold........... 22,801 12,928 47,161 36,482 43,192 7,926
Net transfers (to) from affiliated
divisions and subaccounts........ (7,498) (6,807) (27,829) (7,862) (9,293) (9,264)
Payments for units redeemed........ (16,282) (184) (78,322) (28,503) (41,011) (10,724)
-------- ------ ------- ------- ------- -------
Net increase (decrease) in
contract owners' equity from
account unit transactions...... (979) 5,937 (58,990) 117 (7,112) (12,062)
-------- ------ ------- ------- ------- -------
Total increase (decrease) in contract
owners' equity..................... 1,514 6,180 34,744 31,463 71,977 (11,306)
Beginning of period.................. 57,834 2,315 656,667 255,034 412,217 90,993
-------- ------ ------- ------- ------- -------
End of period........................ $ 59,348 8,495 691,411 286,497 484,194 79,687
======== ====== ======= ======= ======= =======
<CAPTION>
INVESTORS FUND SERIES
--------------------------
SMALL CAP
INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT
------------- ----------
<S> <C> <C>
Operations:
Net investment income (loss)....... 942 478
Net realized gain (loss) on sales
of investments................... 5,409 2,710
Change in unrealized appreciation
(depreciation) of investments.... 14,729 8,276
------- ------
Net increase in contract owners'
equity resulting from
operations..................... 21,080 11,464
------- ------
Account unit transactions:
Proceeds from units sold........... 20,272 13,879
Net transfers (to) from affiliated
divisions and subaccounts........ 819 11,423
Payments for units redeemed........ (13,606) (3,253)
------- ------
Net increase (decrease) in
contract owners' equity from
account unit transactions...... 7,485 22,049
------- ------
Total increase (decrease) in contract
owners' equity..................... 28,565 33,513
Beginning of period.................. 134,343 35,337
------- ------
End of period........................ 162,908 68,850
======= ======
</TABLE>
- ---------------
(a) For the period from May 1, 1996 (commencement of operations) to December 31,
1996.
See accompanying notes to financial statements.
B-28
<PAGE> 123
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT CONTRARIAN SMALL CAP VALUE+
GRADE BOND VALUE VALUE GROWTH HORIZON 20+ HORIZON 10+ HORIZON 5
SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A)
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(11) (77) (44) (63) (28) (30) (14)
2 12 (51) (1) 16 9 1
30 1,711 737 730 258 367 125
----- ------ ------ ----- ----- ----- -----
21 1,646 642 666 246 346 112
----- ------ ------ ----- ----- ----- -----
1,262 9,908 6,111 6,223 2,580 4,108 1,453
632 9,522 6,244 3,214 620 1,206 887
(42) (217) (126) (208) (16) (76) (72)
----- ------ ------ ----- ----- ----- -----
1,852 19,213 12,229 9,229 3,184 5,238 2,268
----- ------ ------ ----- ----- ----- -----
1,873 20,859 12,871 9,895 3,430 5,584 2,380
-- -- -- -- -- -- --
----- ------ ------ ----- ----- ----- -----
1,873 20,859 12,871 9,895 3,430 5,584 2,380
===== ====== ====== ===== ===== ===== =====
<CAPTION>
JANUS ASPEN SERIES
------------------
GROWTH
SUBACCOUNT
----------
<S><C>
200
74
1,182
------
1,456
------
3,853
10,206
(445)
------
13,614
------
15,070
2,588
------
17,658
======
</TABLE>
B-29
<PAGE> 124
KILICO VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
KILICO Variable Annuity Separate Account (the "Separate Account") is a unit
investment trust registered under the Investment Company Act of 1940, as
amended, established by Kemper Investors Life Insurance Company ("KILICO").
KILICO is a wholly-owned subsidiary of Kemper Corporation. Kemper Corporation
was acquired by an investor group led by Zurich Insurance Company ("Zurich") on
January 4, 1996. Effective February 27, 1998, KILICO and Kemper Corporation
became wholly-owned subsidiaries of Zurich.
The Separate Account is used to fund contracts or certificates (collectively
referred to as "contracts") for ADVANTAGE III periodic and flexible payment
variable annuity contracts and PASSPORT individual and group variable and market
value adjusted deferred annuity contracts. The Separate Account is divided into
a total of twenty-eight subaccounts with various subaccount options available to
Contract Owners depending upon their respective Contracts. A total of only
seventeen subaccount options are presented in the accompanying financial
statements, (the Money Market Subaccounts represent only one subaccount), as
available subaccount options to Contract Owners. Each subaccount invests
exclusively in the shares of a corresponding portfolio of one of the underlying
investment funds; the Investors Fund Series or the Janus Aspen Series (the
"Fund"), both of which are open-end diversified management investment companies.
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 amounts at the date of the financial statements. As a
result, actual results reported as income and expenses could differ from the
estimates reported in the accompanying financial statements.
SECURITY VALUATION
The investments are stated at current value which is based on the closing bid
price, net asset value, at December 31, 1997.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Dividends and capital gains distributions are recorded as
income on the ex-dividend date. Realized gains and losses from security
transactions are reported on a first in, first out ("FIFO") cost basis.
ACCUMULATION UNIT VALUATION
On each day the New York Stock Exchange (the "Exchange") is open for trading,
the accumulation unit value is determined as of the earlier of 3:00 p.m.
(Chicago time) or the close of the Exchange by dividing the total value of each
subaccount's investments and other assets, less liabilities, by the number of
accumulation units outstanding in the respective subaccount.
FEDERAL INCOME TAXES
The operations of the Separate Account are included in the Federal income tax
return of KILICO. Under existing Federal income tax law, investment income and
realized capital gains and losses of the Separate Account increase liabilities
under the contract and are, therefore, not taxed. Thus the Separate Account may
realize net investment income and capital gains and losses without Federal
income tax consequences.
In early 1998, the Clinton Administration's Fiscal Year 1999 Budget was released
and contained certain proposals to change the taxation of non-qualified fixed
and variable annuities. It is currently unknown whether such proposals will be
adopted, amended or omitted in the final 1999 budget approved by Congress.
B-30
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF INVESTMENTS
Investments, at cost, at December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
------ ----
<S> <C> <C>
INVESTMENTS
INVESTORS FUND SERIES:
Money Market Subaccount (Money Market and Money Market #2
Subaccounts).............................................. 80,133 $ 80,133
Total Return Subaccount..................................... 263,494 593,891
High Yield Subaccount....................................... 236,229 285,587
Growth Subaccount........................................... 175,849 452,327
Government Securities Subaccount............................ 60,389 71,636
International Subaccount.................................... 99,620 133,520
Small Cap Growth Subaccount................................. 57,375 90,592
Investment Grade Bond Subaccount............................ 4,886 5,185
Contrarian Value Subaccount................................. 51,507 67,332
Small Cap Value Subaccount.................................. 27,124 29,482
Value+Growth Subaccount..................................... 19,616 24,184
Horizon 20+ Subaccount...................................... 4,700 5,439
Horizon 10+ Subaccount...................................... 7,114 7,857
Horizon 5 Subaccount........................................ 4,006 4,457
Global Income Subaccount.................................... 316 321
Blue Chip Subaccount........................................ 1,864 2,026
JANUS ASPEN SERIES FUND:
Growth Subaccount........................................... 1,605 25,315
----------
TOTAL INVESTMENTS................................. $1,879,284
==========
</TABLE>
The underlying investments of the Fund's subaccounts are summarized below.
INVESTORS FUND SERIES
MONEY MARKET SUBACCOUNT: This subaccount invests primarily in short-term
obligations of major banks and corporations. The Money Market Subaccount
represents the ADVANTAGE III Money Market Subaccount and the PASSPORT Money
Market Subaccount #1. Money Market Subaccount #2 represents funds allocated by
the owner of a contract to the dollar cost averaging program. Under the dollar
cost averaging program, an owner may predesignate a portion of the subaccount
value to be automatically transferred on a monthly basis to one or more of the
other subaccounts. This option is only available to PASSPORT individual and
group variable and market value adjusted deferred annuity contracts.
TOTAL RETURN SUBACCOUNT: This subaccount's investments will normally consist of
fixed-income and equity securities. Fixed-income securities will include bonds
and other debt securities and preferred stocks. Equity investments normally will
consist of common stocks and securities convertible into or exchangeable for
common stocks, however, the subaccount may also make private placement
investments (which are normally restricted securities).
HIGH YIELD SUBACCOUNT: This subaccount invests in fixed-income securities, a
substantial portion of which are high yielding fixed-income securities. These
securities ordinarily will be in the lower rating categories of recognized
rating agencies or will be non-rated, and generally will involve more risk than
securities in the higher rating categories.
GROWTH SUBACCOUNT: This subaccount's investments normally will consist of common
stocks and securities convertible into or exchangeable for common stocks,
however, it may also make private placement investments (which are normally
restricted securities).
B-31
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF INVESTMENTS (CONTINUED)
GOVERNMENT SECURITIES SUBACCOUNT: This subaccount invests primarily in U.S.
Government securities. The subaccount will also invest in fixed-income
securities other than U.S. Government securities and will engage in options and
financial futures transactions.
INTERNATIONAL SUBACCOUNT: This subaccount's investments will normally consist of
equity securities of non-United States issuers, however, it may also invest in
convertible and debt securities of non-United States issuers and foreign
currencies.
SMALL CAP GROWTH SUBACCOUNT: This subaccount's investments will consist
primarily of common stocks and securities convertible into or exchangeable for
common stocks and to a limited degree in preferred stocks and debt securities.
At least 65% of the subaccount's total assets will be invested in equity
securities of companies having a market capitalization of $1 billion or less at
the time of initial investment.
INVESTMENT GRADE BOND SUBACCOUNT: This subaccount seeks high current income by
investing primarily in a diversified portfolio of investment grade debt
securities. At least 65% of the subaccount's total assets will be invested in
investment grade corporate debt securities, U.S. Government or Canadian
Government agencies and commercial paper. The subaccount may also invest in
preferred stocks. The subaccount may also invest up to 35% of its total assets
in below investment grade debt and will also engage in options and financial
futures transactions.
CONTRARIAN VALUE (FORMERLY VALUE) SUBACCOUNT: This subaccount seeks to achieve a
high rate of total return. The subaccount invests primarily in a diversified
portfolio of the common stocks of larger listed companies, which are believed to
be undervalued.
SMALL CAP VALUE SUBACCOUNT: This subaccount seeks long-term capital
appreciation. The subaccount invests primarily in a diversified portfolio of
small company equity securities with market capitalization of $100 million to
$1.0 billion, which are believed to be undervalued.
VALUE+GROWTH SUBACCOUNT: This subaccount seeks growth of capital through
professional management of a portfolio of growth and value stocks. These stocks
include stocks of large established companies, as well as stocks of small
companies. The subaccount may also engage in options and financial futures
transactions.
HORIZON 20+ SUBACCOUNT: This subaccount is designed for investors with
approximately a 20+ year investment horizon, and seeks growth of capital, with
income as a secondary objective. The subaccount invests approximately 80% of its
total assets in a variety of equity securities and 20% in a variety of fixed
income securities.
HORIZON 10+ SUBACCOUNT: This subaccount is designed for investors with
approximately a 10+year investment horizon, and seeks a balance between growth
of capital and income, consistent with moderate risk. The subaccount invests
approximately 60% of its total assets in a variety of equity securities and 40%
in a variety of fixed income securities.
HORIZON 5 SUBACCOUNT: This subaccount is designed for investors with
approximately a 5 year investment horizon, and seeks income consistent with a
preservation of capital, with growth of capital as a secondary objective. The
subaccount invests approximately 40% of its total assets in a variety of equity
securities and 60% in a variety of fixed income securities.
GLOBAL INCOME SUBACCOUNT: This subaccount seeks to provide high current income
consistent with prudent total return asset management. The subaccount will
invest in common stocks of well capitalized, established companies that are
believed to have the potential for growth of capital, earnings and dividends. At
least 65% of the subaccounts total assets in common stocks will be in companies
with a market capitalization of at least $1.0 billion at the time of initial
investment. The subaccount will also engage in options and financial futures
transactions.
BLUE CHIP SUBACCOUNT: This subaccount seeks growth of capital and of income. The
subaccount will invest in investment grade foreign and U.S. fixed income
securities, with at least 65% of the subaccounts total assets invested in
securities of issuers located in at least three countries. The subaccount will
also engage in options and financial futures transactions.
B-32
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF INVESTMENTS (CONTINUED)
JANUS ASPEN SERIES
GROWTH SUBACCOUNT: This subaccount seeks long-term growth of capital by
investing primarily in common stocks with an emphasis on companies with larger
market capitalizations.
(3) TRANSACTIONS WITH AFFILIATES
KILICO assumes mortality risks associated with the annuity contracts and incurs
all expenses involved in administering the contracts. In return, KILICO assesses
that portion of each subaccount representing assets under the ADVANTAGE III
flexible payment contracts with a daily charge for mortality and expense risk
and administrative costs which amounts to an aggregate of one percent (1.00%)
per annum. KILICO also assesses that portion of each subaccount representing
assets under the ADVANTAGE III periodic payment contracts with a daily asset
charge for mortality and expense risk and administrative costs which amounts to
an aggregate of one and three-tenths percent (1.30%) per annum. KILICO assesses
that portion of each subaccount representing assets under PASSPORT individual
and group variable and market value adjusted deferred annuity contracts with a
daily asset charge for mortality and expense risk and administrative costs which
amounts to an aggregate of one and one-quarter percent (1.25%) per annum. The
PASSPORT DCA Money Market Subaccount #2, available for participation in the
dollar cost averaging program, has no daily asset charge deduction.
KILICO also assesses against each ADVANTAGE III contract participating in one or
more of the subaccounts at any time during the year a records maintenance
charge. For contracts purchased prior to June 1, 1993, the charge is $25 and is
assessed on December 31st of each calendar year. For contracts purchased June 1,
1993 and subsequent, the charge is $36 and is assessed ratably every quarter of
each calendar year, except in those states which have yet to approve these
contract changes. The charge is assessed whether or not any purchase payments
have been made during the year. KILICO also assesses against each PASSPORT
contract participating in one or more of the subaccounts a records maintenance
charge of $30 at the end of each contract year. The records maintenance charge
for both ADVANTAGE III and PASSPORT contracts are waived for all individual
contracts whose investment value exceeds $50,000 on the date of assessment.
For contracts issued prior to May 1, 1994, KILICO has undertaken to reimburse
each of the ADVANTAGE III Money Market, Total Return, High Yield, and Growth
Subaccounts whose direct and indirect operating expenses exceed eighty
hundredths of one percent (.80%) of average daily net assets. In determining
reimbursement of direct and indirect operating expenses, for each subaccount,
charges for mortality and expense risks and administrative expenses, and records
maintenance charges are excluded and, for each subaccount, charges for taxes,
extraordinary expenses, and brokerage and transaction costs are excluded. During
the year December 31, 1997, no such payment was made.
Proceeds payable on the redemption of units are reduced by the amount of any
applicable contingent deferred sales charge due to KILICO.
Scudder Kemper Investments, Inc. ("SKI"), formerly Zurich Kemper Investments,
Inc., an affiliated company, is the investment manager of the Investors Fund
Series portfolios.
Janus Capital Corporation, an unaffiliated company, is the investment manager of
the Janus Aspen Series Fund Portfolio.
Investors Brokerage Services, Inc. ("IBS"), a wholly-owned subsidiary of KILICO,
is the principal underwriter for the Separate Account.
(4) NET TRANSFERS (TO) FROM AFFILIATED DIVISIONS AND SUBACCOUNTS
Net transfers (to) from affiliated divisions or accounts include transfers of
all or part of the Contract Owner's interest to or from another subaccount or to
the general account of KILICO.
B-33
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) CONTRACT OWNERS' EQUITY
The Contract Owners' equity is affected by the investment results of, and
contract charges to, each subaccount. The accompanying financial statements
include only Contract Owners' payments pertaining to the variable portions of
their contracts and exclude any payments for the market value adjusted or fixed
portions, the latter being included in the general account of KILICO. Contract
Owners may elect to annuitize the contract under one of several annuity options,
as specified in the prospectus.
B-34
<PAGE> 129
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Contract Owners' equity at December 31, 1997, is as follows (in thousands,
except unit value; differences are due to rounding):
<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ----- --------
<S> <C> <C> <C>
ADVANTAGE III CONTRACTS
INVESTORS FUND SERIES
MONEY MARKET SUBACCOUNT
Flexible Payment, Qualified............................... 633 $2.394 $ 1,514
Flexible Payment, Nonqualified............................ 4,338 2.394 10,385
Periodic Payment, Qualified............................... 11,579 2.285 26,456
Periodic Payment, Nonqualified............................ 4,637 2.285 10,595
----------
48,950
----------
TOTAL RETURN SUBACCOUNT
Flexible Payment, Qualified............................... 864 6.501 5,617
Flexible Payment, Nonqualified............................ 4,277 6.019 25,743
Periodic Payment, Qualified............................... 82,149 6.205 509,698
Periodic Payment, Nonqualified............................ 13,699 5.781 79,191
----------
620,249
----------
HIGH YIELD SUBACCOUNT
Flexible Payment, Qualified............................... 323 6.341 2,047
Flexible Payment, Nonqualified............................ 2,096 6.071 12,726
Periodic Payment, Qualified............................... 22,729 6.052 137,554
Periodic Payment, Nonqualified............................ 8,934 5.896 52,674
----------
205,001
----------
GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 227 6.371 1,449
Flexible Payment, Nonqualified............................ 1,162 6.350 7,374
Periodic Payment, Qualified............................... 54,987 6.112 336,083
Periodic Payment, Nonqualified............................ 11,574 6.103 70,642
----------
415,548
----------
GOVERNMENT SECURITIES SUBACCOUNT
Flexible Payment, Qualified............................... 149 1.725 257
Flexible Payment, Nonqualified............................ 908 1.725 1,566
Periodic Payment, Qualified............................... 15,434 1.684 25,992
Periodic Payment, Nonqualified............................ 11,033 1.684 18,581
----------
46,396
----------
INTERNATIONAL SUBACCOUNT
Flexible Payment, Qualified............................... 376 1.723 649
Flexible Payment, Nonqualified............................ 1,006 1.723 1,734
Periodic Payment, Qualified............................... 55,729 1.693 94,356
Periodic Payment, Nonqualified............................ 9,543 1.693 16,157
----------
112,896
----------
SMALL CAP GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 195 2.240 436
Flexible Payment, Nonqualified............................ 657 2.240 1,471
Periodic Payment, Qualified............................... 33,789 2.216 74,872
Periodic Payment, Nonqualified............................ 4,509 2.216 9,992
----------
86,771
----------
INVESTMENT GRADE BOND SUBACCOUNT
Flexible Payment, Qualified............................... 13 1.111 15
Flexible Payment, Nonqualified............................ 303 1.111 337
Periodic Payment, Qualified............................... 694 1.105 767
Periodic Payment, Nonqualified............................ 338 1.105 374
----------
1,493
----------
</TABLE>
B-35
<PAGE> 130
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ----- --------
<S> <C> <C> <C>
CONTRARIAN VALUE SUBACCOUNT
Flexible Payment, Qualified............................... 59 $1.505 $ 89
Flexible Payment, Nonqualified............................ 95 1.505 143
Periodic Payment, Qualified............................... 18,994 1.498 28,446
Periodic Payment, Nonqualified............................ 9,619 1.498 14,405
----------
43,083
----------
SMALL CAP VALUE SUBACCOUNT
Flexible Payment, Qualified............................... 3 1.220 4
Flexible Payment, Nonqualified............................ 58 1.220 71
Periodic Payment, Qualified............................... 10,592 1.214 12,855
Periodic Payment, Nonqualified............................ 1,519 1.214 1,843
----------
14,773
----------
VALUE+GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 24 1.414 33
Flexible Payment, Nonqualified............................ 119 1.414 169
Periodic Payment, Qualified............................... 4,889 1.407 6,880
Periodic Payment, Nonqualified............................ 824 1.407 1,160
----------
8,242
----------
HORIZON 20+ SUBACCOUNT
Flexible Payment, Qualified............................... -- -- --
Flexible Payment, Nonqualified............................ -- -- --
Periodic Payment, Qualified............................... 1,170 1.360 1,592
Periodic Payment, Nonqualified............................ 83 1.360 113
----------
1,705
----------
HORIZON 10+ SUBACCOUNT
Flexible Payment, Qualified............................... 10 1.279 12
Flexible Payment, Nonqualified............................ 9 1.279 11
Periodic Payment, Qualified............................... 1,616 1.273 2,057
Periodic Payment, Nonqualified............................ 261 1.273 332
----------
2,412
----------
HORIZON 5 SUBACCOUNT
Flexible Payment, Qualified............................... -- 1.215 --
Flexible Payment, Nonqualified............................ 42 1.215 50
Periodic Payment, Qualified............................... 917 1.209 1,108
Periodic Payment, Nonqualified............................ 192 1.209 232
----------
1,390
----------
JANUS ASPEN SERIES FUND
GROWTH SUBACCOUNT
Flexible Payment, Qualified............................... 11 19.471 211
Flexible Payment, Nonqualified............................ 7 19.471 144
Periodic Payment, Qualified............................... 1,357 19.338 26,251
Periodic Payment, Nonqualified............................ 157 19.338 3,041
----------
29,647
----------
TOTAL ADVANTAGE III CONTRACT OWNERS' EQUITY........................................ $1,638,556
==========
</TABLE>
B-36
<PAGE> 131
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ----- --------
<S> <C> <C> <C>
PASSPORT CONTRACTS
INVESTORS FUND SERIES
MONEY MARKET #1 SUBACCOUNT
Qualified................................................. 4,222 $ 1.199 $ 5,062
Nonqualified.............................................. 16,465 1.199 19,742
----------
24,804
----------
MONEY MARKET #2 SUBACCOUNT
Qualified................................................. 1,654 1.292 2,136
Nonqualified.............................................. 3,297 1.292 4,258
----------
6,394
----------
TOTAL RETURN SUBACCOUNT
Qualified................................................. 17,721 1.685 29,869
Nonqualified.............................................. 54,980 1.685 92,666
----------
122,535
----------
HIGH YIELD SUBACCOUNT
Qualified................................................. 13,014 1.883 24,501
Nonqualified.............................................. 40,535 1.883 76,319
----------
100,820
----------
GROWTH SUBACCOUNT
Qualified................................................. 15,200 2.066 31,410
Nonqualified.............................................. 38,784 2.066 80,142
----------
111,552
----------
GOVERNMENT SECURITIES SUBACCOUNT
Qualified................................................. 4,153 1.359 5,644
Nonqualified.............................................. 15,292 1.359 20,781
----------
26,425
----------
INTERNATIONAL SUBACCOUNT
Qualified................................................. 7,020 1.698 11,921
Nonqualified.............................................. 21,070 1.698 35,779
----------
47,700
----------
SMALL CAP GROWTH SUBACCOUNT
Qualified................................................. 3,122 2.220 6,930
Nonqualified.............................................. 8,632 2.220 19,162
----------
26,092
----------
INVESTMENT GRADE BOND SUBACCOUNT
Qualified................................................. 918 1.106 1,014
Nonqualified.............................................. 2,668 1.106 2,951
----------
3,965
----------
CONTRARIAN VALUE SUBACCOUNT
Qualified................................................. 6,437 1.499 9,650
Nonqualified.............................................. 16,911 1.499 25,349
----------
34,999
----------
SMALL CAP VALUE SUBACCOUNT
Qualified................................................. 3,943 1.215 4,789
Nonqualified.............................................. 11,269 1.215 13,688
----------
18,477
----------
VALUE+GROWTH SUBACCOUNT
Qualified................................................. 3,897 1.408 5,489
Nonqualified.............................................. 10,075 1.408 14,190
----------
19,679
----------
</TABLE>
B-37
<PAGE> 132
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONTRACT
NUMBER UNIT OWNERS'
OF UNITS VALUE EQUITY
-------- ----- --------
<S> <C> <C> <C>
HORIZON 20+ SUBACCOUNT
Qualified................................................. 1,058 $ 1.361 $ 1,440
Nonqualified.............................................. 2,441 1.361 3,323
----------
4,763
----------
HORIZON 10+ SUBACCOUNT
Qualified................................................. 1,090 1.274 1,389
Nonqualified.............................................. 4,206 1.274 5,359
----------
6,748
----------
HORIZON 5 SUBACCOUNT
Qualified................................................. 276 1.210 334
Nonqualified.............................................. 2,623 1.210 3,174
----------
3,508
----------
GLOBAL INCOME SUBACCOUNT
Qualified................................................. 30 1.020 30
Nonqualified.............................................. 290 1.020 296
----------
326
----------
BLUE CHIP SUBACCOUNT
Qualified................................................. 220 1.106 243
Nonqualified.............................................. 1,659 1.106 1,835
----------
2,078
----------
TOTAL PASSPORT CONTRACT OWNERS' EQUITY............. $ 560,865
==========
</TABLE>
B-38
<PAGE> 133
APPENDIX
STATE PREMIUM TAX CHART
<TABLE>
<CAPTION>
RATE OF TAX
------------------------------------
QUALIFIED NON-QUALIFIED
PLANS PLANS
STATE --------- -------------
<S> <C> <C>
California.................................................. .50% 2.35%*
District of Columbia........................................ 2.25% 2.25%*
Kentucky.................................................... 2.00%* 2.00%*
Maine....................................................... -- 2.00%
Nevada...................................................... -- 3.50%*
South Dakota................................................ -- 1.25%
West Virginia............................................... 1.00% 1.00%
Wyoming..................................................... -- 1.00%
</TABLE>
* Taxes become due when annuity benefits commence, rather than when the
premiums are collected. At the time of annuitization, the premium tax
payable will be charged against the Contract Value.
B-39
<PAGE> 134
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of issuance and distribution of the Contracts, other than any
underwriting discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Registration Fees........ $15,151.52
Printing and Engraving...................................... $50,000.00
Accounting Fees and Expenses................................ $15,000.00
Legal Fees and Expenses..................................... $15,000.00
----------
Total Expenses............................... $95,151.52
==========
</TABLE>
- ---------------
* Expenses are estimated and are for period ending May 1, 1998 for continuous
offering of interest pursuant to Rule 415 but are not deducted from proceeds.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI, Section 1. of the Bylaws of Kemper Investors Life Insurance Company
provides for indemnification of Directors and Officers as follows:
SECTION 1. The company shall indemnify any person against all expenses
(including attorneys fees), judgments, fines, amounts paid in settlement
and other costs actually and reasonably incurred by him in connection with
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by
or in the right of the company) in which he is a party or is threatened to
be made a party by reason of his being or having been a director, officer,
employee or agent of the company, or serving or having served, at the
request of the company, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
or by reason of his holding a fiduciary position in connection with the
management or administration of retirement, pension, profit sharing or
other benefit plans including, but not limited to, any fiduciary liability
under the Employee Retirement Income Security Act of 1974 and any amendment
thereof, if he acted in good faith and in a manner he reasonably believed
to be in and not opposed to the best interests of the company, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that he did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, Registrant has sold, in reliance on Rule 506 of
Regulation D under the Securities Act of 1933, as amended, unregistered Group
Variable Life Insurance Private Placement Policies to banks to fund nonqualified
deferred compensation plans for senior management. There was no predeterminated
aggregate offering price as purchase amounts are premium payments under life
insurance policies which are based on the lives insured and insurance
underwriting. Certain offerings were made directly by Registrant and not through
a principal underwriter. No commissions were paid for the sale of the Policies.
Registrant has also sold unregistered Individual Variable Life Insurance Private
Placement Policies to certain high net worth "qualified purchasers", as that
term is defined under Section 3(c)(7) of the Securities Act of 1933. There was
no predeterminated aggregate offering price as purchase amounts are premium
payments under life insurance policies which are based on the lives insured and
insurance underwriting. Investors Brokerage Services, Inc., an affiliate of
Registrant, serves as principal underwriter of these securities offerings.
Commissions up to 3.0% of premium may be paid to registered broker-dealers for
distributing these Policies.
II-1
<PAGE> 135
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
(1)1(a) Distribution Agreement
1(b) Fund Participation Agreement among KILICO, Investors Fund
Series (formerly known as Kemper Investors Fund), Zurich
Kemper Investments, Inc. and Kemper Distributors, Inc.
(4)1(c)(i) Fund Participation Agreement among KILICO, Janus Aspen
Series and Janus Capital Corporation.
(5)1(c)(ii) Service Agreement between KILICO and Janus Capital
Corporation.
1(d)(i) Participation Agreement by and among Kemper Investors Life
Insurance Company and Warburg, Pincus Trust and Warburg
Pincus Asset Management, Inc. (f/k/a Warburg, Pincus
Counsellors, Inc.) and Counsellors Securities, Inc.
(6)1(d)(ii) Service Agreement between Warburg Pincus Counsellors, Inc.
and Federal Kemper Life Assurance Company and Kemper
Investors Life Insurance Company.
(2)1(e) Specimen Selling Group Agreement of Investors Brokerage
Services, Inc.
(2)1(f) General Agent Agreement
(1)3(a) Articles of Incorporation
(1)3(b) Bylaws
4(a) Form of Group Variable, Fixed and Market Value Adjusted
Annuity Contract
4(b) Form of Certificate to Group Variable, Fixed and Market
Value Adjusted Annuity Contract.
4(c) Form of Individual Variable, Fixed and Market Value Adjusted
Annuity Contract.
4(d) Form of Application
(3)5 Opinion and Consent of Counsel regarding legality
23(a) Consents of Coopers & Lybrand L.L.P., Independent
Accountants
23(b) Consent of KPMG Peat Marwick LLP, Independent Auditors
(3)23(c) Consent of Counsel (See Exhibit 5)
99(a) Schedule IV: Reinsurance
99(b) Schedule V: Valuation and qualifying accounts
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Registration Statement on Form S-1
(File No. 333-02491) filed on or about April 12, 1996.
(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 Amendment No. 1 to the Registration Statement on Form S-1 (File
No. 333-22389) filed on or about November 3, 1997.
(4) Filed with Post-Effective Amendment No. 23 to the Registration Statement on
Form N-4 (File No. 2-72671) filed on or about September 14, 1995.
(5) Filed with Post-Effective Amendment No. 25 to the Registration Statement on
Form N-4 (File No. 2-72671) filed on or about April 28, 1997.
(6) Filed with Post-Effective Amendment No. 4 to the Registration Statement on
Form S-6 (File No. 33-79808) filed on or about April 30, 1997.
II-2
<PAGE> 136
(B) FINANCIAL STATEMENTS
Reports of Independent Public Accountants
KILICO and Subsidiaries Consolidated Balance Sheets, as of December 31,
1997 and 1996
KILICO and Subsidiaries Consolidated Statements of Operations, years ended
December 31, 1997, 1996 and 1995
KILICO and Subsidiaries Consolidated Statements of Stockholder's Equity,
years ended December 31, 1997, 1996 and January 4, 1996, and 1995
KILICO and Subsidiaries Consolidated Statements of Cash Flows, years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Schedule V: Valuation and qualifying accounts
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii)
To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii)
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the determining of any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liabilities under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant 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, the
registrant 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.
II-3
<PAGE> 137
SIGNATURES
As required by the Securities Act of 1933, the Registrant 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 6th day of April, 1998.
KEMPER INVESTORS LIFE INSURANCE COMPANY
(Registrant)
BY: /s/ JOHN B. SCOTT
---------------------------------------
John B. Scott, Chief Executive Officer
and President
As required by 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 6th day of April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOHN B. SCOTT Chief Executive Officer, President and Director
- ----------------------------------------------------- (Principal Executive Officer)
John B. Scott
/s/ W.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 Principal
Frederick L. Blackmon Accounting Officer)
/s/ LOREN J. ALTER Director
- -----------------------------------------------------
Loren J. Alter
/s/ DAVID A. BOWERS Director
- -----------------------------------------------------
David A. Bowers
</TABLE>
II-4
<PAGE> 138
EXHIBIT LIST
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGES*
- ------- DESCRIPTION ------------
<S> <C> <C>
1(b) Fund Participation Agreement among KILICO, Investors Fund
Series (formerly known as Kemper Investors Fund), Zurich
Kemper Investments, Inc. and Kemper Distributors, Inc.
1(d) (i) Participation Agreement by and among Kemper Investors Life
Insurance Company and Warburg, Pincus Trust and Warburg
Pincus Asset Management, Inc. (f/k/a Warburg, Pincus
Counsellors, Inc.) and Counsellors Securities, Inc.
4(a) Form of Group Variable, Fixed and Market Value Adjusted
Annuity Contract.
4(b) Form of Certificate to Group Variable, Fixed and Market
Value Adjusted Annuity Contract.
4(c) Form of Individual Variable, Fixed and Market Value Adjusted
Annuity Contract.
4(d) Form of Application
23(a) Consents of Coopers & Lybrand L.L.P., Independent
Accountants
23(b) Consent of KPMG Peat Marwick LLP, Independent Auditors
99(a) Schedule IV: Reinsurance
99(b) Schedule V: Valuation and qualifying accounts
</TABLE>
- ---------------
* In manually signed original only.
<PAGE> 1
EXHIBIT 1(b)
PARTICIPATION AGREEMENT
AMONG
KEMPER INVESTORS FUND
ZURICH KEMPER INVESTMENTS, INC.
KEMPER DISTRIBUTORS, INC.
AND
KEMPER INVESTORS LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of January, 1997 by
and among Kemper Investors Life Insurance Company (hereinafter, the "Company"),
an Illinois insurance company, on its own behalf and on behalf of each separate
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as an "Account"), Kemper
Investors Fund, a business trust organized under the laws of the Commonwealth
of Massachusetts (hereinafter the "Fund"), Zurich Kemper Investments, Inc.
(hereinafter the "Adviser"), a Delaware corporation, and Kemper Distributors,
Inc. (hereinafter the "Underwriter"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance and variable annuity contracts
(hereinafter the "Variable Insurance Products") offered by insurance companies
that have entered into participation agreements with the Fund (hereinafter
"Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(SEC Release No. IC-17164; File No. 812-7345; hereinafter the "Shared Funding
Exemption Order");
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
<PAGE> 2
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities laws;
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Accounts (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement;
WHEREAS, each Account is duly established and maintained as a separate account,
established by resolution of the Board of Directors of the Company, on the date
shown for such Account on Schedule A hereto, to set aside and invest assets
attributable to the aforesaid Contracts;
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act;
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD");
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement
("Designated Portfolios"), on behalf of the Accounts to fund the aforesaid
Contracts, and the Underwriter is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company also intends to purchase shares in other open-end investment
companies or series thereof not affiliated with the Fund ("Unaffiliated Funds")
on behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Underwriter agree as follows:
ARTICLE I
Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios that the Accounts order, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of each Designated Portfolio available for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Fund calculates such Designated Portfolio's
net asset value pursuant to rules of the SEC, and the Fund shall use reasonable
efforts to calculate such net asset value on each day when the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the
<PAGE> 3
Fund ("Board") may refuse to sell shares of any Designated Portfolio to any
person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction, or is, in the sole discretion of the Board acting in good faith
and in light of its fiduciary duties under federal and any applicable state
laws, necessary in the best interest of the shareholders of such Designated
Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies or their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell shares of any Designated Portfolio to
any insurance company or separate account unless an agreement containing
provisions substantially the same as Sections 2.1, 3.4, 3.5 and 3.6 and Article
VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or fractional
shares of the Designated Portfolios held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption or postpone the date of
payment or satisfaction upon redemption consistent with Section 22(e) of the
1940 Act and any rules thereunder, and in accordance with the procedures and
policies of the Fund as described in the Fund's then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee of
the Fund for receipt of purchase and redemption orders from the Accounts, and
receipt by such designee shall constitute receipt by the Fund; provided that
the Company receives the order prior to the determination of net asset value as
set forth in the Fund's then current prospectus and the Fund receives notice of
such order by 11:00 a.m. New York time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to
the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the Fund's then current prospectus in accordance with the
provisions of such prospectus.
1.7 The Company shall pay for shares of a Designated Portfolio on the next
Business Day after receipt of an order to purchase shares of such Designated
Portfolio. Payment shall be in federal funds transmitted by wire by noon New
York time. If payment in federal funds for any purchase is not received or is
received by the Fund after noon New York time on such Business Day, the Company
shall promptly, upon the Fund's request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in connection with
any advances to, or borrowing or overdrafts by, the Fund, or any similar
expenses incurred by the Fund, as a result of portfolio transactions effected
by the Fund based upon such purchase request. For purposes of Section 2.8 and
2.9 hereof, upon receipt by the Fund of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
<PAGE> 4
1.8 Issuance and transfer of the shares of a Designated Portfolio will be by
book entry only. Stock certificates will not be issued to the Company or any
Account. Shares of a Designated Portfolio ordered from the Fund will be
recorded in an appropriate title for each Account or the appropriate subaccount
of each Account.
1.9 The Fund shall furnish same-day notice (by wire or telephone, followed by
written confirmation) to the Company of any income, dividends or capital gain
distributions payable on shares of the Designated Portfolios. The Company
hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on shares of a Designated Portfolio in additional
shares of that Designated Portfolio. The Company reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Fund
shall use its best efforts to furnish advance notice of the day such dividends
and distributions are expected to be paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. New York time) and shall use its best efforts to make such net asset value
per share available by 7:00 p.m. New York time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by this
Agreement is not exclusive; the shares of the Designated Portfolios (and other
Portfolios of the Fund) may be sold to other insurance companies (subject to
Section 1.3 and Article VII hereof) and the cash value of the Contracts may be
invested in other investment companies, provided, however, that (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
any Designated Portfolio; or (b) the Company gives the Fund, the Adviser and
the Underwriter 45 days' written notice of its intention to make such other
investment company available as a funding vehicle for the Contracts; or (c) the
Fund, the Adviser or Underwriter consents to the use of such other investment
company, such consent not to be unreasonably withheld.
ARTICLE II
Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be continually issued,
offered for sale and sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it has
legally and validly established each Account prior to any issuance or sale
thereof as a separate account under the Illinois insurance laws and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of
the 1940 Act to serve as a separate account for the Contracts.
<PAGE> 5
2.2 The Fund represents and warrants that shares of the Designated Portfolios
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the Registration Statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares of the Designated Portfolios for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund after
taking into consideration any state insurance law requirements that the Company
advises the Fund may be applicable.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
may make such payments in the future subject to applicable law.
2.4 The Fund makes no representations as to whether any aspect of its
operation, including but not limited to, investments policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance laws of the State of Illinois to the extent
required to perform this Agreement. The Company will advise the Fund in
writing as to any requirements of Illinois insurance law that affect the
Designated Portfolios, and the Fund will be deemed to be in compliance with
this Section 2.4 so long as the Fund complies with such advice of the Company.
2.5 The Fund represents that it is lawfully organized and validly existing as a
business trust under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the shares of
the Designated Portfolios in accordance with any applicable state and federal
securities laws.
2.7 The Adviser represents and warrants that it is and shall remain duly
registered as an investment adviser under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the Fund
in compliance in all material respects with any applicable state and federal
securities laws.
2.8 The Fund, the Adviser and the Underwriter represent and warrant that all
their directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimum coverage required currently by Rule 17g-1 of the 1940 Act or such
related provisions as may be promulgated from time to time. The aforesaid bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
<PAGE> 6
2.9 The Company represents and warrants that all its directors, officers,
employees, investment advisers, and other individuals or entities employed or
controlled by the Company dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not
less than $20 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees
that this bond or another bond containing these provisions will always be in
effect, and agrees to notify the Fund, the Adviser and the Underwriter in the
event that such coverage no longer applies.
