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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1996
REGISTRATION STATEMENT 33-65399
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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A. Exact name of trust: KILICO VARIABLE SEPARATE ACCOUNT
B. Name of depositor: KEMPER INVESTORS LIFE INSURANCE COMPANY
C. Complete address of depositor's principal executive offices:
1 Kemper Drive
Long Grove, Illinois 60049
D. Name and complete address of agent for service:
DEBRA P. REZABEK, ESQ.
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
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COPIES TO:
FRANK JULIAN, ESQ. JOAN E. BOROS, ESQ.
Kemper Investors Life Insurance Company Katten Muchin & Zavis
1 Kemper Drive 1025 Thomas Jefferson Street, N.W.
Long Grove, Illinois 60049 Washington, D.C. 20007
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E. Title and amount of securities being registered:
Units of Interests in the Separate Account under
Flexible Premium Variable Life Insurance Policies.
F. Proposed maximum aggregate offering price to the public of the
securities being registered.
Registrant has previously registered an Indefinite Amount of Securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940 in
connection with File No. 33-11803. The Separate Account anticipates
filing its Rule 24f-2 Notice on or before February 28, 1997.
G. Amount of filing Fee:
H. Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS--
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FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
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ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT
HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (847) 550-5500
This Prospectus describes a variable life insurance policy (the "Policy")
offered by Kemper Investors Life Insurance Company ("KILICO"). The Policy
provides for life insurance and for the accumulation of Cash Value on a variable
basis. Premiums under the Policy are flexible, subject to certain restrictions.
The Death Benefit and Cash Value of the Policy may vary to reflect the
investment experience of the KILICO Variable Separate Account (the "Separate
Account").
The Policy meets the definition of "life insurance" under Section 7702 of
the Internal Revenue Code. The Policy may be issued as or become a modified
endowment contract. For a Policy treated as a modified endowment contract,
certain distributions will be includable in gross income for Federal income tax
purposes.
See "Federal Tax Matters", page 20 for a discussion of laws that affect the
tax treatment of the Policy.
An Owner may allocate premiums under a Policy to one or more of the
Subaccounts of the Separate Account and the Fixed Account. Each Subaccount
invests in shares of one portfolio of an underlying mutual fund. The underlying
mutual funds (and the portfolios of the underlying mutual funds) currently
available under the Policy are: (a) Kemper Investors Fund (portfolios--Money
Market, Total Return, High Yield, Growth, Government Securities, International
and Small Cap Growth); and (b) American Skandia Trust (portfolios--Lord Abbett
Growth and Income, JanCap Growth, T. Rowe Price International Equity, T. Rowe
Price Asset Allocation, Founders Capital Appreciation, INVESCO Equity Income,
PIMCO Total Return Bond, PIMCO Limited Maturity Bond and Berger Capital Growth).
The other portfolios of the Funds are not currently available for investment
under the Policy. The accompanying Prospectuses for the Funds describe the
investment objectives and the attendant risks of the portfolios of the Funds.
The Cash Value in the Fixed Account will accrue interest at a rate that is
guaranteed by KILICO.
The Policy permits the Owner to choose from two death benefit options.
KILICO guarantees that the Death Benefit payable for a Policy will never be less
than the Death Benefit stated in the Policy Specifications, less Debt, as long
as the Policy is in force. There is no guaranteed Cash Value. If the Surrender
Value is insufficient to cover the charges under the Policy, the Policy will
lapse. A guarantee premium and guarantee period are stated in the Policy
Specifications. Payment of the guarantee premium is not required but if paid as
specified under the Policy will guarantee that the Policy will not lapse during
the guarantee period.
The Owner may examine the Policy and return it to KILICO for a refund
during the Free-Look Period.
It may not be advantageous to purchase a Policy as a replacement for
another type of life insurance policy, or to obtain additional insurance
protection if a flexible premium variable life insurance policy is already
owned.
This Prospectus generally describes only that portion of the Cash Value
allocated to the Separate Account. For a brief summary of the Fixed Account
option see "The Fixed Account Option" on page 7.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED
BY A CURRENT PROSPECTUS FOR THE APPLICABLE UNDERLYING
FUND. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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DEFINITIONS................................................................................. 1
SUMMARY..................................................................................... 2
KILICO AND THE SEPARATE ACCOUNT............................................................. 4
THE FUNDS................................................................................... 5
FIXED ACCOUNT OPTION........................................................................ 7
THE POLICY.................................................................................. 7
POLICY BENEFITS AND RIGHTS.................................................................. 10
CHARGES AND DEDUCTIONS...................................................................... 15
GENERAL PROVISIONS.......................................................................... 17
DOLLAR COST AVERAGING....................................................................... 19
SYSTEMATIC WITHDRAWAL PLAN.................................................................. 20
DISTRIBUTION OF POLICIES.................................................................... 20
FEDERAL TAX MATTERS......................................................................... 20
LEGAL CONSIDERATIONS........................................................................ 22
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................................................ 22
VOTING INTERESTS............................................................................ 22
STATE REGULATION OF KILICO.................................................................. 23
DIRECTORS AND OFFICERS OF KILICO............................................................ 23
LEGAL MATTERS............................................................................... 25
LEGAL PROCEEDINGS........................................................................... 25
EXPERTS..................................................................................... 26
REGISTRATION STATEMENT...................................................................... 26
FINANCIAL STATEMENTS........................................................................ 26
APPENDICES.................................................................................. 54
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DEFINITIONS
ACCUMULATION UNIT--An accounting unit of measure used to calculate the
value of each Subaccount.
AGE--The Insured's age on his or her nearest birthday.
BENEFICIARY--The person to whom the proceeds due on the Insured's death are
paid.
CASH VALUE--The sum of the value of Policy assets in the Separate Account,
Fixed Account and Loan Account.
DATE OF RECEIPT--Date of receipt means the valuation date during which a
request, form or payment is received at KILICO's Home Office. KILICO is deemed
to have received any request, form or payment on the date it is actually
received at the Home Office, provided that it is received before the close of
the New York Stock Exchange (which is normally 3:00 p.m. Long Grove time) on any
date when the New York Stock Exchange is open. Otherwise, it will be deemed to
be received on the next such day.
DEBT--Debt means (1) the principal of any outstanding loan, plus (2) any
loan interest due or accrued to KILICO.
FIXED ACCOUNT--The amount of assets held in the General Account
attributable to the fixed portion of the Policy.
FREE-LOOK PERIOD--The period of time in which an Owner may cancel the
Policy and receive a refund. The applicable period of time will depend on the
state in which the Policy is issued; however, it will be at least 10 days from
the date the Policy is received by the Owner.
FUNDS--The underlying mutual funds in which the Subaccounts of the Separate
Account invest.
GENERAL ACCOUNT--The assets of KILICO other than those allocated to the
Separate Account or any other separate account.
GUIDELINE SINGLE PREMIUM--The maximum initial amount of premium that can be
paid while retaining qualification as a life insurance policy under the Internal
Revenue Code.
INSURED--The person whose life is covered by the Policy and who is named in
the Policy Specifications.
ISSUE DATE--The date shown in the Policy Specifications. Incontestability
and suicide periods are measured from the Issue Date.
LOAN ACCOUNT--The amount of assets transferred from the Separate Account
and the Fixed Account and held in the General Account as collateral for Policy
Loans.
MATURITY DATE--The Policy Date anniversary nearest the Insured's 100th
birthday.
MONTHLY PROCESSING DATE--The same day in each month as the Policy Date.
MORTALITY AND EXPENSE RISK CHARGE--A charge deducted in the calculation of
the Accumulation Unit Value for the assumption of mortality risks and expense
guarantees.
PLANNED PREMIUM--The scheduled premium specified by the Owner in the
application.
POLICY DATE--The date shown in the Policy Specifications. The Policy Date
is the date used to determine Policy Years and Monthly Processing Dates. The
Policy Date is the date that insurance coverage takes effect subject to any
principles of conditional receipt under applicable law.
POLICY YEAR--Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
SEPARATE ACCOUNT VALUE--The portion of the Cash Value in the Subaccount(s)
of the Separate Account.
SPECIFIED AMOUNT--The amount chosen by the Owner and used to calculate the
death benefit. The Specified Amount is shown in the Policy Specifications.
SUBACCOUNT--A subdivision of the Separate Account.