2.10 The Company represents and warrants that all shares of the Designated
Portfolios purchased by the Company will be purchased on behalf of one or more
unmanaged separate accounts that offer interests therein that are registered
under the 1933 Act and upon which a registration fee has been or will be paid;
and the Company acknowledges that the Fund intends to rely upon this
representation and warranty for purposes of calculating SEC registration fees
payable with respect to such shares of the Designated Portfolios pursuant to
Instruction B.5 to Form 24F-2 or any similar form or SEC registration fee
calculation procedure that allows the Fund to exclude shares so sold for
purposes of calculating its SEC registration fee. The Company agrees to
cooperate with the Fund on no less than an annual basis to certify as to its
continuing compliance with this representation and warranty.
ARTICLE III
Prospectuses, Statements of Additional
Information, and Proxy Statements; Voting
3.1 The Fund shall provide the Company with as many copies of the Fund's
current prospectus for the Designated Portfolios as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the prospectus for a Designated Portfolio is amended) to
have the prospectus for the Contracts and the prospectus for the Designated
Portfolios printed together in one document. Expenses with respect to the
foregoing shall be borne as provided under Article V.
3.2 The Fund's prospectus shall disclose that (a) the Fund is intended to be a
funding vehicle for all types of variable annuity and variable life insurance
contracts offered by Participating Insurance Companies, (b) material
irreconcilable conflicts of interest may arise, and (c) the Fund's Board will
monitor events in order to identify the existence of any material
irreconcilable conflicts and determine what action, if any, should be taken in
response to such conflicts. The Fund hereby notifies the Company that
disclosure in the prospectus for the Contracts regarding the potential risks of
mixed and shared funding may be appropriate. Further, the Fund's prospectus
shall state that the current Statement of Additional Information ("SAI") for
the Fund is available from the Company (or, in the Fund's discretion, from the
Fund), and the Fund shall provide a copy of such SAI to any owner of a Contract
who requests such SAI and to the Company in such quantities as the Company may
reasonably request. Expenses with respect to the foregoing shall be borne as
provided under Article V.
<PAGE> 7
3.3 The Fund shall provide the Company with copies of its proxy material,
reports to shareholders, and other communications to shareholders for the
Designated Portfolios in such quantity as the Company shall reasonably require
for distributing to Contract owners. Expenses with respect to the foregoing
shall be borne as provided under Article V.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the shares of each Designated Portfolio in accordance with
instructions received from Contract owners; and
(iii) vote shares of each Designated Portfolio for which no
instructions have been received in the same proportion as
shares of such Designated Portfolio for which instructions
have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require pass-through voting privileges for variable contract owners or to
the extent otherwise required by law. The Company reserves the right to vote
shares of each Designated Portfolio held in any separate account in its own
right, to the extent permitted by law.
3.5 The Company shall be responsible for assuring that each of its separate
accounts participating in a Designated Portfolio calculates voting privileges
as required by the Shared Funding Exemption Order and consistent with any
reasonable standards that the Fund has adopted or may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, Section 16(b). Further, the
Fund will act in accordance with the SEC's interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors or trustees
and with whatever rules the SEC may promulgate from time to time with respect
thereto. The Fund reserves the right, upon prior written notice to the Company
(given at the earliest practicable time), to take all actions, including but
not limited to, the dissolution, termination, merger and sale of all assets of
the Fund or any Designated Portfolio upon the sole authorization of the Board,
to the extent permitted by the laws of the Commonwealth of Massachusetts and
the 1940 Act.
3.7 It is understood and agreed that, except with respect to information
regarding the Fund, the Underwriter, the Adviser or Designated Portfolios
provided in writing by the Fund, the Underwriter or the Adviser, none of the
Fund, the Underwriter or the Adviser is responsible for the content of the
prospectus or statement of additional information for the Contracts.
ARTICLE IV
<PAGE> 8
Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or the Underwriter, each piece of sales literature or other promotional
material ("sales literature") that the Company develops or uses and in which
the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter
is named, at least eight business days prior to its use. No such material
shall be used if the Fund or its designee reasonably objects to such use within
eight business days after receipt of such material. The Fund or its designee
reserves the right to reasonably object to the continued use of such material,
and no such material shall be used if the Fund or its designee so object.
4.2 The Company shall not give any information or make any representation or
statement on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained
in the registration statement, prospectus or SAI for the shares of the
Designated Portfolios, as such registration statement, prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature approved by the Fund or its designee or by
the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3 The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company, each piece of sales literature that the Fund or
Underwriter develops or uses in which the Company and/or its Account is named,
at least eight business days prior to its use. No such material shall be used
if the Company reasonably objects to such use within eight business days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of such material and no such material shall be used if the
Company so objects.
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or statement of additional
information for the Contracts, as such registration statement, prospectus or
statement of additional information may be amended or supplemented from time to
time, or in published reports for the Accounts which are the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature approved by the Company or its designee, except with the permission
of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Designated Portfolios,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
shareholder reports, solicitations for voting instructions, sales literature,
applications for exemptions, request for no-action letters, and
<PAGE> 9
all amendments to any of the above, that relate to the Contracts or the
Accounts, contemporaneously with the filing of such document(s) with the SEC or
other regulatory authorities.
4.7 For purposes of this Agreement, the phrase "sales literature" includes,
but is not limited to, any of the following: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, electronic media, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article) and educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
4.8 At the request of any party to this Agreement, any other party will make
available to the requesting party's independent auditors all records, data and
access to operating procedures that may reasonably be requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
ARTICLE V
Fees and Expenses
5.1 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except and as further provided in Schedule B. The
Fund shall see to it that all shares of the Designated Portfolios are
registered, duly authorized for issuance and sold in compliance with
applicable federal securities laws and, if and to the extent deemed advisable
by the Fund, in accordance with applicable state securities laws prior to their
sale.
5.2 The parties hereto shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, SAI, proxy materials and reports as
provided in Schedule B.
5.3 Administrative services to variable Contract owners shall be the
responsibility of the Company and shall not be the responsibility of the Fund,
Underwriter or Adviser. The Fund recognizes the Company as the sole
shareholder of shares of the Designated Portfolios issued under the Agreement.
5.4 The Fund shall not pay and neither the Adviser nor the Underwriter shall
pay any fee or other compensation to the Company under this Agreement, although
the parties will bear certain expenses in accordance with Schedule B and other
provisions of this Agreement.
ARTICLE VI
Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Internal Revenue Code
of 1986, as amended ("Code") and the regulations issued
<PAGE> 10
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, the Fund will, with respect to each Designated Portfolio, comply
with Section 817(h) of the Code and Treasury Regulation Section 1.817-5, and
any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts, and
any amendments or other modifications or successor provisions to such Section
or Regulations. In the event of a breach of this Article VI, the Fund will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the affected Designated Portfolio so as to achieve
compliance within the grace period afforded by Treasury Regulation Section
1.817-5.
6.2 The Fund represents that each Designated Portfolio is currently qualified
(and for new Designated Portfolios, intends to qualify) as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that a Designated Portfolio has ceased to so
qualify or that a Designated Portfolio might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the time of
issuance shall be, treated as life insurance or annuity insurance contracts,
under applicable provisions of the Code, and that it will make every effort to
maintain such treatment, and that it will notify the Fund, the Adviser and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is
a "modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII
Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Designated Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2 The Company and the Adviser will report any potential or existing conflicts
of which each is aware to the Board. The Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemption Order, by
providing the Board with all information reasonably
<PAGE> 11
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded. At least annually, and
more frequently if deemed appropriate by the Board, the Company shall submit to
the Adviser, and the Adviser shall at least annually submit to the Board, such
reports, materials and data as the Board may reasonably request so that the
Board may fully carry out the obligations imposed upon it by the conditions
contained in the Shared Funding Exemption Order; and said reports, materials
and data shall be submitted more frequently if deemed appropriate by the Board.
The responsibility to report such information and conflicts to the Board will
be carried out with a view only to the interests of the contract owners.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and any other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Designated Portfolio and reinvesting such assets in a different
investment medium, which may include another Designated Portfolio of the Fund,
or submitting to a vote of all affected contract owners the question whether
such segregation should be implemented and, as appropriate, segregating the
assets of any appropriate group (i.e. annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected contract owners the option of making such a change; and (b),
establishing a new registered management investment company or managed separate
account.
7.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in any Designated Portfolio and terminate this Agreement with respect
to such Account provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
The Company will bear the cost of any remedial action, including such
withdrawal and termination. No penalty will be imposed by the Fund upon the
affected Account for withdrawing assets from the Fund in the event of a
material irreconcilable conflict. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the effective date of such
termination the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of such Designated
Portfolio.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the
affected Account's investment in the affected Designated Portfolio and
terminate this Agreement with respect to such Account within six months after
the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the
<PAGE> 12
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the effective
date of such termination the Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of such Designated
Portfolios.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict; but in no
event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw an Account's investment in any
Designated Portfolio and terminate this Agreement within six (6) months after
the Board informs the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
7.7 If and to the extent the Shared Funding Exemption Order contains terms and
conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with the Shared
Funding Exemption Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of the Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in the Shared
Funding Exemption Order or any amendment thereto. If and to the extent that
Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide
exemptive relief from any provision of the 1940 Act or the rules promulgated
thereunder with respect to mixed or shared funding (as defined in the Shared
Funding Exemption Order) on terms and conditions materially different from those
contained in the Shared Funding Exemption Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII
Indemnification
8.1 Indemnification by the Company.
() The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter and each of their officers, trustees and directors and
each person, if any, who controls the Fund, the Adviser or the Underwriter
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses,
<PAGE> 13
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the shares of the
Designated Portfolios or the Contracts and;
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement, prospectus, or statement of additional information for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in writing
to the Company by or on behalf of the Fund for use in the Registration
Statement, prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature for the Contracts (for
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus, SAI or sales literature of the Fund not supplied
by the Company or persons under its control) or wrongful conduct of the
Company or persons under its authorization or control, with respect to
the sale or distribution of the Contracts or shares of the Designated
Portfolios; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, prospectus, SAI
or sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in any Registration
Statement, prospectus, statement of additional information or sales
literature for any Unaffiliated Fund, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or otherwise
<PAGE> 14
pertain to or arise in connection with the availability of any
Unaffiliated Fund as an underlying funding vehicle in respect of the
Contracts; or
(vi) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c).
(b) The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of its obligations or duties under this Agreement.
(c) The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability that it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision, except to the extent that
the Company has been prejudiced by such failure to give notice. In case any
such action is brought against an Indemnified Party, the Company shall be
entitled to participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action and to settle the claim at its
own expense provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the shares of the Designated Portfolios or the
Contracts or the operation of the Fund.
8.2 Indemnification by the Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
<PAGE> 15
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of shares of the Designated Portfolios or
the Contracts; and
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, prospectus or SAI of the Fund or sales literature of the Fund
developed by the Underwriter (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of the Company for
use in the Registration Statement or prospectus for the Fund or its sales
literature (or any amendment or supplement thereto) or otherwise for use
in connection with the sale of the Contracts or shares of the Designated
Portfolios; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied
by the Underwriter or persons under its control) or wrongful conduct of
the Fund or Underwriter or person under their control with respect to the
sale or distribution of the Contracts or shares of the Designated
Portfolios; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus or
sales literature for the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company
by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
<PAGE> 16
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance or such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to the Company or the Accounts, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Underwriter
of any such claim shall not relieve the Underwriter from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision, except to the extent that
the Underwriter has been prejudiced by such failure to give notice. In case
any such action is brought against the Indemnified Party, the Underwriter will
be entitled to participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action and to settle the claim at is own
expense; provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Underwriter
to such party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund); or litigation (including
legal and other expenses) to which the Indemnified Parties may be required to
pay or may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages, liabilities or
expenses (or actions in respect thereof) or settlements, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional
<PAGE> 17
or in good faith or otherwise, to comply with the diversification and
qualification requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter, the Adviser or the Accounts, whichever is
applicable.
(c) The Fund shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Fund in writing within a reasonable time after
the summons or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve the
Fund from any liability that it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Fund has been prejudiced by such
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Company, the Adviser and the Underwriter agree to notify the Fund
promptly of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of any Account, or the sale or
acquisition of shares of the Designated Portfolios.
ARTICLE IX
Applicable Law
<PAGE> 18
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from the statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemption Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X
Termination
10.1 This Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party, for any reason with respect to any Designated
Portfolio, by twelve (12) months' advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter with respect to any Designated Portfolio based upon the
Company's reasonable and good faith determination that shares of such
Designated Portfolio are not reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter with respect to any Designated Portfolio if the shares of
such Designated Portfolio are not registered, issued or sold in accordance with
applicable state and/or federal securities laws or such law precludes the use
of such shares to fund the Contracts issued or to be issued by the Company; or
(d) termination by the Fund, the Adviser or Underwriter in the event that
formal administrative proceedings are instituted against the Company or any
affiliate by the NASD, the SEC, or the Insurance Commissioner or like official
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of any
Account, or the purchase of the shares of a Designated Portfolio or the shares
of any Unaffiliated Fund, provided, however, that the Fund, the Adviser or
Underwriter determines in its sole judgement exercised in good faith, that any
such administrative proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund, the Adviser or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body, provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
<PAGE> 19
(f) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter with respect to any Designated Portfolio in the event that
such Designated Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund, the Adviser or Underwriter by written notice
to the Company in the event that the Contracts fail to meet the qualifications
specified in Article VI hereof; or
(h) termination by any of the Fund, the Adviser or the Underwriter by
written notice to the Company, if any of the Fund, the Adviser or the
Underwriter, respectively, shall determine, in their sole judgement exercised
in good faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, insurance company rating or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(i) termination by the Company by written notice to the Fund, the Adviser
and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the Fund, the Adviser or the Underwriter has
suffered a material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the subject of
material adverse publicity and that material adverse change or publicity will
have a material adverse effect on the Fund's or the Underwriter's ability to
perform its obligations under this Agreement; or
(j) at the option of Company, as one party, or the Fund, the Adviser and
the Underwriter, as one party, upon the other party's material breach of any
provision of this Agreement upon 30 days' notice and opportunity to cure.
10.2 Effect of Termination. Notwithstanding any termination of this Agreement,
the Fund and the Underwriter shall, at the option of the Company, continue to
make available additional shares of a Designated Portfolio pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, the owners of the Existing Contracts may
in such event be permitted to reallocate investments in the Designated
Portfolios, redeem investments in the Designated Portfolios and/or invest in
the Designated Portfolios upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 Notwithstanding any termination of this Agreement, each party's obligation
under Article VIII to indemnify the other parties shall survive.
ARTICLE XI
Notices
<PAGE> 20
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Kemper Investors Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
If to the Company:
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
Attention: General Counsel
If to the Adviser:
Zurich Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
If to the Underwriter:
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
ARTICLE XII
Miscellaneous
12.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
<PAGE> 21
12.4 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated
hereby. Notwithstanding the generality of the foregoing, each party hereto
further agrees to furnish the Delaware Insurance Commissioner with any
information or reports in connection with services provided under this
Agreement that such Commissioner may request in order to ascertain whether the
variable annuity operations of the Company are being conducted in a manner
consistent with the Delaware variable annuity laws and regulations and any
other applicable law or regulations.
12.5 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.6 This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
12.7 All persons are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which on file with the
Secretary of the Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund with
respect to a Designated Portfolio hereunder are not binding upon any of the
trustees, officers or shareholders of the Fund individually, but are binding
upon only the assets and property of such Designated Portfolio. All parties
dealing with the Fund with respect to a Designated Portfolio shall look solely
to the assets of such Designated Portfolio for the enforcement of any claims
against the Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and on behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date first above written.
COMPANY: Kemper Investors Life Insurance Company
By: /s/ Otis R. Heldman, Jr.
Title: Marketing Officer
FUND: Kemper Investors Fund
By: /s/ Philip J. Collora
Title: Vice President
<PAGE> 22
ADVISER Zurich Kemper Investments, Inc.
By: /s/ C. Perry Moore
Title: Senior Vice President
UNDERWRITER Kemper Distributors, Inc.
By: /s/ James L. Greenawalt
Title: President
<PAGE> 23
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE
ESTABLISHED BY BOARD OF DIRECTORS
- ---------------------------------
KILICO Variable Annuity Separate Account (KVASA) (5/29/81)
KILICO Variable Separate Account (KVSA) (1/22/87)
CONTRACTS FUNDED BY SEPARATE ACCOUNT
- ------------------------------------
Kemper Passport (KVASA)
Kemper Advantage III (KVASA)
Kemper Select (KVSA)
Power V (KVSA)
Policy No. L-1550 (individual); L-8165 and L-8166 (group) (KVASA)+
DESIGNED PORTFOLIOS
- -------------------
A. All contracts for which Kemper Distributors, Inc. serves as wholesaler:*
Money Market Portfolio Value Portfolio
Total Return Portfolio Small Cap Value Portfolio
High Yield Portfolio Value+Growth Portfolio
Growth Portfolio Horizon 20+ Portfolio
Government Securities Portfolio Horizon 10+ Portfolio
International Portfolio Horizon 5 Portfolio
Small Cap Growth Portfolio Blue Chip Portfolio+
Investment Grade Bond Portfolio Global Income Portfolio+
B. All contracts for which Kemper Distributors, Inc. does not serve as
wholesaler:
(1)Advantage III qualified sales:
Money Market Portfolio Investment Grade Bond Portfolio
Total Return Portfolio Value Portfolio
High Yield Portfolio Small Cap Value Portfolio
Growth Portfolio Value+Growth Portfolio
Government Securities Portfolio Horizon 20+ Portfolio
International Portfolio Horizon 10+ Portfolio
Small Cap Growth Portfolio Horizon 5 Portfolio
(2)Power V:
Money Market Portfolio
Total Return Portfolio
High Yield Portfolio
Growth Portfolio
Government Securities Portfolio
International Portfolio
Small Cap Growth Portfolio
(3)Evergreen Asset Manager+:
Money Market Portfolio
High Yield Portfolio
Government Securities Portfolio
____________________
+Effective upon registration of contract or Portfolio becoming effective.
*Additional Designated Portfolios may be added for contracts for which Kemper
Distributors, Inc. serves as distributor at the request of the Fund, Adviser
and Underwriter and with the consent of the Company, which consent will not be
unreasonably withheld.
<PAGE> 24
SCHEDULE B
EXPENSES
. In the event the prospectus, SAI, annual report or other communication of
the Fund is combined with a document of another party, the Fund will pay
the costs based upon the relative number of pages attributable to the
Fund.
<TABLE>
<CAPTION>
===========================================================
RESPONSIBLE
ITEM FUNCTION PARTY
===========================================================
<S> <C> <C>
PROSPECTUS
- -----------------------------------------------------------
Update Typesetting Fund (1)
- -----------------------------------------------------------
New Sales: Printing Company
Distribution Company
- -----------------------------------------------------------
Existing Printing Fund (1)
Owners:
Distribution Fund (1)
- -----------------------------------------------------------
- -----------------------------------------------------------
STATEMENTS OF
ADDITIONAL
INFORMATION Same as Prospectus Same
- -----------------------------------------------------------
PROXY MATERIALS OF Typesetting Fund
THE FUND
Printing Fund
Distribution Fund
- -----------------------------------------------------------
- -----------------------------------------------------------
ANNUAL REPORTS &
OTHER
COMMUNICATIONS
WITH SHAREHOLDERS
OF THE FUND
- -----------------------------------------------------------
All Typesetting Fund (1)
- -----------------------------------------------------------
Marketing: Printing Company
Distribution Company
- -----------------------------------------------------------
Existing Owners: Printing Fund (1)
Distribution Fund (1)
- -----------------------------------------------------------
</TABLE>
<PAGE> 25
- -----------------------------------------------------------
OPERATIONS OF FUND All operations and Fund
related expenses,
including the cost
of registration and
qualification of
the Fund's shares,
preparation and
filing of the
Fund's prospectus
and registration
statement, proxy
materials and
reports, the
preparation of all
statements and
notices required by
any federal or
state law and all
taxes on the
issuance of the
Fund's shares, and
all costs of
management of the
business affairs of
the Fund.
===========================================================
<PAGE> 1
Exhibit 1-(d)(i)
Kemper Investors Life
EXECUTION COPY
PARTICIPATION AGREEMENT
BY AND AMONG
KEMPER INVESTORS LIFE INSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
THIS AGREEMENT, made and entered into this 10th day of March, 1997, by and
among Kemper Investors Life Insurance Company, organized under the laws of
Illinois (the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement as may be amended
from time to time (each account referred to as the "Account"), Warburg, Pincus
Trust, an open-end management investment company and business trust organized
under the laws of the Commonwealth of Massachusetts (the "Fund"); Warburg,
Pincus Counsellors, Inc. a corporation organized under the laws of the State of
Delaware (the "Adviser"); and Counsellors Securities Inc., a corporation
organized under the laws of the State of New York ("CSI").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment
vehicle for separate accounts established for variable life insurance contracts
and variable annuity contracts to be offered by insurance companies that have
entered into participation agreements similar to this Agreement (the
"Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent
<PAGE> 2
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans outside of the separate account context (the
"Mixed and Shared Funding Exemptive Order"). The parties to this Agreement
agree that the conditions or undertakings specified in the Mixed and Shared
Funding Exemptive Order and that may be imposed on the Company, the Fund, the
Adviser and/or CSI by virtue of the receipt of such order by the SEC will be
incorporated herein by reference, and such parties agree to comply with such
conditions and undertakings to the extent applicable to each such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of Illinois, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act; and
WHEREAS, CSI, the Fund's distributor, is registered as a broker-dealer
with the SEC under the Securities Exchange Act of 1934 (the "1934 Act") and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 2, as such schedule may be amended from time to time (the "Designated
Portfolios"), on behalf of the Accounts to fund the Contracts, and the Fund is
authorized to sell such shares to unit investment trusts such as the Accounts
at net asset value; and
WHEREAS, each Account is subdivided into subaccounts (each, a
"Subaccount"), each of invests in a Designated Portfolio;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Adviser and CSI agree as follows:
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<PAGE> 3
ARTICLE I. SALE OF FUND SHARES
1.1. CSI agrees to sell to the Company those shares of the Designated
Portfolios that each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt and acceptance by CSI or its
designee of the order for the shares of the Fund. For purposes of this Section
1.1, the Company will be the designee of CSI for receipt of such orders from
each Account and receipt by such designee will constitute receipt by CSI;
provided that CSI receives notice of such order by 10:00 a.m. Eastern Time on
the next following Business Day ("T+1"). "Business Day" will mean any day on
which the New York Stock Exchange, Inc. (the "NYSE") is open for trading and on
which the Fund calculates its net asset value pursuant to the rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 in each case that an order to
purchase Fund shares is made in accordance with Section 1.1 above. Payment
will be in federal funds transmitted by wire. This wire transfer will be
initiated by 12:00 p.m. Eastern Time.
1.3. CSI and the Adviser agree to make, and to cause the Fund to make, shares
of the Designated Portfolios available indefinitely for purchase at the
applicable net asset value per share by Participating Insurance Companies and
their separate accounts on those days on which the Fund calculates its
Designated Portfolio net asset value pursuant to rules of the SEC and the Fund
shall use reasonable efforts to calculate such net asset value on each day the
NYSE is open for trading; provided, however, that the Fund or CSI may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Fund acting in good faith, necessary in the best interests of the shareholders
of such Portfolio.
1.4. On each Business Day on which the net asset value of the Fund is
calculated, the Company will aggregate and calculate the net purchase or
redemption orders for each Subaccount investing in a Designated Portfolio. Net
orders will only reflect orders that the Company has received prior to the
close of regular trading on the NYSE currently 4:00 p.m., Eastern Time) on that
Business Day. Orders that the Company has received after the close of regular
trading on the NYSE will be treated as though received on the next Business
Day. Each communication of orders by the Company will constitute a
representation that such orders were received by it prior to the close of
regular trading on the NYSE on the Business Day on which the purchase or
redemption order is priced in accordance with Rule 22c-1 under the 1940 Act.
Other procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated
Portfolio or with instructions that CSI will forward to the Company from time
to time, as practice may develop by mutual agreement of the parties hereto over
the course of performance of this Agreement.
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<PAGE> 4
1.5. CSI and the Adviser agree that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified
pension and retirement plans or such other persons as are permitted under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and regulations promulgated thereunder, the sale to
which will not impair the tax treatment currently afforded the Contracts. No
shares of any Portfolio will be sold to the general public except as set forth
in this Section 1.5.
1.6. CSI and the Adviser agree to cause the redemption for cash, upon the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the
request for redemption. For purposes of this Section 1.6, the Company will be
the designee of the Fund for receipt of requests for redemption from each
Subaccount and receipt by such designee will constitute receipt by the Fund,
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment will be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds in extraordinary circumstances where such action
is necessary in the best interests of the shareholders of the relevant
Portfolio, but in no event may such payment be delayed longer than the period
permitted by the 1940 Act. The Fund will not bear any responsibility
whatsoever for the proper disbursement or crediting of redemption proceeds; the
Company alone will be responsible for such action. If notification of
redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance
with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate Subaccount.
1.9. CSI or the Adviser will furnish same day notice (by telecopier, followed
by written confirmation) to the Company of the declaration of any income,
dividends or capital gain distributions payable on each Designated Portfolio's
shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Designated Portfolio shares in the form of
additional shares of that Designated Portfolio. CSI or the Adviser will notify
the Company of the number of shares so issued as payment of such dividends and
distributions. The Company reserves the right to revoke this election upon
reasonable prior
4
<PAGE> 5
notice to the Fund and to receive all such dividends and distributions in cash.
To the extent practicable, CSI or the Adviser will furnish the Company with
advance notice of any such declaration of income, dividends or distributions.
1.10. CSI and the Adviser will make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and will
use its best efforts to make such net asset value per share available by 6:00
p.m., Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each
Business Day.
1.11. The Advisor or CSI will provide notice of any error in calculation of net
asset value of a Designated Portfolio as soon as reasonably practical after
discovery thereof. Any such notice will state for each day for which an error
occurred the incorrect price, the correct price and the reason for the price
change. CSI and the Advisor shall make the Account whole for any payments or
adjustments to the number of Shares in a Subaccount that are reasonably
demonstrated to be required as a result of pricing errors.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a separate account under applicable state law and
has registered each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as segregated investment accounts for the
Contracts, and that it will maintain such registration for so long as any
Contracts are outstanding. The Company will amend the registration statement
under the 1933 Act for the Contracts and the registration statement under the
1940 Act for each of the Accounts from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company will register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and
to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity or life insurance contracts under
applicable provisions of the Internal Revenue Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and the
Adviser immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
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<PAGE> 6
2.3. CSI and the Adviser represent and warrant that Fund shares of the
Designated Portfolios sold pursuant to this Agreement will be registered under
the 1933 Act and duly authorized for issuance in accordance with applicable law
and that the Fund is and will remain registered under the 1940 Act for as long
as such shares of the Designated Portfolios are outstanding. CSI and the
Adviser will amend the registration statement for shares of the Fund under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of shares of the Fund or as may otherwise be required by
applicable law. CSI and the Adviser will register and qualify the shares of
the Designated Portfolios for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund.
2.4. CSI and the Adviser represent that each Designated Portfolio is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code and that it will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provision) and that it will
notify the Company immediately upon having a reasonable basis for believing
that a Designated Portfolio has ceased to so qualify or that it might not so
qualify in the future. CSI and the Adviser acknowledge that failure of the
Fund to so qualify as a Regulated Investment Company may affect the tax status
of the Contracts as life insurance or annuity contracts.
2.5. In performing the services described in this Agreement, CSI and the
Adviser will comply with, and will cause the Fund to comply with, all
applicable laws, rules and regulations governing the issuance and sale of
shares of the Fund. Neither the Fund, the Adviser nor CSI makes any
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies, objectives and
restrictions) complies with the insurance laws and regulations of any state.
The Adviser and CSI each agree that upon request they will use their best
efforts to furnish the information required by state insurance laws so that the
Company can obtain the authority needed to issue the Contracts in the various
states.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 the Fund
undertakes to have its Fund Board formulate and approve any plan under Rule
12b-1 to finance distribution expenses in accordance with the 1940 Act.
2.7. CSI and the Adviser represent that the Fund is lawfully organized and
validly existing under the laws of The Commonwealth of Massachusetts and that
it does and will comply in all material respects with applicable provisions of
the 1940 Act.
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<PAGE> 7
2.8. CSI represents and warrants that it will distribute the Fund shares of the
Designated Portfolios in accordance with all applicable federal and state
securities laws including, without limitation, the 1933 Act, the 1934 Act and
the 1940 Act.
2.9. CSI represents and warrants that it is and will remain duly registered
under all applicable federal and state securities laws and that it will perform
its obligations for the Fund in accordance in all material respects with any
applicable state and federal securities laws.
2.10. The Fund represents and warrants that all of its trustees, officers,
employees, and other individuals/entities having access to the funds and/or
securities of the Fund are and continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the minimal coverage as required currently by Rule 17g-(1) of the
1940 Act or related provisions as may be promulgated from time to time. The
aforesaid bond includes coverage for larceny and embezzlement and is issued by
a reputable bonding company. CSI and the Adviser represent and warrant that
they are and continue to be at all times covered by policies similar to the
aforesaid bond.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Adviser or CSI will create and file a definitive prospectus with the
SEC under Rule 497 of the 1933 Act. The Adviser or CSI will provide the
Company, at the Fund's or its affiliate's expense, with as many copies of the
current prospectus only for the Designated Portfolios as the Company may
reasonably request for distribution, at the Company's expense, to prospective
contractowners and applicants. The Advisor or CSI will provide, at the Fund's
or its affiliate's expense, as many copies of said prospectus as necessary for
distribution, at the Company's expense, to existing contractowners. The
Adviser or CSI will provide the copies of said prospectus to the Company or to
its mailing agent. If requested by the Company, the Adviser or CSI will
provide such documentation, including a computer diskette of the Company's
specification or a final copy of a current prospectus set in type at the Fund's
or its affiliate's expense, and such other assistance as is reasonably
necessary in order for the Company at least annually (or more frequently if the
relevent Designated Portfolio prospectus is amended more frequently) to have
the Designated Portfolios' prospectuses, the prospectus for the Contracts and
the prospectuses of other mutual funds in which assets attributable to the
Contracts may be invested printed together in one document (the "Multifund
Prospectus"), in which case the Fund or its affiliate will bear its reasonable
share of expenses as described above, allocated based on the proportionate
number of pages of the Fund's and other fund's respective portions of the
document.
3.2. The Adviser or CSI will provide the Company, at the Fund's or its
affiliate's expense, with as many copies of the statement of additional
information as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners
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<PAGE> 8
and applicants. The Adviser or CSI will provide, at the Fund's or its
affiliate's expense, as many copies of said statement of additional information
as necessary for distribution, at the Company's expense, to any existing
contractowner who requests such statement or whenever state or federal law
otherwise requires that such statement be provided. The Adviser or CSI will
provide the copies of said statement of additional information to the Company
or to its mailing agent.
3.3. To the extent that the Adviser, the Fund or CSI makes a discretionary
change that requires a change (whether by revision or supplement) to any of the
material information contained in any form of Designated Portfolio prospectus
or statement of additional information provided to the Company for inclusion in
a Multifund Prospectus, the Company agrees to make such changes within a
reasonable period of time after receipt of a request to make such change from
the Advisor or CSI. The expenses of printing and mailing incurred by the
Company in complying with such request shall be reimbursed by the Fund or its
affiliates. To the extent that the Fund is legally required to make a change
to a Designated Portfolio prospectus or statement of additional information
provided to the Company for inclusion in a Multifund Prospectus, the Company
agrees to make any such change as soon as possible following receipt of the
form of revised prospectus and/or statement of additional information or
supplement, as applicable, but in no event later than five days following
receipt. To the extent that the Fund is required by law to cease selling
shares of a Designated Portfolio, the Company agrees to cease offering
interests in the Subaccount corresponding to such Designated Portfolio until
the Fund or CSI notifies the Company otherwise.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
statements of additional information other than those actually distributed to
existing owners of the Contracts.
3.4. The Adviser or CSI, at the Fund's or its affiliate's expense, will provide
the Company or its mailing agent with copies of its proxy material, if any,
reports to shareholders and other communications to shareholders in such
quantity as the Company will reasonably require. The Company will distribute
this proxy material, reports and other communications to existing contract
owners and tabulate the votes.
3.5. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the
appropriate Subaccount in accordance with instructions received from
contractowners; and
8
<PAGE> 9
(c) vote shares of the Designated Portfolios held in the
appropriate Subaccount for which no timely instructions have been received, as
well as shares it owns, in the same proportion as shares of such Designated
Portfolio for which instructions have been received from the Company's
contractowners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contractowners.
Except as set forth above, the Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company will be responsible for assuring that each of its separate
accounts participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and Shared Funding
Exemptive Order.
3.6. CSI and the Adviser will comply with, and will cause the Fund to comply
with, all provisions of the 1940 Act requiring voting by shareholders, and in
particular, either will provide for annual meetings (except insofar as the SEC
may interpret Section 16 of the 1940 Act not to require such meetings) or, as
is currently intended, will comply with Section 16(c) of the 1940 Act (although
the Fund is not one of the trusts described in Section 16(c) of that Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further, the
Adviser and CSI will cause the Fund to act in accordance with the SEC's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of trustees, with whatever rules the SEC may promulgate with respect
thereto and with the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. CSI will provide the Company on a timely basis with investment performance
information for each Designated Portfolio in which a Subaccount invests,
including total return for the preceding calendar month and calendar quarter,
the calendar year to date, and the prior one-year, five-year, and ten year (or
life of the Designated Portfolio) periods. The Company may, based on such
information supplied by CSI, prepare communications for contractowners
("Contractowner Materials"). The Company will provide copies of all
Contractowner Materials concurrently with their first use for CSI's internal
recordkeeping purposes. It is understood that neither CSI nor any Designated
Portfolio will be responsible for errors or omissions in, or the content of,
Contractowner Materials except to the extent that the error or omission
resulted from information provided by or on behalf of CSI or the Designated
Portfolio. Any printed information that is furnished to the Company pursuant
to this Agreement other than each Designated Portfolio's prospectus or
statement of additional information (or information supplemental thereto),
periodic reports and proxy solicitation materials is CSI's sole responsibility
and not the responsibility of any Designated Portfolio or the Fund. The Company
agrees that the Portfolios, the shareholders of the Portfolios and the
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<PAGE> 10
officers and governing Board of the Fund will have no liability or
responsibility to the Company in these respects.
4.2. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained
in the registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published reports
for the Fund which are in the public domain or approved by the Fund or CSI for
distribution, or in sales literature or other material provided by the Fund,
the Adviser or by CSI, except with permission of CSI. The Company will
furnish, or will cause to be furnished, to the Fund, the Adviser or CSI, each
piece of sales literature or other promotional material in which the Company or
an Account is named, at least eight (8) business days prior to its use.
Nothing in this Section 4.2 will be construed as preventing the Company's
affiliates from giving advice on investment in the Fund.
4.3. The Adviser and CSI will not give, or allow the Fund to give, any
information or make, or allow the Fund to make, any representations or
statements on behalf of the Company or concerning the Company, each Account, or
the Contracts other than the information or representations contained in a
registration statement, prospectus or statement of additional information for
the Contracts, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
published reports for each Account or the Contracts which are in the public
domain or approved by the Company for distribution to contractowners, or in
sales literature or other material provided by the Company, except with
permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis. The Adviser or CSI will furnish, or
will cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company or an Account is
named at least eight (8) business days prior to its use. No such material will
be used if the Company reasonably objects to such use within five (5) business
days after receipt of such material.
4.4. CSI or the Adviser will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additions
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC, the NASD or
other regulatory authority.
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<PAGE> 11
4.5. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts
or any Account, contemporaneously with the filing of such document with the
SEC, the NASD or other regulatory authority.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media (e.g., on-line
networks such as the Internet or other electronic messages)), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisements sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, proxy materials and
any other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
4.7. The Fund and CSI hereby consent to the Company's use of the names Warburg,
Pincus Trust International Equity Portfolio, Warburg, Pincus Trust Small
Company Value Portfolio, Warburg, Pincus Trust Post-Venture Capital Portfolio
or other Designated Portfolio and Warburg, Pincus Counsellors, Inc. in
connection with the marketing of the Contracts, subject to the terms of
Sections 4.1 and 4.2 of this Agreement. Such consent will continue only as
long as any Contracts are invested in the relevant Designated Portfolio and
only as long as such use is consistent with the provision of historical
information on the Contracts.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund, the Adviser and CSI will pay no fee or other compensation to the
Company (other than as set forth in the administrative services letter
agreement between CSI and the Company) except if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the 1940
Act to finance distribution expenses, then, subject to obtaining any required
exemptive orders or other regulatory approvals, the Fund may make payments to
the Company or to the underwriter for the Contracts if and in such amounts
agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of
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registration and qualification of the Fund's shares; preparation and filing of
the Fund's prospectus, statement of additional information and registration
statement, proxy materials and reports; setting in type and printing the Fund's
prospectus; setting in type and printing proxy materials and reports by it to
contractowners (including the costs of printing a Fund prospectus that contains
an annual report); the preparation of all statements and notices required by
any federal or state law; all taxes on the issuance or transfer of the Fund's
shares; any expenses permitted to be paid or assumed by the Fund pursuant to a
plan, if any, under Rule 12b-1 under the 1940 Act; and all other expenses set
forth in Article III of this Agreement.
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser will ensure that the Fund will at all times invest money from
the Contracts in such a manner as to ensure that the Contracts will be treated
as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing,
the Adviser will cause the Fund to comply with Section 817(h) of the Internal
Revenue Code and Treasury Regulation 1.817-5, as amended from time to time,
relating to the diversification requirements for variable annuity, endowment,
or life insurance contracts and any amendments or other modifications to such
Section or Regulation. In the event of a breach of this Article VI, the
Adviser will take all reasonable steps: (a) to notify the Company of such
breach; and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the Fund
for the existence of any irreconcilable material conflict among the interests
of the contractowners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by Participating Insurance Companies or
by variable annuity and variable life insurance contractowners; or (f) a
decision by an insurer to disregard the voting instructions of contractowners.
The Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its
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<PAGE> 13
responsibilities, as delineated in the Mixed and Shared Funding Exemptive
Order, by providing the Fund Board with all information reasonably necessary
for the Fund Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Fund Board whenever
contractowner voting instructions are to be disregarded. The Company's
responsibilities hereunder will be carried out with a view only to the interest
of contractowners.
7.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested trustees, that an irreconcilable material conflict exists, the
Company will, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps
are necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (a) withdrawing the assets allocable to some or all of the
Subaccounts from the Fund or any Designated Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contractowners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contractowners or variable life insurance contractowners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Subaccount's investment in the Fund and terminate this Agreement with respect
to such Subaccount; provided, however, that such withdrawal and termination
will be limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested trustees of the Fund
Board. No charge or penalty will be imposed as a result of such withdrawal.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will withdraw
the affected Subaccount's investment in the Fund and terminate this Agreement
with respect to such Subaccount; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested directors of the Fund Board. No charge or penalty will be
imposed as a result of such withdrawal.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any proposed
action
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<PAGE> 14
adequately remedies any irreconcilable material conflict, but in no event will
the Fund or the Adviser (or any other investment adviser to the Fund) be
required to establish a new funding medium for the Contracts. The Company will
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
contractowners materially affected by the irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the Mixed
and Shared Funding Exemptive Order, and said reports, materials and data will
be submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then: (a) the Fund and/or the Participating Insurance
Companies, as appropriate, will take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement will continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, CSI, and each person, if any, who controls or is associated with the
Fund, the Adviser or CSI within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner, employee or agent
of the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including reasonable 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:
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement,
prospectus or statement of additional information for the Contracts or
contained in the Contracts or sales literature or
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<PAGE> 15
other promotional material for the Contracts (or any amendment or supplement
to any of the foregoing), including any prospectuses or statements of
additional information of the Fund to which the Company has made any changes to
the information provided to the Company or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated or necessary to make such statements not misleading in light of the
circumstances in which they were made; provided that this agreement to
indemnify will not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the Fund, the
Adviser or CSI for use in the registration statement, prospectus or statement
of additional information for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations by or
on behalf of the Company or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the Contracts or Fund
shares (other than statements or representations contained in the Fund
registration statement, Fund prospectus, Fund statement of additional
information, sales literature or other promotional material of the Fund not
supplied by the Company or persons under its control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement, prospectus,
statement of additional information or sales literature or other promotional
material of the Fund (or amendment or supplement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make such statements not misleading in light of the circumstances
in which they were made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by or on behalf
of the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(5) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result from
any other material breach by the Company of this Agreement, including, but not
limited to, a failure to comply with the provisions of Section 3.3;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company otherwise
may have.