SURRENDER VALUE--The surrender value of a Policy is (1) the Cash Value
minus (2) any applicable Surrender Charge; minus (3) any Debt.
TRADE DATE--The date 30 days after the Issue Date. The Trade Date is the
date on which initial investment allocations are made pursuant to the Owner's
elections.
VALUATION DATE--Each business day on which valuation of the assets of the
Separate Account is required by applicable law, which currently is each day that
the New York Stock Exchange is open for trading.
VALUATION PERIOD--The period that starts at the close of a Valuation Date
and ends at the close of the next succeeding Valuation Date.
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SUMMARY
The following summary should be read in conjunction with the detailed
information in this prospectus. You should refer to the heading "Definitions"
for the meaning of certain terms. Variations from the information appearing in
this prospectus due to individual state requirements are described in
supplements which are attached to this prospectus, or in endorsements to the
Policy, as appropriate. Unless otherwise indicated, the description of the
Policy contained in this prospectus assumes that the Policy is in force, that
there is no indebtedness, and that current Federal tax laws apply.
The Owner of a Policy pays a premium for life insurance coverage on the
person insured. The Policy is a flexible premium policy, so subject to certain
limitations, a Policy Owner may choose the amount and frequency of premium
payments. The Policy provides for a Surrender Value which is payable if the
Policy is terminated during an Insured's lifetime. The Death Benefit and Cash
Value of the Policy may increase or decrease to reflect investment experience.
There is no guaranteed Cash Value. If the Surrender Value is insufficient to pay
charges under the Policy, the Policy will lapse unless an additional premium
payment or loan repayment is made. A guarantee premium and a guarantee period
are stated in the Policy Specifications. The Policy is guaranteed to remain in
force during the guarantee period provided the sum of the premiums paid less
withdrawals and debt is equal to or greater than the sum of the guarantee
premiums. (See "The Policy--Premiums and Allocation of Premiums and Separate
Account Value," page 8, "Charges and Deductions," page 15, and "Policy Benefits
and Rights," page 10.)
Under certain circumstances, a Policy may be issued as or become a modified
endowment contract as a result of a material change or reduction in benefits as
defined by the Internal Revenue Code. Excess premiums paid may also cause the
Policy to become a modified endowment contract. For a Policy treated as a
modified endowment contract, certain distributions will be included in the
Owner's gross income for purposes of Federal income tax (See "Federal Tax
Matters," page 20.)
The purpose of the Policy is to provide insurance protection for the
beneficiary named therein. No claim is made that the Policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.
POLICY BENEFITS
CASH VALUE. The Policy provides for a Cash Value. The Cash Value will
reflect the amount and frequency of premium payments, the investment experience
of the selected Subaccounts, any values in the Fixed Account and Loan Account,
and charges imposed in connection with the Policy. The Owner bears the entire
investment risk on that portion of the net premiums and Cash Value allocated to
the Separate Account. KILICO does not guarantee a minimum Separate Account
Value. (See "Policy Benefits and Rights--Cash Value," page 12.)
The Owner may surrender a Policy at any time and receive the Surrender
Value, which equals the Cash Value less any applicable surrender charge and
outstanding Debt. Partial withdrawals are also available subject to
restrictions. (See "Policy Benefits and Rights--Surrender Privilege," page 14.)
POLICY LOANS. The Owner may borrow up to 90% of the Policy's Cash Value
minus applicable surrender charges, subject to the requirements of the Internal
Revenue Code. The minimum amount of a loan is $500. Interest at an effective
annual rate of 4.50% in the first nine Policy Years and 3.00% thereafter will be
charged on outstanding loan amounts. (See "Federal Tax Matters," page 20.)
When a loan is made, a portion of the Policy's Cash Value equal to the
amount of the loan will be transferred from the Separate Account and the Fixed
Account (proportionately, unless the Owner requests otherwise) to the Loan
Account. Cash Values within the Loan Account will earn 3.00% annual interest.
Such earnings will be allocated to the Loan Account. (See "Policy Benefits and
Rights--Policy Loans," page 13.)
If the Policy is treated as a modified endowment contract, a loan will be
treated as a distribution for Federal income tax purposes and may be subject to
tax, withholding and penalties. (See "Federal Tax Matters," page 20.)
DEATH BENEFITS. As long as the Policy remains in force, the Policy provides
a death benefit payment upon the death of the Insured. The Policy contains two
death benefit options. Under Option A, the death benefit is the Specified Amount
stated in the Policy Specifications. Under Option B, the death benefit is the
Specified Amount stated in the Policy Specifications plus the Cash Value. In
either case, the death benefit
2
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will not be less than a specified multiple of the Cash Value. The death benefit
payable will be reduced by any Debt. (See "Policy Benefits and Rights--Death
Benefits," page 10.)
PREMIUMS
The Owner has flexibility concerning the amount and frequency of premium
payments. At the time of application, the Owner will determine a Planned
Premium. However, the Owner will not be required to adhere to the schedule and,
subject to certain restrictions, may make premium payments in any amount and at
any frequency. The amount, frequency, and period of time over which an Owner
pays premiums may affect whether the Policy will be classified as a modified
endowment contract. The minimum monthly premium payment is $50. Other minimums
apply for other payment modes.
Payment of the scheduled premium will not guarantee that a Policy will
remain in force. Instead, the duration of the Policy depends on the Policy's
Surrender Value. A guarantee premium and a guarantee period are stated in the
Policy Specifications. A Policy will remain in force during the guarantee period
provided the sum of the premiums paid less withdrawals and Debt is equal to or
greater than the sum of the guarantee premiums. (See "The Policy--Premiums,"
page 8.)
THE SEPARATE ACCOUNT
ALLOCATION OF PREMIUMS. The portion of the premium available for allocation
equals the premium paid less applicable charges. An Owner indicates in the
application for the Policy the percentages of premium to be allocated among the
Subaccounts of the Separate Account and the Fixed Account. The Separate Account
currently consists of sixteen Subaccounts, each of which invests in shares of a
designated portfolio of the Kemper Investors Fund or American Skandia Trust.
On the day following the date of receipt, the initial premium less
applicable charges will be allocated to the Money Market Subaccount. On the
Trade Date, which is thirty days from the Issue Date, the Separate Account Value
in the Money Market Subaccount will be allocated among the Subaccounts and the
Fixed Account in accordance with the Owner's instructions in the application.
(See "The Policy -- Policy Issue," page 7.)
TRANSFERS. Separate Account Value may be transferred among the Subaccounts.
One transfer of all or part of the Separate Account Value may be made within a
fifteen day period. Transfers are also permitted between the Fixed Account and
the Subaccounts, subject to restrictions. (See "Allocation of Premiums and
Separate Account Value," page 8.)
THE FUNDS
The following portfolios of the Kemper Investors Fund are currently
available for investment by the Separate Account:
MONEY MARKET PORTFOLIO, TOTAL RETURN PORTFOLIO, HIGH YIELD PORTFOLIO,
GROWTH PORTFOLIO, GOVERNMENT SECURITIES PORTFOLIO, INTERNATIONAL PORTFOLIO AND
SMALL CAP GROWTH PORTFOLIO.
The following portfolios of American Skandia Trust are currently available
for investment by the Separate Account:
LORD ABBETT GROWTH AND INCOME, JANCAP GROWTH, T. ROWE PRICE INTERNATIONAL
EQUITY, T. ROWE PRICE ASSET ALLOCATION, FOUNDERS CAPITAL APPRECIATION, INVESCO
EQUITY INCOME, PIMCO TOTAL RETURN BOND, PIMCO LIMITED MATURITY BOND AND BERGER
CAPITAL GROWTH.
For a more detailed description of the Funds, see "The Funds," page 5, the
Funds' prospectuses, and Statements of Additional Information available upon
request.
CHARGES
A state and local premium tax charge of 2.5% is deducted from each premium
payment under the Policy prior to allocation of the net premium. In addition, a
charge of 1% of each premium payment will be deducted to compensate KILICO for
higher corporate income tax liability resulting from changes in the tax law made
by the Omnibus Budget Reconciliation Act of 1990. (See Charges and
Deductions--Deductions from Premiums, page 15.)
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<PAGE> 7
No other charges are currently made from premium or the Separate Account
for Federal, state or other taxes. Should KILICO determine that such taxes may
be imposed, it may make deductions from the Separate Account to pay those taxes.