15
<PAGE> 16
(b) No party will be entitled to indemnification under Section 8.1(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or sale of
the Fund shares or the Contracts or the operation of the Fund.
8.2. Indemnification By The Adviser, the Fund and CSI
(a) The Adviser, the Fund and CSI, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to indemnify and
hold harmless the Company and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner, employee or agent
of the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including reasonable 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:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Fund or sales
literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing) or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated or necessary to make such statements not misleading in light of the
circumstances in which they were made (in each case substantially as
transmitted to you by the Fund or CSI), provided that this agreement to
indemnify will not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Adviser, CSI or the Fund by or on
behalf of the Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales literature of the
Fund (or any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations or
wrongful conduct of the Adviser, the Fund or CSI or persons under the control
of the Adviser, the Fund or CSI respectively, with respect to the sale of the
Fund shares (other than statements or
16
<PAGE> 17
representations contained in a registration statement, prospectus, statement
of additional information, sales literature or other promotional material
covering the Contracts not supplied by CSI or persons under its control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, statement of
additional information or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto), or the
omission or alleged omission to state therein a material fact required to be
stated or necessary to make such statement or statements not misleading in
light of the circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Adviser, the Fund or CSI or persons under the
control of the Adviser, the Fund or CSI; or
(4) arise as a result of any failure by the Fund, the Adviser or CSI to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements and procedures
related thereto specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or CSI in this
Agreement, or arise out of or result from any other material breach of this
Agreement by the Adviser, the Fund or CSI;
except to the extent provided in Sections 8.2(b) and 8.3 hereof.
These indemnifications will be in addition to any liability that the Fund, the
Adviser or CSI otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund and
CSI of the commencement of any litigation, proceedings, complaints or actions
by regulatory authorities against them in connection with the issuance or sale
of the Contracts or the operation of the account.
8.3. Indemnification Procedure
17
<PAGE> 18
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such
service on any designated agent), but failure to notify the Indemnifying Party
of any such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of the indemnification provision of this Article
VIII, except to the extent that the failure to notify results in the failure of
actual notice to the Indemnifying Party and such Indemnifying Party is damaged
solely as a result of failure to give such notice. In case any such action is
brought against the Indemnified Party, the Indemnifying Party will be entitled
to participate, at its own expense, in the defense thereof. The Indemnifying
Party also will be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Indemnifying Party to the Indemnified Party of the Indemnifying Party's
election to assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and the
Indemnifying Party will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs of
investigation, unless: (a) the Indemnifying Party and the Indemnified Party
will have mutually agreed to the retention of such counsel; or (b) the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there is a final judgment for the plaintiff,
the Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings thereunder,
including such exemptions
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<PAGE> 19
from those statutes, rules and regulations as the SEC may grant (including,
but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms
hereof will be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
some or all of the Designated Portfolios, upon ninety (90) days' advance
written notice to the other parties; or
(b) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if shares
of the Designated Portfolio are not reasonably available or appropriate to meet
the requirements of the Contracts as determined in good faith by the Company;
or
(c) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio in the
event any of the Designated Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or Federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written notice
by the other parties, upon institution of formal proceedings against the
Company by the NASD, the SEC, the insurance commission of any state or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the administration of the Contracts, the
operation of the Account, or the purchase of the Fund shares, provided that the
Fund determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's written
notice by the other parties, upon institution of formal proceedings against the
Fund, Adviser or CSI by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided that the Company determines
in its sole judgment, exercised in good faith, that any such proceeding would
have a material adverse effect on the Fund's, Adviser's or CSI's ability to
perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio ceases to
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<PAGE> 20
qualify as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code, or under any successor or similar provision, or if the Company
reasonably and in good faith believes that the Designated Portfolio may fail to
so qualify; or
(g) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio fails to meet the diversification requirements specified
in Article VI hereof or if the Company reasonably and in good faith believes
the Designated Portfolio may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any provision of
this Agreement which material breach is not cured within thirty (30) days of
said notice; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that either the Fund, the Adviser or CSI has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material
adverse publicity which is likely to have a material adverse impact upon the
business and operations of the Company, such termination to be effective sixty
(60) days' after receipt by the other parties of written notice of the election
to terminate; or
(j) at the option of the Fund or CSI, if the Fund or CSI respectively,
determines in its sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material
adverse publicity which is likely to have a material adverse impact upon the
business and operations of the Fund or the Adviser, such termination to be
effective sixty (60) days' after receipt by the other parties of written notice
of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the contractowners having an interest
in the Account (or any Subaccount) to substitute the shares of another
investment company for the corresponding Designated Portfolio shares of the
Fund in accordance with the terms of the Contracts for which those Designated
Portfolio shares had been selected to serve as the underlying investment media.
The Company will give sixty (60) days' prior written notice to the Fund of the
date of any proposed vote, proposed regulatory approval request or other action
taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an
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irreconcilable material conflict exists among the interests of: (1) all
contractowners of variable insurance products of all separate accounts; or (2)
the interests of the Participating Insurance Companies investing in the Fund as
set forth in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
Except as specified in Section 10.1(m), no termination of this Agreement
will be effective unless and until the party terminating this Agreement gives
prior written notice to all other parties of its intent to terminate, which
notice will set forth the basis for the termination.
10.3. Effect of Termination
In the event of any termination of this Agreement other than pursuant to
subsection (d), (j), (l) or (m) of Section 10.1, CSI and the Adviser will, at
the option of the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts.") Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Designated Portfolios (as in effect on such date), redeem investments in
the Designated Portfolios and/or invest in the Designated Portfolios upon the
making of additional purchase payments under the Existing Contracts.
10.4. Surviving Provisions
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive and not
be affected by any termination of this Agreement. In addition, each party's
obligations under Section 12.6 will survive and not be affected by any
termination of this Agreement. Finally, with respect to Existing Contracts,
all provisions of this Agreement also will survive and not be affected by any
termination of this Agreement.
10.5 Effectuation of Termination
The parties to this Agreement agree to cooperate in effectuating the
termination of this Agreement.
ARTICLE XI. NOTICES
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<PAGE> 22
11.1. Any notice will be deemed duly given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties.
If to the Company: If to the Fund, the Adviser and/or CSI:
1 Kemper Drive 466 Lexington Avenue
Long Grove, IL 60049 10th Floor
Attn: General Counsel New York, NY 10017
Attn: Eugene P. Grace
Senior Vice President
ARTICLE XII. MISCELLANEOUS
12.1. The Fund, the Adviser and CSI acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the "Company
Protected Parties" for purposes of this Section 12.1), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Company Protected Parties or any of their
employees or agents in connection with the Company's performance of its duties
under this Agreement are the valuable property of the Company Protected
Parties. The Fund, the Adviser and CSI agree that if they come into possession
of any list or compilation of the identities of or other information about the
Company Protected Parties' customers, or any other information or property of
the Company Protected Parties, other than such information as is publicly
available or as may be independently developed or compiled by the Fund, the
Adviser or CSI from information supplied to them by the Company Protected
Parties' customers who also maintain accounts directly with the Fund, the
Adviser or CSI, the Fund, the Adviser and CSI will hold such information or
property in confidence and refrain from using, disclosing or distributing any
of such information or other property except: (a) with the Company's prior
written consent; or (b) as required by law or judicial process. The Company
acknowledges that the identities of the customers of the Fund, the Adviser, CSI
or any of their affiliates (collectively the "Adviser Protected Parties" for
purposes of this Section 12.1), information maintained regarding those
customers, and all computer programs and procedures or other information
developed or used by the Adviser Protected Parties or any of their employees or
agents in connection with the Fund's, the Adviser's or CSI's performance of
their respective duties under this Agreement are the valuable property of the
Adviser Protected Parties. The Company agrees that if it comes into possession
of any list or compilation of the identities of or other information about the
Adviser Protected Parties' customers, or any other information or property of
the Adviser Protected Parties, other than such information as is publicly
available or as may be independently developed or compiled by the Company from
information supplied to them by the Adviser Protected Parties'
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<PAGE> 23
customers who also maintain accounts directly with the Company, the Company
will hold such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property except:
(a) with the Fund's, the Adviser's or CSI's prior written consent; or (b) as
required by law or judicial process. Each party acknowledges that any breach
of the agreements in this Section 12.1 would result in immediate and
irreparable harm to the other parties for which there would be no adequate
remedy at law and agree that in the event of such a breach, the other parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.4. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.5. This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
12.6. Each party to this Agreement will maintain all records required by law,
including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby. Upon
request by the Fund or CSI, the Company agrees to promptly make copies or, if
required, originals of all records pertaining to the performance of services
under this Agreement available to the Fund or CSI, as the case may be. The
Fund, the Adviser and CSI each agree that the Company will have the right to
inspect, audit and copy all records pertaining to the performance of services
under this Agreement pursuant to the requirements of any state insurance
department. Each party also agrees to promptly notify the other parties if it
experiences any difficulty in maintaining the records in an accurate and
complete manner. This provision will survive termination of this Agreement.
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12.7. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or board action, as applicable, by such
party and when so executed and delivered this Agreement will be the valid and
binding obligation of such party enforceable in accordance with its terms.
12.8. The parties to this Agreement acknowledge and agree that all liabilities
of the Fund arising, directly or indirectly, under this agreement, will be
satisfied solely out of the assets of the Fund and that no trustee, officer,
agent or holder of shares of beneficial interest of the Fund will be personally
liable for any such liabilities. No Portfolio or series of the Fund will be
liable for the obligations or liabilities of any other Portfolio or series.
12.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Designated Portfolios of the Fund or other applicable terms of
this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
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<PAGE> 25
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
KEMPER INVESTORS LIFE INSURANCE COMPANY
SEAL By: /s/ Otis R. Heldman, Jr.
Name: Otis R. Heldman, Jr.
Title: Marketing Officer
ATTEST: By: /s/ Frank J. Julian
WARBURG, PINCUS TRUST
SEAL By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President & Secretary
WARBURG, PINCUS COUNSELLORS, INC.
SEAL By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President
COUNSELLORS SECURITIES INC.
SEAL By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President
ATTEST: By: /s/ Maryann Maglia
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SCHEDULE 1
PARTICIPATION AGREEMENT
BY AND AMONG
KEMPER INVESTORS LIFE INSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
The following separate accounts of Kemper Investors Life Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Designated Portfolios of the Fund shown in Schedule 2:
KILICO Variable Annuity Separate Account -
established May 29, 1981
KILICO Variable Separate Account -
established January 22, 1987
March 10, 1997
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SCHEDULE 2
PARTICIPATION AGREEMENT
BY AND AMONG
KEMPER INVESTORS LIFE INSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Warburg, Pincus Trust:
Warburg, Pincus Trust International Equity Portfolio
Warburg, Pincus Trust Small Company Value Portfolio
Warburg, Pincus Trust Post-Venture Capital Portfolio
March 10, 1997
27
<PAGE> 28
[COUNSELLORS SECURITIES INC. LETTERHEAD]
March 16, 1998
Kemper Investors Life Insurance Company
One Kemper Drive
Long Grove IL 60049
Attn: General Counsel
Re: Participation Agreement dated March 10, 1997 among Kemper Investors Life
Insurance Company, Warburg, Pincus Trust, Warburg Pincus Asset Management, Inc.
(f/k/a Warburg, Pincus Counsellors, Inc.) and Counsellors Securities, Inc. (the
"Agreement")
Dear Sirs:
Reference is made to the Agreement. Schedule 2 to the Agreement is hereby
amended to add the Emerging Markets Portfolio of Warburg, Pincus Trust. Except
as modified herein, the provisions of the Agreement are ratified and affirmed
in all respects.
Very truly yours,
WARBURG, PINCUS TRUST
/s/ Eugene P. Grace
Vice President & Secretary
WARBURG PINCUS ASSET MANAGEMENT, INC.
/s/ Eugene P. Grace
Senior Vice President
COUNSELLORS SECURITIES INC.
/s/ Eugene P. Grace
Vice President
Agreed and accepted:
KEMPER INVESTORS LIFE INSURANCE COMPANY
By: /s/ Otis R. Heldman, Jr.
Name: Otis R. Heldman, Jr.
Title: Marketing Officer
28
<PAGE> 1
EXHIBIT 4(a)
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
Annuitant Age
Contract Date Contract No.
This contract is issued in consideration of the attached application by the
contractholder and payment of the initial purchase payment. The provisions on
this cover and the pages that follow are part of this contract.
We agree to pay an annuity to the annuitant provided the annuitant is living
and this contract is in force on the annuity date. We further agree to pay the
death benefit prior to the annuity date upon the death of an owner or an
annuitant when a death benefit is payable. Payment will be made upon our
receipt of due proof of death and the return of the owner's certificate.
Signed for Kemper Investors Life Insurance Company at its home office in Long
Grove, Illinois.
----------------------- -------------------------
Secretary President
GROUP FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE DEFERRED ANNUITY
NON-PARTICIPATING
BENEFITS, PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED UPON THE
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS, ARE VARIABLE AND ARE NOT GUARANTEED
AS TO DOLLAR AMOUNT. REFER TO THE VARIABLE ACCOUNT AND ANNUITY PERIOD
PROVISIONS FOR A DETERMINATION OF ANY VARIABLE BENEFITS.
BENEFITS, PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON
GUARANTEE PERIOD VALUES, MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE MARKET
VALUE ADJUSTMENT FORMULA STATED IN THE CONTRACT SCHEDULE.
This is a legal contract between the contractholder and Kemper Investors Life
Insurance Company.
READ THIS CONTRACT CAREFULLY
Policy Form No. L-8165
<PAGE> 2
L-8165
INDEX PAGE
ANNUITY OPTION TABLE........................................Follows Page 9
ANNUITY PERIOD PROVISIONS .............................................6-9
Election Of Annuity Option ......................................6
Annuity Options ...............................................6-7
Transfers During The Annuity Period ...........................8-9
APPLICATION......................................Follows Contract Schedule
CONTRACT SCHEDULE............................................Follows Index
DEATH BENEFIT PROVISIONS ................................................6
Amount Payable Upon Death .......................................6
Payment Of Death Benefits .......................................6
DEFINITIONS .............................................................1
ENDORSEMENTS, if any..........................Follow Annuity Option Tables
FIXED ACCOUNT PROVISIONS ................................................3
Fixed Account Certificate Value .................................3
GENERAL PROVISIONS ......................................................2
The Contract ....................................................2
Incontestability ................................................2
Assignment ......................................................2
Reports .........................................................2
Premium Taxes ...................................................2
GUARANTEE PERIOD PROVISIONS............................................3-4
Guarantee Period Value...........................................3
MARKET VALUE ADJUSTMENT PROVISION........................................4
OWNERSHIP PROVISIONS ....................................................2
Owner of Contract ...............................................2
Change of Ownership .............................................3
Beneficiary .....................................................3
PURCHASE PAYMENT PROVISIONS .............................................3
TRANSFER AND WITHDRAWAL PROVISIONS ......................................5
Transfers During The Accumulation Period ........................5
Withdrawals During The Accumulation Period ......................5
Withdrawal Charges ..............................................5
Transfer And Withdrawal Procedures ..............................6
Deferment of Withdrawal or Transfer .............................6
VARIABLE ACCOUNT PROVISIONS ...........................................4-5
Separate Account ................................................4
Liabilities Of Separate Account .................................4
Subaccounts .....................................................4
Rights Reserved By The Company ..................................4
Accumulation Unit Value .........................................4
Investment Experience Factor...................................4-5
<PAGE> 3
CONTRACT SCHEDULE
DESCRIPTION OF PLAN: GROUP FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND
VARIABLE DEFERRED ANNUITY
GROUP CONTRACT NUMBER: T001 CONTRACT DATE: JANUARY 1, 1997
CONTRACTHOLDER: XYZ GROUP TYPE OF CONTRACT: NONQUALIFIED
STATE OF DELIVERY: THIS CONTRACT IS DELIVERED IN THE STATE WHERE THE
APPLICATION WAS COMPLETED BY THE CONTRACTHOLDER AND IS SUBJECT TO THE LAWS OF
THAT STATE.
INITIAL ALLOCATION OPTIONS:
FIXED ACCUMULATION UNDER:
FIXED ACCOUNT
GUARANTEE PERIOD ACCUMULATION UNDER:
1 YEAR GUARANTEE PERIOD 6 YEAR GUARANTEE PERIOD
2 YEAR GUARANTEE PERIOD 7 YEAR GUARANTEE PERIOD
3 YEAR GUARANTEE PERIOD 8 YEAR GUARANTEE PERIOD
4 YEAR GUARANTEE PERIOD 9 YEAR GUARANTEE PERIOD
5 YEAR GUARANTEE PERIOD 10 YEAR GUARANTEE PERIOD
VARIABLE ACCUMULATION UNDER:
KEMPER MONEY MARKET SUBACCOUNT
KEMPER MONEY MARKET II SUBACCOUNT
KEMPER GOVERNMENT SECURITIES SUBACCOUNT
KEMPER INVESTMENT GRADE BOND SUBACCOUNT
KEMPER GLOBAL INCOME SUBACCOUNT
KEMPER HORIZON 5 SUBACCOUNT
KEMPER HIGH YIELD SUBACCOUNT
KEMPER HORIZON 10+ SUBACCOUNT
KEMPER TOTAL RETURN SUBACCOUNT
KEMPER HORIZON 20+ SUBACCOUNT
KEMPER VALUE + GROWTH SUBACCOUNT
KEMPER BLUE CHIP SUBACCOUNT
KEMPER INTERNATIONAL SUBACCOUNT
KEMPER VALUE SUBACCOUNT
KEMPER SMALL CAP VALUE SUBACCOUNT
KEMPER SMALL CAP GROWTH SUBACCOUNT
KEMPER TECHNOLOGY SUBACCOUNT
KEMPER GROWTH SUBACCOUNT
SCUDDER GLOBAL DISCOVERY SUBACCOUNT
SCUDDER GROWTH AND INCOME SUBACCOUNT
SCUDDER INTERNATIONAL SUBACCOUNT
JANUS ASPEN SERIES GROWTH SUBACCOUNT
JANUS ASPEN SERIES GROWTH AND INCOME SUBACCOUNT
WARBURG PINCUS TRUST EMERGING MARKETS SUBACCOUNT
WARBURG PINCUS TRUST POST-VENTURE CAPITAL SUBACCOUNT
8165
<PAGE> 4
CONTRACT SCHEDULE
RECORDS MAINTENANCE CHARGE: [$30 PER CERTIFICATE YEAR]
WE WILL ASSESS AN ANNUAL RECORDS MAINTENANCE CHARGE OF [$30] ON EACH
CERTIFICATE ANNIVERSARY AND UPON CERTIFICATE TERMINATION. HOWEVER, IF THE
CERTIFICATE VALUE IS GREATER THAN OR EQUAL TO $50,000 ON A CERTIFICATE
ANNIVERSARY OR DATE OF SURRENDER, WE WILL NOT ASSESS THE RECORDS MAINTENANCE
CHARGE ON THAT CERTIFICATE ANNIVERSARY OR SURRENDER DATE. WE WILL NOT ASSESS
THIS CHARGE AFTER THE ANNUITY DATE.
WITHDRAWAL/ANNUITIZATION CHARGE TABLE:
YEARS ELAPSED SINCE PURCHASE
PAYMENTS WERE RECEIVED BY THE COMPANY RATE
LESS THAN ONE 7.00%
ONE BUT LESS THAN TWO 6.00%
TWO BUT LESS THAN THREE 5.00%
THREE BUT LESS THAN FOUR 5.00%
FOUR BUT LESS THAN FIVE 4.00%
FIVE BUT LESS THAN SIX 3.00%
SIX BUT LESS THAN SEVEN 2.00%
SEVEN OR MORE 0.00%
THE WITHDRAWAL/ANNUITIZATION CHARGE PERCENTAGES ARE APPLIED AGAINST THE
ORIGINAL AMOUNT OF THE PURCHASE PAYMENTS. A FREE PARTIAL WITHDRAWAL OF THE
GREATER OF 10% OF CERTIFICATE VALUE OR CERTIFICATE VALUE LESS REMAINING
PRINCIPAL IS AVAILABLE EACH YEAR. REMAINING PRINCIPAL FOR THIS PURPOSE IS
TOTAL PREMIUMS SUBJECT TO A WITHDRAWAL CHARGE MINUS WITHDRAWALS PREVIOUSLY
ASSESSED A WITHDRAWAL CHARGE.
8165
<PAGE> 5
CONTRACT SCHEDULE
FIXED ACCOUNT
THE FIXED ACCOUNT INTEREST RATE IS GUARANTEED THROUGH THE CERTIFICATE
YEAR IN WHICH A PURCHASE PAYMENT IS RECEIVED.
THE SUBSEQUENT FIXED ACCOUNT INTEREST RATE PERIOD IS ONE CERTIFICATE
YEAR.
MINIMUM GUARANTEED INTEREST RATE 3.00%
OTHER CHARGES
MORTALITY AND EXPENSE RISK CHARGE: [1.25% ANNUALLY]
ADMINISTRATION CHARGE: [.15% ANNUALLY]
GUARANTEED RETIREMENT INCOME BENEFIT CHARGE: .25% ANNUALLY.
WE WILL NOT ASSESS THIS CHARGE AFTER THE EARLIER OF CERTIFICATE
ANNUITIZATION OR AGE 90.
THE MORTALITY AND EXPENSE RISK CHARGE AND THE ADMINISTRATION CHARGE, WILL
BE ASSESSED DAILY ON THE SEPARATE ACCOUNT CERTIFICATE VALUE. THE
GUARANTEED RETIREMENT INCOME BENEFIT CHARGE WILL BE ASSESSED AT THE END
OF EACH CALENDAR QUARTER ON THE CERTIFICATE VALUE, BASED ON THE AVERAGE
MONTHLY CERTIFICATE VALUE.
MARKET VALUE ADJUSTMENT FORMULA
THE MARKET VALUE ADJUSTMENT IS DETERMINED BY THE APPLICATION OF THE
FOLLOWING FORMULA: T/365
[(1+I)]
MARKET VALUE ADJUSTMENT = GUARANTEE PERIOD VALUE X ----- -1
[(1+J)]
WHERE,
I IS THE GUARANTEED INTEREST RATE BEING CREDITED TO THE GUARANTEE PERIOD
VALUE SUBJECT TO THE MARKET VALUE ADJUSTMENT.
J IS THE CURRENT INTEREST RATE DECLARED BY THE COMPANY, AS OF THE
EFFECTIVE DATE OF THE APPLICATION OF THE MARKET VALUE ADJUSTMENT, FOR
CURRENT ALLOCATION TO A GUARANTEE PERIOD, THE LENGTH OF WHICH IS EQUAL
TO THE BALANCE OF THE GUARANTEE PERIOD FOR THE GUARANTEE PERIOD VALUE
SUBJECT TO THE MARKET VALUE ADJUSTMENT, ROUNDED TO THE NEXT HIGHER NUMBER
OF COMPLETE YEARS, AND
T IS THE NUMBER OF DAYS REMAINING IN THE GUARANTEE PERIOD.
8165
<PAGE> 6
Exhibit 4(d)
[ZURICH KEMPER LOGO]
GROUP MASTER APPLICATION
KEMPER INVESTORS LIFE INSURANCE COMPANY (KILICO)
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/621-5001
- --------------------------------------------------------------------------------
APPLICATION
- ---------------------------------------- -------------------------------------
Application for Name of Product
- ----------------------------------------
Name of Group
- ---------------------------------------- ---------------- ----------- --------
Principal Office Street Address City State Zip
- --------------------------------------------------------------------------------
Benefits and payments provided by this contract, when based on Guarantee Period
Values, may increase or decrease in accordance with the Market Value Adjustment
formula stated in the contract schedule.
Benefits, payments and values provided by this contract, when based upon the
investment experience of the subaccounts, are variable and are not guaranteed
as to dollar amount. Refer to the variable account and annuity period
provisions for a determination of any variable benefits.
- --------------------------------------------------------------------------------
SIGNATURES
- ----------------------------------------
Signature of Authorized Representative
- ---------------------------------------- ------------------------------------
Typed Name Title
- --------------------------------------------------------------------------------
Signed at (City, State and Zip)
- ----------------------------------------
Date
- ----------------------------------------
Witnessed by
- ----------------------------------------
Licensed Agent
page 1 of 1
L-8169
<PAGE> 7
DEFINITIONS
ACCUMULATED GUARANTEE PERIOD VALUE - The sum of the Guarantee Period Values.
ACCUMULATION PERIOD - The period between the Certificate's Issue Date and the
Annuity Date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate the value
of each Subaccount.
ADMINISTRATION CHARGE - A charge deducted in the calculation of the
accumulation unit value and Annuity Unit Value for a portion of our
administrative costs.
AGE - The attained age of the Annuitant, Payee, or Owner.
ANNIVERSARY VALUE - The Certificate Value calculated on each Certificate
Anniversary during the Accumulation Period.
ANNUITANT - The person during whose lifetime the annuity is to be paid. You may
not change the person named as the Annuitant.
ANNUITY - A series of payments which begins on the Annuity Date.
ANNUITY DATE - The date on which a Certificate matures and annuity payments
begin. The original Annuity Date is stated in the Certificate Schedule. It must
be at least one year from the Issue Date and not later than the maximum age of
annuitization specified on the Certificate schedule. The Owner may change the
Annuity Date, but not beyond the maximum age.
ANNUITY PERIOD - The period that starts on the Annuity Date.
ANNUITY UNIT - An accounting unit of measure used to calculate the amount of
variable annuity payments after the first annuity payment.
ANNUITY UNIT VALUE - The value of an Annuity Unit of a Subaccount determined
for a Valuation Period according to the formula stated in a certificate.
CERTIFICATE - An individual certificate which we issue to each Owner as
evidence of the rights and benefits under the contract.
CERTIFICATE ANNIVERSARY - An anniversary of the Issue Date.
CERTIFICATE OWNER, OR OWNER - See "You, Your, Yours" below.
CERTIFICATE VALUE - The sum of the Fixed Account Certificate Value plus the
Separate Account Certificate Value plus the Accumulated Guarantee Period Value.
CERTIFICATE YEAR - A one year period starting on the Issue Date and successive
Certificate Anniversaries.
CONTINGENT ANNUITANT - The person designated by the owner who becomes the
Annuitant if the Annuitant dies prior to the Annuity Date. A Contingent
Annuitant may not be elected under a qualified plan.
CONTRACT DATE, CONTRACT YEAR - The contract date is stated in the contract
schedule. Subsequent contract years shall begin on anniversaries of the
contract date.
CONTRACTHOLDER - The Contractholder is stated in the contract schedule. It is
the entity to which the contract is issued.
FIXED ACCOUNT - The General Account of KILICO to which an Owner may allocate
all or a portion of Purchase
Payments or Certificate Value.
FIXED ACCOUNT CERTIFICATE VALUE - The value of the Fixed Account of a
certificate on any Valuation Date.
FIXED ANNUITY - An annuity payment plan that does not vary as to dollar amount.
FUND - An investment company or separate series thereof, in which the
Subaccounts of the Separate Account invest.
GENERAL ACCOUNT - Our assets other than those allocated to the Separate Account,
the non-unitized separate account or any other separate account.
GUARANTEE PERIOD - A period of time during which an amount is to be credited
with a guaranteed interest rate, subject to a Market Value Adjustment prior to
the end of the Guarantee Period. The Guarantee Periods initially offered are
stated in the certificate schedule.
GUARANTEE PERIOD VALUE -The (1) Purchase Payment allocated or amount transferred
to a Guarantee Period; plus (2) interest credited; minus (3) withdrawals,
previously assessed withdrawal charges and transfers; adjusted for (4) any
applicable Market Value Adjustment previously made.
ISSUE DATE - The Issue Date stated in the certificate schedule. It is the date
an initial Purchase Payment is available for use and begins to be credited with
interest and/or investment experience. If the normal Issue Date is the 29th,
30th or 31st of the month, the Issue Date will be the 28th day of that month.
MARKET ADJUSTED VALUE - A Guarantee Period Value adjusted by the Market Value
Adjustment formula prior to the end of a Guarantee Period.
MARKET VALUE ADJUSTMENT - An adjustment of Guarantee Period Values in
accordance with the Market Value Adjustment formula prior to the end of the
Guarantee Period. The adjustment reflects the change in the value of the
Guarantee Period Value due to changes in interest rates since the date the
Guarantee Period commenced. The Market Value Adjustment formula is stated in
the certificate schedule.
MORTALITY AND EXPENSE RISK CHARGE - A charge deducted in the calculation of the
accumulation unit value and the Annuity Unit Value. It is for our assumption of
mortality risks and expense guarantees.
NONQUALIFIED - A Certificate issued other than as a qualified plan.
PAYEE - A recipient of periodic payments under the certificate. This may be an
Annuitant or a beneficiary who becomes entitled to a death benefit payment.
PURCHASE PAYMENTS - The dollar amount we receive in U.S. currency to buy the
benefits a certificate provides.
QUALIFIED PLAN - A certificate issued under a retirement plan which qualifies
for favorable income tax treatment under Section 408 or 408(a) of the Internal
Revenue Code as amended.
RECORDS MAINTENANCE CHARGE - A charge assessed against a certificate as
specified in the certificate schedule.
RECEIVED - Received by Kemper Investors Life Insurance Company at its home
office in Long Grove, Illinois.
Page 1
L-8165
<PAGE> 8
L-8165 Page 2
SEPARATE ACCOUNT - A unit investment trust registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 known as the
KILICO Variable Annuity Separate Account.
SEPARATE ACCOUNT CERTIFICATE VALUE - The sum of the Subaccount values of the
certificate on a Valuation Date.
SUBACCOUNTS - The Separate Account has several Subaccounts. The Subaccounts
available initially under the certificate are stated in the certificate
schedule.
SUBACCOUNT VALUE - The value of each Subaccount calculated separately according
to the formula stated in the certificate.
VALUATION DATE - Each business day that applicable law requires that we value
the assets of the Separate Account. Currently this 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.
VARIABLE ANNUITY - An annuity payment plan which varies as to dollar amount
because of Subaccount investment experience.
WE, OUR, US - Kemper Investors Life Insurance Company, Long Grove, Illinois.
YOU, YOUR, YOURS - The party(ies) named as Owner unless later changed as
provided in the certificate. The Owner is the Annuitant unless a different
Owner is named. Under a nonqualified plan when more than one person is named as
Owner, the terms "you," "your," "yours," means joint owners. The Owner may be
changed during the lifetime of the Owner and the Annuitant. The Owner, prior to
the Annuity Date or any distribution of any death benefit, has the exclusive
right to exercise every option and right conferred by this certificate.
GENERAL PROVISIONS
THE CONTRACT - The contract, the attached application, and any endorsements
constitute the entire contract between the parties. All statements made in the
group application and the enrollment application, in the absence of fraud, are
deemed representations and not warranties. No statement will void the contract
or be used as a defense of a claim unless it is contained in the group or
enrollment application.
MODIFICATION OF CONTRACT - Only our president, secretary and assistant
secretaries have the power to approve a change or waive any provisions of the
contract. Any such modifications must be in writing. No agent or person other
than the officers named has the authority to change or waive the provisions of
the contract.
CERTIFICATES - We will issue an individual certificate to each Owner as
evidence of his or her rights and benefits under the contract. This
certificate is not a part of the contract.
SUCCESSOR CONTRACTHOLDER - The Contractholder, with our consent, may at any
time appoint a successor contractholder. The successor Contractholder has all
rights, duties, and obligations of the original Contractholder.
DISCONTINUANCE OF NEW PARTICIPANTS - By giving thirty days prior written notice
to the contractholder, we may limit or discontinue the acceptance of new
applications and the issuance of new certificates under this contract. Such
limitation or discontinuance will have no effect on the rights or benefits of
any owner's certificate issued prior to the effective date of such limitation
or discontinuation.
INCONTESTABILITY - We cannot contest this contract after it has been in force
for two years.
CHANGE OF ANNUITY DATE - The owner may write to us prior to distribution of a
death benefit or the first annuity payment date and request a change of the
Annuity Date.
ASSIGNMENT - No assignment under the contract or certificate is binding unless
we receive it in writing. We assume no responsibility for the validity or
sufficiency of any assignment. Once filed, the rights of the Owner, Annuitant
and beneficiary are subject to the assignment. Any claim is subject to proof of
interest of the assignee.
DUE PROOF OF DEATH - We must receive written proof of death of the Owner or the
Annuitant when a death benefit is payable. The proof may be a certified death
certificate, the written statement of a physician, or any other proof
satisfactory to us.
RESERVES, CERTIFICATE VALUES AND DEATH
BENEFITS - All reserves are equal to or greater than those required by statute.
Any available Certificate Value and death benefit are not less than the minimum
benefits required by the statutes of the state in which the certificate is
delivered.
NON-PARTICIPATING - The contract does not pay dividends. It will not share in
our surplus or earnings.
REPORTS - At least once each certificate year we will send you a statement
showing Purchase Payments received, interest credited, investment experience,
and charges made since the last report, as well as any other information
required by statute.
PREMIUM TAXES - We will make a deduction for state premium taxes in certain
situations. On any certificate subject to premium tax, as provided under
applicable law, the tax will be deducted for the total Certificate Value
applied to an annuity option at the time annuity payments start. Premium tax
due and paid by us prior to annuitization will be deducted at the percentage
that was applicable prior to annuitization.
QUALIFIED PLANS - If a certificate is issued under a qualified plan additional
provisions may apply. The rider or amendment to the certificate used to qualify
it under the applicable section of the Internal Revenue Code will indicate the
extent of change in the provisions.
OWNERSHIP PROVISIONS
OWNER - The Annuitant is the original Owner unless otherwise designated
initially. Before the Annuity Date or any distribution of death benefit, the
Owner has the right to cancel or amend the certificate if we agree. The Owner
may exercise every option and right conferred by the contract including the
right of assignment. The joint Owners must agree to any change if more than one
Owner is named.
<PAGE> 9
CHANGE OF OWNERSHIP - The Owner may change the certificate Owner by written
request at any time while the Annuitant is alive. The owner must furnish
information sufficient to clearly identify the new Owner to us. The change is
subject to any existing assignment of the certificate. When we record the
effective date of the change, it will be the date the notice was signed except
for action taken by us prior to receiving the request. Any change is subject to
the payment of any proceeds. We may require the return of the certificate to us
for endorsement of a change.
BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY - A beneficiary must be
designated initially. The Owner may change the beneficiary by sending us a
written change form. Changes are subject to the following:
1. The change must be filed while the Annuitant is alive and prior to the
Annuity Date;
2. The certificate must be in force at the time the Owner files a change;
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;
5. After we receive the change, it will take effect on the date the change form
was signed. However, action taken by us before the change form was received
will remain in effect; and
6. The request for change must provide information sufficient to identify the
new beneficiary.
We may require the return of the certificate for endorsement of a change.
The interest of a beneficiary who dies before the distribution of the death
benefit will pass to the other beneficiaries, if any, share and share alike,
unless otherwise provided in the beneficiary designation. If no beneficiary
survives or is named, the distribution will be made to the Owner's estate when
the Owner dies; or to the estate of the Annuitant upon the death of the
Annuitant if the Owner is not also the Annuitant. If a beneficiary dies within
ten days of the date of the Owner's death, the death benefit will be paid as if
the Owner had survived the beneficiary. If a beneficiary dies within ten days of
the death of the Annuitant, and the Owner's the Annuitant, we will pay the death
benefit as if the Annuitant survived the beneficiary. If the Owner, the
Annuitant, and the beneficiary die simultaneously, we will pay the death benefit
as if the Owner had survived the Annuitant and the beneficiary.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENT LIMITATIONS - The minimum and maximum initial and subsequent
Purchase Payment limits are shown in the certificate schedule.
The minimum Purchase Payment allocation to a Guarantee Period, Fixed Account,
or to a Subaccount is $500.
We reserve the right to waive or modify these limits.
PLACE OF PAYMENT - All Purchase Payments under the contract must be paid to us
at our home office or such other location as we may select. We will notify the
Owner and any other interested parties in writing of such other locations.
Purchase Payments received by an agent will begin earning interest only after
we receive it.
FIXED ACCOUNT PROVISIONS
FIXED ACCOUNT CERTIFICATE VALUE - The Fixed Account Certificate Value includes:
1. Purchase Payments allocated to the Fixed Account; plus
2. amounts transferred from a Subaccount or Guarantee Period to the Fixed
Account at the Owner request; plus
3. interest credited; minus
4. withdrawals, previously assessed withdrawal charges and transfers from
the Fixed Account, minus
5. any applicable portion of the Records Maintenance Charge and charges for
other benefits.
The initial Fixed Account interest rate credited to the initial Purchase
Payment is in effect through the end of the interest rate period and is shown
in the certificate schedule. At the beginning of each subsequent interest rate
period shown in the certificate schedule, we will declare the Fixed Account
interest rate applicable to the initial Purchase Payment for each such
subsequent interest rate period.
We will declare the Fixed Account interest rate with respect to each subsequent
Purchase Payment received. Any such Purchase Payment we receive will be
credited that rate through the end of the interest rate period shown in the
certificate schedule. At the beginning of each subsequent interest rate period,
we will declare the Fixed Account interest rate applicable to each subsequent
Purchase Payment for such interest rate period.
We reserve the right to declare the Fixed Account current interest rate(s)
based upon: the Issue Date; the date we receive a Purchase Payment; or the date
of account transfer.
We calculate the interest credited to the Fixed Account by compounding daily,
at daily interest rates, rates which would produce at the end of a certificate
year a result identical to the one produced by applying an annual interest
rate.
The minimum guaranteed Fixed Account interest rate is stated in the contract
schedule.
GUARANTEE PERIOD PROVISIONS
GUARANTEE PERIOD - We hold all amounts allocated to a Guarantee Period in a
non-unitized separate account. The initial Guarantee Periods available under
the contract are shown in the certificate schedule.
GUARANTEE PERIOD VALUE - On any Valuation Date, the Guarantee Period value
includes
1. Purchase Payments or transfers allocated to the Guarantee Period Value at
the beginning of its Guarantee Period; plus
2. interest credited; minus
3. withdrawals, previously assessed withdrawal charges and transfers; minus
4. any applicable portion of the Records Maintenance Charge and charges for
other benefits; adjusted for
5. any applicable Market Value Adjustment previously made.
L-8165 Page 3
<PAGE> 10
L-8165 Page 4
The Guarantee Period(s) initially elected and the interest rate(s) initially
credited are shown in the certificate schedule. The initial interest rate
credited to subsequent Purchase Payments will be declared at the time the
payment is received. At the end of an Guarantee Period, we will declare a
guaranteed interest rate applicable for the next subsequent Guarantee Period of
the same duration.
ACCUMULATED GUARANTEE PERIOD VALUE - On any Valuation Date, the Accumulated
Guarantee Period Value is the sum of the Guarantee Period Values. At any time
during the Accumulation Period, the Accumulated Guarantee Period value may be
allocated to a maximum of forty Guarantee Periods.
We calculate the interest credited to the Guarantee Period Value by compounding
daily, at daily interest rates, rates which would produce at the end of a
certificate year a result identical to the one produced by applying an annual
interest rate.
MARKET VALUE ADJUSTMENT - The Market Value Adjustment formula is stated in the
certificate schedule. This formula is applicable for both an upward or
downward adjustment to a Guarantee Period Value when, prior to the end of a
Guarantee Period, such value is:
(1) taken as a total or partial withdrawal;
(2) applied to purchase an annuity option; or
(3) transferred to another Guarantee Period, the Fixed Account, or a
Subaccount.
However, a Market Value Adjustment shall not be applied to any Guarantee Period
Value transaction effected within 30 days after the end of the applicable
Guarantee Period.
VARIABLE ACCOUNT PROVISIONS
SEPARATE ACCOUNT - The variable benefits under the contract are provided
through the KILICO Variable Annuity Separate Account. This is called the
Separate Account. The Separate Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. It is a separate investment account maintained by us into which a
portion of our assets has been allocated for the contract and may be allocated
for certain other contracts.
LIABILITIES OF SEPARATE ACCOUNT - The assets equal to the reserves and other
liabilities of the Separate Account will not be charged with liabilities arising
out of any other business we may conduct. We will value the assets of the
Separate Account on each Valuation Date.
SEPARATE ACCOUNT CERTIFICATE VALUE - On any Valuation Date, the Separate Account
Certificate Value is the sum of its Subaccount values.
SUBACCOUNTS - The Separate Account consists of several Subaccounts. The initial
Subaccounts available under this contract are shown in the contract schedule.
We may, from time to time, combine or remove Subaccounts in the Separate Account
and establish additional Subaccounts of the Separate Account. In such event, we
may permit you to select other Subaccounts under the contract. However, the
right to select any other Subaccount is limited by the terms and conditions we
may impose on such transactions.
FUND - Each Subaccount of the Separate Account will buy shares of a Fund or a
separate series of a Fund. Each Fund is registered under the Investment Company
Act of 1940 as an open-end diversified management investment company. 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 another investment company. We may also
substitute other investment companies.
RIGHTS RESERVED BY THE COMPANY - We reserve the right, subject to compliance
with the current law or as it may be changed in the future:
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 separate accounts, or the General Account, or to add, combine or remove
Subaccounts in the Separate Account;
4. To delete the shares of any of the portfolios of a Fund or any other
open-end investment company and to substitute, for the Fund shares held in any
Subaccount, the shares of another portfolio of a Fund or the shares of another
investment company or any other investment permitted by law; and
5. To change the way we assess charges, but not to increase the aggregate
amount above that currently charged to the Separate Account and the Funds in
connection with the contract.
When required by law, we will obtain your approval of such changes and the
approval of any regulatory authority.
ACCUMULATION UNIT VALUE - Each Subaccount has an accumulation unit value. When
Purchase Payments 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. The value of a Subaccount on any Valuation Date
is the number of units held in the Subaccount times the accumulation unit value
on that Valuation Date.
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 period immediately preceding. Each Valuation Period has a
single Accumulation Unit Value that is applied to each day in the period. The
number of Accumulation Units will not change as a result of investment
experience.
INVESTMENT EXPERIENCE FACTOR - Each Subaccount has its own investment experience
factor. The investment experience of the Separate Account is calculated by
applying the investment experience factor to the value in each Subaccount during
a Valuation Period.
<PAGE> 11
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 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 Valuation Period;
3. is the factor representing the sum of the Separate Account charges, stated
in the certificate schedule, for the number of days in the Valuation Period.
TRANSFER AND WITHDRAWAL PROVISIONS
TRANSFERS DURING THE ACCUMULATION PERIOD - The Owner may direct the following
transfers:
1. All or part of the Separate Account Certificate Value or a Guarantee
Period Value may be transferred to the Fixed Account or to another
Subaccount or Guarantee Period.
2. During the thirty days that follow a Certificate Year anniversary, all
or part of the Fixed Account Certificate Value may be transferred to one
or more Subaccounts or Guarantee Periods.
Transfers will also be subject to the following conditions:
1. The minimum amount which may be transferred is $100 or, if smaller, the
remaining value in the Fixed Account or a Subaccount or Guarantee Period.
2. No partial transfer will be made if the remaining Certificate Value of
the Fixed Account or any Subaccount or Guarantee Period will be less than
$500 unless the transfer will eliminate your interest in such account;
3. No transfer may be made within seven calendar days of the date on which
the first annuity payment is due;
4. The Owner may request an additional transfer from the Fixed Account to
one or more Subaccounts during the thirty day period before the date on
which the first annuity payment is due. Such transfer must become
effective no later than the seventh calendar day before such due date;
5. When the Owner requests a transfer from the Fixed Account to a
Subaccount or Guarantee Period, we will limit the amount that can be
transferred to the amount which exceeds withdrawal charge, if any,
applicable to the total Fixed Account Certificate Value for the
certificate year during which the total transfer is made.
6. We reserve the right to charge $25 for each transfer in excess of 12 in a
Certificate Year.
7. Transfers may not be made from any Subaccount or Guarantee Period into
the Fixed Account for the six-month period following any transfer from the
Fixed Account into one or more of the Subaccounts.
Any transfer from a Guarantee Period is subject to a Market Value Adjustment
unless the transfer is effective within thirty days after the end of the
applicable Guarantee Period.
We will transfer amounts attributable to Purchase Payments and all related
accumulations received in a given certificate year, in the chronological order
we received them.
Any transfer request must clearly specify:
1. the amount which is to be transferred; and
2. the names of the accounts which are affected.
We reserve the right at any time and without notice to any party, to terminate,
suspend, or modify these transfer rights.
WITHDRAWALS DURING THE ACCUMULATION PERIOD - During the Accumulation Period, the
Owner may withdraw all or part of the Certificate Value reduced by any
withdrawal charge, applicable premium taxes, and adjusted by any applicable
Market Value Adjustment. The Market Value Adjustment formula will be applied
to the applicable portion of the total value withdrawn unless such withdrawal is
effective within thirty days after the end of the applicable Guarantee Period.
We must receive a written request that indicates the amount of the withdrawal
from the Fixed Account and each Subaccount and Guarantee Period. The Owner must
return the certificate to us if the Owner elects a total withdrawal.
Withdrawals are subject to these conditions:
1. Each withdrawal must be at least $100 or the value that remains in the
Fixed Account, Subaccount or Guarantee Period if smaller.
2. A minimum of $500 must remain in the account after a withdrawal unless
the account is eliminated by such withdrawal;
3. The maximum withdrawal from any account is the value of the respective
account less the amount of any withdrawal charge.
4. Any withdrawal amount will be increased by the withdrawal charge.
5. Partial withdrawals may not be taken from the Fixed Account in the first
Certificate Year.
WITHDRAWAL CHARGES - Withdrawal charges are shown in the certificate schedule
and are calculated as follows:
1. All amounts to be withdrawn and any applicable withdrawal charges will be
charged first against Purchase Payments in the chronological order we received
such Purchase payments.
2. Any amount withdrawn which is not subject to a withdrawal charge will be
considered a "partial free withdrawal".
3. In the event of a partial withdrawal, a "partial free withdrawal" is applied
against Purchase Payments and all related accumulations in the chronological
order we received such Purchase Payments even though the Purchase Payments are
no longer subject to a withdrawal charge.
L-8165 Page 5
<PAGE> 12
L-8165 Page 6
TRANSFER AND WITHDRAWAL PROCEDURES - We will withdraw or transfer from the
Fixed Account or Guarantee Periods as of the Valuation Date that follows the
date we receive a written or telephone transfer request. To process a
withdrawal, the request must contain all required information.
We will redeem the necessary number of Accumulation units to achieve the dollar
amount when the withdrawal or transfer is made from a Subaccount. We will reduce
the number of Accumulation Units credited in each Subaccount by the number of
Accumulation Units redeemed. The reduction in the number of accumulation units
is determined based on the accumulation unit value at the end of the Valuation
Period when we receive the request, provided the request contains all required
information. We will pay the amount within seven calendar days after the date
we receive the request, except as provided below.
DEFERMENT OF WITHDRAWAL OR TRANSFER - If the withdrawal or transfer is to be
made from a Subaccount, we may suspend the right of withdrawal or transfer or
delay payment more than seven calendar days:
1. during any period when the New York Exchange is closed other than
customary weekend and holiday closings;
2. when 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 accumulation unit
value is not practical; or
3. for such other periods as the Securities and Exchange Commission by order
may permit for protection of Owners.
We may defer the payment of a withdrawal or transfer from the Fixed Account or
Guarantee Periods, for the period permitted by law. This can never be more than
six months after you send us a written request. During the period of deferral,
we will continue to credit interest, at the then current interest rate(s), to
the Fixed Account Certificate Value and/or each Guarantee Period Value.
DEATH BENEFIT PROVISIONS
AMOUNT PAYABLE UPON DEATH - We compute the death benefit at the end of the
Valuation Period following our receipt of due proof of death and the return of
the certificate.
If death occurs prior to the deceased attaining age 91, we will pay the greater
of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Certificate Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at
5.00% per annum to the earlier of age 80 or date of death, increased by
Purchase Payments made from age 80 to the date of death and decreased by
any withdrawals from age 80 to the date of death, or
(4) the greatest Anniversary Value immediately preceding the earlier of age
81 or date of death, increased by Purchase Payments made since the date of
the greatest Anniversary Value, and decreased by any withdrawals since
that date.
We will pay the Certificate Value if death occurs at age 91 or later.
CONTINGENT ANNUITANT - If a Contingent Annuitant is named, the Contingent
Annuitant will become the Annuitant on the death of the Annuitant. If the
Contingent Annuitant is not alive at the date of the Annuitant's death, or if
the Contingent Annuitant dies within ten days of the Annuitant's death, this
Contingent Annuitant provision will not apply.
PAYMENT OF DEATH BENEFITS - A death benefit will be paid to the designated
Beneficiary upon any of the following events during the Accumulation Period:
1. the death of the Owner, or a joint Owner,
2. the death of the Annuitant if no Contingent Annuitant is named or if
the Contingent Annuitant does not survive the Annuitant, or
3. if a Contingent Annuitant is named and survives the Annuitant, the
death of the Contingent Annuitant.
We will pay the death benefit to the beneficiary when we receive due proof of
death. We will then have no further obligation under this certificate.
We will pay the death benefit in a lump sum. This sum may be deferred for up to
five years from the date of death.
Instead of a lump sum payment the beneficiary may elect to have the death
benefit distributed as stated in Option 1 for a period not to exceed the
beneficiary's life expectancy; or Options 2 or 3 based upon the life expectancy
of the beneficiary as prescribed by federal regulations. The beneficiary must
make this choice within sixty days of the time we receive due proof of death,
and distribution must commence within one year of the date of death.
If the beneficiary is not a natural person, the beneficiary must elect that the
entire death benefit be distributed within five years of the Owner's death.
Distribution of the death benefit must start within one year after the Owner's
death. It may start later if prescribed by federal regulations.
If the primary beneficiary is the surviving spouse when the Owner dies, the
surviving spouse may elect to be the successor Owner of the certificate, and
shall become the Annuitant if no Annuitant or Contingent Annuitant is living at
the time of the Owner's death. There will be no requirement to start a
distribution of death benefits.
ANNUITY PERIOD PROVISIONS
ELECTION OF ANNUITY OPTION - We must receive an election of an annuity option
in writing. The Owner may make an election before the Annuity Date providing the
Annuitant is alive. The Annuitant may make an election on the Annuity Date
unless the Owner has restricted the right to make such an election. The
beneficiary may make an election when we pay the death benefit.
An election will be revoked by:
1. a subsequent change of beneficiary; or
2. an assignment the certificate unless the assignment provides otherwise.
Subject to the terms of the death benefit provision, the beneficiary may elect
to have the death benefit remain with us under one of the annuity options.
If an annuity option is not elected, an annuity will be paid under Option 3 for
a guaranteed period of ten years and for as long thereafter as the Annuitant is
alive.
<PAGE> 13
If the total Certificate Value is applied under one of the annuity options,
this certificate must be surrendered to us.
An option can not be changed after the first annuity payment is made.
If, on the seventh calendar day before the first annuity payment due date, all
the Certificate Value is allocated to the Fixed Account or Guarantee Periods,
the annuity will be paid as a Fixed Annuity. If all of the Certificate Value on
such date is allocated to the Separate Account, the annuity will be paid as a
Variable Annuity. If the Certificate Value on such date is allocated to a
combination of the Fixed Account, Guarantee Periods and Subaccounts, then the
annuity will be paid as a combination of a Fixed and Variable annuity. A Fixed
and Variable annuity payment will reflect the investment performance of the
Subaccounts in accordance with the allocation of the Certificate Values existing
on such date. Allocations will not be changed thereafter, except as provided in
the Transfers During The Annuity Period provision of the contract.
Payments for all options are derived from the applicable tables. Current
annuity rates will be used if they produce greater payments than those quoted in
the contract. The age in the tables is the age of the Payee on the last birthday
before the first payment is due.
The option selected must result in a payment that is at least equal to our
minimum payment, according to our rules, at the time the annuity 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 so that the payment is at least equal to the minimum payment or to make
payment in one lump sum.
ANNUITIZATION CHARGE - An withdrawal charge shall be applied as shown in the
certificate schedule after application of any applicable Market Value
Adjustment. The annuitization charge is waived when the Owner elects an annuity
option which provides either an income benefit period of five years or more or a
benefit under which payment is contingent on the life of the Payee(s).
OPTION 1
FIXED INSTALMENT ANNUITY - We will make monthly payments for a fixed number of
instalments. Payments must be made for at least 5 years, but not more than 30
years.
OPTION 2
LIFE ANNUITY - We will make monthly payments while the Payee is alive.
OPTION 3
LIFE ANNUITY WITH INSTALMENTS GUARANTEED - We will make monthly payments for a
guaranteed period and thereafter while the Payee is alive. The guaranteed period
must be selected at the time the annuity option is chosen. The guaranteed
periods available are 5, 10, 15 and 20 years.
OPTION 4
JOINT AND SURVIVOR ANNUITY - We will pay the full monthly income while both
Payees are alive. Upon the death of either Payee, we will continue to pay the
surviving Payee a percentage of the original monthly payment. The percentage
payable to the surviving Payee must be selected at the time the annuity option
is chosen. The percentages available are 50%, 66 2/3%, 75%, and 100%.
OTHER OPTIONS
We may make other annuity options available. Payments are also available on a
quarterly, semi-annual or annual basis.
FIXED ANNUITY - The Fixed Account Certificate Value plus the Accumulated
Guarantee Period Values adjusted for any applicable Market Value Adjustment, on
the first day preceding the date on which the first annuity payment is due, is
first reduced by any annuitization charge, charges for other benefits, records
maintenance charge, and premium taxes that apply. The value that remains will be
used to determine the fixed annuity monthly payment in accordance with the
annuity option selected.
VARIABLE ANNUITY - The Separate Account Certificate Value, at the end of the
Valuation Period preceding the Valuation Period that includes the date on which
the first annuity payment is due, is first reduced by any annuitization charge,
records maintenance charge, charges for other benefits, and premium taxes that
apply. The value that remains is used to determine the first monthly annuity
payment. The first monthly annuity payment is based on the guaranteed annuity
option shown in the Annuity Option Table. You may elect any option available.
The dollar amount of subsequent payments may increase or decrease depending on
the investment experience of each Subaccount. The number of Annuity Units per
payment will remain fixed for each Subaccount unless a transfer is made. If a
transfer is made, the number of Annuity Units per payment will change.
The number of Annuity Units for each Subaccount is calculated by dividing a. by
b. where:
a. is the amount of the monthly payment that can be attributed to that
Subaccount; and
b. is the Annuity Unit Value for that Subaccount at the end of the Valuation
Period. The Valuation Period includes the date on which the payment is
made.
Monthly annuity payments, after the first payment, are calculated by summing
up, for each Subaccount, the product of a. times b. where:
a. is the number of Annuity Units per payment in each Subaccount; and
b. is the Annuity Unit Value for that Subaccount at the end of the Valuation
Period. The Valuation Period includes the date on which the payment is
made.
After the first payment, we guarantee that the dollar amount of each annuity
payment will not be affected adversely by actual expenses or changes in
mortality experience from the expense and mortality assumptions on which we
based the first payment.
ANNUITY UNIT VALUE - The value of an Annuity Unit for each Subaccount at the
end of any subsequent Valuation Period is determined by multiplying the result
of a. times b. by c. where:
a. is the Annuity Unit Value for the immediately preceding Valuation Period;
and
b. is the net investment factor for the Valuation Period for which the Annuity
Unit Value is being calculated; and
c. is the interest factor of .99993235 per calendar day of such subsequent
Valuation Period to offset the effect of the assumed rate of 2.50% per year
used in the Annuity Option Table.
L-8165 Page 7
<PAGE> 14
L-8165 Page 8
The net investment factor for each Subaccount for any Valuation Period is
determined by dividing a. by b. where:
a. is the value of an Annuity Unit of the applicable Subaccount as of the end
of the current Valuation Period plus or minus the per share charge or credit
for taxes reserved; and
b. is the value of an Annuity Unit of the applicable Subaccount as of the end
of the immediately preceding Valuation Period, plus or minus the per share
charge or credit for taxes reserved.
TRANSFERS DURING THE ANNUITY PERIOD - During the annuity period, the Payee(s)
may: convert Fixed Annuity payments to Variable Annuity payments; convert
Variable Annuity payments to Fixed Annuity payments; or, have Variable Annuity
payments reflect the investment experience of other Subaccounts. A transfer
may be made subject to the following:
1. The Payee must send us a written notice in a form satisfactory to us;
2. One transfer is permitted each twelve month period from the Annuity Date. We
must receive notice of such transfer at least [thirty] days prior to the
effective date of the transfer;
3. A Payee may not have more than three Subaccounts after any transfer;
4. At least $1,000 of Annuity Unit Value or annuity reserve value must be
transferred from a Subaccount or from the Fixed Account; and
6. At least $1,000 of Annuity Unit Value or annuity reserve value must remain
in the account from which the transfer was made.
When a transfer is made between Subaccounts, the number of Annuity Units per
payment attributable to a Subaccount to which transfer is made is equal to a.
multiplied by b. divided by c., where:
a. is the number of Annuity Units per payment in the Subaccount from which
transfer is being made;
b. is the Annuity Unit Value for the Subaccount from which the transfer is
being made; and
c. is the Annuity Unit Value for the Subaccount to which transfer is being
made.
When a transfer is made from the Fixed Account to a Subaccount, the number of
Annuity Units per payment attributable to a Subaccount to which transfer is
made is equal to a. times b., where:
a. is the Fixed Account annuity value being transferred; and
b. is the Annuity Unit Value for the Subaccount to which transfer is being
made.
The Fixed Account annuity value equals the present value of the remaining Fixed
Annuity payments using the same interest and mortality basis used to calculate
the Fixed Annuity payments.
The amount of money allocated to the Fixed Account in case of a transfer from a
Subaccount equals the annuity reserve for the Payee's interest in such
Subaccount. The annuity reserve is the product of a. multiplied by b.
multiplied by c. where:
a. is the number of Annuity Units representing the
Payee's interest in such Subaccount per annuity payment;
b. is the Annuity Unit Value for such Subaccount; and
c. is the present value of $1.00 per payment period using the attained
age(s) of the Payee(s) and any remaining guaranteed payments that may be
due at the time of the transfer.
Money allocated to the Fixed Account upon such transfer will be applied under
the same annuity option as originally elected. Guaranteed period payments will
be adjusted to reflect the number of guaranteed payments already made. If all
guaranteed payments have already been made, no further payments will be
guaranteed.
All amounts and Annuity Unit Values are determined as of the end of the
Valuation Period preceding the effective date of the transfer.
We reserve the right at any time and without notice to any party to terminate,
suspend or modify these transfer privileges.
SUPPLEMENTARY AGREEMENT - A supplementary agreement will be issued to reflect
payments that will be made under a settlement option. If payment is made as a
death benefit distribution, the effective date will be the date of death.
Otherwise, the effective date will be the date chosen by the Owner.
DATE OF FIRST PAYMENT - Interest, under an option, will start to accrue on the
effective date of the supplementary agreement. If the normal effective date is
the 29th, 30th, or 31st of the month, the effective date will be the 28th day
of that month.
EVIDENCE OF AGE, SEX AND SURVIVAL - We may require satisfactory evidence of the
age, sex and the continued survival of any person on whose life the income is
based.
MISSTATEMENT OF AGE OR SEX - If the age or sex of the Payee has been misstated,
the amount payable under the contract will be such as the Purchase Payments
sent to us would have purchased at the correct age or sex. Interest not to
exceed 6% compounded each year will be charged to any overpayment or credited
to any underpayment against future payments we may make under the contract.
BASIS OF ANNUITY OPTIONS - 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 annuity mortality table developed by the Society of
Actuaries, projected using Projection Scale G. We may also make available
variable annuity payment options based on assumed investment rates other than
2.50%.
DISBURSEMENT UPON DEATH OF PAYEE: UNDER OPTIONS 1 or 3 - When the Payee dies,
if the beneficiary is a natural person, we will automatically continue any
unpaid installments for the remainder of the elected period under Option 1 or
Option 3 to the Beneficiary. If the Beneficiary is either an estate or trust,
we will pay a commuted value of the remaining payments. The commuted value
will be based upon a minimum interest rate of not less than 2.50%. The commuted
value of any variable instalments will be determined by applying the Annuity
Unit Value next determined following our receipt of due proof of death.
PROTECTION OF BENEFITS - Unless otherwise provided in the supplementary
agreement, the Payee may not commute, anticipate, assign, alienate or otherwise
hinder the receipt of any payment.
<PAGE> 15
CREDITORS - The proceeds of the contract and any payment under an annuity
option will be exempt from the claim of creditors and from legal process to the
extent permitted by law.
L-8165 Page 9
<PAGE> 16
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<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
</TABLE>
OPTION TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED:
<TABLE>
<CAPTION>
Age of MONTHLY PAYMENTS GUARANTEED Age of MONTHLY PAYMENTS 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 4.17 4.16 4.13 4.06 3.96 55 3.87 3.86 3.84 3.81 3.75
56 4.27 4.25 4.21 4.14 4.03 56 3.95 3.94 3.92 3.88 3.82
57 4.36 4.35 4.30 4.22 4.09 57 4.03 4.02 4.00 3.95 3.88
58 4.46 4.45 4.40 4.30 4.16 58 4.11 4.11 4.08 4.03 3.95
59 4.57 4.55 4.50 4.39 4.22 59 4.21 4.20 4.17 4.11 4.01
60 4.69 4.67 4.60 4.48 4.29 60 4.30 4.29 4.26 4.19 4.08
61 4.81 4.79 4.71 4.57 4.36 61 4.41 4.40 4.35 4.28 4.15
62 4.94 4.92 4.83 4.66 4.43 62 4.52 4.50 4.46 4.37 4.23
63 5.09 5.05 4.95 4.76 4.49 63 4.64 4.62 4.56 4.46 4.30
64 5.24 5.20 5.08 4.86 4.56 64 4.76 4.74 4.68 4.56 4.37
65 5.40 5.35 5.21 4.96 4.62 65 4.90 4.87 4.80 4.66 4.45
66 5.57 5.52 5.35 5.06 4.69 66 5.04 5.01 4.93 4.77 4.52
67 5.75 5.69 5.49 5.17 4.75 67 5.19 5.16 5.06 4.87 4.59
68 5.95 5.87 5.64 5.27 4.81 68 5.36 5.32 5.20 4.98 4.66
69 6.15 6.07 5.80 5.37 4.86 69 5.53 5.49 5.35 5.10 4.73
70 6.38 6.27 5.96 5.48 4.91 70 5.72 5.68 5.51 5.21 4.80
71 6.61 6.49 6.12 5.58 4.96 71 5.93 5.87 5.67 5.33 4.86
72 6.86 6.72 6.29 5.68 5.00 72 6.15 6.08 5.85 5.44 4.92
73 7.13 6.96 6.47 5.77 5.04 73 6.39 6.31 6.03 5.56 4.97
74 7.42 7.21 6.64 5.86 5.08 74 6.65 6.55 6.21 5.67 5.02
75 7.72 7.48 6.82 5.95 5.11 75 6.93 6.81 6.41 5.78 5.06
76 8.05 7.76 7.00 6.03 5.14 76 7.24 7.08 6.60 5.88 5.10
77 8.40 8.06 7.18 6.11 5.17 77 7.57 7.38 6.80 5.98 5.13
78 8.77 8.37 7.35 6.18 5.19 78 7.92 7.69 7.01 6.07 5.16
79 9.18 8.69 7.53 6.25 5.20 79 8.31 8.02 7.21 6.15 5.18
80 9.60 9.03 7.70 6.31 5.22 80 8.72 8.37 7.41 6.23 5.20
81 10.06 9.38 7.86 6.36 5.23 81 9.17 8.74 7.61 6.30 5.22
82 10.55 9.74 8.02 6.41 5.24 82 9.66 9.13 7.80 6.35 5.23
83 11.07 10.12 8.17 6.45 5.25 83 10.20 9.54 7.98 6.41 5.24
84 11.63 10.50 8.32 6.49 5.26 84 10.77 9.96 8.15 6.45 5.25
85 12.22 10.89 8.45 6.52 5.26 85 11.39 10.40 8.31 6.49 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<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 3.49 3.66 3.81 3.93 4.02 4.08 4.12
60 3.61 3.83 4.05 4.24 4.40 4.52 4.59
65 3.69 3.97 4.28 4.57 4.84 5.05 5.20
70 3.76 4.09 4.47 4.89 5.31 5.67 5.95
75 3.80 4.17 4.63 5.16 5.75 6.34 6.83
80 3.83 4.23 4.73 5.37 6.14 6.99 7.80
85 3.84 4.26 4.80 5.51 6.44 7.55 8.75
</TABLE>
L-1551
<PAGE> 17
GROUP FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE DEFERRED ANNUITY
NON-PARTICIPATING
READ YOUR CONTRACT CAREFULLY
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive, Long Grove, Illinois 60049-0001
Policy Form No. L-8165
<PAGE> 18
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<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
</TABLE>
OPTIONS TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED
MONTHLY PAYMENTS GUARANTEED
<TABLE>
<CAPTION>
AGE NONE 60 120 180 240
<S> <C> <C> <C> <C> <C>
55 4.02 4.01 3.99 3.94 3.86
56 4.11 4.10 4.07 4.01 3.92
57 4.20 4.19 4.15 4.09 3.99
58 4.29 4.28 4.24 4.17 4.05
59 4.39 4.38 4.33 4.25 4.12
60 4.50 4.48 4.43 4.34 4.19
61 4.61 4.59 4.53 4.43 4.26
62 4.73 4.71 4.64 4.52 4.33
63 4.86 4.84 4.76 4.61 4.40
64 5.00 4.97 4.88 4.71 4.47
65 5.15 5.11 5.01 4.81 4.54
66 5.30 5.26 5.14 4.92 4.61
67 5.47 5.43 5.28 5.02 4.68
68 5.65 5.60 5.43 5.13 4.74
69 5.84 5.78 5.58 5.24 4.80
70 6.05 5.97 5.74 5.35 4.86
71 6.27 6.18 5.90 5.46 4.91
72 6.50 6.40 6.07 5.56 4.96
73 6.76 6.63 6.25 5.67 5.01
74 7.03 6.88 6.43 5.77 5.05
75 7.32 7.14 6.62 5.87 5.09
76 7.64 7.42 6.80 5.96 5.12
77 7.98 7.72 6.99 6.05 5.15
78 8.34 8.03 7.18 6.13 5.17
79 8.73 8.36 7.37 6.20 5.19
80 9.16 8.70 7.56 6.27 5.21
81 9.61 9.06 7.74 6.33 5.23
82 10.10 9.44 7.91 6.38 5.24
83 10.63 9.83 8.08 6.43 5.25
84 11.19 10.23 8.24 6.47 5.25
85 11.80 10.64 8.38 6.50 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<TABLE>
Age of Age of Secondary Payee
Primary
Payee 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C>
55 3.51 3.64 3.76 3.85 3.92 3.96 3.99
60 3.64 3.84 4.02 4.18 4.29 4.38 4.43
65 3.76 4.02 4.29 4.54 4.75 4.90 5.00
70 3.85 4.18 4.54 4.91 5.25 5.53 5.74
75 3.92 4.29 4.75 5.25 5.77 6.26 6.64
80 3.96 4.38 4.90 5.53 6.26 7.00 7.69
85 3.99 4.43 5.00 5.74 6.64 7.69 8.76
</TABLE>
L-1552
<PAGE> 19
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the attached contract. The effective date of
this Endorsement is the effective date of this contract.
All references throughout this contract to the sex of a person used in the
calculation of benefits are deleted from this contract.
Except as modified herein, all terms and conditions of the contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
---------------------- ------------------------
Secretary President
Form L-9006 (9/88)
<PAGE> 20
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the Certificate to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the
Certificate Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to us if the Owner or Annuitant is disabled.
Disability must begin after the effective date of this Endorsement and prior to
age 65.
Withdrawal charges will not be waived when disability is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Disability" is defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted, or can be
expected to last, for a continuous period of not less than 12 months.
"Disabled" is defined as having the conditions of the disability definition.
Except as modified herein, all terms and conditions of this Certificate remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
----------------------- -----------------------
Secretary President
L-8168
<PAGE> 21
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the Contract
Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to us if the Owner or Annuitant is disabled.
Disability must begin after the effective date of this Endorsement and prior to
age 65.
Withdrawal charges will not be waived when disability is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Disability" is defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted, or can be
expected to last, for a continuous period of not less than 12 months.
"Disabled" is defined as having the conditions of the disability definition.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
--------------------- ---------------------
Secretary President
L-8182
<PAGE> 22
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This endorsement forms a part of the Certificate to which it is attached.
DEFINITIONS
GUARANTEED RETIREMENT INCOME BENEFIT BASE - An amount which is applied to the
guaranteed annuity factors to produce the Guaranteed Retirement Income Benefit.
It is equal to the greater of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Certificate Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at 5.00%
per annum to the earlier of age 80 or date of determination, or
(4) the greatest Anniversary Value immediately preceding the earlier of age 81
or date of determination increased by Purchase Payments made since the
date of the greatest Anniversary Value, and decreased by any withdrawals
since that date.
EXERCISE PERIODS - The Guaranteed Retirement Income Benefit may only be
exercised within 30 days of the seventh or later Certificate Anniversary. In
addition, the Annuitant must be at least age 60 but no older than age 90.
However, if the Annuitant's age is 44 or less on the Issue Date, the Guaranteed
Retirement Income Benefit may be exercised within 30 days of the 15th or later
Certificate Anniversary, but no later than Annuitant's age 90.
CERTAIN PERIOD - The certain period for the Guaranteed Retirement Income
Benefit is based on the Annuitant's age at the time the benefit is exercised and
qualification status, as follows:
<TABLE>
<CAPTION>
Annuitant's Certain Period Years
Age at Election Qualified Nonqualified
<S> <C> <C>
75 or less 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
84 6 6
85 to 90 5 5
</TABLE>
GUARANTEED RETIREMENT INCOME BENEFIT PROVISIONS
If the Owner has selected the Guaranteed Retirement Income Benefit option, it
will be indicated on the Certificate Schedule. A separate charge will be made
for this benefit, also shown on the Certificate Schedule.
The Owner may elect to discontinue the Guaranteed Retirement Income Benefit
option any time on or after the seventh Certificate Anniversary, prior to
exercise of the benefit. We must receive a written election to discontinue this
benefit. The benefit will be discontinued effective as of the date the written
election is received by us. Once the benefit has been discontinued, it may not
be elected again.
During the Exercise Period, the Owner may apply the Guaranteed Retirement
Income Benefit Base to purchase a fixed annuity income for the Annuitant's
lifetime. Payments will be determined under Annuity Option 3 under the
Certificate based on the Certain Period defined above. The payout factors will
be those shown in the Certificate for amounts being annuitized, except that if
the Guaranteed Retirement Income Benefit is exercised on the 10th year or later,
the interest rate assumption will be 3.50%.
CONTINGENT ANNUITANT - If a Contingent Annuitant is in effect due to the death
of the original Annuitant, the Exercise Periods will be based on the issue age
of the original Annuitant and the Contingent Annuitant's age at election. The
Certain Period will be based on the Contingent Annuitant's age at election.
Except as modified herein, all terms and conditions of this Certificate remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
------------------------- -------------------------
Secretary President
L-8198
<PAGE> 23
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This endorsement forms a part of the Contract to which it is attached.
DEFINITIONS
GUARANTEED RETIREMENT INCOME BENEFIT BASE - An amount which is applied to the
guaranteed annuity factors to produce the Guaranteed Retirement Income Benefit.
It is equal to the greater of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Contract Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at 5.00%
per annum to the earlier of age 80 or date of determination, or
(4) the greatest Anniversary Value immediately preceding the earlier of age 81
or date of determination increased by Purchase Payments made since the date
of the greatest Anniversary Value, and decreased by any withdrawal since
that date.
EXERCISE PERIODS - The Guaranteed Retirement Income Benefit may only be
exercised within 30 days of the seventh or later Contract Anniversary. In
addition, the Annuitant must be at least age 60 but no older than age 90.
However, if the Annuitant's age is 44 or less on the Issue Date, the Guaranteed
Retirement Income Benefit may be exercised within 30 days of the 15th or later
Contract Anniversary, but no later than Annuitant's age 90.
CERTAIN PERIOD - The certain period for the Guaranteed Retirement Income
Benefit is based on the Annuitant's age at the time the benRefit is exercised
and qualification status, as follows:
<TABLE>
<CAPTION>
Annuitant's Certain Period Years
Age at Election Qualified Nonqualified
<S> <C> <C>
75 or less 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
84 6 6
85 to 90 5 5
</TABLE>
GUARANTEED RETIREMENT INCOME BENEFIT PROVISIONS
If the Owner has selected the Guaranteed Retirement Income Benefit option, it
will be indicated on the Contract Schedule. A separate charge will be made for
this benefit, also shown on the Contract Schedule.
The Owner may elect to discontinue the Guaranteed Retirement Income Benefit
option any time on or after the seventh Contract Anniversary, prior to exercise
of the benefit. We must receive a written election to discontinue this benefit.
The benefit will be discontinued effective as of the date the written election
is received by us. Once the benefit has been discontinued, it may not be
elected again.
During the Exercise Period, the Owner may apply the Guaranteed Retirement Income
Benefit Base to purchase a fixed annuity income for the Annuitant's
lifetime. Payments will be determined under Annuity Option 3 under the Contract
based on the Certain Period defined above. The payout factors will be those
shown in the Contract for amounts being annuitized, except that if the
Guaranteed Retirement Income Benefit is exercised on the 10th year or later, the
interest rate assumption will be 3.50%.
CONTINGENT ANNUITANT - If a Contingent Annuitant is in effect due to the death
of the original Annuitant, the Exercise Periods will be based on the issue age
of the original annuitant and the Contingent Annuitant's age at election. The
Certain Period will be based on the Contingent Annuitant's age at election.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
---------------------- ---------------------
Secretary President
L-8199
<PAGE> 24
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the contract to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to the Company:
(1) after an Owner has been confined in a Hospital or Skilled Health Care
Facility for at least thirty consecutive days and the Owner remains confined in
the Hospital or Skilled Health Care Facility when the request is made; or
(2) within thirty days following an Owner's discharge from a Hospital or Skilled
Health Care Facility after a confinement of at least thirty days.
Confinement must begin after the effective date of this Endorsement.
Withdrawal charges will not be waived when confinement is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Hospital" means a place which is licensed by the State as a Hospital and is
operating within the scope of its license.
"Skilled Health Care Facility" means a place which:
(a) is licensed by the state;
(b) provides skilled nursing care under the supervision of a physician;
(c) has twenty-four hour a day nursing services by or under the supervision of
a registered nurse (RN); and
(d) keeps a daily medical record of each patient.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
----------------------- -----------------------
Secretary President
Form L-7042 (5/91)
<PAGE> 1
Exhibit 4(b)
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
Annuitant Age
Certificate Date Certificate No.
RIGHT TO CANCEL - FREE LOOK PROVISION - At any time within 10 days of receiving
this certificate you may return it to us or to the representative through whom
it was purchased. Immediately upon our receipt, this certificate will be voided
as if it had never been in force. All Purchase Payments allocated to the Fixed
Account plus the Guarantee Period Values plus the Separate Account Certificate
Value computed at the end of the valuation period following our receipt of this
certificate will then be refunded within ten days.
We certify that we have issued a Group Flexible Premium Modified Guaranteed,
Fixed and Variable Deferred Annuity, herein called the "contract", to the
contractholder providing for the payment of annuity benefits according to the
terms and conditions contained in the contract.
We agree to pay the death benefit prior to the Annuity Date upon the death of
an Owner or an Annuitant when a death benefit is payable. Payment will be made
upon our receipt of due proof of death and the return of this certificate.
This certificate is not an insurance contract and does not amend, extend or
alter the coverage afforded under the contract. The certificate summarizes the
applicable principal provisions of the contract, which alone constitute the
entire contract between the Company and the contractholder.
This certificate constitutes evidence of coverage under the contract if we have
received the Owner's enrollment information and Purchase Payment. The benefits
and provisions described on the following pages are subject in all respects to
the terms and conditions of the contract.
----------------------- ----------------------------
Secretary President
GROUP FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE DEFERRED ANNUITY
CERTIFICATE
NON-PARTICIPATING
BENEFITS, PAYMENTS AND VALUES PROVIDED BY THE CERTIFICATE, WHEN BASED UPON THE
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS, ARE VARIABLE AND ARE NOT GUARANTEED
AS TO DOLLAR AMOUNT. REFER TO THE VARIABLE ACCOUNT AND ANNUITY PERIOD
PROVISIONS FOR A DETERMINATION OF ANY VARIABLE BENEFITS.
BENEFITS, PAYMENTS AND VALUES PROVIDED BY THE CERTIFICATE, WHEN BASED ON
GUARANTEE PERIOD VALUES, MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE MARKET
VALUE ADJUSTMENT FORMULA STATED IN THE CERTIFICATE SCHEDULE.