(See "Federal Tax Matters," page 20.)
Deductions will be made from the Policy's Cash Value in each Subaccount and
the Fixed Account on the Policy Date and on each Monthly Processing Date for the
cost of providing life insurance coverage for the Insured. In addition, KILICO
deducts an asset charge from each Subaccount on a daily basis for the assumption
by KILICO of certain mortality and expense risks incurred in connection with the
Policy, at an annual rate of .90%. (See "Charges and Deductions--Cost of
Insurance Charge and Mortality and Expense Risk Charge," pages 15 and 16.)
A $5 per month administrative expense charge is deducted from the Policy's
Cash Value on each Monthly Processing Date. (See "Charges and
Deductions--Monthly Administrative Charge," page 16.)
If, prior to the 15th Policy year or the 15th Policy Year following an
increase in Specified Amount, the Policy is surrendered or the Cash Value is
applied under a Settlement Option, a surrender charge will be deducted. (See
"Policy Benefits and Rights--Surrender Privilege," page 14.)
In addition, the Subaccounts of the Separate Account purchase shares of the
Funds. For fees and expenses of the Funds, see the prospectuses for the Funds.
TAX TREATMENT UNDER CURRENT FEDERAL TAX LAW
The Cash Value, while it remains in the Policy, and the Death Benefit
should be subject to the same Federal income tax treatment as the cash value
under a conventional fixed benefit life insurance policy. Under existing tax
law, if the Policy is not treated as a modified endowment contract, the Owner is
generally not deemed to be in receipt of the Cash Value under a Policy until a
distribution occurs through a withdrawal or surrender. If the Policy is treated
as a modified endowment contract, a loan will also be treated as a distribution.
A change of Owners, an assignment, a loan or a surrender of the Policy may have
tax consequences.
Death Benefits payable under the Policy should be completely excludable
from the gross income of the Beneficiary. As a result, the Beneficiary generally
will not be subject to income tax on the Death Benefit. (See "Federal Tax
Matters," page 20.)
FREE-LOOK PERIOD
The Owner is granted a period of time to examine a Policy and return it for
a refund. The applicable period of time will depend on the state in which the
Policy is issued; however, it will be at least 10 days from the date the Policy
is received by the Owner. (See "Policy Benefits and Rights--Free-Look Period and
Exchange Rights," page 15.)
ILLUSTRATIONS OF CASH VALUES, SURRENDER VALUES, DEATH BENEFITS
Tables in the Appendix illustrate the Cash Values, Surrender Values and
Death Benefits based upon certain hypothetical assumed rates of return for the
Separate Account and the charges deducted under the Policy.
KILICO AND THE SEPARATE ACCOUNT
KEMPER INVESTORS LIFE INSURANCE COMPANY
Kemper Investors Life Insurance Company ("KILICO"), 1 Kemper Drive, Long
Grove, Illinois 60049, was organized in 1947 and is a stock life insurance
company organized under the laws of the State of Illinois. KILICO is a
wholly-owned subsidiary of Kemper Corporation, a nonoperating holding company.
Zurich Insurance Company and Insurance Partners L.P. and Insurance Partners
Offshore (Bermuda), L.P. indirectly and directly own 80 percent and 20 percent,
respectively, of Kemper Corporation. KILICO offers life insurance and annuity
products and is admitted to do business in the District of Columbia and all
states except New York.
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SEPARATE ACCOUNT
KILICO Variable Separate Account (the "Separate Account") was established
by KILICO as a separate investment account on January 22, 1987. The Separate
Account will receive and invest net premiums under the Policy. In addition, the
Separate Account may receive and invest net premiums for other variable life
insurance policies offered by KILICO.
The Separate Account is administered and accounted for as part of the
general business of KILICO, but the income, capital gains or capital losses of
the Separate Account are credited to or charged against the assets held in the
Separate Account, without regard to any other income, capital gains or capital
losses of any other separate account or arising out of any other business which
KILICO may conduct. The benefits provided under the Policy are obligations of
KILICO.
The Separate Account has been registered with the Securities and Exchange
Commission ("Commission") as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"). Such registration does not involve
supervision by the Commission of the management, investment practices or
policies of the Separate Account or KILICO.