THIS IS A LEGAL CERTIFICATE BETWEEN THE OWNER AND KEMPER INVESTORS LIFE
INSURANCE COMPANY
READ THIS CERTIFICATE CAREFULLY
Policy Form No. L-8166
<PAGE> 2
L-8166
INDEX PAGE
ANNUITY OPTION TABLE.......................................... Follows Page 9
ANNUITY PERIOD PROVISIONS ......................................... ......6-9
Election Of Annuity Option .................................. ........6
Annuity Options ............................................. ......6-7
Transfers During The Annuity Period.......................... ......8-9
CERTIFICATE SCHEDULE ...........................................Follows Index
DEATH BENEFIT PROVISIONS .......................................... ........6
Amount Payable Upon Death ................................... ........6
Payment Of Death Benefits ................................... ........6
DEFINITIONS ....................................................... ......1-2
ENDORSEMENTS, if any.............................Follow Annuity Option Tables
FIXED ACCOUNT PROVISIONS .......................................... ........3
Fixed Account Certificate Value ............................. ........3
GENERAL PROVISIONS ................................................ ........2
The Contract ................................................ ........2
Incontestability ............................................ ........2
Assignment .................................................. ........2
Reports ..................................................... ........2
Premium Taxes................................................ ........2
GUARANTEE PERIOD PROVISIONS ....................................... ......3-4
Guarantee Period Value ...................................... ......3-4
MARKET VALUE ADJUSTMENT PROVISION.................................. ........4
OWNERSHIP PROVISIONS .............................................. ......2-3
Owner of Certificate ........................................ ........2
Change of Ownership ......................................... ........2
Beneficiary ................................................. ........3
PURCHASE PAYMENT PROVISIONS ....................................... ........3
TRANSFER AND WITHDRAWAL PROVISIONS ................................ ......5-6
Transfers During The Accumulation Period .................... ........5
Withdrawals During The Accumulation Period .................. ........5
Withdrawal Charges .......................................... ........5
Transfer And Withdrawal Procedures .......................... ......5-6
Deferment of Withdrawal or Transfer.......................... ........6
VARIABLE ACCOUNT PROVISIONS ....................................... ......4-5
Separate Account ............................................ ........4
Liabilities Of Separate Account ............................. ........4
Subaccounts ................................................. ........4
Fund ........................................................ ........4
Rights Reserved By The Company .............................. ........4
Accumulation Unit Value ..................................... ........4
Investment Experience Factor ................................ ......4-5
<PAGE> 3
CERTIFICATE SCHEDULE
DESCRIPTION OF PLAN: FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE
DEFERRED ANNUITY
FIXED ACCUMULATION UNDER:
FIXED ACCOUNT
MARKET VALUE ADJUSTED ACCUMULATION UNDER:
1 YEAR GUARANTEE PERIOD 6 YEAR GUARANTEE PERIOD
2 YEAR GUARANTEE PERIOD 7 YEAR GUARANTEE PERIOD
3 YEAR GUARANTEE PERIOD 8 YEAR GUARANTEE PERIOD
4 YEAR GUARANTEE PERIOD 9 YEAR GUARANTEE PERIOD
5 YEAR GUARANTEE PERIOD 10 YEAR GUARANTEE PERIOD
VARIABLE ACCUMULATION UNDER:
KEMPER MONEY MARKET SUBACCOUNT
KEMPER MONEY MARKET II SUBACCOUNT
KEMPER GOVERNMENT SECURITIES SUBACCOUNT
KEMPER INVESTMENT GRADE BOND SUBACCOUNT
KEMPER GLOBAL INCOME SUBACCOUNT
KEMPER HORIZON 5 SUBACCOUNT
KEMPER HIGH YIELD SUBACCOUNT
KEMPER HORIZON 10+ SUBACCOUNT
KEMPER TOTAL RETURN SUBACCOUNT
KEMPER HORIZON 20+ SUBACCOUNT
KEMPER VALUE + GROWTH SUBACCOUNT
KEMPER BLUE CHIP SUBACCOUNT
KEMPER INTERNATIONAL SUBACCOUNT
KEMPER VALUE SUBACCOUNT
KEMPER SMALL CAP VALUE SUBACCOUNT
KEMPER SMALL CAP GROWTH SUBACCOUNT
KEMPER TECHNOLOGY SUBACCOUNT
KEMPER GROWTH SUBACCOUNT
SCUDDER GLOBAL DISCOVERY SUBACCOUNT
SCUDDER GROWTH AND INCOME SUBACCOUNT
SCUDDER INTERNATIONAL SUBACCOUNT
JANUS ASPEN SERIES GROWTH SUBACCOUNT
JANUS ASPEN SERIES GROWTH AND INCOME SUBACCOUNT
WARBURG PINCUS TRUST EMERGING MARKETS SUBACCOUNT
WARBURG PINCUS TRUST POST-VENTURE CAPITAL SUBACCOUNT
8166
<PAGE> 4
CERTIFICATE NUMBER: KIL00-1000 ISSUE DATE: JANUARY 1, 1997
ANNUITANT: JOHN DOE CONTINGENT ANNUITANT: JANE DOE
SEX: MALE SEX: FEMALE
ANNUITANT ISSUE AGE: 35 CONTINGENT ANNUITANT ISSUE AGE: 35
ANNUITY DATE: JANUARY 1, 2018
MAXIMUM AGE AT ANNUITIZATION: 91
OWNER: JOHN DOE JOINT OWNER: JANE DOE
BENEFICIARY(IES):
PRIMARY: SURVIVING JOINT OWNER
CONTINGENT: NONE
REPRESENTATIVE: BOB BOUSSARD
[GUARANTEED RETIREMENT INCOME BENEFIT: [YES]]
8166
<PAGE> 5
CERTIFICATE SCHEDULE
QUALIFIED OR NONQUALIFIED PLAN [NONQUALIFIED]
MINIMUM INITIAL PURCHASE PAYMENT [$1,000]
INITIAL PURCHASE PAYMENT [$5,000]
MINIMUM SUBSEQUENT PURCHASE PAYMENT [$500*]
* $100 IF USING SYSTEMATIC ACCUMULATION PLAN
MAXIMUM TOTAL PURCHASE PAYMENTS [$1,000,000]
INITIAL ALLOCATION OF PURCHASE PAYMENT
INITIAL
INTEREST ALLOCATION
RATE PERCENTAGE
-------------------- --------------------
FIXED ACCOUNT 4.75% 25.00%
6 YEAR GUARANTEE
PERIOD 5.00% 25.00%
BLUE CHIP SUBACCOUNT 50.00%
*INTEREST RATES ARE STATED AS ANNUAL EFFECTIVE RATES
RECORDS MAINTENANCE CHARGE: [$30 PER CONTRACT YEAR]
WE WILL ASSESS AN ANNUAL RECORDS MAINTENANCE CHARGE OF [$30] ON EACH
CERTIFICATE ANNIVERSARY AND UPON CERTIFICATE TERMINATION. HOWEVER, IF THE
CERTIFICATE VALUE IS GREATER THAN OR EQUAL TO $50,000 ON A CERTIFICATE
ANNIVERSARY OR DATE OF SURRENDER, WE WILL NOT ASSESS THE RECORDS MAINTENANCE
CHARGE ON THAT CERTIFICATE ANNIVERSARY OR SURRENDER DATE. WE WILL NOT ASSESS
THIS CHARGE AFTER THE ANNUITY DATE.
WITHDRAWAL/ANNUITIZATION CHARGE TABLE:
YEARS ELAPSED SINCE PURCHASE
PAYMENTS WERE RECEIVED BY THE COMPANY RATE
LESS THAN ONE 7.00%
ONE BUT LESS THAN TWO 6.00%
TWO BUT LESS THAN THREE 5.00%
THREE BUT LESS THAN FOUR 5.00%
FOUR BUT LESS THAN FIVE 4.00%
FIVE BUT LESS THAN SIX 3.00%
SIX BUT LESS THAN SEVEN 2.00%
SEVEN OR MORE 0.00%
THE WITHDRAWAL/ANNUITIZATION CHARGE PERCENTAGES ARE APPLIED AGAINST THE
ORIGINAL AMOUNT OF THE PURCHASE PAYMENTS. A FREE PARTIAL WITHDRAWAL OF THE
GREATER OF 10% OF CERTIFICATE VALUE OR CERTIFICATE VALUE LESS REMAINING
PRINCIPAL IS AVAILABLE EACH YEAR. REMAINING PRINCIPAL FOR THIS PURPOSE IS
TOTAL PREMIUMS SUBJECT TO A WITHDRAWAL CHARGE MINUS WITHDRAWALS PREVIOUSLY
ASSESSED A WITHDRAWAL CHARGE.
8166
<PAGE> 6
CERTIFICATE SCHEDULE
FIXED ACCOUNT
THE FIXED ACCOUNT INTEREST RATE IS GUARANTEED THROUGH THE CERTIFICATE
YEAR IN WHICH A PURCHASE PAYMENT IS RECEIVED.
THE SUBSEQUENT FIXED ACCOUNT INTEREST RATE PERIOD IS ONE CERTIFICATE YEAR
MINIMUM GUARANTEED INTEREST RATE 3.00%
OTHER CHARGES
MORTALITY AND EXPENSE RISK CHARGE: [1.25% ANNUALLY]
ADMINISTRATION CHARGE: [.15% ANNUALLY]
[GUARANTEED RETIREMENT INCOME BENEFIT CHARGE: .25% ANNUALLY.
WE WILL NOT ASSESS THIS CHARGE AFTER THE EARLIER OF CERTIFICATE
ANNUITIZATION OR AGE 90.]
THE MORTALITY AND EXPENSE RISK CHARGE AND THE ADMINISTRATION CHARGE, WILL
BE ASSESSED DAILY ON THE SEPARATE ACCOUNT CERTIFICATE VALUE. THE
GUARANTEED RETIREMENT INCOME BENEFIT CHARGE WILL BE ASSESSED AT THE END
OF EACH CALENDAR QUARTER ON THE CERTIFICATE VALUE, BASED ON THE AVERAGE
MONTHLY CERTIFICATE VALUE.
MARKET VALUE ADJUSTMENT FORMULA
[THE MARKET VALUE ADJUSTMENT IS DETERMINED BY THE APPLICATION OF THE
FOLLOWING FORMULA: T/365
MARKET VALUE ADJUSTMENT = GUARANTEE PERIOD VALUE X [(1+J)]
----- - 1
[(1+J)]
WHERE,
I IS THE GUARANTEED INTEREST RATE BEING CREDITED TO THE GUARANTEE PERIOD
VALUE SUBJECT TO THE MARKET VALUE ADJUSTMENT.
J IS THE CURRENT INTEREST RATE DECLARED BY THE COMPANY, AS OF THE
EFFECTIVE DATE OF THE APPLICATION OF THE MARKET VALUE ADJUSTMENT, FOR
CURRENT ALLOCATION TO A GUARANTEE PERIOD, THE LENGTH OF WHICH IS EQUAL
TO THE BALANCE OF THE GUARANTEE PERIOD FOR THE GUARANTEE PERIOD VALUE
SUBJECT TO THE MARKET VALUE ADJUSTMENT, ROUNDED TO THE NEXT HIGHER NUMBER
OF COMPLETE YEARS, AND
T IS THE NUMBER OF DAYS REMAINING IN THE GUARANTEE PERIOD.]
8166
<PAGE> 7
MINIMUM FIXED ACCOUNT VALUES FOR FIXED ACCOUNT ALLOCATIONS
<TABLE>
<CAPTION>
End of Contract Termination
Contract Year Value Value
<S> <C> <C>
1 5,207.50 4,892.50
2 5,333.73 5,063.73
3 5,463.74 5,238.74
4 5,597.65 5,372.65
5 5,735.58 5,555.58
6 5,877.65 5,742.65
7 6,023.98 5,933.98
8 6,174.69 6,174.69
9 6,329.94 6,329.94
10 6,489.83 6,489.83
11 6,654.53 6,654.53
12 6,824.16 6,824.16
13 6,998.89 6,998.89
14 7,178.86 7,178.86
15 7,364.22 7,364.22
16 7,555.15 7,555.15
17 7,751.80 7,751.80
18 7,954.36 7,954.36
19 8,162.99 8,162.99
20 8,377.88 8,377.88
21 8,599.21 8,599.21
</TABLE>
VALUES ARE BASED ON THE INITIAL FIXED ACCOUNT INTEREST RATE THROUGH THE
END OF THE INITIAL INTEREST RATE PERIOD. THEREAFTER, VALUES ARE BASED
ON THE MINIMUM GUARANTEED INTEREST RATE OF 3.00%. VALUES SHOWN ASSUME
ALLOCATION ON THE ISSUE DATE AND NO SUBSEQUENT WITHDRAWALS OR TRANSFERS.
8166
<PAGE> 8
DEFINITIONS
ACCUMULATED GUARANTEE PERIOD VALUE - The sum of the Guarantee Period Values.
ACCUMULATION PERIOD - The period between the Issue Date and the Annuity Date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate the value
of each Subaccount.
ADMINISTRATION CHARGE - A charge deducted in the calculation of the
accumulation unit value and the Annuity Unit Value for a portion of our
administrative costs.
AGE - The attained age of the Annuitant, Payee, or Owner.
ANNIVERSARY VALUE - The Certificate Value calculated on each Certificate
Anniversary during the Accumulation Period.
ANNUITANT - The person during whose lifetime the annuity is to be paid. You may
not change the person named as the Annuitant.
ANNUITY - A series of payments which begins on the Annuity Date.
ANNUITY DATE - The date on which this Certificate matures and annuity payments
begin. The original Annuity Date is stated in the Certificate schedule. It must
be at least one year from the Issue Date and no later than the maximum age at
annuitization as stated in the Certificate schedule. The Owner may change the
Annuity Date, but not beyond the maximum age.
ANNUITY PERIOD - The period that starts on the Annuity Date.
ANNUITY UNIT - An accounting unit of measure used to calculate the amount of
variable annuity payments after the first annuity payment.
ANNUITY UNIT VALUE - The value of an Annuity Unit of a Subaccount determined
for a Valuation Period according to the formula stated in this Certificate.
CERTIFICATE - An individual Certificate which we issue to each Owner as
evidence of the rights and benefits under the contract.
CERTIFICATE ANNIVERSARY - An anniversary of the Issue Date.
CERTIFICATE OWNER, OR OWNER - See "You, Your, Yours" below.
CERTIFICATE VALUE - The sum of the Fixed Account Certificate Value plus the
Separate Account Certificate Value plus the Accumulated Guarantee Period Value.
CERTIFICATE YEAR - A one year period starting on the Issue Date and successive
Certificate Anniversaries.
CONTINGENT ANNUITANT - The person designated by the Owner who becomes the
Annuitant if the Annuitant dies prior to the Annuity Date. A Contingent
Annuitant may not be elected under a qualified plan.
FIXED ACCOUNT - The General Account of KILICO to which an Owner may allocate
all or a portion of Purchase Payments or Certificate Value.
FIXED ACCOUNT CERTIFICATE VALUE - The value of the Fixed Account of this
Certificate on any Valuation Date.
FIXED ANNUITY - An annuity payment plan that does not vary as to dollar amount.
FUND - An investment company or separate series thereof, in which the
Subaccounts of the Separate Account invest.
GENERAL ACCOUNT - Our assets other than those allocated to the Separate
Account, the non-unitized separate account or any other separate account.
GUARANTEE PERIOD - A period of time during which an amount is to be credited
with a guaranteed interest rate, subject to a Market Value Adjustment prior to
the end of the Guarantee Period. The Guarantee Periods initially offered are
stated in the certificate schedule.
GUARANTEE PERIOD VALUE -The (1) Purchase Payment allocated or amount
transferred to a Guarantee Period; plus (2) interest credited; minus (3)
withdrawals, previously assessed withdrawal charges and transfers; adjusted for
(4) any applicable Market Value Adjustment previously made.
ISSUE DATE - The Issue Date stated in the Certificate Schedule. It is the date
your initial Purchase Payment is available for use and begins to be credited
with interest and/or investment experience. If the normal Issue Date is the
29th, 30th or 31st of the month, the Issue Date will be the 28th day of that
month.
MARKET ADJUSTED VALUE - A Guarantee Period Value adjusted by the Market Value
Adjustment formula prior to the end of a Guarantee Period.
MARKET VALUE ADJUSTMENT - An adjustment of Guarantee Period Values in
accordance with the Market Value Adjustment formula prior to the end of the
Guarantee Period. The adjustment reflects the change in the value of the
Guarantee Period Value due to changes in interest rates since the date the
Guarantee Period commenced. The Market Value Adjustment formula is stated in
the Certificate Schedule.
MORTALITY AND EXPENSE RISK CHARGE - A charge deducted in the calculation of the
accumulation unit value and the Annuity Unit Value. It is for our assumption of
mortality risks and expense guarantees.
NONQUALIFIED - This Certificate issued other than as a qualified plan.
PAYEE - A recipient of periodic payments under the Certificate. This may be an
Annuitant or a beneficiary who becomes entitled to a death benefit payment.
PURCHASE PAYMENTS - The dollar amount we receive in U.S. currency to buy the
benefits this Certificate provides.
QUALIFIED PLAN - A Certificate issued under a retirement plan which qualifies
for favorable income tax treatment under Section 408 or 408 (a) of the Internal
Revenue Code as amended.
RECORDS MAINTENANCE CHARGE - A charge assessed against your Certificate as
specified in the Certificate Schedule.
L-8166 Page 1
<PAGE> 9
L-8166 Page 2
RECEIVED - Received by Kemper Investors Life Insurance Company at its home
office in Long Grove, Illinois.
SEPARATE ACCOUNT - A unit investment trust registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 known as the
KILICO Variable Annuity Separate Account.
SEPARATE ACCOUNT CERTIFICATE VALUE - The sum of the Subaccount values of this
Certificate on a Valuation Date.
SUBACCOUNTS - The Separate Account has several Subaccounts. The Subaccounts
available initially under this Certificate are stated in the Certificate
Schedule.
SUBACCOUNT VALUE - The value of each Subaccount calculated separately according
to the formula stated in this Certificate.
VALUATION DATE - Each business day that applicable law requires that we value
the assets of the Separate Account. Currently this 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.
VARIABLE ANNUITY - An annuity payment plan which varies as to dollar amount
because of Subaccount investment experience.
WE, OUR, US - Kemper Investors Life Insurance Company, Long Grove, Illinois.
YOU, YOUR, YOURS - The party(s) named as Owner unless later changed as provided
in this certificate. The Owner is the Annuitant unless a different Owner is
named. Under a nonqualified plan when more than one person is named as Owner,
the terms "you," "your," "yours," means joint owners. The Owner may be changed
during the lifetime of the Owner and the Annuitant. The Owner, prior to the
Annuity Date or any distribution of any death benefit, has the exclusive right
to exercise every option and right conferred by this certificate.
GENERAL PROVISIONS
THE CONTRACT - The Contract, Certificate, any enrollment application attached
to the Certificate, and any endorsements constitute the entire contract between
the parties.
MODIFICATION OF CONTRACT - Only our president, secretary and assistant
secretaries have the power to approve a change or waive any provisions of the
contract or Certificate. Any such modifications must be in writing. No agent or
person other than the officers named has the authority to change or waive the
provisions of the contract or Certificate.
CERTIFICATES - We will issue an individual Certificate to each Owner as
evidence of his or her rights and benefits under the contract.
INCONTESTABILITY - We cannot contest the contract or any Certificate issued
under the contract after the contract and any Certificate have been in force
for two years.
CHANGE OF ANNUITY DATE - You may write to us prior to distribution of a death
benefit or the first annuity payment date and request a change of the Annuity
Date.
ASSIGNMENT - No assignment under the contract or Certificate is binding unless
we receive it in writing. We assume no responsibility for the validity or
sufficiency of any assignment. Once filed, the rights of the Owner, Annuitant
and beneficiary are subject to the assignment. Any claim is subject to proof of
interest of the assignee.
DUE PROOF OF DEATH - We must receive written proof of death of the Owner or the
Annuitant when a death benefit is payable. The proof may be a certified death
certificate, the written statement of a physician, or any other proof
satisfactory to us.
RESERVES, CERTIFICATE VALUES AND DEATH BENEFITS - All reserves are equal to or
greater than those required by statute. Any available Certificate Value and
death benefit are not less than the minimum benefits required by the statutes
of the state in which the Certificate is delivered.
NON-PARTICIPATING - The Certificate does not pay dividends. It will not share
in our surplus or earnings.
REPORTS - At least once each Certificate Year we will send you a statement
showing Purchase Payments received, interest credited, investment experience;
and charges made since the last report, as well as any other information
required by statute.
PREMIUM TAXES - We will make a deduction for state premium taxes in certain
situations. On any Certificate subject to premium tax, as provided under
applicable law, the tax will be deducted for the total Certificate Value
applied to an annuity option at the time annuity payments start. Premium tax
due and paid by us prior to annuitization will be deducted at the percentage
that was applicable prior to annuitization.
QUALIFIED PLANS - If this Certificate is issued under a qualified plan
additional provisions may apply. The rider or amendment to the Certificate used
to qualify it under the applicable section of the Internal Revenue Code will
indicate the extent of change in the provisions.
OWNERSHIP PROVISIONS
OWNER - The Annuitant is the original Owner unless otherwise designated
initially. Before the Annuity Date or any distribution of death benefit, you
have the right to cancel or amend this Certificate if we agree. You may
exercise every option and right conferred by the Certificate including the
right of assignment. The joint Owners must agree to any change if more than one
Owner is named.
CHANGE OF OWNERSHIP - You may change the Certificate Owner by written request
at any time while the Annuitant is alive. You must furnish information
sufficient to clearly identify the new Owner to us. The change is subject to
any existing assignment of this Certificate. When we record the effective date
of the change, it will be the date the notice was signed except for action
taken by us prior to receiving the request. Any change is subject to the
payment of any proceeds. We may require you to return this Certificate to us
for endorsement of a change.
BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY - A beneficiary must be
designated initially. You may change the beneficiary if you send us a written
change form. Changes are subject to the following:
<PAGE> 10
1. The change must by filed while the Annuitant is alive and prior to the
Annuity Date;
2. This Certificate must be in force at the time you file a change;
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;
5. After we receive the change, it will take effect on the date the change form
was signed. However, action taken by us before the change form was received
will remain in effect; and
6. The request for change must provide information sufficient to identify the
new beneficiary.
We may require you to return this Certificate for endorsement of a change.
The interest of a beneficiary who dies before the distribution of the death
benefit will pass to the other beneficiaries, if any, share and share alike,
unless otherwise provided in the beneficiary designation. If no beneficiary
survives or is named, the distribution will be made to your estate when you
die; or to the estate of the Annuitant upon the death of the Annuitant if you
are not also the Annuitant. If a beneficiary dies within ten days of the date
of your death, the death benefit will be paid as if you had survived the
beneficiary. If a beneficiary dies within ten days of the death of the
Annuitant, and you are not the Annuitant, we will pay the death benefit as if
the Annuitant survived the beneficiary. If you, the Annuitant, and the
beneficiary die simultaneously, we will pay the death benefit as if you had
survived the Annuitant and the beneficiary.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENT LIMITATIONS - The minimum and maximum initial and subsequent
Purchase Payment limits are shown in the Certificate Schedule.
The minimum Purchase Payment allocation to a Guarantee Period, Fixed Account,
or to a Subaccount is $500.
We reserve the right to waive or modify these limits.
PLACE OF PAYMENT - All Purchase Payments under the contract must be paid to us
at our home office or such other location as we may select. We will notify you
and any other interested parties in writing of such other locations. Purchase
Payments received by an agent will begin earning interest only after we receive
it.
FIXED ACCOUNT PROVISIONS
FIXED ACCOUNT CERTIFICATE VALUE - The Fixed Account Certificate Value includes:
1. your Purchase Payments allocated to the Fixed Account; plus
2. amounts transferred from a Subaccount or Guarantee Period to the Fixed
Account at your request; plus
3. interest credited; minus
4. withdrawals, previously assessed withdrawal charges and transfers from
the Fixed Account, minus
5. any applicable portion of the Records Maintenance Charge and charges for
other benefits.
The initial Fixed Account interest rate credited to the initial Purchase
Payment is in effect through the end of the interest rate period and is shown
in the Certificate Schedule. At the beginning of each subsequent interest rate
period shown in the Certificate Schedule, we will declare the Fixed Account
interest rate applicable to the initial Purchase Payment for each such
subsequent interest rate period.
We will declare the Fixed Account interest rate with respect to each subsequent
Purchase Payment received. Any such Purchase Payment we receive will be
credited that rate through the end of the interest rate period shown in the
Certificate Schedule. At the beginning of each subsequent interest rate period,
we will declare the Fixed Account interest rate applicable to each subsequent
Purchase Payment for such interest rate period.
We reserve the right to declare the Fixed Account current interest rate(s)
based upon: the Issue Date; the date we receive a Purchase Payment; or the date
of account transfer.
We calculate the interest credited to the Fixed Account by compounding daily,
at daily interest rates, rates which would produce at the end of a Certificate
Year a result identical to the one produced by applying an annual interest
rate.
The minimum guaranteed Fixed Account interest rate is shown on the Certificate
Schedule.
GUARANTEE PERIOD PROVISIONS
GUARANTEE PERIOD - We hold all amounts allocated to a Guarantee Period in a
non-unitized separate account. The initial Guarantee Periods available under
the Certificate are shown in the Certificate Schedule.
GUARANTEE PERIOD VALUE - On any Valuation Date, the Guarantee Period value
includes
1. your Purchase Payments or transfers allocated to the Guarantee Period
Value at the beginning of its Guarantee Period; plus
2. interest credited; minus
3. withdrawals, previously assessed withdrawal charges and transfers; minus
4. any applicable portion of the Records Maintenance Charge and charges for
other benefits; adjusted for
5. any applicable Market Value Adjustment previously made.
The Guarantee Period(s) initially elected and the interest rate(s) initially
credited are shown in the Certificate Schedule. The initial interest rate
credited to subsequent Purchase Payments will be declared at the time the
payment is received. At the end of a Guarantee Period, we will declare a
guaranteed interest rate applicable for the next subsequent Guarantee Period of
the same duration.
ACCUMULATED GUARANTEE PERIOD VALUE - On any Valuation Date, the Accumulated
Guarantee Period value is the sum of the Guarantee Period Values. At any time
during the Accumulation Period, the Accumulated Guarantee Period Value may be
allocated to a maximum of forty Guarantee Periods.
L-8166 Page 3
<PAGE> 11
L-8166 Page 4
We calculate the interest credited to the Guarantee Period Value by compounding
daily, at daily interest rates, rates which would produce at the end of a
Certificate Year a result identical to the one produced by applying an annual
interest rate.
MARKET VALUE ADJUSTMENT - The Market Value Adjustment formula is stated in the
Certificate Schedule. This formula is applicable for both an upward or
downward adjustment to a Guarantee Period Value when, prior to the end of a
Guarantee Period, such value is:
(1) taken as a total or partial withdrawal;
(2) applied to purchase an annuity option; or
(3) transferred to another Guarantee Period, the Fixed Account, or a
Subaccount.
However, a Market Value Adjustment will not be applied to any Guarantee Period
Value transaction effected within 30 days after the end of the applicable
Guarantee Period.
VARIABLE ACCOUNT PROVISIONS
SEPARATE ACCOUNT - The variable benefits under the contract are provided
through the KILICO Variable Annuity Separate Account. This is called the
Separate Account. The Separate Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. It is a separate investment account maintained by us into which a
portion of our assets has been allocated for the contract and may be allocated
for certain other contracts.
LIABILITIES OF SEPARATE ACCOUNT - The assets equal to the reserves and other
liabilities of the Separate Account will not be charged with liabilities
arising out of any other business we may conduct. We will value the assets of
the Separate Account on each Valuation Date.
SEPARATE ACCOUNT CERTIFICATE VALUE - On any Valuation Date, the Separate
Account Certificate Value is the sum of its Subaccount values.
SUBACCOUNTS - The Separate Account consists of several Subaccounts. The initial
Subaccounts available under this Certificate are shown in the Certificate
Schedule. We may, from time to time, combine or remove Subaccounts in the
Separate Account and establish additional Subaccounts of the Separate Account.
In such event, we may permit you to select other Subaccounts under the
Certificate. However, the right to select any other Subaccount is limited by
the terms and conditions we may impose on such transactions.
FUND - Each Subaccount of the Separate Account will buy shares of a Fund or a
separate series of a Fund. Each Fund is registered under the Investment Company
Act of 1940 as an open-end diversified management investment company. 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 another investment company. We may also
substitute other investment companies.
RIGHTS RESERVED BY THE COMPANY - We reserve the right, subject to compliance
with the current law or as it may be changed in the future:
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 separate accounts, or the General Account, or to add, combine or remove
Subaccounts in the Separate Account;
4. To delete the shares of any of the portfolios of a Fund or any other
open-end investment company and to substitute, for the Fund shares held in any
Subaccount, the shares of another portfolio of a Fund or the shares of another
investment company or any other investment permitted by law; and
5. To change the way we assess charges, but not to increase the aggregate
amount above that currently charged to the Separate Account and the Funds in
connection with the contract.
When required by law, we will obtain your approval of such changes and the
approval of any regulatory authority.
ACCUMULATION UNIT VALUE - Each Subaccount has an accumulation unit value. When
Purchase Payments 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. The value of a Subaccount on any Valuation Date
is the number of units held in the Subaccount times the accumulation unit value
on that Valuation Date.
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 period immediately preceding. Each Valuation Period has a
single accumulation unit value that is applied to each day in the period. The
number of Accumulation Units will not change as a result of investment
experience.
INVESTMENT EXPERIENCE FACTOR - Each Subaccount has its own investment
experience factor. The investment experience of the Separate Account is
calculated by applying the investment experience factor to the 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
<PAGE> 12
c. a credit or charge for any taxes reserved for the current Valuation
Period which we determine 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 Valuation Period;
3. is the factor representing the sum of the Separate Account charges, stated
in the Certificate Schedule, for the number of days in the Valuation Period.
TRANSFER AND WITHDRAWAL PROVISIONS
TRANSFERS DURING THE ACCUMULATION PERIOD - You may direct the following
transfers:
1. All or part of the Separate Account Certificate Value or a Guarantee
Period Value may be transferred to the Fixed Account or to another
Subaccount or Guarantee Period.
2. During the thirty days that follow a Certificate Anniversary, all or part
of the Fixed Account Certificate Value may be transferred to one or more
Subaccounts or Guarantee Periods.
Transfers will also be subject to the following conditions:
1. The minimum amount which may be transferred is $100 or, if smaller, the
remaining value in the Fixed Account or a Subaccount or Guarantee Period.
2. No partial transfer will be made if the remaining Certificate Value of
the Fixed Account or any Subaccount or Guarantee Period will be less than
$500 unless the transfer will eliminate your interest in such account;
3. No transfer may be made within seven calendar days of the date on which
the first annuity payment is due;
4. You may request an additional transfer from the Fixed Account to one or
more Subaccounts during the thirty day period before the date on which the
first annuity payment is due. Such transfer must become effective no later
than the seventh calendar day before such due date;
5. When you request a transfer from the Fixed Account to a Subaccount or
Guarantee Period, we will limit the amount that can be transferred to the
amount which exceeds withdrawal charge, if any, applicable to the total
Fixed Account Certificate Value for the Certificate Year during which the
total transfer is made.
6. We reserve the right to charge $25 for each transfer in excess of 12 in a
Certificate Year.
7. Transfers may not be made from any Subaccount or Guarantee Period into
the Fixed Account for the six-month period following any transfer from the
Fixed Account into one or more of the Subaccounts.
Any transfer from a Guarantee Period is subject to a Market Value Adjustment
unless the transfer is effective within thirty days after the end of the
applicable Guarantee Period.
We will transfer amounts attributable to Purchase Payments and all related
accumulations received in a given Certificate Year, in the chronological order
we received them.
Any transfer request must clearly specify:
1. the amount which is to be transferred; and
2. the names of the accounts which are affected.
We reserve the right at any time and without notice to any party, to terminate,
suspend, or modify these transfer rights.
WITHDRAWALS DURING THE ACCUMULATION PERIOD During the Accumulation Period, you
may withdraw all or part of the Certificate Value reduced by any withdrawal
charge, applicable premium taxes, and adjusted by any applicable Market Value
Adjustment. The Market Value Adjustment formula will be applied to the
applicable portion of the total value withdrawn unless such withdrawal is
effective within thirty days after the end of the applicable Guarantee Period.
We must receive a written request that indicates the amount of the withdrawal
from the Fixed Account and each Subaccount and Guarantee Period. You must
return the certificate to us if you elect a total withdrawal.
Withdrawals are subject to these conditions:
1. Each withdrawal must be at least $100 or the value that remains in the
Fixed Account, Subaccount or Guarantee Period if smaller.
2. A minimum of $500 must remain in the account after you make a withdrawal
unless the account is eliminated by such withdrawal;
3. The maximum you may withdraw from any account is the value of the
respective account less the amount of any withdrawal charge.
4. Any withdrawal amount you request will be increased by the withdrawal
charge.
5. Partial withdrawals may not be taken from the Fixed Account in the first
Certificate Year.
WITHDRAWAL CHARGES - Withdrawal charges are shown in the Certificate Schedule
and are calculated as follows:
1. All amounts to be withdrawn and any applicable withdrawal charges will be
charged first against Purchase Payments in the chronological order we received
such Purchase Payments.
2. Any amount withdrawn which is not subject to a withdrawal charge will be
considered a "partial free withdrawal".
3. In the event of a partial withdrawal, a "partial free withdrawal" is applied
against Purchase Payments and all related accumulations in the chronological
order we received such Purchase Payments even though the Purchase Payments are
no longer subject to a withdrawal charge.
TRANSFER AND WITHDRAWAL PROCEDURES - We will withdraw or transfer from the
Fixed Account or Guarantee Periods as of the Valuation Date that follows the
date we receive your written or telephone transfer request. To process a
withdrawal, the request must contain all required information.
We will redeem the necessary number of Accumulation Units to achieve the dollar
amount when the withdrawal or transfer is made from a Subaccount. We will
reduce the number of Accumulation Units credited in each Subaccount by the
number of Accumulation Units redeemed. The reduction in the number of
accumulation units is determined based on the accumulation unit value
L-8166 Page 5
<PAGE> 13
L-8166 Page 6
at the end of the Valuation Period when we receive the request, provided the
request contains all required information. We will pay the amount within seven
calendar days after the date we receive the request, except as provided below.
DEFERMENT OF WITHDRAWAL OR TRANSFER - If the withdrawal or transfer is to be
made from a Subaccount, we may suspend the right of withdrawal or transfer or
delay payment more than seven calendar days:
1. during any period when the New York Exchange is closed other than
customary weekend and holiday closings;
2. when 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 accumulation unit
value is not practical; or
3. for such other periods as the Securities and Exchange Commission by order
may permit for protection of Owners.
We may defer the payment of a withdrawal or transfer from the Fixed Account or
Guarantee Periods, for the period permitted by law. This can never be more than
six months after you send us a written request. During the period of deferral,
we will continue to credit interest, at the then current interest rate(s), to
the Fixed Account Certificate Value and/or each Guarantee Period Value.
DEATH BENEFIT PROVISIONS
AMOUNT PAYABLE UPON DEATH - We compute the death benefit at the end of the
Valuation Period following our receipt of due proof of death and the return of
this Certificate.
(1) If death occurs prior to the deceased attaining age 90, we will pay the
greater of:
(2) the total amount of Purchase Payments less withdrawals,
(3) the Certificate Value,
(4) the total amount of Purchase Payments less withdrawals accumulated at
5.00% per annum to the earlier of age 80 or date of death, increased by
Purchase Payments made from age 80 to the date of death and decreased by
any withdrawals from age 80 to the date of death, or
(5) the greatest Anniversary Value immediately preceding the earlier of age
81 or date of death, increased by Purchase Payments made since the date of
the greatest Anniversary Value, and decreased by any withdrawals since
that date.
We will pay the Certificate Value if death occurs at age 91 or later.
CONTINGENT ANNUITANT - If a Contingent Annuitant is named, the Contingent
Annuitant will become the Annuitant on the death of the Annuitant. If the
Contingent Annuitant is not alive at the date of the Annuitant's death, or if
the Contingent Annuitant dies within ten days of the Annuitant's death, this
Contingent Annuitant provision will not apply.
PAYMENT OF DEATH BENEFITS - A death benefit will be paid to the designated
beneficiary upon any of the following events during the Accumulation Period:
1. the death of the Owner, or a joint Owner,
2. the death of the Annuitant if no Contingent Annuitant is named or if
the Contingent Annuitant does not survive the Annuitant, or
3. if a Contingent Annuitant is named and survives the Annuitant, the
death of the Contingent Annuitant.
We will pay the death benefit to the beneficiary when we receive due proof of
death. We will then have no further obligation under this Certificate.
We will pay the death benefit in a lump sum. This sum may be deferred for up to
five years from the date of death.
Instead of a lump sum payment the beneficiary may elect to have the death
benefit distributed as stated in Option 1 for a period not to exceed the
beneficiary's life expectancy; or Options 2 or 3 based upon the life expectancy
of the beneficiary as prescribed by federal regulations. The beneficiary must
make this choice within sixty days of the time we receive due proof of death,
and distribution must commence within one year of the date of death.
If the beneficiary is not a natural person, the beneficiary must elect that the
entire death benefit be distributed within five years of your death.
Distribution of the death benefit must start within one year after your death.
It may start later if prescribed by federal regulations.
If the primary beneficiary is the surviving spouse when you die, the surviving
spouse may elect to be the successor Owner of this Certificate, and shall
become the Annuitant if no Annuitant or Contingent Annuitant is living at the
time of your death. There will be no requirement to start a distribution of
death benefits.
ANNUITY PERIOD PROVISIONS
ELECTION OF ANNUITY OPTION - We must receive an election of an Annuity option
in writing. You may make an election before the Annuity Date providing the
Annuitant is alive. The Annuitant may make an election on the Annuity Date
unless you have restricted the right to make such an election. The beneficiary
may make an election when we pay the death benefit.
An election will be revoked by:
1. a subsequent change of beneficiary; or
2. an assignment of this Certificate unless the assignment provides otherwise.
Subject to the terms of the death benefit provision, the beneficiary may elect
to have the death benefit remain with us under one of the Annuity options.
If an annuity option is not elected, an Annuity will be paid under Option 3 for
a guaranteed period of ten years and for as long thereafter as the Annuitant is
alive.
If the total Certificate Value is applied under one of the Annuity options,
this certificate must be surrendered to us.
An option can not be changed after the first Annuity payment is made.
If, on the seventh calendar day before the first Annuity payment due date, all
the Certificate Value is allocated to the Fixed Account or Guarantee Periods,
the Annuity will be paid as a Fixed Annuity. If all of the Certificate Value on
such date is allocated to the Separate Account,
<PAGE> 14
the annuity will be paid as a Variable Annuity. If the Certificate Value on
such date is allocated to a combination of the Fixed Account, Guarantee Periods
and Subaccounts, then the annuity will be paid as a combination of a Fixed and
Variable Annuity. A Fixed and Variable annuity payment will reflect the
investment performance of the Subaccounts in accordance with the allocation of
the Certificate Values existing on such date. Allocations will not be changed
thereafter, except as provided in the Transfers During The Annuity Period
provision of the Certificate.
Payments for all options are derived from the applicable tables. Current
Annuity rates will be used if they produce greater payments than those quoted
in the Certificate. The age in the tables is the age of the Payee on the last
birthday before the first payment is due.
The option selected must result in a payment that is at least equal to our
minimum payment, according to our rules, at the time the Annuity 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 so that the payment is at least equal to the minimum payment or to make
payment in one lump sum.
ANNUITIZATION CHARGE - An withdrawal charge shall be applied as shown in the
Certificate Schedule after application of any applicable Market Value
Adjustment. The annuitization charge is waived when the Owner elects an
Annuity option which provides either an income benefit period of five years or
more or a benefit under which payment is contingent on the life of the
Payee(s).
OPTION 1
FIXED INSTALMENT ANNUITY - We will make monthly payments for a fixed number of
instalments. Payments must be made for at least 5 years, but not more than 30
years.
OPTION 2
LIFE ANNUITY - We will make monthly payments while the Payee is alive.
OPTION 3
LIFE ANNUITY WITH INSTALMENTS GUARANTEED - We will make monthly payments for a
guaranteed period and thereafter while the Payee is alive. The guaranteed
period must be selected at the time the annuity option is chosen. The
guaranteed periods available are 5, 10, 15 and 20 years.
OPTION 4
JOINT AND SURVIVOR ANNUITY - We will pay the full monthly income while both
Payees are alive. Upon the death of either Payee, we will continue to pay the
surviving Payee a percentage of the original monthly payment. The percentage
payable to the surviving Payee must be selected at the time the annuity option
is chosen. The percentages available are 50%, 66 2/3%, 75%, and 100%.
OTHER OPTIONS
We may make other annuity options available. Payments are also available on a
quarterly, semi-annual or annual basis.