The Separate Account is currently divided into sixteen Subaccounts. Each
Subaccount invests exclusively in shares of one of the corresponding portfolios
of the Funds. Income and both realized and unrealized gains or losses from the
assets of each Subaccount generally are credited to or charged against that
Subaccount without regard to income, gains or losses from any other Subaccount
of the Separate Account or arising out of any business KILICO may conduct.
THE FUNDS
The Separate Account invests in shares of the Kemper Investors Fund and
American Skandia Trust, series type mutual funds registered with the Commission
as open-end management investment companies. Registration of the Funds does not
involve supervision of their management, investment practices or policies by the
Commission. The Funds are designed to provide investment vehicles for variable
life insurance and variable annuity contracts. Shares of the Funds currently are
sold only to insurance company separate accounts and, with respect to American
Skandia Trust, certain qualified retirement plans. In addition to the Separate
Account, shares of the Funds may be sold to variable life insurance and variable
annuity separate accounts of insurance companies not affiliated with KILICO. It
is conceivable that in the future it may be disadvantageous for variable life
insurance separate accounts of companies unaffiliated with KILICO, or for
variable life insurance separate accounts, variable annuity separate accounts
and qualified retirement plans to invest simultaneously in the Funds. Currently
neither KILICO nor the Funds foresees any such disadvantages to variable life
insurance owners, variable annuity owners or qualified retirement plans.
Management of the Funds has an obligation to monitor events to identify material
conflicts between such owners and determine what action, if any, should be
taken. In addition, if KILICO believes that a Fund's response to any of those
events or conflicts insufficiently protects the Owners, it will take appropriate
action on its own.
The Separate Account invests in the underlying portfolios of the Funds. The
assets of each portfolio are held separate from the assets of the other
portfolios, and each portfolio has its own distinct investment objective and
policies. Each portfolio operates as a separate investment fund, and the income,
gains or losses of one portfolio generally have no effect on the investment
performance of any other portfolio.
KEMPER INVESTORS FUND
The Kemper Investors Fund portfolios in which the Separate Account invests
are summarized below:
MONEY MARKET PORTFOLIO: This Portfolio seeks maximum current income to the
extent consistent with stability of principal from a portfolio of high quality
money market instruments that mature in twelve months or less.
TOTAL RETURN PORTFOLIO: This Portfolio seeks a high total return, a
combination of income and capital appreciation, by investing in a combination of
debt securities and common stocks.
HIGH YIELD PORTFOLIO: This Portfolio seeks a high level of current income
by investing in fixed-income securities.
GROWTH PORTFOLIO: This Portfolio seeks maximum appreciation of capital
through diversification of investment securities having potential for capital
appreciation.
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GOVERNMENT SECURITIES PORTFOLIO: This Portfolio seeks high current return
consistent with preservation of capital from a portfolio composed primarily of
U.S. Government securities.
INTERNATIONAL PORTFOLIO: This Portfolio seeks a total return, a combination
of capital growth and income, principally through an internationally diversified
portfolio of equity securities.
SMALL CAP GROWTH PORTFOLIO: This Portfolio seeks maximum appreciation of
investors' capital.
Zurich Kemper Investments, Inc. ("ZKI") (formerly Kemper Financial
Services, Inc.), an affiliate of KILICO, is the investment adviser to each
portfolio of the Kemper Investors Fund specified above and manages its daily
investments and business affairs, subject to the policies established by the
trustees of the Kemper Investors Fund. For its advisory services to the
Portfolios, ZKI receives compensation monthly at annual rates equal to .50 of
1%, .55 of 1%, .60 of 1%, .60 of 1%, .55 of 1%, .75 of 1% and .65% of 1% of the
average daily net asset values of the Money Market Portfolio, the Total Return
Portfolio, the High Yield Portfolio, the Growth Portfolio, the Government
Securities Portfolio, the International Portfolio and the Small Cap Growth
Portfolio, respectively.
AMERICAN SKANDIA TRUST
The American Skandia Trust portfolios in which the Separate Account invests
are summarized below:
LORD ABBETT GROWTH AND INCOME PORTFOLIO: This Portfolio seeks long-term
growth of capital and income while attempting to avoid excessive fluctuations in
market value.