FIXED ANNUITY - The Fixed Account Certificate Value plus the Accumulated
Guarantee Period Values adjusted for any applicable Market Value Adjustment, on
the first day preceding the date on which the first Annuity payment is due, is
first reduced by any annuitization charge, charges for other benefits, Records
Maintenance Charge, and premium taxes that apply. The value that remains will
be used to determine the Fixed Annuity monthly payment in accordance with the
Annuity option selected.
VARIABLE ANNUITY - The Separate Account Certificate Value, at the end of the
Valuation Period preceding the Valuation Period that includes the date on which
the first Annuity payment is due, is first reduced by any annuitization charge,
Records Maintenance Charge, charges for other benefits, and premium taxes that
apply. The value that remains is used to determine the first monthly Annuity
payment. The first monthly Annuity payment is based on the guaranteed annuity
option shown in the Annuity Option Table. You may elect any option available.
The dollar amount of subsequent payments may increase or decrease depending on
the investment experience of each Subaccount. The number of Annuity Units per
payment will remain fixed for each Subaccount unless a transfer is made. If a
transfer is made, the number of Annuity Units per payment will change.
The number of Annuity Units for each Subaccount is calculated by dividing a. by
b. where:
a. is the amount of the monthly payment that can be attributed to that
Subaccount; and
b. is the Annuity Unit Value for that Subaccount at the end of the Valuation
Period. The Valuation Period includes the date on which the payment is
made.
Monthly Annuity payments, after the first payment, are calculated by summing
up, for each Subaccount, the product of a. times b. where:
a. is the number of Annuity Units per payment in each Subaccount; and
b. is the Annuity Unit Value for that Subaccount at the end of the Valuation
Period. The Valuation Period includes the date on which the payment is
made.
After the first payment, we guarantee that the dollar amount of each Annuity
payment will not be affected adversely by actual expenses or changes in
mortality experience from the expense and mortality assumptions on which we
based the first payment.
ANNUITY UNIT VALUE - The value of an Annuity Unit for each Subaccount at the
end of any subsequent Valuation Period is determined by multiplying the result
of a. times b. by c. where:
a. is the Annuity Unit Value for the immediately preceding Valuation Period;
and
b. is the net investment factor for the Valuation Period for which the Annuity
Unit Value is being calculated; and
c. is the interest factor of .99993235 per calendar day of such subsequent
Valuation Period to offset the effect of the assumed rate of 2.50% per year
used in the Annuity Option Table.
L-8166 Page 7
<PAGE> 15
L-8166 Page 8
The net investment factor for each Subaccount for any Valuation Period is
determined by dividing a. by b. where:
a. is the value of an Annuity Unit of the applicable Subaccount as of the end
of the current Valuation Period plus or minus the per share charge or credit
for taxes reserved; and
b. is the value of an Annuity Unit of the applicable Subaccount as of the end
of the immediately preceding Valuation Period, plus or minus the per share
charge or credit for taxes reserved.
TRANSFERS DURING THE ANNUITY PERIOD - During the Annuity Period, the Payee(s)
may: convert Fixed Annuity payments to Variable Annuity payments; convert
Variable Annuity payments to Fixed Annuity payments; or, have Variable Annuity
payments reflect the investment experience of other Subaccounts. A transfer
may be made subject to the following:
1. The Payee must send us a written notice in a form satisfactory to us;
2. One transfer is permitted each twelve month period from the Annuity Date. We
must receive notice of such transfer at least thirty days prior to the
effective date of the transfer;
3. A Payee may not have more than three Subaccounts after any transfer;
4. At least $1,000 of Annuity Unit Value or annuity reserve value must be
transferred from a Subaccount or from the Fixed Account; and
6. At least $1,000 of Annuity Unit Value or annuity reserve value must remain
in the account from which the transfer was made.
When a transfer is made between Subaccounts, the number of Annuity Units per
payment attributable to a Subaccount to which transfer is made is equal to a.
multiplied by b. divided by c., where:
a. is the number of Annuity Units per payment in the Subaccount from which
transfer is being made;
b. is the Annuity Unit Value for the Subaccount from which the transfer is
being made; and
c. is the Annuity Unit Value for the Subaccount to which transfer is being
made.
When a transfer is made from the Fixed Account to a Subaccount, the number of
Annuity Units per payment attributable to a Subaccount to which transfer is
made is equal to a. times b., where:
a. is the Fixed Account Annuity value being transferred; and
b. is the Annuity Unit Value for the Subaccount to which transfer is being
made.
The Fixed Account Annuity value equals the present value of the remaining Fixed
Annuity payments using the same interest and mortality basis used to calculate
the Fixed Annuity payments.
The amount of money allocated to the Fixed Account in case of a transfer from a
Subaccount equals the Annuity reserve for the Payee's interest in such
Subaccount. The Annuity reserve is the product of a. multiplied by b.
multiplied by c. where:
a. is the number of Annuity Units representing the Payee's interest in such
Subaccount per Annuity payment;
b. is the Annuity Unit Value for such Subaccount; and
c. is the present value of $1.00 per payment period using the attained
age(s) of the Payee(s) and any remaining guaranteed payments that may be
due at the time of the transfer.
Money allocated to the Fixed Account upon such transfer will be applied under
the same Annuity option as originally elected. Guaranteed period payments will
be adjusted to reflect the number of guaranteed payments already made. If all
guaranteed payments have already been made, no further payments will be
guaranteed.
All amounts and Annuity Unit Values are determined as of the end of the
Valuation Period preceding the effective date of the transfer.
We reserve the right at any time and without notice to any party to terminate,
suspend or modify these transfer privileges.
SUPPLEMENTARY AGREEMENT - A supplementary agreement will be issued to reflect
payments that will be made under a settlement option. If payment is made as a
death benefit distribution, the effective date will be the date of death.
Otherwise, the effective date will be the date chosen by the Owner.
DATE OF FIRST PAYMENT - Interest, under an option, will start to accrue on the
effective date of the supplementary agreement. If the normal effective date is
the 29th, 30th, or 31st of the month, the effective date will be the 28th day
of that month.
EVIDENCE OF AGE, SEX AND SURVIVAL - We may require satisfactory evidence of the
age, sex and the continued survival of any person on whose life the income is
based.
MISSTATEMENT OF AGE OR SEX - If the age or sex of the Payee has been misstated,
the amount payable under the Certificate will be such as the Purchase Payments
sent to us would have purchased at the correct age or sex. Interest not to
exceed 6% compounded each year will be charged to any overpayment or credited
to any underpayment against future payments we may make under the Certificate.
BASIS OF ANNUITY OPTIONS - 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 annuity mortality table developed by the Society of
Actuaries, projected using Projection Scale G. We may also make available
variable Annuity payment options based on assumed investment rates other than
2.50%.
DISBURSEMENT UPON DEATH OF PAYEE: UNDER OPTIONS 1 or 3 - When the Payee dies,
if the beneficiary is a natural person, we will automatically continue any
unpaid installments for the remainder of the elected period under Option 1 or
Option 3 to the Beneficiary. If the Beneficiary is either an estate or trust,
we will pay a commuted value of the remaining payments. The commuted value
will be based upon a minimum interest rate of not less than 2.50%. The commuted
value of any variable instalments will be determined by applying the Annuity
Unit Value next determined following our receipt of due proof of death.
<PAGE> 16
PROTECTION OF BENEFITS - Unless otherwise provided in the supplementary
agreement, the Payee may not commute, anticipate, assign, alienate or otherwise
hinder the receipt of any payment.
CREDITORS - The proceeds of the contract and any payment under an annuity
option will be exempt from the claim of creditors and from legal process to the
extent permitted by law.
L-8166 Page 9
<PAGE> 17
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<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
</TABLE>
OPTION TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED:
<TABLE>
<CAPTION>
Age of MONTHLY PAYMENTS GUARANTEED Age of MONTHLY PAYMENTS 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 4.17 4.16 4.13 4.06 3.96 55 3.87 3.86 3.84 3.81 3.75
56 4.27 4.25 4.21 4.14 4.03 56 3.95 3.94 3.92 3.88 3.82
57 4.36 4.35 4.30 4.22 4.09 57 4.03 4.02 4.00 3.95 3.88
58 4.46 4.45 4.40 4.30 4.16 58 4.11 4.11 4.08 4.03 3.95
59 4.57 4.55 4.50 4.39 4.22 59 4.21 4.20 4.17 4.11 4.01
60 4.69 4.67 4.60 4.48 4.29 60 4.30 4.29 4.26 4.19 4.08
61 4.81 4.79 4.71 4.57 4.36 61 4.41 4.40 4.35 4.28 4.15
62 4.94 4.92 4.83 4.66 4.43 62 4.52 4.50 4.46 4.37 4.23
63 5.09 5.05 4.95 4.76 4.49 63 4.64 4.62 4.56 4.46 4.30
64 5.24 5.20 5.08 4.86 4.56 64 4.76 4.74 4.68 4.56 4.37
65 5.40 5.35 5.21 4.96 4.62 65 4.90 4.87 4.80 4.66 4.45
66 5.57 5.52 5.35 5.06 4.69 66 5.04 5.01 4.93 4.77 4.52
67 5.75 5.69 5.49 5.17 4.75 67 5.19 5.16 5.06 4.87 4.59
68 5.95 5.87 5.64 5.27 4.81 68 5.36 5.32 5.20 4.98 4.66
69 6.15 6.07 5.80 5.37 4.86 69 5.53 5.49 5.35 5.10 4.73
70 6.38 6.27 5.96 5.48 4.91 70 5.72 5.68 5.51 5.21 4.80
71 6.61 6.49 6.12 5.58 4.96 71 5.93 5.87 5.67 5.33 4.86
72 6.86 6.72 6.29 5.68 5.00 72 6.15 6.08 5.85 5.44 4.92
73 7.13 6.96 6.47 5.77 5.04 73 6.39 6.31 6.03 5.56 4.97
74 7.42 7.21 6.64 5.86 5.08 74 6.65 6.55 6.21 5.67 5.02
75 7.72 7.48 6.82 5.95 5.11 75 6.93 6.81 6.41 5.78 5.06
76 8.05 7.76 7.00 6.03 5.14 76 7.24 7.08 6.60 5.88 5.10
77 8.40 8.06 7.18 6.11 5.17 77 7.57 7.38 6.80 5.98 5.13
78 8.77 8.37 7.35 6.18 5.19 78 7.92 7.69 7.01 6.07 5.16
79 9.18 8.69 7.53 6.25 5.20 79 8.31 8.02 7.21 6.15 5.18
80 9.60 9.03 7.70 6.31 5.22 80 8.72 8.37 7.41 6.23 5.20
81 10.06 9.38 7.86 6.36 5.23 81 9.17 8.74 7.61 6.30 5.22
82 10.55 9.74 8.02 6.41 5.24 82 9.66 9.13 7.80 6.35 5.23
83 11.07 10.12 8.17 6.45 5.25 83 10.20 9.54 7.98 6.41 5.24
84 11.63 10.50 8.32 6.49 5.26 84 10.77 9.96 8.15 6.45 5.25
85 12.22 10.89 8.45 6.52 5.26 85 11.39 10.40 8.31 6.49 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<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 3.49 3.66 3.81 3.93 4.02 4.08 4.12
60 3.61 3.83 4.05 4.24 4.40 4.52 4.59
65 3.69 3.97 4.28 4.57 4.84 5.05 5.20
70 3.76 4.09 4.47 4.89 5.31 5.67 5.95
75 3.80 4.17 4.63 5.16 5.75 6.34 6.83
80 3.83 4.23 4.73 5.37 6.14 6.99 7.80
85 3.84 4.26 4.80 5.51 6.44 7.55 8.75
</TABLE>
L-1551
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C>
KEMPER ANNUITIES Kemper Investors Life Insurance Company
Long-term investing in a short-term world (SM) 1 Kemper Drive, Long Grove, IL 60049-0001
- --------------------------------------------------------------- ---------------------------------------------------------------
1. OWNER 4. INITIAL PAYMENT
- --------------------------------------------------------------- ---------------------------------------------------------------
First MI Last Initial Payment $
---------------------------------------------
- --------------------------------------------------------------- Make Check payable to Kemper Investors Life
Street Address Apt. Insurance Company.
This payment is a (check one): [ ] Non-qualified [ ] SEP-IRA
- --------------------------------------------------------------- [ ] IRA [ ] Roth IRA [ ] Charitable Remainder Trust (CRT)
City State Zip [ ] Rollover to IRA [ ] IRA Trustee To Trustee Transfer
[ ] IRA Payment for Tax Year
- --------------------------------------------------------------- ---------------------------------------------------------------
Daytime Telephone | [ ] Male | Date Of Birth 5. ALLOCATION OF PAYMENTS
( ) | [ ] Female | / / ---------------------------------------------------------------
- --------------------------------------------------------------- Kemper Scudder
Date of Trust ___% Dreman Financial Services ___% International
-------------------------------------------------- ___% Small Cap Growth ___% Global Discovery
Social Security/Tax I.D.Number ___% Small Cap Value ___% Capital Growth
--------------------------------- ___% Dreman High Return ___% Growth and Income
Joint Owner ___% International
---------------------------------------------------- ___% Int'l Growth & Income Warburg Pincus
- --------------------------------------------------------------- ___% Global Blue Chip ___% Post Venture Capital
Social Security Number | [ ] Male | Date Of Birth ___% Value+Growth ___% Emerging Markets
| [ ] Female | / / ___% Horizon 20+
- --------------------------------------------------------------- ___% Total Return Janus
- --------------------------------------------------------------- ___% Horizon 10+ ___% Growth & Income
2. ANNUITANT ___% High Yield ___% Growth
- --------------------------------------------------------------- ___% Horizon 5
[ ] The annuitant is same as the owner (if checked, ___% Global Income Kemper Investors Life
complete contingent annuitant section only, if ___%Investment Grade Bond Insurance Company
applicable.) ___%Government Securities ___% Fixed Account
___% Money Market
First MI Last ___% Money Market II Other
Guarantee Period Accounts (GPA) ___%____________
- --------------------------------------------------------------- ___% ___ Year ___% ___ Year
Street Address Apt. ___% ___ Year ___% ___ Year
(All allocations above must total 100%, $500 min. per account.)
- --------------------------------------------------------------- ---------------------------------------------------------------
City State Zip 6. PROTECT YOUR FUTURE PROGRAM
---------------------------------------------------------------
- --------------------------------------------------------------- [ ] Allocate a portion of my initial payment to the____________
Daytime Telephone | [ ] Male | Date Of Birth year GPA such that, at the end of the guarantee period, the
( ) | [ ] Female | / / GPA will have grown to an amount equal to the total initial
- --------------------------------------------------------------- payment assuming no withdrawals or transfers of any kind.
Social Security Number The remaining balance will be applied as indicated above in
----------------------------------------- Section 5.
Contingent Annuitant ---------------------------------------------------------------
------------------------------------------- 7. AUTOMATIC ASSET REBALANCING
Social Security Number | [ ] Male | Date Of Birth ---------------------------------------------------------------
| [ ] Female | / / [ ] I elect Automatic Asset Rebalancing (AAR) among the above
- --------------------------------------------------------------- accounts (excluding Fixed, GPA's and the Money Market II
3. BENEFICIARY Subaccount.)
- --------------------------------------------------------------- Every: [ ] 3 [ ] 6 [ ] 12 Months Beginning / /
[ ] I elect the surviving joint owner as primary beneficiary ------------
(If checked, complete contingent section only.) ---------------------------------------------------------------
8. GUARANTEED RETIREMENT INCOME BENEFIT
Primary Relationship To Annuitant ---------------------------------------------------------------
[ ] I elect the Guaranteed Retirement Income
- --------------------------------- ----------------------------
Contingent Relationship To Annuitant
- --------------------------------- ----------------------------
For additional beneficiaries use Section 16.
- ------------------------------------------------------------------------------------------------------------------------------------
9. REPLACEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Will the proposed contract replace or change any existing annuity or insurance policy? [ ] No [ ] Yes
(If yes, list company name and policy number.)
-------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
10. TELEPHONE TRANSFER
- ------------------------------------------------------------------------------------------------------------------------------------
I authorize and direct Kemper Investors Life Insurance Company (KILICO) to accept telephone instructions from the owner, active
agent, and the individual listed below to effect transfers and/or future payment allocation changes. I agree to hold harmless
and indemnify KILICO and its affiliates and their collective directors, employees and agents against any claim arising from such
action.
Name Birthdate [ ] I do not accept this telephone transfer privilege.
-------------------------------------- -------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
L-8159 (12/97) For Help Completing This Application, Please Call Kemper Insurance Products Division At (800) 778-1482
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
- ----------------------------------------------------------------- -----------------------------------------------------------------
11. DOLLAR COST AVERAGING (DCA) 13. ANNUITY DATE
- ----------------------------------------------------------------- -----------------------------------------------------------------
A. Source Account (please check one): I elect to have annuitization payments begin on / /
[ ] From any single Subaccount or the Fixed Account ----------------.
The annuity date may not be later than age 91 and must be at
Please transfer $ from least one year after contract issue date. (Will be age 91 if
-------------- --------------------- none chosen)
(list one Subaccount name or ----------------------------------------------------------------
the Fixed Account) 14. SYSTEMATIC WITHDRAWALS
[ ] Interest only from the Fixed Account (must maintain a ----------------------------------------------------------------
$10,000 balance and continue DCA for at least one year) Please withdraw $ Beginning / /
------------------------ -------------
($100 minimum) (Enter date)
B. Frequency: Every: [ ] 1 [ ] 3 Months Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months
Beginning / /
------------------------ ________% From _______________________________________________
(Enter date) Enter Subaccount from Section 5
C. Receiving Accounts:
Enter the Subaccount name (from Section 5) and the appropriate ________% From _______________________________________________
percentage of the total Dollar Cost Averaging allocation below: Enter Subaccount from Section 5
All allocations must total 100% ________% From _______________________________________________
Enter Subaccount from Section 5
PCT Subaccount PCT Subaccount
________% to _______________ _______% to _______________ Please: [ ] Do not withhold federal income taxes.
________% to _______________ _______% to _______________ [ ] Do withhold at 10% or _____________ (%).
________% to _______________ _______% to _______________ See form L-8215 for automatic age 701/2 minimum distributions.
DCA is not allowed from any Guarantee Period Accounts. Withdrawals before age 59-1/2 may be subject to a 10% IRS
Additionally please consult the prospectus for more information penalty. Please consult your tax advisor.
about the benefits and limitations of the Money Market II
Subaccount. For additional Subaccounts, use Section 16. Funds allocated to a GPA are subject to a Market Value Adjustment
- ----------------------------------------------------------------- unless withdrawals are taken within 30 days after the end of a
12. SYSTEMATIC ACCUMULATION guarantee Period.
- -----------------------------------------------------------------
[ ] I authorize automatic deductions of $________________________ [ ] I wish to use Electronic Funds Transfer (Direct Deposit). I
($100 minimum) authorize the Company to correct electronically any
from my bank account for application to this contract. overpayments or erroneous credits made to my account.
Please attach a voided check or voided deposit slip.
Beginning / / ----------------------------------------------------------------
------------------------- 15. OPTIONAL BILLING REMINDERS
Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months ----------------------------------------------------------------
Please attach a voided check or voided withdrawal slip. [ ] I wish to receive periodic reminders that I can include with
future remittances in the amount of $ ____________________.
Please send reminder to: [ ] Owner [ ] Annuitant
Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months
- ------------------------------------------------------------------------------------------------------------------------------------
16. REMARKS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
17. SIGNATURES
- ------------------------------------------------------------------------------------------------------------------------------------
Receipt is acknowledged of the current prospectus for Kemper Sterling and the underlying funds in Section 5. Benefits, payments and
values provided by the contract when based on investment experience of the subaccounts are variable and are not guaranteed as to the
dollar amount. Benefits and payments provided by the contract when based on Guarantee Period Account values may increase or decrease
in accordance with the market value adjustment formula stated in the contract. Please check here if you would like a statement of
additional information. [ ]
I agree that all statements are true and correct to the best of my knowledge and belief and are made as a basis for my application.
- ------------------------------------------------------------------------------------------------------------------------------------
Signature Of Owner Signed At (City and State) Date
- ------------------------------------------------------------------------------------------------------------------------------------
Signature Of Joint Owner
- ------------------------------------------------------------------------------------------------------------------------------------
18. REGISTERED REPRESENTATIVE / DEALER INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Does the contract applied for replace an existing annuity or life insurance policy? [ ] Yes (Attach replacement forms as required)
[ ] No I certify that the information provided by the owner has been accurately recorded; current prospectuses were delivered; no
written sales materials other than those approved by the Principal Office were used; and I have reasonable grounds to believe the
purchase of the contract applied for is suitable for the owner. SUITABILITY INFORMATION HAS BEEN OBTAINED AND FILED WITH THE
BROKER/DEALER.
Tel. ( )
- ---------------------------------------------------------------------------Comm. Code:_____________--------------------------------
Signature Of Registered Representative Social Security Number
- ------------------------------------------------------------ __________________________ --------------------------------------------
Printed Name Of Registered Representative B/D Client Acct. # Printed Name Of Broker/Dealer
- ----------------------------------------------------------------------------------------- ---------------------------------------
Branch Office Street Address For Contract Delivery Representative Number
- ------------------------------------------------------------------------------------------------------------------------------------
19. MAIL COMPLETED FORM TO: Zurich Kemper Life, 22 Church St., 20th Floor, Hartford, CT 06103
- ------------------------------------------------------------------------------------------------------------------------------------
L-8159 (12/97)
</TABLE>
<PAGE> 20
GROUP FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE DEFERRED ANNUITY
NON-PARTICIPATING
READ YOUR CERTIFICATE CAREFULLY
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive, Long Grove, Illinois 60049-0001
Policy Form No. L-8166
<PAGE> 21
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<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
</TABLE>
OPTIONS TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED
MONTHLY PAYMENTS GUARANTEED
<TABLE>
<CAPTION>
AGE NONE 60 120 180 240
<S> <C> <C> <C> <C> <C>
55 4.02 4.01 3.99 3.94 3.86
56 4.11 4.10 4.07 4.01 3.92
57 4.20 4.19 4.15 4.09 3.99
58 4.29 4.28 4.24 4.17 4.05
59 4.39 4.38 4.33 4.25 4.12
60 4.50 4.48 4.43 4.34 4.19
61 4.61 4.59 4.53 4.43 4.26
62 4.73 4.71 4.64 4.52 4.33
63 4.86 4.84 4.76 4.61 4.40
64 5.00 4.97 4.88 4.71 4.47
65 5.15 5.11 5.01 4.81 4.54
66 5.30 5.26 5.14 4.92 4.61
67 5.47 5.43 5.28 5.02 4.68
68 5.65 5.60 5.43 5.13 4.74
69 5.84 5.78 5.58 5.24 4.80
70 6.05 5.97 5.74 5.35 4.86
71 6.27 6.18 5.90 5.46 4.91
72 6.50 6.40 6.07 5.56 4.96
73 6.76 6.63 6.25 5.67 5.01
74 7.03 6.88 6.43 5.77 5.05
75 7.32 7.14 6.62 5.87 5.09
76 7.64 7.42 6.80 5.96 5.12
77 7.98 7.72 6.99 6.05 5.15
78 8.34 8.03 7.18 6.13 5.17
79 8.73 8.36 7.37 6.20 5.19
80 9.16 8.70 7.56 6.27 5.21
81 9.61 9.06 7.74 6.33 5.23
82 10.10 9.44 7.91 6.38 5.24
83 10.63 9.83 8.08 6.43 5.25
84 11.19 10.23 8.24 6.47 5.25
85 11.80 10.64 8.38 6.50 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<TABLE>
Age of Age of Secondary Payee
Primary
Payee 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C>
55 3.51 3.64 3.76 3.85 3.92 3.96 3.99
60 3.64 3.84 4.02 4.18 4.29 4.38 4.43
65 3.76 4.02 4.29 4.54 4.75 4.90 5.00
70 3.85 4.18 4.54 4.91 5.25 5.53 5.74
75 3.92 4.29 4.75 5.25 5.77 6.26 6.64
80 3.96 4.38 4.90 5.53 6.26 7.00 7.69
85 3.99 4.43 5.00 5.74 6.64 7.69 8.76
</TABLE>
L-1552
<PAGE> 22
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the attached contract. The effective date of
this Endorsement is the effective date of this contract.
All references throughout this contract to the sex of a person used in the
calculation of benefits are deleted from this contract.
Except as modified herein, all terms and conditions of the contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
---------------------- ------------------------
Secretary President
Form L-9006 (9/88)
<PAGE> 23
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the Certificate to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the
Certificate Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to us if the Owner or Annuitant is disabled.
Disability must begin after the effective date of this Endorsement and prior to
age 65.
Withdrawal charges will not be waived when disability is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Disability" is defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted, or can be
expected to last, for a continuous period of not less than 12 months.
"Disabled" is defined as having the conditions of the disability definition.
Except as modified herein, all terms and conditions of this Certificate remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
----------------------- -----------------------
Secretary President
L-8168
<PAGE> 24
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the Contract
Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to us if the Owner or Annuitant is disabled.
Disability must begin after the effective date of this Endorsement and prior to
age 65.
Withdrawal charges will not be waived when disability is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Disability" is defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted, or can be
expected to last, for a continuous period of not less than 12 months.
"Disabled" is defined as having the conditions of the disability definition.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
--------------------- ---------------------
Secretary President
L-8182
<PAGE> 25
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049-0001
ENDORSEMENT
This endorsement forms a part of the Certificate to which it is attached.
DEFINITIONS
GUARANTEED RETIREMENT INCOME BENEFIT BASE - An amount which is applied to the
guaranteed annuity factors to produce the Guaranteed Retirement Income Benefit.
It is equal to the greater of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Certificate Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at 5.00%
per annum to the earlier of age 80 or date of determination, or
(4) the greatest Anniversary Value immediately preceding the earlier of age 81
or date of determination increased by Purchase Payments made since the
date of the greatest Anniversary Value, and decreased by any withdrawals
since that date.
EXERCISE PERIODS - The Guaranteed Retirement Income Benefit may only be
exercised within 30 days of the seventh or later Certificate Anniversary. In
addition, the Annuitant must be at least age 60 but no older than age 90.
However, if the Annuitant's age is 44 or less on the Issue Date, the Guaranteed
Retirement Income Benefit may be exercised within 30 days of the 15th or later
Certificate Anniversary, but no later than Annuitant's age 90.
CERTAIN PERIOD - The certain period for the Guaranteed Retirement Income
Benefit is based on the Annuitant's age at the time the benefit is exercised and
qualification status, as follows:
<TABLE>
<CAPTION>
Annuitant's Certain Period Years
Age at Election Qualified Nonqualified
<S> <C> <C>
75 or less 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
84 6 6
85 to 90 5 5
</TABLE>
GUARANTEED RETIREMENT INCOME BENEFIT PROVISIONS
If the Owner has selected the Guaranteed Retirement Income Benefit option, it
will be indicated on the Certificate Schedule. A separate charge will be made
for this benefit, also shown on the Certificate Schedule.
The Owner may elect to discontinue the Guaranteed Retirement Income Benefit
option any time on or after the seventh Certificate Anniversary, prior to
exercise of the benefit. We must receive a written election to discontinue this
benefit. The benefit will be discontinued effective as of the date the written
election is received by us. Once the benefit has been discontinued, it may not
be elected again.
During the Exercise Period, the Owner may apply the Guaranteed Retirement
Income Benefit Base to purchase a fixed annuity income for the Annuitant's
lifetime. Payments will be determined under Annuity Option 3 under the
Certificate based on the Certain Period defined above. The payout factors will
be those shown in the Certificate for amounts being annuitized, except that if
the Guaranteed Retirement Income Benefit is exercised on the 10th year or later,
the interest rate assumption will be 3.50%.
CONTINGENT ANNUITANT - If a Contingent Annuitant is in effect due to the death
of the original Annuitant, the Exercise Periods will be based on the issue age
of the original Annuitant and the Contingent Annuitant's age at election. The
Certain Period will be based on the Contingent Annuitant's age at election.
Except as modified herein, all terms and conditions of this Certificate remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
------------------------- -------------------------
Secretary President
L-8198
<PAGE> 26
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049-0001
ENDORSEMENT
This endorsement forms a part of the Contract to which it is attached.
DEFINITIONS
GUARANTEED RETIREMENT INCOME BENEFIT BASE - An amount which is applied to the
guaranteed annuity factors to produce the Guaranteed Retirement Income Benefit.
It is equal to the greater of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Contract Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at 5.00%
per annum to the earlier of age 80 or date of determination, or
(4) the greatest Anniversary Value immediately preceding the earlier of age 81
or date of determination increased by Purchase Payments made since the date
of the greatest Anniversary Value, and decreased by any withdrawal since
that date.
EXERCISE PERIODS - The Guaranteed Retirement Income Benefit may only be
exercised within 30 days of the seventh or later Contract Anniversary. In
addition, the Annuitant must be at least age 60 but no older than age 90.
However, if the Annuitant's age is 44 or less on the Issue Date, the Guaranteed
Retirement Income Benefit may be exercised within 30 days of the 15th or later
Contract Anniversary, but no later than Annuitant's age 90.
CERTAIN PERIOD - The certain period for the Guaranteed Retirement Income
Benefit is based on the Annuitant's age at the time the benefit is exercised
and qualification status, as follows:
<TABLE>
<CAPTION>
Annuitant's Certain Period Years
Age at Election Qualified Nonqualified
<S> <C> <C>
75 or less 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
84 6 6
85 to 90 5 5
</TABLE>
GUARANTEED RETIREMENT INCOME BENEFIT PROVISIONS
If the Owner has selected the Guaranteed Retirement Income Benefit option, it
will be indicated on the Contract Schedule. A separate charge will be made for
this benefit, also shown on the Contract Schedule.
The Owner may elect to discontinue the Guaranteed Retirement Income Benefit
option any time on or after the seventh Contract Anniversary, prior to exercise
of the benefit. We must receive a written election to discontinue this benefit.
The benefit will be discontinued effective as of the date the written election
is received by us. Once the benefit has been discontinued, it may not be
elected again.
During the Exercise Period, the Owner may apply the Guaranteed Retirement Income
Benefit Base to purchase a fixed annuity income for the Annuitant's
lifetime. Payments will be determined under Annuity Option 3 under the Contract
based on the Certain Period defined above. The payout factors will be those
shown in the Contract for amounts being annuitized, except that if the
Guaranteed Retirement Income Benefit is exercised on the 10th year or later, the
interest rate assumption will be 3.50%.
CONTINGENT ANNUITANT - If a Contingent Annuitant is in effect due to the death
of the original Annuitant, the Exercise Periods will be based on the issue age
of the original annuitant and the Contingent Annuitant's age at election. The
Certain Period will be based on the Contingent Annuitant's age at election.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
---------------------- ---------------------
Secretary President
L-8199
<PAGE> 27
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the contract to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to the Company:
(1) after an Owner has been confined in a Hospital or Skilled Health Care
Facility for at least thirty consecutive days and the Owner remains confined in
the Hospital or Skilled Health Care Facility when the request is made; or
(2) within thirty days following an Owner's discharge from a Hospital or Skilled
Health Care Facility after a confinement of at least thirty days.
Confinement must begin after the effective date of this Endorsement.
Withdrawal charges will not be waived when confinement is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Hospital" means a place which is licensed by the State as a Hospital and is
operating within the scope of its license.
"Skilled Health Care Facility" means a place which:
(a) is licensed by the state;
(b) provides skilled nursing care under the supervision of a physician;
(c) has twenty-four hour a day nursing services by or under the supervision of
a registered nurse (RN); and
(d) keeps a daily medical record of each patient.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
----------------------- -----------------------
Secretary President
Form L-7042 (5/91)
<PAGE> 1
EXHIBIT 4(c)
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company [ZURICH KEMPER LOGO]
1 Kemper Drive ZURICH
Long Grove, Illinois 60049-0001 KEMPER
Annuitant Age
Contract Date Contract No.
RIGHT TO CANCEL - FREE LOOK PROVISION - At any time within 10 days of
receiving this contract you may return it to us or to the representative
through whom it was purchased. All purchase payments allocated to the Fixed
Account plus the Guarantee Period Values plus the Separate Account Contract
Value computed at the end of the valuation period following our receipt of this
contract will then be refunded within ten days.
We agree to pay an annuity to the Annuitant provided the Annuitant is living
and this contract is in force on the Annuity Date.
We further agree to pay the death benefit prior to the Annuity Date upon the
death of the Owner or the Annuitant when a death benefit is payable. Payment
will be made upon our receipt of due proof of death and the return of this
contract.
This contract is issued in consideration of payment of the initial Purchase
Payment. The provisions on this cover and the pages that follow are part of
this contract.
Signed for Kemper Investors Life Insurance Company at its home office in Long
Grove, Illinois.
--------------------------- ----------------------------
Secretary President
FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE DEFERRED ANNUITY
NON-PARTICIPATING
ALL BENEFITS, PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED UPON
THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT. REFER TO THE VARIABLE ACCOUNT AND ANNUITY
PERIOD PROVISIONS FOR A DETERMINATION OF ANY VARIABLE BENEFITS.
ALL BENEFITS, PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON
GUARANTEE PERIOD VALUES, MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE
MARKET VALUE ADJUSTMENT FORMULA STATED IN THE CONTRACT SCHEDULE.
This is a legal contract between the owner and Kemper Investors Life Insurance
Company.
READ YOUR CONTRACT CAREFULLY
Policy Form No. L-1550
<PAGE> 2
INDEX PAGE
ANNUITY OPTION TABLE............................................ Follows Page 9
ANNUITY PERIOD PROVISIONS ..................................................6-9
Election Of Annuity Option .............................................6
Annuity Options ......................................................6-7
Transfers During The Annuity Period...................................8-9
CONTRACT SCHEDULE.................................................Follows Index
DEATH BENEFIT PROVISIONS .....................................................6
Amount Payable Upon Death ..............................................6
Payment Of Death Benefits ..............................................6
DEFINITIONS ................................................................1-2
ENDORSEMENTS, if any...............................Follow Annuity Option Tables
FIXED ACCOUNT PROVISIONS .....................................................3
Fixed Account Contract Value ...........................................3
GENERAL PROVISIONS ...........................................................2
The Contract ...........................................................2
Incontestability .......................................................2
Assignment .............................................................2
Reports ................................................................2
Premium Taxes ..........................................................2
GUARANTEE PERIOD PROVISIONS...................................................3
Guarantee Period Value .................................................3
MARKET VALUE ADJUSTMENT PROVISION.............................................3
OWNERSHIP PROVISIONS .......................................................2-3
Owner of Contract ......................................................2
Change of Ownership ....................................................2
Beneficiary ..........................................................2-3
PURCHASE PAYMENT PROVISIONS ..................................................3
TRANSFER AND WITHDRAWAL PROVISIONS .........................................5-6
Transfers During The Accumulation Period ...............................5
Withdrawals During The Accumulation Period .............................5
Withdrawal Charges......................................................5
Transfer And Withdrawal Procedures .....................................5
Deferment of Withdrawal or Transfer.....................................6
VARIABLE ACCOUNT PROVISIONS ................................................4-5
Separate Account .......................................................4
Liabilities Of Separate Account ........................................4
Separate Account Contract Value ........................................4
Subaccounts ............................................................4
Fund....................................................................4
Rights Reserved By The Company .........................................4
Accumulation Unit Value ................................................4
Investment Experience Factor............................................4
L-1550
<PAGE> 3
CONTRACT SCHEDULE
DESCRIPTION OF PLAN: FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE
DEFERRED ANNUITY
FIXED ACCUMULATION UNDER:
FIXED ACCOUNT
GUARANTEE PERIOD ACCUMULATION UNDER:
1 YEAR GUARANTEE PERIOD 6 YEAR GUARANTEE PERIOD
2 YEAR GUARANTEE PERIOD 7 YEAR GUARANTEE PERIOD
3 YEAR GUARANTEE PERIOD 8 YEAR GUARANTEE PERIOD
4 YEAR GUARANTEE PERIOD 9 YEAR GUARANTEE PERIOD
5 YEAR GUARANTEE PERIOD 10YEAR GUARANTEE PERIOD
VARIABLE ACCUMULATION UNDER:
KEMPER MONEY MARKET SUBACCOUNT
KEMPER MONEY MARKET II SUBACCOUNT
KEMPER GOVERNMENT SECURITIES SUBACCOUNT
KEMPER INVESTMENT GRADE BOND SUBACCOUNT
KEMPER GLOBAL INCOME SUBACCOUNT
KEMPER HORIZON 5+ SUBACCOUNT
KEMPER HIGH YIELD SUBACCOUNT
KEMPER HORIZON 10+ SUBACCOUNT
KEMPER TOTAL RETURN SUBACCOUNT
KEMPER HORIZON 20+ SUBACCOUNT
KEMPER VALUE + GROWTH SUBACCOUNT
KEMPER BLUE CHIP SUBACCOUNT
KEMPER INTERNATIONAL SUBACCOUNT
KEMPER VALUE SUBACCOUNT
KEMPER SMALL CAP VALUE SUBACCOUNT
KEMPER SMALL CAP GROWTH SUBACCOUNT
KEMPER TECHNOLOGY SUBACCOUNT
KEMPER GROWTH SUBACCOUNT
SCUDDER GLOBAL DISCOVERY SUBACCOUNT
SCUDDER GROWTH AND INCOME SUBACCOUNT
SCUDDER INTERNATIONAL SUBACCOUNT
JANUS ASPEN SERIES GROWTH SUBACCOUNT
JANUS ASPEN SERIES GROWTH AND INCOME SUBACCOUNT
WARBURG PINCUS TRUST EMERGING MARKETS SUBACCOUNT
WARBURG PINCUS TRUST POST-VENTURE CAPITAL SUBACCOUNT
1550
<PAGE> 4
CONTRACT NUMBER: KIL00-1000 ISSUE DATE: JANUARY 1, 1997
ANNUITANT: JOHN DOE CONTINGENT ANNUITANT: JANE DOE
SEX: MALE SEX: FEMALE
ANNUITANT ISSUE AGE: 35 OWNER ISSUE AGE: 35
ANNUITY DATE: JANUARY 1, 2018
OWNER: JOHN DOE JOINT OWNER: JANE DOE
BENEFICIARY(IES):
PRIMARY: SURVIVING JOINT OWNER
CONTINGENT: NONE
REPRESENTATIVE: BOB BOUSSARD
[GUARANTEED RETIREMENT INCOME BENEFIT: [YES] ]
1550
<PAGE> 5
CONTRACT SCHEDULE
QUALIFIED OR NONQUALIFIED PLAN [NONQUALIFIED]
MINIMUM INITIAL PURCHASE PAYMENT [$1,000]
INITIAL PURCHASE PAYMENT [$5,000]
MINIMUM SUBSEQUENT PURCHASE PAYMENT [$500*]
*$100 IF USING SYSTEMATIC ACCUMULATION PLAN
MAXIMUM TOTAL PURCHASE PAYMENTS [$1,000,000]
INITIAL ALLOCATION OF PURCHASE PAYMENT
<TABLE>
<CAPTION>
INITIAL ALLOCATION
INTEREST RATE PERCENTAGE
-------------------- --------------------
<S> <C> <C>
FIXED ACCOUNT 4.75% 25.00%
6 YEAR GUARANTEE PERIOD 5.00% 25.00%
BLUE CHIP SUBACCOUNT 50.00%
</TABLE>
*INTEREST RATES ARE STATED AS ANNUAL EFFECTIVE RATES
RECORDS MAINTENANCE CHARGE: [$30 PER CONTRACT YEAR]
WE WILL ASSESS AN ANNUAL RECORDS MAINTENANCE CHARGE OF [$30] ON EACH CONTRACT
ANNIVERSARY AND UPON CONTRACT TERMINATION. HOWEVER, IF THE CONTRACT VALUE IS
GREATER THAN OR EQUAL TO $50,000 ON A CONTRACT ANNIVERSARY OR DATE OF SURRENDER,
WE WILL NOT ASSESS THE RECORDS MAINTENANCE CHARGE ON THAT CONTRACT ANNIVERSARY
OR SURRENDER DATE. WE WILL NOT ASSESS THIS CHARGE AFTER THE ANNUITY DATE.
WITHDRAWAL/ANNUITIZATION CHARGE TABLE:
YEARS ELAPSED SINCE PURCHASE
PAYMENTS WERE RECEIVED BY THE COMPANY RATE
LESS THAN ONE 7.00%
ONE BUT LESS THAN TWO 6.00%
TWO BUT LESS THAN THREE 5.00%
THREE BUT LESS THAN FOUR 5.00%
FOUR BUT LESS THAN FIVE 4.00%
FIVE BUT LESS THAN SIX 3.00%
SIX BUT LESS THAN SEVEN 2.00%
SEVEN OR MORE 0.00%
THE WITHDRAWAL/ANNUITIZATION CHARGE PERCENTAGES ARE APPLIED AGAINST THE ORIGINAL
AMOUNT OF THE PURCHASE PAYMENTS. A FREE PARTIAL WITHDRAWAL OF THE GREATER OF
10% OF CONTRACT VALUE OR CONTRACT VALUE LESS REMAINING PRINCIPAL IS AVAILABLE
EACH YEAR. REMAINING PRINCIPAL FOR THIS PURPOSE IS TOTAL PREMIUMS SUBJECT TO A
WITHDRAWAL CHARGE MINUS WITHDRAWALS PREVIOUSLY ASSESSED A WITHDRAWAL CHARGE.
1550
<PAGE> 6
CONTRACT SCHEDULE
FIXED ACCOUNT
THE FIXED ACCOUNT INTEREST RATE IS GUARANTEED THROUGH THE CONTRACT YEAR
IN WHICH A PURCHASE PAYMENT IS RECEIVED.
THE SUBSEQUENT FIXED ACCOUNT INTEREST RATE PERIOD IS ONE CONTRACT YEAR.
MINIMUM GUARANTEED INTEREST RATE 3.00%
OTHER CHARGES
MORTALITY AND EXPENSE RISK CHARGE: [1.25% ANNUALLY]
ADMINISTRATION CHARGE: [.15% ANNUALLY]
GUARANTEED RETIREMENT INCOME BENEFIT CHARGE: .25% ANNUALLY.
WE WILL NOT ASSESS THIS CHARGE AFTER THE EARLIER OF CONTRACT
ANNUITIZATION OR AGE 90.
THE MORTALITY AND EXPENSE RISK CHARGE AND THE ADMINISTRATION CHARGE, WILL
BE ASSESSED DAILY ON THE SEPARATE ACCOUNT CONTRACT VALUE. THE GUARANTEED
RETIREMENT INCOME BENEFIT CHARGE WILL BE ASSESSED AT THE END OF EACH
CALENDAR QUARTER ON THE CONTRACT VALUE, BASED ON THE AVERAGE MONTHLY
CONTRACT VALUE.
MARKET VALUE ADJUSTMENT FORMULA
THE MARKET VALUE ADJUSTMENT IS DETERMINED BY THE APPLICATION OF THE
FOLLOWING FORMULA: T/365
MARKET VALUE ADJUSTMENT = GUARANTEE PERIOD VALUE X [(1+I)]
----- -1
[(1+J)]
WHERE,
I IS THE GUARANTEED INTEREST RATE BEING CREDITED TO THE GUARANTEE PERIOD
VALUE SUBJECT TO THE MARKET VALUE ADJUSTMENT.
J IS THE CURRENT INTEREST RATE DECLARED BY THE COMPANY, AS OF THE
EFFECTIVE DATE OF THE APPLICATION OF THE MARKET VALUE ADJUSTMENT, FOR
CURRENT ALLOCATION TO A GUARANTEE PERIOD, THE LENGTH OF WHICH IS EQUAL
TO THE BALANCE OF THE GUARANTEE PERIOD FOR THE GUARANTEE PERIOD VALUE
SUBJECT TO THE MARKET VALUE ADJUSTMENT, ROUNDED TO THE NEXT HIGHER NUMBER
OF COMPLETE YEARS, AND
T IS THE NUMBER OF DAYS REMAINING IN THE GUARANTEE PERIOD.
1550
<PAGE> 7
MINIMUM FIXED ACCOUNT VALUES FOR FIXED ACCOUNT ALLOCATIONS
<TABLE>
<CAPTION>
End of
Contract Contract Termination
Year Value Value
<S> <C> <C>
1 5,207.50 4,892.50
2 5,333.73 5,063.73
3 5,463.74 5,238.74
4 5,597.65 5,372.65
5 5,735.58 5,555.58
6 5,877.65 5,742.65
7 6,023.98 5,933.98
8 6,174.69 6,174.69
9 6,329.94 6,329.94
10 6,489.83 6,489.83
11 6,654.53 6,654.53
12 6,824.16 6,824.16
13 6,998.89 6,998.89
14 7,178.86 7,178.86
15 7,364.22 7,364.22
16 7,555.15 7,555.15
17 7,751.80 7,751.80
18 7,954.36 7,954.36
19 8,162.99 8,162.99
20 8,377.88 8,377.88
21 8,599.21 8,599.21
</TABLE>
VALUES ARE BASED ON THE INITIAL FIXED ACCOUNT INTEREST RATE THROUGH THE
END OF THE INITIAL INTEREST RATE PERIOD. THEREAFTER, VALUES ARE BASED ON
THE MINIMUM GUARANTEED INTEREST RATE OF 3.00%. VALUES SHOWN ASSUME
ALLOCATION ON THE ISSUE DATE AND NO SUBSEQUENT WITHDRAWALS OR TRANSFERS.
1550
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DEFINITIONS
ACCUMULATED GUARANTEE PERIOD VALUE - The sum of the Guarantee Period Values.
ACCUMULATION PERIOD - The period between the Issue Date and the Annuity Date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate the value
of each Subaccount.
ADMINISTRATION CHARGE - A charge deducted in the calculation of the
accumulation unit value and the Annuity Unit Value for a portion of our
administrative costs.
AGE - The attained age of the Annuitant, Payee, or Owner.
ANNIVERSARY VALUE - The Contract Value calculated on each Contract Anniversary
during the accumulation period.
ANNUITANT - The person during whose lifetime the annuity is to be paid. You may
not change the person named as the Annuitant.
ANNUITY - A series of payments which begins on the annuity date.
ANNUITY DATE - The date on which this contract matures and annuity payments
begin. The original annuity date is stated in the contract schedule. It must be
at least one year from the Issue Date and not later than the maximum age at
annuitization as stated in the Contract Schedule.
ANNUITY PERIOD - The period that starts on the Annuity Date.
ANNUITY UNIT - An accounting unit of measure used to calculate the amount of
variable annuity payments after the first annuity payment.
ANNUITY UNIT VALUE - The value of an Annuity Unit of a Subaccount determined
for a Valuation Period according to the formula stated in this Contract.
CONTINGENT ANNUITANT - The person designated by the Owner, who becomes the
Annuitant if the Annuitant dies prior to the annuity date. A Contingent
Annuitant may not be elected under a qualified Contract.
CONTRACT ANNIVERSARY - An anniversary of the Issue Date.
CONTRACT VALUE - The sum of the Fixed Account Contract Value plus the Separate
Account Contract Value plus the Accumulated Guarantee Period Value.
CONTRACT YEAR - A one year period starting on the Issue Date and successive
Contract Anniversaries.
FIXED ACCOUNT - The General Account of KILICO to which an Owner may allocate
all or a portion of Purchase Payments or Contract Value.
FIXED ACCOUNT CONTRACT VALUE - The value of the Fixed Account of this contract
on any valuation date.
FIXED ANNUITY - An annuity payment plan that does not vary as to dollar amount.
FUND - An investment company or separate series thereof, in which the
Subaccounts of the Separate Account invest.
GENERAL ACCOUNT - Our assets other than those allocated to the Separate
Account, the non-unitized separate account or any other separate account.
GUARANTEE PERIOD - A period of time during which an amount is to be credited
with a guaranteed interest rate, subject to a Market Value Adjustment prior to
the end of the Guarantee Period. The Guarantee Periods initially offered are
stated in the Contract schedule.
GUARANTEE PERIOD VALUE -The (1) Purchase Payment allocated or amount
transferred to a Guarantee Period; plus (2) interest credited; minus (3)
withdrawals, previously assessed withdrawal charges and transfers; adjusted for
(4) any applicable Market Value Adjustment previously made.
ISSUE DATE - The Issue Date stated in the Contract schedule. It is the date
your initial Purchase Payment is available for use and begins to be credited
with interest and/or investment experience. If the normal Issue Date is the
29th, 30th or 31st of the month, the Issue Date will be the 28th day of that
month.
MARKET ADJUSTED VALUE - A Guarantee Period Value adjusted by the Market Value
Adjustment formula prior to the end of a Guarantee Period.
MARKET VALUE ADJUSTMENT - An adjustment of Guarantee Period Values in
accordance with the market value adjustment formula prior to the end of the
Guarantee Period. The adjustment reflects the change in the value of the
Guarantee Period Value due to changes in interest rates since the date the
Guarantee Period commenced. The Market Value Adjustment formula is stated in
the Contract schedule.
MORTALITY AND EXPENSE RISK CHARGE - A charge deducted in the calculation of the
accumulation unit value and the Annuity Unit Value. It is for our assumption of
mortality risks and expense guarantees.
NONQUALIFIED - This Contract issued other than as a qualified plan.
OWNER - See "You, Your, Yours" below.
PAYEE - A recipient of periodic payments under the Contract. This may be an
Annuitant or a beneficiary who becomes entitled to a death benefit payment.
PURCHASE PAYMENTS - The dollar amount we receive in U.S. currency to buy the
benefits this Contract provides.
QUALIFIED PLAN - This Contract issued under a retirement plan which qualifies
for favorable income tax treatment under Section 408 or 408(a) of the Internal
Revenue Code as amended.
RECORDS MAINTENANCE CHARGE - A charge assessed against your Contract as
specified in the Contract schedule.
RECEIVED - Received by Kemper Investors Life Insurance Company at its home
office in Long Grove, Illinois.
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L-1550 Page 2
SEPARATE ACCOUNT - A unit investment trust registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 known as the
KILICO Variable Annuity Separate Account.
SEPARATE ACCOUNT CONTRACT VALUE - The sum of the Subaccount values of this
contract on a Valuation Date.
SUBACCOUNTS - The Separate Account has several Subaccounts. The Subaccounts
available initially under this Contract are stated in the contract schedule.
SUBACCOUNT VALUE - The value of each Subaccount calculated separately according
to the formula stated in this Contract.
VALUATION DATE - Each business day that applicable law requires that we value
the assets of the Separate Account. Currently this 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.
VARIABLE ANNUITY - An annuity payment plan which varies as to dollar amount
because of Subaccount investment experience.
WE, OUR, US - Kemper Investors Life Insurance Company, Long Grove, Illinois.
YOU, YOUR, YOURS - The party(ies) initially named as Owner unless later changed
as provided in this Contract. The Owner is the Annuitant unless a different
Owner is named. Under a nonqualified plan when more than one person is named as
Owner, the terms "you," "your," "yours," means joint owners. The Owner may be
changed during the lifetime of the Owner and the Annuitant. The Owner, prior to
the annuity date or any distribution of any death benefit, has the exclusive
right to exercise every option and right conferred by this Contract.
GENERAL PROVISIONS
THE CONTRACT - This Contract, any application attached to the contract, and any
endorsements constitute the entire contract between the parties.
MODIFICATION OF CONTRACT - Only our president, secretary and assistant
secretaries have the power to approve a change or waive any provisions of this
contract. Any such modifications must be in writing. No representative or
person other than the officers named has the authority to change or waive the
provisions of this Contract.
INCONTESTABILITY - We cannot contest this Contract after it has been in force
for two years from the Issue Date.
CHANGE OF ANNUITY DATE - You may write to us prior to distribution of a death
benefit or the first Annuity payment date and request a change of the Annuity
Date.
ASSIGNMENT - No assignment of this Contract is binding unless we receive it in
writing. We assume no responsibility for the validity or sufficiency of any
assignment. Once filed, the rights of the Owner, Annuitant and beneficiary are
subject to the assignment. Any claim is subject to proof of interest of the
assignee.
DUE PROOF OF DEATH - We must receive written proof of death of the Owner or the
Annuitant when a death benefit is payable. The proof may be a certified death
certificate, the written statement of a physician, or any other proof
satisfactory to us.
RESERVES, CONTRACT VALUES AND DEATH BENEFITS - All reserves are equal to or
greater than those required by statute. Any available Contract Value and death
benefit are not less than the minimum benefits required by the statutes of the
state in which this contract is delivered.
NON-PARTICIPATING - This Contract does not pay dividends. It will not share in
our surplus or earnings.
REPORTS - At least once each Contract year we will send you a statement showing
Purchase Payments received, interest credited, investment experience; and
charges made since the last report, as well as any other information required
by statute.
PREMIUM TAXES - We will make a deduction for state premium taxes in certain
situations. On any Contract subject to premium tax, as provided under
applicable law, the tax will be deducted from the total Contract Value applied
to an annuity option at the time annuity payments start. Premium tax due and
paid by us prior to annuitization will be deducted at the percentage that was
applicable prior to annuitization.
QUALIFIED PLANS - If this Contract is issued under a qualified plan additional
provisions may apply. The rider or amendment to this Contract used to qualify
it under the applicable section of the Internal Revenue Code will indicate the
extent of change in the provisions.
OWNERSHIP PROVISIONS
OWNER OF CONTRACT - The Annuitant is the original Owner unless otherwise
designated initially. Before the Annuity Date or any distribution of death
benefit, you have the right to cancel or amend this Contract if we agree. You
may exercise every option and right conferred by this Contract including the
right of assignment. The joint Owners must agree to any change if more than one
Owner is named.
CHANGE OF OWNERSHIP - You may change the Owner by written request at any time
while the Annuitant is alive. You must furnish information sufficient to
clearly identify the new Owner to us. The change is subject to any existing
assignment of this Contract. When we record the effective date of the change,
it will be the date the notice was signed except for action taken by us prior
to receiving the request. Any change is subject to the payment of any proceeds.
We may require you to return this contract to us for endorsement of a change.
BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY - A beneficiary must be
designated initially. You may change the beneficiary if you send us a written
change form. Changes are subject to the following:
1. The change must by filed while the Annuitant is alive and prior to the
Annuity Date;
2. This contract must be in force at the time you file a change;
3. Such change must not be prohibited by the terms of an existing assignment,
beneficiary designation or other restriction;
<PAGE> 10
4. Such change will take effect when we receive it;
5. After we receive the change, it will take effect on the date the change form
was signed. However, action taken by us before the change form was received
will remain in effect; and
6. The request for change must provide information sufficient to identify the
new beneficiary.
We may require you to return this contract for endorsement of a change.
The interest of a beneficiary who dies before the distribution of the death
benefit will pass to the other beneficiaries, if any, share and share alike,
unless otherwise provided in the beneficiary designation. If no beneficiary
survives or is named, the distribution will be made to your estate when you
die; or to the estate of the Annuitant upon the death of the Annuitant if you
are not also the Annuitant. If a beneficiary dies within ten days of the date
of your death, the death benefit will be paid as if you had survived the
beneficiary. If a beneficiary dies within ten days of the death of the
Annuitant, and you are not the Annuitant, we will pay the death benefit as if
the Annuitant survived the beneficiary. If you, the Annuitant, and the
beneficiary die simultaneously, we will pay the death benefit as if you had
survived the Annuitant and the beneficiary.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENT LIMITATIONS - The minimum and maximum initial and subsequent
Purchase Payment limits are shown in the Contract schedule.
The minimum Purchase Payment allocation to a Guarantee Period, Fixed Account or
to a Subaccount is $500.
We reserve the right to waive or modify these limits.
PLACE OF PAYMENT - All Purchase Payments under this Contract must be paid to us
at our home office or such other location as we may select. We will notify you
and any other interested parties in writing of such other locations. Purchase
Payments received by an a representative will begin earning interest or
participating in investment experience only after we receive it.
FIXED ACCOUNT PROVISIONS
FIXED ACCOUNT CONTRACT VALUE - The Fixed Account Contract Value includes:
1. your Purchase Payments allocated to the Fixed Account; plus
2. amounts transferred from a Subaccount or Guarantee Period to the Fixed
Account at your request; plus
3. interest credited; minus
4. withdrawals, previously assessed withdrawal charges and transfers from
the Fixed Account, minus
5. any applicable portion of the Records Maintenance Charge and charges for
other benefits.
The initial Fixed Account interest rate credited to the initial Purchase
Payment is in effect through the end of the interest rate period and is shown
in the contract schedule. At the beginning of each subsequent interest rate
period shown in the Contract schedule, we will declare the Fixed Account
interest rate applicable to the initial Purchase Payment for each such
subsequent interest rate period.
We will declare the Fixed Account interest rate with respect to each subsequent
purchase payment received. Any such Purchase Payment we receive will be
credited that rate through the end of the interest rate period shown in the
Contract schedule. At the beginning of each subsequent interest rate period, we
will declare the Fixed Account interest rate applicable to each subsequent
Purchase Payment for such interest rate period.
We reserve the right to declare the Fixed Account current interest rate(s)
based upon: the Issue Date; the date we receive a Purchase Payment; or the date
of account transfer.
We calculate the interest credited to the Fixed Account by compounding daily,
at daily interest rates, rates which would produce at the end of a Contract
Year a result identical to the one produced by applying an annual interest
rate.
The minimum guaranteed Fixed Account interest rate is shown on the Contract
schedule.
GUARANTEE PERIOD PROVISIONS
GUARANTEE PERIOD - We will hold all amounts allocated to a Guarantee Period in
a non-unitized separate account. The initial Guarantee Periods available under
the Contract are shown in the Contract schedule.
GUARANTEE PERIOD VALUE - On any valuation date, the Guarantee Period Value
includes
1. your Purchase Payments allocated to the Guarantee period value at the
beginning of its Guarantee Period; plus
2. interest credited; minus
3. withdrawals, previously assessed withdrawal charges and transfers, minus
4. any applicable portion of the Records Maintanance Charge and charges for
any additional benefits; adjusted for
5. any applicable Market Value Adjustment previously made.
The Guarantee Period(s) initially elected and the interest rate(s) initially
credited are shown in the Contract schedule. The initial interest rate
credited to subsequent Purchase Payments will be declared at the time the
payment is received. At the end of a Guarantee Period, we will declare a
guaranteed interest rate applicable for the next subsequent Guarantee Period of
the same duration.
ACCUMULATED GUARANTEE PERIOD VALUE - On any Valuation Date, the Accumulated
Guarantee Period Value is the sum of the Guarantee Period Values. At any time
during the Accumulation Period, the Accumulated Guarantee Period Value may be
allocated to a maximum of forty Guarantee periods.
We calculate the interest credited to the Guarantee Period Value by compounding
daily, at daily interest rates, rates which would produce at the end of a
Contract Year a result identical to the one produced by applying an annual
interest rate.
MARKET VALUE ADJUSTMENT - The Market Value Adjustment formula is stated in the
contract schedule. This formula is applicable for both an upward or downward
adjustment to a Guarantee Period Value
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L-1550 Page 4
when, prior to the end of a Guarantee Period, such value is:
(1) taken as a total or partial withdrawal;
(2) applied to purchase an annuity option; or
(3) transferred to another Guarantee Period, the Fixed Account, or a
Subaccount.
However, a Market Value Adjustment will not be applied to any Guarantee Period
Value transaction effected within 30 days after the end of the applicable
Guarantee Period.
VARIABLE ACCOUNT PROVISIONS
SEPARATE ACCOUNT - The variable benefits under this Contract are provided
through the KILICO Variable Annuity Separate Account. This is called the
Separate Account. The Separate Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. It is a separate investment account maintained by us into which a
portion of our assets has been allocated for this Contract and may be allocated
for certain other contracts.
LIABILITIES OF SEPARATE ACCOUNT - The assets equal to the reserves and other
liabilities of the Separate Account will not be charged with liabilities
arising out of any other business we may conduct. We will value the assets of
the Separate Account on each valuation date.
SEPARATE ACCOUNT CONTRACT VALUE - On any Valuation Date, the Separate Account
Contract Value is the sum of its Subaccount values.
SUBACCOUNTS - The Separate Account consists of several Subaccounts, the initial
Subaccounts available under this Contract are shown in the Contract schedule.
We may, from time to time, combine or remove Subaccounts in the Separate
Account and establish additional Subaccounts of the Separate Account. In such
event, we may permit you to select other Subaccounts under this Contract.
However, the right to select any other Subaccount is limited by the terms and
conditions we may impose on such transactions.
FUND - Each Subaccount of the Separate Account will buy shares of a Fund or a
separate series of a Fund. Each Fund is registered under the Investment Company
Act of 1940 as an open-end diversified management investment company. 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 another investment company. We may also
substitute other investment companies.
RIGHTS RESERVED BY THE COMPANY - We reserve the right, subject to compliance
with the current law or as it may be changed in the future:
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 separate accounts, or the General Account, or to add, combine or remove
Subaccounts in the Separate Account;
4. To delete the shares of any of the portfolios of a Fund or any other
open-end investment company and to substitute, for the Fund shares held in any
Subaccount, the shares of another portfolio of a Fund or the shares of another
investment company or any other investment permitted by law; and
5. To change the way we assess charges, but not to increase the aggregate
amount above that currently charged to the Separate Account and the Funds in
connection with the contracts.
When required by law, we will obtain your approval of such changes and the
approval of any regulatory authority.
ACCUMULATION UNIT VALUE - Each Subaccount has an Accumulation Unit Value. When
Purchase Payments 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. The value of a Subaccount on any Valuation Date
is the number of units held in the Subaccount times the Accumulation Unit Value
on that Valuation Date.
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 period immediately preceding. Each Valuation Period has a
single Accumulation Unit Value that is applied to each day in the period. The
number of Accumulation Units will not change as a result of investment
experience.
INVESTMENT EXPERIENCE FACTOR - Each Subaccount has its own investment experience
factor. The investment experience of the Separate Account is calculated by
applying the investment experience factor to the 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 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 Valuation Period;
3. is the factor representing the sum of the Separate Account Charges, stated
in the Contract schedule, for the number of days in the Valuation
Period.
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TRANSFER AND WITHDRAWAL PROVISIONS
TRANSFERS DURING THE ACCUMULATION PERIOD -
You may direct the following transfers:
1. All or part of the Separate Account Contract Value or Guarantee Period
Value may be transferred to the Fixed Account or to another Subaccount or
Guarantee Period.
2. During the thirty days that follow a Contract Year anniversary, all or
part of the Fixed Account Contract Value may be transferred to one or more
Subaccounts or Guarantee Periods.
Transfers will also be subject to the following conditions:
1. The minimum amount which may be transferred is $100 or, if smaller, the
remaining value in the Fixed Account or a Subaccount or Guarantee Period.
2. No partial transfer will be made if the remaining Contract Value of the
Fixed Account or any Subaccount or Guarantee Period will be less than $500
unless the transfer will eliminate your interest in such account;
3. No transfer may be made within seven calendar days of the date on which
the first annuity payment is due;
4. You may request an additional transfer from the Fixed Account to one or
more Subaccounts during the thirty day period before the date on which the
first annuity payment is due. Such transfer must become effective no later
than the seventh calendar day before such due date;
5. When you request a transfer from the Fixed Account to a Subaccount or
Guarantee Period, we will limit the amount that can be transferred to the
amount which exceeds withdrawal charge, if any, applicable to the total
Fixed Account Contract Value for the Contract Year during which the total
transfer is made.
6. We reserve the right to charge $25 for each transfer in excess of 12 in a
Contract Year.
7. Transfers may not be made from any Subaccount or Guarantee Period into the
Fixed Account for the six-month period following any transfer from the
Fixed Account into one or more of the Subaccounts.
Any transfer from a Guarantee Period is subject to a Market Value Adjustment
unless the transfer is made effective within thirty days after the end of the
applicable Guarantee Period.
We will transfer amounts attributable to Purchase Payments and all related
accumulations received in a given contract year, in the chronological order we
received them.
Any transfer request must clearly specify:
1. the amount which is to be transferred; and
2. the names of the accounts which are affected.
We reserve the right at any time and without notice to any party, to terminate,
suspend, or modify these transfer rights.
WITHDRAWALS DURING THE ACCUMULATION PERIOD - During the Accumulation Period, you
may withdraw all or part of the Contract Value reduced by any withdrawal
charge and applicable premium taxes, and adjusted by any applicable Market Value
Adjustment. The Market Value Adjustment formula will be applied to the
applicable portion of the total value withdrawn unless such withdrawal is
effective within thirty days after the end of the applicable Guarantee Period.
We must receive a written request that indicates the amount of the withdrawal
from the Fixed Account and each Subaccount and Guarantee Period. You must return
the contract to us if you elect a total withdrawal.
Withdrawals are subject to these conditions:
1. Each withdrawal must be at least $100 or the value that remains in the
Fixed Account, Subaccount or Guarantee Period if smaller.
2. A minimum of $500 must remain in the account after you make a withdrawal
unless the account is eliminated by such withdrawal;
3. The maximum you may withdraw from any account is the value of the
respective account less the amount of any withdrawal charge.
4. Any withdrawal amount you request will be increased by the withdrawal
charge.
5. Partial withdrawals may not be taken from the Fixed Account in the first
Contract Year.
WITHDRAWAL CHARGES - Withdrawal charges are shown in the Contract schedule and
are calculated as follows:
1. All amounts to be withdrawn and any applicable withdrawal charges will be
charged first against Purchase Payments in the chronological order we received
such Purchase Payments.
2. Any amount withdrawn which is not subject to a withdrawal charge will be
considered a "partial free withdrawal."
3. In the event of a partial withdrawal, a "partial free withdrawal" is applied
against Purchase Payments and all related accumulations in the chronological
order we received such Purchase Payments even though the Purchase Payments are
no longer subject to a withdrawal charge.
TRANSFER AND WITHDRAWAL PROCEDURES - We will withdraw or transfer from the Fixed
Account or Guarantee Periods as of the valuation date that follows the date we
receive your written or telephone transfer request. To process a withdrawal, the
request must contain all required information.
We will redeem the necessary number of Accumulation Units to achieve the dollar
amount when the withdrawal or transfer is made from a Subaccount. We will
reduce the number of Accumulation Units credited in each Subaccount by the
number of cAccumulation Units redeemed. The reduction in the number of
Accumulation Units is determined based on the accumulation unit value at the end
of the Valuation Period when we receive the request, provided the request
contains all required information. We will pay the amount within seven calendar
days after the date we receive the request, except as provided below.
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DEFERMENT OF WITHDRAWAL OR TRANSFER - If the withdrawal or transfer is to be
made from a Subaccount, we may suspend the right of withdrawal or transfer or
delay payment more than seven calendar days:
1. during any period when the New York Exchange is closed other than
customary weekend and holiday closings;
2. when 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 accumulation unit
value is not practical; or
3. for such other periods as the Securities and Exchange Commission by order
may permit for protection of Owners.
We may defer the payment of a withdrawal or transfer from the Fixed Account or
Guarantee Periods, for the period permitted by law. This can never be more than
six months after you send us a written request. During the period of deferral,
we will continue to credit interest, at the then current interest rate(s), to
the Fixed Account Contract Value and/or each Guarantee Period Value.
DEATH BENEFIT PROVISIONS
AMOUNT PAYABLE UPON DEATH - We compute the death benefit at the end of the
Valuation Period following our receipt of due proof of death and the return of
this contract.
If death occurs prior to the deceased attaining age 91, we will pay the greater
of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Contract Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at
5.00% per annum to the earlier of age 80 or date of death, increased by
Purchase Payments made from age 80 to the date of death and decreased by
any withdrawals from age 80 to the date of death, or
(4) the greatest Anniversary Value immediately preceding the earlier of age
81 or date of death, increased by Purchase Payments made since the date of
the greatest Anniversary Value, and decreased by any withdrawals since
that date.
We will pay the Contract Value if death occurs at age 91 or later.
CONTINGENT ANNUITANT - If a Contingent Annuitant is named, the Contingent
Annuitant will become the Annuitant on the death of the Annuitant. If the
Contingent Annuitant is not alive at the date of the Annuitant's death, or if
the Contingent Annuitant dies within ten days of the Annuitant's death, this
Contingent Annuitant provision will not apply.
PAYMENT OF DEATH BENEFITS - A death benefit will be paid to the designated
Beneficiary upon any of the following events during the Accumulation Period:
1. the death of the Owner, or a joint owner,
2. the death of the Annuitant if no Contingent Annuitant is named or if the
Contingent Annuitant does not survive the Annuitant, or
3. if a Contingent Annuitant is named and survives the Annuitant, the
death of the Contingent Annuitant.
We will pay the death benefit to the beneficiary when we receive due proof of
death. We will then have no further obligation under this contract.
We will pay the death benefit in a lump sum. This sum may be deferred for up to
five years from the date of death.
Instead of a lump sum payment the beneficiary may elect to have the death
benefit distributed as stated in Option 1 for a period not to exceed the
beneficiary's life expectancy; or Options 2, or 3 based upon the life
expectancy of the beneficiary as prescribed by federal regulations. The
beneficiary must make this choice within sixty days of the time we receive due
proof of death.
If the beneficiary is not a natural person, the beneficiary must elect that the
entire death benefit be distributed within five years of your death.
Distribution of the death benefit must start within one year after your death.
It may start later if prescribed by federal regulations.
If the primary beneficiary is the surviving spouse when you die, the surviving
spouse may elect to be the successor owner of this contract and shall become
the Annuitant if no Annuitant or Contingent Annuitant is living at the time of
your death. There will be no requirement to start a distribution of death
benefits.
ANNUITY PERIOD PROVISIONS
ELECTION OF ANNUITY OPTION - We must receive an election of an Annuity option in
writing. You may make an election before the annuity date providing the
Annuitant is alive. The Annuitant may make an election on the Annuity Date
unless you have restricted the right to make such an election. The beneficiary
may make an election when we pay the death benefit.
An election will be revoked by:
1. a subsequent change of beneficiary; or
2. an assignment of this contract unless the assignment provides otherwise.
Subject to the terms of the death benefit provision, the beneficiary may elect
to have the death benefit remain with us under one of the Annuity options.
If an Annuity option is not elected, an Annuity will be paid under Option 3 for
a guaranteed period of ten years and for as long thereafter as the Annuitant is
alive.
If the total Contract Value is applied under one of the Annuity options, this
contract must be surrendered to us.
An option can not be changed after the first Annuity payment is made.
If, on the seventh calendar day before the first Annuity payment due date, all
the Contract Value is allocated to the Fixed Account or Guarantee Periods, the
Annuity will be paid as a fixed Annuity. If all of the Contract Value on such
date is allocated to the Separate Account, the Annuity will be paid as a
Variable Annuity. If the Contract Value on such date is allocated to a
<PAGE> 14
combination of the Fixed Account, Guarantee Periods and Subaccounts, then the
Annuity will be paid as a combination of a Fixed and Variable Annuity. A Fixed
and Variable Annuity payment will reflect the investment performance of the
Subaccounts in accordance with the allocation of the Contract Values existing
on such date. Allocations will not be changed thereafter, except as provided in
the Transfers During The Annuity Period provision of this Contract.
Payments for all options are derived from the applicable tables. Current Annuity
rates will be used if they produce greater payments than those quoted in the
contract. The age in the tables is the age of the Payee on the last birthday
before the first payment is due.
The option selected must result in a payment that is at least equal to our
minimum payment, according to our rules, at the time the Annuity 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 so that the payment is at least equal to the minimum payment or to make
payment in one lump sum.
ANNUITIZATION CHARGE - An annuitization charge shall be applied as shown in the
contract schedule after application of any applicable Market Value Adjustment.
The annuitization charge is waived when the Owner elects an Annuity option which
provides either an income benefit period of five years or more or a benefit
under which payment is contingent on the life of the Payee(s).
OPTION 1
FIXED INSTALMENT ANNUITY - We will make monthly payments for a fixed number of
instalments. Payments must be made for at least 5 years, but not more than 30
years.
OPTION 2
LIFE ANNUITY - We will make monthly payments while the Payee is alive.
OPTION 3
LIFE ANNUITY WITH INSTALMENTS GUARANTEED - We will make monthly payments for a
guaranteed period and thereafter while the Payee is alive. The guaranteed period
must be selected at the time the annuity option is chosen. The guaranteed
periods available are 5, 10, 15 and 20 years.
OPTION 4
JOINT AND SURVIVOR ANNUITY - We will pay the full monthly income while both
Payees are alive. Upon the death of either Payee, we will continue to pay the
surviving Payee a percentage of the original monthly payment. The percentage
payable to the surviving Payee must be selected at the time the annuity option
is chosen. The percentages available are 50%, 66 2/3%, 75%, and 100%.
OTHER OPTIONS
We may make other annuity options available. Payments are also available on a
quarterly, semi-annual or annual basis.
FIXED ANNUITY - The Fixed Account Contract Value plus the Accumulated Guarantee
Period Values adjusted by any applicable Market Value Adjustment on the first
day preceding the date on which the first Annuity payment is due, is first
reduced by any annuitization charge, records maintenance charge, charges for
other benefits, and premium taxes that apply. The value that remains will be
used to determine the Fixed Annuity monthly payment in accordance with the
annuity option selected.
VARIABLE ANNUITY - The Separate Account Contract Value, at the end of the
Valuation Period preceding the Valuation Period that includes the date on which
the first Annuity payment is due, is first reduced by any annuitization charge,
Records Maintenance Charge, charges for other benefits, and premium taxes that
apply. The value that remains is used to determine the first monthly annuity
payment. The first monthly annuity payment is based on the guaranteed annuity
option shown in the Annuity Option Table. You may elect any option available.
The dollar amount of subsequent payments may increase or decrease depending on
the investment experience of each Subaccount. The number of Annuity Units per
payment will remain fixed for each Subaccount unless a transfer is made. If a
transfer is made, the number of Annuity Units per payment will change.
The number of Annuity Units for each Subaccount is calculated by dividing a. by
b. where:
a. is the amount of the monthly payment that can be attributed to that
Subaccount; and
b. is the Annuity Unit Value for that Subaccount at the end of the Valuation
Period. The Valuation Period includes the date on which the payment is
made.
Monthly Annuity payments, after the first payment, are calculated by summing
up, for each Subaccount, the product of a. times b. where:
a. is the number of Annuity Units per payment in each Subaccount; and
b. is the Annuity Unit Value for that Subaccount at the end of the Valuation
Period. The Valuation Period includes the date on which the payment is
made.
After the first payment, we guarantee that the dollar amount of each Annuity
payment will not be affected adversely by actual expenses or changes in
mortality experience from the expense and mortality assumptions on which we
based the first payment.
ANNUITY UNIT VALUE - The value of an Annuity Unit for each Subaccount at the
end of any subsequent Valuation Period is determined by multiplying the result
of a. times b. by c. where:
a. is the Annuity Unit Value for the immediately preceding Valuation Period;
and
b. is the net investment factor for the Valuation Period for which the Annuity
Unit Value is being calculated; and
c. is the interest factor of .99993235 per calendar day of such subsequent
Valuation Period to offset the effect of the assumed rate of 2.50% per year
used in the Annuity Option Table.
L-1550 Page 7
<PAGE> 15
L-1550 Page 8
The net investment factor for each Subaccount for any Valuation Period is
determined by dividing a. by b. where:
a. is the value of an Annuity Unit of the applicable Subaccount as of the end
of the current Valuation Period plus or minus the per share credit or charge
for taxes reserved; and
b. is the value of an Annuity Unit of the applicable Subaccount as of the end
of the immediately preceding Valuation Period, plus or minus the per share
credit or charge for taxes reserved.
TRANSFERS DURING THE ANNUITY PERIOD - During the Annuity Period, the Payee(s)
may: convert Fixed Annuity payments to Variable Annuity payments; convert
Variable Annuity payments to Fixed Annuity payments; or, have Variable Annuity
payments reflect the investment experience of other Subaccounts. A transfer may
be made subject to the following:
1. The Payee must send us a written notice in a form satisfactory to us;
2. One transfer is permitted each twelve month period from the Annuity Date. We
must receive notice of any such transfer at least thirty days prior to the
effective date of the transfer;
3. A Payee may not have more than three Subaccounts after any transfer;
4. At least $1,000 of Annuity Unit Value or annuity reserve value must be
transferred from a Subaccount or from the Fixed Account; and
5. At least $1,000 of Annuity Unit Value or annuity reserve value must remain
in the account from which the transfer was made.
When a transfer is made between Subaccounts, the number of Annuity Units per
payment attributable to a Subaccount to which transfer is made is equal to a.
multiplied by b. divided by c., where:
a. is the number of Annuity Units per payment in the Subaccount from which
transfer is being made;
b. is the Annuity Unit Value for the Subaccount from which the transfer is
being made; and
c. is the Annuity Unit Value for the Subaccount to which transfer is being
made.
When a transfer is made from the Fixed Account to a Subaccount, the number of
Annuity Units per payment attributable to a Subaccount to which transfer is
made is equal to a. times b., where:
a. is the Fixed Account Annuity value being transferred; and
b. is the Annuity Unit Value for the Subaccount to which transfer is being
made.
The Fixed Account Annuity value equals the present value of the remaining Fixed
Annuity payments using the same interest and mortality basis used to calculate
the Fixed Annuity payments.
The amount of money allocated to the Fixed Account in case of a transfer from a
Subaccount equals the annuity reserve for the Payee's interest in such
Subaccount. The annuity reserve is the product of a. multiplied by b.
multiplied by c. where:
a. is the number of Annuity Units representing the Payee's interest in such
Subaccount per annuity payment;
b. is the Annuity Unit Value for such Subaccount; and
c. is the present value of $1.00 per payment period using the attained
age(s) of the Payee(s) and any remaining guaranteed payments that may be
due at the time of the transfer.
Money allocated to the Fixed Account upon such transfer will be applied under
the same annuity option as originally elected. Guaranteed period payments will
be adjusted to reflect the number of guaranteed payments already made. If all
guaranteed payments have already been made, no further payments will be
guaranteed.
All amounts and Annuity Unit Values are determined as of the end of the
Valuation Period preceding the effective date of the transfer.
We reserve the right at any time and without notice to any party to terminate,
suspend or modify these transfer privileges.
SUPPLEMENTARY AGREEMENT - A supplementary agreement will be issued to reflect
payments that will be made under a settlement option. If payment is made as a
death benefit distribution, the effective date will be the date of death.
Otherwise, the effective date will be the date chosen by the Owner.
DATE OF FIRST PAYMENT - Interest, under an option, will start to accrue on the
effective date of the supplementary agreement. If the normal effective date is
the 29th, 30th, or 31st of the month, the effective date will be the 28th day of
that month.
EVIDENCE OF AGE, SEX AND SURVIVAL - We may require satisfactory evidence of the
age, sex and the continued survival of any person on whose life the income is
based.
MISSTATEMENT OF AGE OR SEX - If the age or sex of the Payee has been misstated,
the amount payable under this contract will be such as the Purchase Payments
sent to us would have purchased at the correct age or sex. Interest not to
exceed 6% compounded each year will be charged to any overpayment or credited to
any underpayment against future payments we may make under this Contract.
BASIS OF ANNUITY OPTIONS - The guaranteed payments are based on an interest
rate of 2.50% per year and, where mortality is involved, the "1983 Table a"
individual annuity mortality table developed by the Society of Actuaries,
projected using Projection Scale G. We may also make available variable annuity
payment options based on assumed investment rates other than 2.50%.