JANCAP GROWTH PORTFOLIO: This Portfolio seeks growth of capital in a manner
consistent with preservation of capital.
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO: This Portfolio seeks total
return on its assets from long-term growth of capital and income through
investment primarily in established, non-U.S. companies.
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO: This Portfolio seeks a high level
of total return by investing primarily in a diversified group of fixed income
and equity securities.
FOUNDERS CAPITAL APPRECIATION PORTFOLIO: This Portfolio seeks capital
appreciation through investment primarily in common stocks of small U.S.
companies with market capitalizations of $1.5 billion or less. The Portfolio's
securities will ordinarily be traded in the over-the-counter market.
INVESCO EQUITY INCOME PORTFOLIO: This Portfolio seeks high current income
while following sound investment practices, with capital growth potential as an
additional but secondary consideration, by investing its assets primarily in
dividend-paying, marketable common stocks of domestic and foreign industrial
issuers.
PIMCO TOTAL RETURN BOND PORTFOLIO: This Portfolio seeks to realize maximum
total return consistent with preservation of capital.
PIMCO LIMITED MATURITY BOND PORTFOLIO: This Portfolio seeks to realize
maximum total return consistent with preservation of capital and prudent
investment management.
BERGER CAPITAL GROWTH PORTFOLIO: This Portfolio seeks to achieve long-term
capital appreciation primarily by investing in the common stocks of established
companies.
American Skandia Investment Services, Incorporated ("ASISI") is the
investment manager for the American Skandia Trust. ASISI engages a sub-adviser
for each Portfolio as described in the Prospectus to the American Skandia Trust.
ASISI receives compensation at annual rates equal to the following percentages
of average daily net asset values: Lord Abbett Growth and Income 0.75%; JanCap
Growth 0.90%; T. Rowe Price Asset Allocation 0.85%; T. Rowe Price International
Equity 1.00%; Founders Capital Appreciation .90%; INVESCO Equity Income 0.75%;
PIMCO Total Return Bond 0.65%; PIMCO Limited Maturity Bond 0.65%; and Berger
Capital Growth 0.75%. ASISI is solely responsible for compensating the
sub-advisers.
There is no assurance that any of the Portfolios of the Kemper Investors
Fund or the American Skandia Trust will achieve its stated objective. More
detailed information, including a description of risks involved in investing in
each of the Portfolios may be found in the prospectus for each Fund and each
Fund's Statement of Additional Information.
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<PAGE> 10
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 Policy or the Separate Account. KILICO may also eliminate or
combine one or more subaccounts, transfer assets, or it may substitute one
subaccount for another subaccount, if, in its sole discretion, marketing, tax or
investment conditions warrant. KILICO will not substitute any shares
attributable to an Owner's interest in a Subaccount of the Separate Account
without notice to the Owner and prior approval of the Commission, to the extent
required by the 1940 Act or other applicable law. Nothing contained in this
Prospectus shall prevent the Separate Account from purchasing other securities
for other series or classes of policies, or from permitting a conversion between
series or classes of policies on the basis of requests made by Owners.
KILICO also reserves the right to establish additional subaccounts of the
Separate Account, each of which would invest in a new portfolio of the Funds, or
in shares of another investment company, with a specified investment objective.
New subaccounts may be established when, in the sole discretion of KILICO,
marketing needs or investment conditions warrant, and any new subaccounts may be
made available to existing Owners as determined by KILICO.
If deemed by KILICO to be in the best interests of persons having voting
interests under the Policy, the Separate Account may be: (a) operated as a
management company under the 1940 Act; (b) deregistered under that Act in the
event such registration is no longer required; or (c) combined with other KILICO
separate accounts. To the extent permitted by law, KILICO may also transfer the
assets of the Separate Account associated with the Policy to another separate
account, or to the General Account.
FIXED ACCOUNT OPTION
NET PREMIUMS ALLOCATED BY POLICY OWNERS TO THE FIXED ACCOUNT OF THE POLICY
AND TRANSFERS TO THE FIXED ACCOUNT BECOME PART OF THE GENERAL ACCOUNT OF KILICO,
WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") NOR IS THE FIXED ACCOUNT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
GENERALLY ARE SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND KILICO HAS
BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO THE FIXED PORTION.