DISBURSEMENT UPON DEATH OF PAYEE: UNDER OPTIONS 1 or 3 - When the Payee dies,
if the beneficiary is a natural person, we will automatically continue any
unpaid installments for the remainder of the elected period under Option 1 or
Option 3 to the Beneficiary. If the Beneficiary is either an estate or trust,
we will pay a commuted value of the remaining payments. The commuted value will
be based upon a minimum interest rate of not less than 2.50%. The commuted value
of any variable instalments will be determined by applying the Annuity Unit
Value next determined following our receipt of due proof of death.
<PAGE> 16
PROTECTION OF BENEFITS - Unless otherwise provided in the supplementary
agreement, the Payee may not commute, anticipate, assign, alienate or otherwise
hinder the receipt of any payment.
CREDITORS - The proceeds of this contract and any payment under an annuity
option will be exempt from the claim of creditors and from legal process to the
extent permitted by law.
L-1550 Page 9
<PAGE> 17
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<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
</TABLE>
OPTION TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED:
<TABLE>
<CAPTION>
Age of MONTHLY PAYMENTS GUARANTEED Age of MONTHLY PAYMENTS 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 4.17 4.16 4.13 4.06 3.96 55 3.87 3.86 3.84 3.81 3.75
56 4.27 4.25 4.21 4.14 4.03 56 3.95 3.94 3.92 3.88 3.82
57 4.36 4.35 4.30 4.22 4.09 57 4.03 4.02 4.00 3.95 3.88
58 4.46 4.45 4.40 4.30 4.16 58 4.11 4.11 4.08 4.03 3.95
59 4.57 4.55 4.50 4.39 4.22 59 4.21 4.20 4.17 4.11 4.01
60 4.69 4.67 4.60 4.48 4.29 60 4.30 4.29 4.26 4.19 4.08
61 4.81 4.79 4.71 4.57 4.36 61 4.41 4.40 4.35 4.28 4.15
62 4.94 4.92 4.83 4.66 4.43 62 4.52 4.50 4.46 4.37 4.23
63 5.09 5.05 4.95 4.76 4.49 63 4.64 4.62 4.56 4.46 4.30
64 5.24 5.20 5.08 4.86 4.56 64 4.76 4.74 4.68 4.56 4.37
65 5.40 5.35 5.21 4.96 4.62 65 4.90 4.87 4.80 4.66 4.45
66 5.57 5.52 5.35 5.06 4.69 66 5.04 5.01 4.93 4.77 4.52
67 5.75 5.69 5.49 5.17 4.75 67 5.19 5.16 5.06 4.87 4.59
68 5.95 5.87 5.64 5.27 4.81 68 5.36 5.32 5.20 4.98 4.66
69 6.15 6.07 5.80 5.37 4.86 69 5.53 5.49 5.35 5.10 4.73
70 6.38 6.27 5.96 5.48 4.91 70 5.72 5.68 5.51 5.21 4.80
71 6.61 6.49 6.12 5.58 4.96 71 5.93 5.87 5.67 5.33 4.86
72 6.86 6.72 6.29 5.68 5.00 72 6.15 6.08 5.85 5.44 4.92
73 7.13 6.96 6.47 5.77 5.04 73 6.39 6.31 6.03 5.56 4.97
74 7.42 7.21 6.64 5.86 5.08 74 6.65 6.55 6.21 5.67 5.02
75 7.72 7.48 6.82 5.95 5.11 75 6.93 6.81 6.41 5.78 5.06
76 8.05 7.76 7.00 6.03 5.14 76 7.24 7.08 6.60 5.88 5.10
77 8.40 8.06 7.18 6.11 5.17 77 7.57 7.38 6.80 5.98 5.13
78 8.77 8.37 7.35 6.18 5.19 78 7.92 7.69 7.01 6.07 5.16
79 9.18 8.69 7.53 6.25 5.20 79 8.31 8.02 7.21 6.15 5.18
80 9.60 9.03 7.70 6.31 5.22 80 8.72 8.37 7.41 6.23 5.20
81 10.06 9.38 7.86 6.36 5.23 81 9.17 8.74 7.61 6.30 5.22
82 10.55 9.74 8.02 6.41 5.24 82 9.66 9.13 7.80 6.35 5.23
83 11.07 10.12 8.17 6.45 5.25 83 10.20 9.54 7.98 6.41 5.24
84 11.63 10.50 8.32 6.49 5.26 84 10.77 9.96 8.15 6.45 5.25
85 12.22 10.89 8.45 6.52 5.26 85 11.39 10.40 8.31 6.49 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<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 3.49 3.66 3.81 3.93 4.02 4.08 4.12
60 3.61 3.83 4.05 4.24 4.40 4.52 4.59
65 3.69 3.97 4.28 4.57 4.84 5.05 5.20
70 3.76 4.09 4.47 4.89 5.31 5.67 5.95
75 3.80 4.17 4.63 5.16 5.75 6.34 6.83
80 3.83 4.23 4.73 5.37 6.14 6.99 7.80
85 3.84 4.26 4.80 5.51 6.44 7.55 8.75
</TABLE>
L-1551
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C>
KEMPER ANNUITIES Kemper Investors Life Insurance Company
Long-term investing in a short-term world (SM) 1 Kemper Drive, Long Grove, IL 60049-0001
- --------------------------------------------------------------- ---------------------------------------------------------------
1. OWNER 4. INITIAL PAYMENT
- --------------------------------------------------------------- ---------------------------------------------------------------
First MI Last Initial Payment $
---------------------------------------------
- --------------------------------------------------------------- Make Check payable to Kemper Investors Life
Street Address Apt. Insurance Company.
This payment is a (check one): [ ] Non-qualified [ ] SEP-IRA
- --------------------------------------------------------------- [ ] IRA [ ] Roth IRA [ ] Charitable Remainder Trust (CRT)
City State Zip [ ] Rollover to IRA [ ] IRA Trustee To Trustee Transfer
[ ] IRA Payment for Tax Year
- --------------------------------------------------------------- ---------------------------------------------------------------
Daytime Telephone | [ ] Male | Date Of Birth 5. ALLOCATION OF PAYMENTS
( ) | [ ] Female | / / ---------------------------------------------------------------
- --------------------------------------------------------------- Kemper Scudder
Date of Trust ___% Dreman Financial Services ___% International
-------------------------------------------------- ___% Small Cap Growth ___% Global Discovery
Social Security/Tax I.D.Number ___% Small Cap Value ___% Capital Growth
--------------------------------- ___% Dreman High Return ___% Growth and Income
Joint Owner ___% International
---------------------------------------------------- ___% Int'l Growth & Income Warburg Pincus
- --------------------------------------------------------------- ___% Global Blue Chip ___% Post Venture Capital
Social Security Number | [ ] Male | Date Of Birth ___% Value+Growth ___% Emerging Markets
| [ ] Female | / / ___% Horizon 20+
- --------------------------------------------------------------- ___% Total Return Janus
- --------------------------------------------------------------- ___% Horizon 10+ ___% Growth & Income
2. ANNUITANT ___% High Yield ___% Growth
- --------------------------------------------------------------- ___% Horizon 5
[ ] The annuitant is same as the owner (if checked, ___% Global Income Kemper Investors Life
complete contingent annuitant section only, if ___%Investment Grade Bond Insurance Company
applicable.) ___%Government Securities ___% Fixed Account
___% Money Market
First MI Last ___% Money Market II Other
Guarantee Period Accounts (GPA) ___%____________
- --------------------------------------------------------------- ___% ___ Year ___% ___ Year
Street Address Apt. ___% ___ Year ___% ___ Year
(All allocations above must total 100%, $500 min. per account.)
- --------------------------------------------------------------- ---------------------------------------------------------------
City State Zip 6. PROTECT YOUR FUTURE PROGRAM
---------------------------------------------------------------
- --------------------------------------------------------------- [ ] Allocate a portion of my initial payment to the____________
Daytime Telephone | [ ] Male | Date Of Birth year GPA such that, at the end of the guarantee period, the
( ) | [ ] Female | / / GPA will have grown to an amount equal to the total initial
- --------------------------------------------------------------- payment assuming no withdrawals or transfers of any kind.
Social Security Number The remaining balance will be applied as indicated above in
----------------------------------------- Section 5.
Contingent Annuitant ---------------------------------------------------------------
------------------------------------------- 7. AUTOMATIC ASSET REBALANCING
Social Security Number | [ ] Male | Date Of Birth ---------------------------------------------------------------
| [ ] Female | / / [ ] I elect Automatic Asset Rebalancing (AAR) among the above
- --------------------------------------------------------------- accounts (excluding Fixed, GPA's and the Money Market II
3. BENEFICIARY Subaccount.)
- --------------------------------------------------------------- Every: [ ] 3 [ ] 6 [ ] 12 Months Beginning / /
[ ] I elect the surviving joint owner as primary beneficiary ------------
(If checked, complete contingent section only.) ---------------------------------------------------------------
8. GUARANTEED RETIREMENT INCOME BENEFIT
Primary Relationship To Annuitant ---------------------------------------------------------------
[ ] I elect the Guaranteed Retirement Income
- --------------------------------- ----------------------------
Contingent Relationship To Annuitant
- --------------------------------- ----------------------------
For additional beneficiaries use Section 16.
- ------------------------------------------------------------------------------------------------------------------------------------
9. REPLACEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Will the proposed contract replace or change any existing annuity or insurance policy? [ ] No [ ] Yes
(If yes, list company name and policy number.)
-------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
10. TELEPHONE TRANSFER
- ------------------------------------------------------------------------------------------------------------------------------------
I authorize and direct Kemper Investors Life Insurance Company (KILICO) to accept telephone instructions from the owner, active
agent, and the individual listed below to effect transfers and/or future payment allocation changes. I agree to hold harmless
and indemnify KILICO and its affiliates and their collective directors, employees and agents against any claim arising from such
action.
Name Birthdate [ ] I do not accept this telephone transfer privilege.
-------------------------------------- -------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
L-8159 (12/97) For Help Completing This Application, Please Call Kemper Insurance Products Division At (800) 778-1482
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
- ----------------------------------------------------------------- -----------------------------------------------------------------
11. DOLLAR COST AVERAGING (DCA) 13. ANNUITY DATE
- ----------------------------------------------------------------- -----------------------------------------------------------------
A. Source Account (please check one): I elect to have annuitization payments begin on / /
[ ] From any single Subaccount or the Fixed Account ----------------.
The annuity date may not be later than age 91 and must be at
Please transfer $ from least one year after contract issue date. (Will be age 91 if
-------------- --------------------- none chosen)
(list one Subaccount name or ----------------------------------------------------------------
the Fixed Account) 14. SYSTEMATIC WITHDRAWALS
[ ] Interest only from the Fixed Account (must maintain a ----------------------------------------------------------------
$10,000 balance and continue DCA for at least one year) Please withdraw $ Beginning / /
------------------------ -------------
($100 minimum) (Enter date)
B. Frequency: Every: [ ] 1 [ ] 3 Months Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months
Beginning / /
------------------------ ________% From _______________________________________________
(Enter date) Enter Subaccount from Section 5
C. Receiving Accounts:
Enter the Subaccount name (from Section 5) and the appropriate ________% From _______________________________________________
percentage of the total Dollar Cost Averaging allocation below: Enter Subaccount from Section 5
All allocations must total 100% ________% From _______________________________________________
Enter Subaccount from Section 5
PCT Subaccount PCT Subaccount
________% to _______________ _______% to _______________ Please: [ ] Do not withhold federal income taxes.
________% to _______________ _______% to _______________ [ ] Do withhold at 10% or _____________ (%).
________% to _______________ _______% to _______________ See form L-8215 for automatic age 701/2 minimum distributions.
DCA is not allowed from any Guarantee Period Accounts. Withdrawals before age 59-1/2 may be subject to a 10% IRS
Additionally please consult the prospectus for more information penalty. Please consult your tax advisor.
about the benefits and limitations of the Money Market II
Subaccount. For additional Subaccounts, use Section 16. Funds allocated to a GPA are subject to a Market Value Adjustment
- ----------------------------------------------------------------- unless withdrawals are taken within 30 days after the end of a
12. SYSTEMATIC ACCUMULATION guarantee Period.
- -----------------------------------------------------------------
[ ] I authorize automatic deductions of $________________________ [ ] I wish to use Electronic Funds Transfer (Direct Deposit). I
($100 minimum) authorize the Company to correct electronically any
from my bank account for application to this contract. overpayments or erroneous credits made to my account.
Please attach a voided check or voided deposit slip.
Beginning / / ----------------------------------------------------------------
------------------------- 15. OPTIONAL BILLING REMINDERS
Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months ----------------------------------------------------------------
Please attach a voided check or voided withdrawal slip. [ ] I wish to receive periodic reminders that I can include with
future remittances in the amount of $ ____________________.
Please send reminder to: [ ] Owner [ ] Annuitant
Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months
- ------------------------------------------------------------------------------------------------------------------------------------
16. REMARKS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
17. SIGNATURES
- ------------------------------------------------------------------------------------------------------------------------------------
Receipt is acknowledged of the current prospectus for Kemper Sterling and the underlying funds in Section 5. Benefits, payments and
values provided by the contract when based on investment experience of the subaccounts are variable and are not guaranteed as to the
dollar amount. Benefits and payments provided by the contract when based on Guarantee Period Account values may increase or decrease
in accordance with the market value adjustment formula stated in the contract. Please check here if you would like a statement of
additional information. [ ]
I agree that all statements are true and correct to the best of my knowledge and belief and are made as a basis for my application.
- ------------------------------------------------------------------------------------------------------------------------------------
Signature Of Owner Signed At (City and State) Date
- ------------------------------------------------------------------------------------------------------------------------------------
Signature Of Joint Owner
- ------------------------------------------------------------------------------------------------------------------------------------
18. REGISTERED REPRESENTATIVE / DEALER INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Does the contract applied for replace an existing annuity or life insurance policy? [ ] Yes (Attach replacement forms as required)
[ ] No I certify that the information provided by the owner has been accurately recorded; current prospectuses were delivered; no
written sales materials other than those approved by the Principal Office were used; and I have reasonable grounds to believe the
purchase of the contract applied for is suitable for the owner. SUITABILITY INFORMATION HAS BEEN OBTAINED AND FILED WITH THE
BROKER/DEALER.
Tel. ( )
- ---------------------------------------------------------------------------Comm. Code:_____________--------------------------------
Signature Of Registered Representative Social Security Number
- ------------------------------------------------------------ __________________________ --------------------------------------------
Printed Name Of Registered Representative B/D Client Acct. # Printed Name Of Broker/Dealer
- ----------------------------------------------------------------------------------------- ---------------------------------------
Branch Office Street Address For Contract Delivery Representative Number
- ------------------------------------------------------------------------------------------------------------------------------------
19. MAIL COMPLETED FORM TO: Zurich Kemper Life, 22 Church St., 20th Floor, Hartford, CT 06103
- ------------------------------------------------------------------------------------------------------------------------------------
L-8159 (12/97)
</TABLE>
<PAGE> 20
FLEXIBLE PREMIUM MODIFIED GUARANTEED, FIXED AND VARIABLE DEFERRED ANNUITY
NON-PARTICIPATING
This is a legal contract between the Owner and Kemper Investors Life Insurance
Company
READ YOUR CONTRACT CAREFULLY
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive, Long Grove, Illinois 60049-0001
Policy Form No. L-1550
<PAGE> 21
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<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
</TABLE>
OPTIONS TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED
MONTHLY PAYMENTS GUARANTEED
<TABLE>
<CAPTION>
AGE NONE 60 120 180 240
<S> <C> <C> <C> <C> <C>
55 4.02 4.01 3.99 3.94 3.86
56 4.11 4.10 4.07 4.01 3.92
57 4.20 4.19 4.15 4.09 3.99
58 4.29 4.28 4.24 4.17 4.05
59 4.39 4.38 4.33 4.25 4.12
60 4.50 4.48 4.43 4.34 4.19
61 4.61 4.59 4.53 4.43 4.26
62 4.73 4.71 4.64 4.52 4.33
63 4.86 4.84 4.76 4.61 4.40
64 5.00 4.97 4.88 4.71 4.47
65 5.15 5.11 5.01 4.81 4.54
66 5.30 5.26 5.14 4.92 4.61
67 5.47 5.43 5.28 5.02 4.68
68 5.65 5.60 5.43 5.13 4.74
69 5.84 5.78 5.58 5.24 4.80
70 6.05 5.97 5.74 5.35 4.86
71 6.27 6.18 5.90 5.46 4.91
72 6.50 6.40 6.07 5.56 4.96
73 6.76 6.63 6.25 5.67 5.01
74 7.03 6.88 6.43 5.77 5.05
75 7.32 7.14 6.62 5.87 5.09
76 7.64 7.42 6.80 5.96 5.12
77 7.98 7.72 6.99 6.05 5.15
78 8.34 8.03 7.18 6.13 5.17
79 8.73 8.36 7.37 6.20 5.19
80 9.16 8.70 7.56 6.27 5.21
81 9.61 9.06 7.74 6.33 5.23
82 10.10 9.44 7.91 6.38 5.24
83 10.63 9.83 8.08 6.43 5.25
84 11.19 10.23 8.24 6.47 5.25
85 11.80 10.64 8.38 6.50 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<TABLE>
Age of Age of Secondary Payee
Primary
Payee 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C>
55 3.51 3.64 3.76 3.85 3.92 3.96 3.99
60 3.64 3.84 4.02 4.18 4.29 4.38 4.43
65 3.76 4.02 4.29 4.54 4.75 4.90 5.00
70 3.85 4.18 4.54 4.91 5.25 5.53 5.74
75 3.92 4.29 4.75 5.25 5.77 6.26 6.64
80 3.96 4.38 4.90 5.53 6.26 7.00 7.69
85 3.99 4.43 5.00 5.74 6.64 7.69 8.76
</TABLE>
L-1552
<PAGE> 22
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the attached contract. The effective date of
this Endorsement is the effective date of this contract.
All references throughout this contract to the sex of a person used in the
calculation of benefits are deleted from this contract.
Except as modified herein, all terms and conditions of the contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
---------------------- ------------------------
Secretary President
Form L-9006 (9/88)
<PAGE> 23
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the Certificate to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the
Certificate Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to us if the Owner or Annuitant is disabled.
Disability must begin after the effective date of this Endorsement and prior to
age 65.
Withdrawal charges will not be waived when disability is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Disability" is defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted, or can be
expected to last, for a continuous period of not less than 12 months.
"Disabled" is defined as having the conditions of the disability definition.
Except as modified herein, all terms and conditions of this Certificate remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
----------------------- -----------------------
Secretary President
L-8168
<PAGE> 24
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the Contract
Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to us if the Owner or Annuitant is disabled.
Disability must begin after the effective date of this Endorsement and prior to
age 65.
Withdrawal charges will not be waived when disability is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Disability" is defined as the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted, or can be
expected to last, for a continuous period of not less than 12 months.
"Disabled" is defined as having the conditions of the disability definition.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
--------------------- ---------------------
Secretary President
L-8182
<PAGE> 25
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This endorsement forms a part of the Certificate to which it is attached.
DEFINITIONS
GUARANTEED RETIREMENT INCOME BENEFIT BASE - An amount which is applied to the
guaranteed annuity factors to produce the Guaranteed Retirement Income Benefit.
It is equal to the greater of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Certificate Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at 5.00%
per annum to the earlier of age 80 or date of determination, or
(4) the greatest Anniversary Value immediately preceding the earlier of age 81
or date of determination increased by Purchase Payments made since the
date of the greatest Anniversary Value, and decreased by any withdrawals
since that date.
EXERCISE PERIODS - The Guaranteed Retirement Income Benefit may only be
exercised within 30 days of the seventh or later Certificate Anniversary. In
addition, the Annuitant must be at least age 60 but no older than age 90.
However, if the Annuitant's age is 44 or less on the Issue Date, the Guaranteed
Retirement Income Benefit may be exercised within 30 days of the 15th or later
Certificate Anniversary, but no later than Annuitant's age 90.
CERTAIN PERIOD - The certain period for the Guaranteed Retirement Income
Benefit is based on the Annuitant's age at the time the benefit is exercised and
qualification status, as follows:
<TABLE>
<CAPTION>
Annuitant's Certain Period Years
Age at Election Qualified Nonqualified
<S> <C> <C>
75 or less 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
84 6 6
85 to 90 5 5
</TABLE>
GUARANTEED RETIREMENT INCOME BENEFIT PROVISIONS
If the Owner has selected the Guaranteed Retirement Income Benefit option, it
will be indicated on the Certificate Schedule. A separate charge will be made
for this benefit, also shown on the Certificate Schedule.
The Owner may elect to discontinue the Guaranteed Retirement Income Benefit
option any time on or after the seventh Certificate Anniversary, prior to
exercise of the benefit. We must receive a written election to discontinue this
benefit. The benefit will be discontinued effective as of the date the written
election is received by us. Once the benefit has been discontinued, it may not
be elected again.
During the Exercise Period, the Owner may apply the Guaranteed Retirement
Income Benefit Base to purchase a fixed annuity income for the Annuitant's
lifetime. Payments will be determined under Annuity Option 3 under the
Certificate based on the Certain Period defined above. The payout factors will
be those shown in the Certificate for amounts being annuitized, except that if
the Guaranteed Retirement Income Benefit is exercised on the 10th year or later,
the interest rate assumption will be 3.50%.
CONTINGENT ANNUITANT - If a Contingent Annuitant is in effect due to the death
of the original Annuitant, the Exercise Periods will be based on the issue age
of the original Annuitant and the Contingent Annuitant's age at election. The
Certain Period will be based on the Contingent Annuitant's age at election.
Except as modified herein, all terms and conditions of this Certificate remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ [SIGNATURE] /s/ [SIGNATURE]
------------------------- -------------------------
Secretary President
L-8198
<PAGE> 26
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This endorsement forms a part of the Contract to which it is attached.
DEFINITIONS
GUARANTEED RETIREMENT INCOME BENEFIT BASE - An amount which is applied to the
guaranteed annuity factors to produce the Guaranteed Retirement Income Benefit.
It is equal to the greater of:
(1) the total amount of Purchase Payments less withdrawals,
(2) the Contract Value,
(3) the total amount of Purchase Payments less withdrawals accumulated at 5.00%
per annum to the earlier of age 80 or date of determination, or
(4) the greatest Anniversary Value immediately preceding the earlier of age 81
or date of determination increased by Purchase Payments made since the date
of the greatest Anniversary Value, and decreased by any withdrawal since
that date.
EXERCISE PERIODS - The Guaranteed Retirement Income Benefit may only be
exercised within 30 days of the seventh or later Contract Anniversary. In
addition, the Annuitant must be at least age 60 but no older than age 90.
However, if the Annuitant's age is 44 or less on the Issue Date, the Guaranteed
Retirement Income Benefit may be exercised within 30 days of the 15th or later
Contract Anniversary, but no later than Annuitant's age 90.
CERTAIN PERIOD - The certain period for the Guaranteed Retirement Income
Benefit is based on the Annuitant's age at the time the benefit is exercised
and qualification status, as follows:
<TABLE>
<CAPTION>
Annuitant's Certain Period Years
Age at Election Qualified Nonqualified
<S> <C> <C>
75 or less 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
84 6 6
85 to 90 5 5
</TABLE>
GUARANTEED RETIREMENT INCOME BENEFIT PROVISIONS
If the Owner has selected the Guaranteed Retirement Income Benefit option, it
will be indicated on the Contract Schedule. A separate charge will be made for
this benefit, also shown on the Contract Schedule.
The Owner may elect to discontinue the Guaranteed Retirement Income Benefit
option any time on or after the seventh Contract Anniversary, prior to exercise
of the benefit. We must receive a written election to discontinue this benefit.
The benefit will be discontinued effective as of the date the written election
is received by us. Once the benefit has been discontinued, it may not be
elected again.
During the Exercise Period, the Owner may apply the Guaranteed Retirement Income
Benefit Base to purchase a fixed annuity income for the Annuitant's
lifetime. Payments will be determined under Annuity Option 3 under the Contract
based on the Certain Period defined above. The payout factors will be those
shown in the Contract for amounts being annuitized, except that if the
Guaranteed Retirement Income Benefit is exercised on the 10th year or later, the
interest rate assumption will be 3.50%.
CONTINGENT ANNUITANT - If a Contingent Annuitant is in effect due to the death
of the original Annuitant, the Exercise Periods will be based on the issue age
of the original annuitant and the Contingent Annuitant's age at election. The
Certain Period will be based on the Contingent Annuitant's age at election.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
In witness whereof, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
---------------------- ---------------------
Secretary President
L-8199
<PAGE> 27
KEMPER INVESTORS LIFE INSURANCE COMPANY [ZURICH KEMPER LOGO]
A Stock Life Insurance Company ZURICH
1 Kemper Drive KEMPER
Long Grove, Illinois 60049-0001
ENDORSEMENT
This Endorsement forms a part of the contract to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to the Company:
(1) after an Owner has been confined in a Hospital or Skilled Health Care
Facility for at least thirty consecutive days and the Owner remains confined in
the Hospital or Skilled Health Care Facility when the request is made; or
(2) within thirty days following an Owner's discharge from a Hospital or Skilled
Health Care Facility after a confinement of at least thirty days.
Confinement must begin after the effective date of this Endorsement.
Withdrawal charges will not be waived when confinement is due to substance
abuse, mental or personality disorders without a demonstrable organic disease.
A degenerative brain disease such as Alzheimer's Disease is considered an
organic disease.
For purposes of this provision:
"Hospital" means a place which is licensed by the State as a Hospital and is
operating within the scope of its license.
"Skilled Health Care Facility" means a place which:
(a) is licensed by the state;
(b) provides skilled nursing care under the supervision of a physician;
(c) has twenty-four hour a day nursing services by or under the supervision of
a registered nurse (RN); and
(d) keeps a daily medical record of each patient.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/S/ [SIGNATURE] /S/ [SIGNATURE]
----------------------- -----------------------
Secretary President
Form L-7042 (5/91)
<PAGE> 1
Exhibit 4(d)
GROUP MASTER APPLICATION
KEMPER INVESTORS LIFE INSURANCE COMPANY (KILICO)
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/621-5001
- --------------------------------------------------------------------------------
APPLICATION
- ---------------------------------------- -------------------------------------
Application for Name of Product
- ----------------------------------------
Name of Group
- ---------------------------------------- ---------------- ----------- --------
Principal Office Street Address City State Zip
- --------------------------------------------------------------------------------
Benefits and payments provided by this contract, when based on Guarantee Period
Values, may increase or decrease in accordance with the Market Value Adjustment
formula stated in the contract schedule.
Benefits, payments and values provided by this contract, when based upon the
investment experience of the subaccounts, are variable and are not guaranteed
as to dollar amount. Refer to the variable account and annuity period
provisions for a determination of any variable benefits.
- --------------------------------------------------------------------------------
SIGNATURES
- ----------------------------------------
Signature of Authorized Representative
- ---------------------------------------- ------------------------------------
Typed Name Title
- --------------------------------------------------------------------------------
Signed at (City, State and Zip)
- ----------------------------------------
Date
- ----------------------------------------
Witnessed by
- ----------------------------------------
Licensed Agent
page 1 of 1
L-8169
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
KEMPER ANNUITIES Kemper Investors Life Insurance Company
Long-term investing in a short-term world (SM) 1 Kemper Drive, Long Grove, IL 60049-0001
- --------------------------------------------------------------- ---------------------------------------------------------------
1. OWNER 4. INITIAL PAYMENT
- --------------------------------------------------------------- ---------------------------------------------------------------
First MI Last Initial Payment $
---------------------------------------------
- --------------------------------------------------------------- Make Check payable to Kemper Investors Life
Street Address Apt. Insurance Company.
This payment is a (check one): [ ] Non-qualified [ ] SEP-IRA
- --------------------------------------------------------------- [ ] IRA [ ] Roth IRA [ ] Charitable Remainder Trust (CRT)
City State Zip [ ] Rollover to IRA [ ] IRA Trustee To Trustee Transfer
[ ] IRA Payment for Tax Year
- --------------------------------------------------------------- ---------------------------------------------------------------
Daytime Telephone | [ ] Male | Date Of Birth 5. ALLOCATION OF PAYMENTS
( ) | [ ] Female | / / ---------------------------------------------------------------
- --------------------------------------------------------------- Kemper Scudder
Date of Trust ___% Dreman Financial Services ___% International
-------------------------------------------------- ___% Small Cap Growth ___% Global Discovery
Social Security/Tax I.D.Number ___% Small Cap Value ___% Capital Growth
--------------------------------- ___% Dreman High Return ___% Growth and Income
Joint Owner ___% International
---------------------------------------------------- ___% Int'l Growth & Income Warburg Pincus
- --------------------------------------------------------------- ___% Global Blue Chip ___% Post Venture Capital
Social Security Number | [ ] Male | Date Of Birth ___% Value+Growth ___% Emerging Markets
| [ ] Female | / / ___% Horizon 20+
- --------------------------------------------------------------- ___% Total Return Janus
- --------------------------------------------------------------- ___% Horizon 10+ ___% Growth & Income
2. ANNUITANT ___% High Yield ___% Growth
- --------------------------------------------------------------- ___% Horizon 5
[ ] The annuitant is same as the owner (if checked, ___% Global Income Kemper Investors Life
complete contingent annuitant section only, if ___%Investment Grade Bond Insurance Company
applicable.) ___%Government Securities ___% Fixed Account
___% Money Market
First MI Last ___% Money Market II Other
Guarantee Period Accounts (GPA) ___%____________
- --------------------------------------------------------------- ___% ___ Year ___% ___ Year
Street Address Apt. ___% ___ Year ___% ___ Year
(All allocations above must total 100%, $500 min. per account.)
- --------------------------------------------------------------- ---------------------------------------------------------------
City State Zip 6. PROTECT YOUR FUTURE PROGRAM
---------------------------------------------------------------
- --------------------------------------------------------------- [ ] Allocate a portion of my initial payment to the____________
Daytime Telephone | [ ] Male | Date Of Birth year GPA such that, at the end of the guarantee period, the
( ) | [ ] Female | / / GPA will have grown to an amount equal to the total initial
- --------------------------------------------------------------- payment assuming no withdrawals or transfers of any kind.
Social Security Number The remaining balance will be applied as indicated above in
----------------------------------------- Section 5.
Contingent Annuitant ---------------------------------------------------------------
------------------------------------------- 7. AUTOMATIC ASSET REBALANCING
Social Security Number | [ ] Male | Date Of Birth ---------------------------------------------------------------
| [ ] Female | / / [ ] I elect Automatic Asset Rebalancing (AAR) among the above
- --------------------------------------------------------------- accounts (excluding Fixed, GPA's and the Money Market II
3. BENEFICIARY Subaccount.)
- --------------------------------------------------------------- Every: [ ] 3 [ ] 6 [ ] 12 Months Beginning / /
[ ] I elect the surviving joint owner as primary beneficiary ------------
(If checked, complete contingent section only.) ---------------------------------------------------------------
8. GUARANTEED RETIREMENT INCOME BENEFIT
Primary Relationship To Annuitant ---------------------------------------------------------------
[ ] I elect the Guaranteed Retirement Income
- --------------------------------- ----------------------------
Contingent Relationship To Annuitant
- --------------------------------- ----------------------------
For additional beneficiaries use Section 16.
- ------------------------------------------------------------------------------------------------------------------------------------
9. REPLACEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Will the proposed contract replace or change any existing annuity or insurance policy? [ ] No [ ] Yes
(If yes, list company name and policy number.)
-------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
10. TELEPHONE TRANSFER
- ------------------------------------------------------------------------------------------------------------------------------------
I authorize and direct Kemper Investors Life Insurance Company (KILICO) to accept telephone instructions from the owner, active
agent, and the individual listed below to effect transfers and/or future payment allocation changes. I agree to hold harmless
and indemnify KILICO and its affiliates and their collective directors, employees and agents against any claim arising from such
action.
Name Birthdate [ ] I do not accept this telephone transfer privilege.
-------------------------------------- -------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
L-8159 (12/97) For Help Completing This Application, Please Call Kemper Insurance Products Division At (800) 778-1482
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
- ----------------------------------------------------------------- -----------------------------------------------------------------
11. DOLLAR COST AVERAGING (DCA) 13. ANNUITY DATE
- ----------------------------------------------------------------- -----------------------------------------------------------------
A. Source Account (please check one): I elect to have annuitization payments begin on / /
[ ] From any single Subaccount or the Fixed Account ----------------.
The annuity date may not be later than age 91 and must be at
Please transfer $ from least one year after contract issue date. (Will be age 91 if
-------------- --------------------- none chosen)
(list one Subaccount name or ----------------------------------------------------------------
the Fixed Account) 14. SYSTEMATIC WITHDRAWALS
[ ] Interest only from the Fixed Account (must maintain a ----------------------------------------------------------------
$10,000 balance and continue DCA for at least one year) Please withdraw $ Beginning / /
------------------------ -------------
($100 minimum) (Enter date)
B. Frequency: Every: [ ] 1 [ ] 3 Months Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months
Beginning / /
------------------------ ________% From _______________________________________________
(Enter date) Enter Subaccount from Section 5
C. Receiving Accounts:
Enter the Subaccount name (from Section 5) and the appropriate ________% From _______________________________________________
percentage of the total Dollar Cost Averaging allocation below: Enter Subaccount from Section 5
All allocations must total 100% ________% From _______________________________________________
Enter Subaccount from Section 5
PCT Subaccount PCT Subaccount
________% to _______________ _______% to _______________ Please: [ ] Do not withhold federal income taxes.
________% to _______________ _______% to _______________ [ ] Do withhold at 10% or _____________ (%).
________% to _______________ _______% to _______________ See form L-8215 for automatic age 701/2 minimum distributions.
DCA is not allowed from any Guarantee Period Accounts. Withdrawals before age 59-1/2 may be subject to a 10% IRS
Additionally please consult the prospectus for more information penalty. Please consult your tax advisor.
about the benefits and limitations of the Money Market II
Subaccount. For additional Subaccounts, use Section 16. Funds allocated to a GPA are subject to a Market Value Adjustment
- ----------------------------------------------------------------- unless withdrawals are taken within 30 days after the end of a
12. SYSTEMATIC ACCUMULATION guarantee Period.
- -----------------------------------------------------------------
[ ] I authorize automatic deductions of $________________________ [ ] I wish to use Electronic Funds Transfer (Direct Deposit). I
($100 minimum) authorize the Company to correct electronically any
from my bank account for application to this contract. overpayments or erroneous credits made to my account.
Please attach a voided check or voided deposit slip.
Beginning / / ----------------------------------------------------------------
------------------------- 15. OPTIONAL BILLING REMINDERS
Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months ----------------------------------------------------------------
Please attach a voided check or voided withdrawal slip. [ ] I wish to receive periodic reminders that I can include with
future remittances in the amount of $ ____________________.
Please send reminder to: [ ] Owner [ ] Annuitant
Every: [ ] 1 [ ] 3 [ ] 6 [ ] 12 Months
- ------------------------------------------------------------------------------------------------------------------------------------
16. REMARKS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
17. SIGNATURES
- ------------------------------------------------------------------------------------------------------------------------------------
Receipt is acknowledged of the current prospectus for Kemper Sterling and the underlying funds in Section 5. Benefits, payments and
values provided by the contract when based on investment experience of the subaccounts are variable and are not guaranteed as to the
dollar amount. Benefits and payments provided by the contract when based on Guarantee Period Account values may increase or decrease
in accordance with the market value adjustment formula stated in the contract. Please check here if you would like a statement of
additional information. [ ]
I agree that all statements are true and correct to the best of my knowledge and belief and are made as a basis for my application.
- ------------------------------------------------------------------------------------------------------------------------------------
Signature Of Owner Signed At (City and State) Date
- ------------------------------------------------------------------------------------------------------------------------------------
Signature Of Joint Owner
- ------------------------------------------------------------------------------------------------------------------------------------
18. REGISTERED REPRESENTATIVE / DEALER INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Does the contract applied for replace an existing annuity or life insurance policy? [ ] Yes (Attach replacement forms as required)
[ ] No I certify that the information provided by the owner has been accurately recorded; current prospectuses were delivered; no
written sales materials other than those approved by the Principal Office were used; and I have reasonable grounds to believe the
purchase of the contract applied for is suitable for the owner. SUITABILITY INFORMATION HAS BEEN OBTAINED AND FILED WITH THE
BROKER/DEALER.
Tel. ( )
- ---------------------------------------------------------------------------Comm. Code:_____________--------------------------------
Signature Of Registered Representative Social Security Number
- ------------------------------------------------------------ __________________________ --------------------------------------------
Printed Name Of Registered Representative B/D Client Acct. # Printed Name Of Broker/Dealer
- ----------------------------------------------------------------------------------------- ---------------------------------------
Branch Office Street Address For Contract Delivery Representative Number
- ------------------------------------------------------------------------------------------------------------------------------------
19. MAIL COMPLETED FORM TO: Zurich Kemper Life, 22 Church St., 20th Floor, Hartford, CT 06103
- ------------------------------------------------------------------------------------------------------------------------------------
L-8159 (12/97)
</TABLE>
<PAGE> 1
Exhibit 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Individual and Group Variable, Fixed and Market Value
Adjusted Deferred Annuity Contracts
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-22389) of our report dated February 20, 1998, on our audit of the
financial statements of KILICO Variable Annuity Separate Account and to the
reference to our firm under the caption "Experts".
Cooper & Lybrand L.L.P.
Chicago, Illinois
April 6, 1998
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Individual and Group Variable, Fixed and Market Value
Adjusted Deferred Annuity Contracts
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-22389) 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".
Coopers & Lybrand L.L.P.
Chicago, Illinois
April 6, 1998
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Kemper Investors Life Insurance Company
We consent to the use of our reports included herein on the consolidated
financial statements of Kemper Investors Life Insurance Company (KILICO) and on
the financial statement of the subaccounts of KILICO Variable Annuity Separate
Account and to the references to our firm under the headings "Experts" in the
prospectus and the Statement of Additional Information and "Services to the
Separate Account" in the Statement of Additional Information. 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 periods
before the acquisition and, therefore, is not comparable.
KPMPG PEAT MARWICK LLP
Chicago, Illinois
April 8, 1998
<PAGE> 1
Exhibit 99(a)
SCHEDULE IV
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
REINSURANCE
YEAR ENDED DECMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER NET AMOUNT
DESCRIPTION AMOUNT(1) COMPANIES(2) COMPANIES(3) AMOUNT ASSUMED TO NET
- ----------- ------------ -------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Life insurance in force............... $61,453,141 $(51,338,108) $12,574,376 $22,689,409 55.4%
=========== ============= =========== =========== =====
Life insurance premiums............... $ 1,155 $ (32) 21,116 $ 22,239 95.0%
=========== ============= =========== =========== =====
</TABLE>
(1) The significant increase in life insurance in force reflects $59.3 billion
of face amount issued related to individual and group variable
bank-owned life insurance contracts sold in 1997.
(2) Life insurance in force ceded to other companies was primarily ceded to an
affiliated company, EPICENTRE Reinsurance (Bermuda) Limited.
(3) Premiums assumed during 1997 were from an affiliated company, Federal
Kemper Life Assurance Company.
<PAGE> 1
EXHIBIT (99(b))
SCHEDULE V
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Asset valuation reserves:
Joint venture mortgage loans....... $2,360 $-- $-- $2,360 $ --
Third-party mortgage loans......... 347 -- -- 347 --
Other real estate-related
investments..................... 6,842 -- -- 63 6,779
------ --- --- ------ ------
Total $9,549 $-- $-- $2,770(1) $6,779
====== === === ====== ======
</TABLE>
- ---------------
(1) These deductions represent the net effect on the valuation reserve of
write-downs, sales, foreclosures and restructurings.