DISCLOSURES REGARDING THE FIXED ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE
ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
Under the Fixed Account Option offered under the Policies, KILICO allocates
payments to its General Account and pays a fixed interest rate for stated
periods. This Prospectus describes only the element of the Contract pertaining
to the Separate Account except where it makes specific reference to fixed
accumulation and settlement elements.
The Policies guarantee that payments allocated to the Fixed Account will
earn a minimum fixed interest rate of 3%. KILICO, at its discretion, may credit
interest in excess of 3%. KILICO reserves the right to change the rate of excess
interest credited as provided under the terms of the Policy. KILICO also
reserves the right to declare separate rates of excess interest for net premiums
or amounts transferred at designated times, with the result that amounts at any
given designated time may be credited with a higher or lower rate of excess
interest than the rate or rates of excess interest previously credited to such
amounts and net premiums or amounts transferred at any other designated time.
THE POLICY
POLICY ISSUE
Before KILICO will issue a Policy, it must receive a completed application
and a full initial premium at its Home Office. A Policy ordinarily will be
issued only for Insureds Age 1 through 75 who supply satisfactory evidence of
insurability to KILICO. Acceptance of an application is subject to underwriting
by KILICO.
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<PAGE> 11
After underwriting is complete and the Policy is delivered to the Owner,
insurance coverage under the Policy will be deemed to have begun as of the
Policy Date. (See "Premiums," below.)
PREMIUMS
Premiums are to be paid to KILICO at its Home Office. (See "Distribution of
Policies.") Checks ordinarily must be made payable to KILICO.
PLANNED PREMIUMS. When applying for a Policy, a Policy Owner will specify a
Planned Premium payment that provides for the payment of level premiums over a
specified period of time. However, the Policy Owner is not required to pay
Planned Premiums.
The minimum monthly premium that will be accepted by KILICO is $50. For
modes other than monthly the minimums are: single premium $5,000; annual $600;
semi-annual $300; quarterly $150. The amount, frequency and period of time over
which a Policy Owner pays premiums may affect whether the Policy will be
classified as a modified endowment contract, which is a type of life insurance
contract subject to different tax treatment than conventional life insurance
contracts for certain pre-death distributions. Accordingly, variations from the
Planned Premiums on a Policy that is not otherwise a modified endowment contract
may result in the Policy becoming a modified endowment contract for tax
purposes.
Payment of the Planned Premium will not guarantee that a Policy will remain
in force. Instead, the duration of the Policy depends upon the Policy's
Surrender Value. Even if Planned Premiums are paid, the Policy will lapse any
time Surrender Value is insufficient to pay the current monthly deductions and a
Grace Period expires without sufficient payment. (See "Policy Lapse and
Reinstatement.")
A guarantee period and a monthly guarantee premium are specified in the
Policy Specifications. The guarantee period is the period that ends on the third
Policy anniversary. During the guarantee period, the policy will remain in force
and no grace period will begin provided that the total premiums received, less
any withdrawals and any outstanding loans, equals or exceeds the monthly
guarantee premium times the number of months since the Policy Date, including
the current month.
KILICO may reject or limit any premium payment that is below the current
minimum premium amount requirements, or that would increase the death benefit by
more than the amount of the premium. All or a portion of a premium payment will
be rejected and returned to the Owner if it would disqualify the Policy as life
insurance under the Internal Revenue Code.
Certain charges will be deducted from each premium payment. (See "Charges
and Deductions.") The remainder of the premium, known as the net premium, will
be allocated as described below under "Allocation of Premiums and Separate
Account Value."
POLICY DATE. The Policy Date is the date used to determine Policy Years and
Monthly Processing Dates. The Policy Date will be the date that coverage on the
Insured takes effect. If such date is the 29th, 30th, or 31st of a month, the
Policy Date will be the first of the following month.
In the event an application is declined by KILICO, the Cash Value in the
Money Market Subaccount plus the total amount of monthly deductions and
deductions against premiums will be refunded.
The full initial premium is the only premium required to be paid under a
Policy. However, additional premiums may be necessary to keep the Policy in
force. (See "The Policy--Policy Lapse and Reinstatement.")
ALLOCATION OF PREMIUMS AND SEPARATE ACCOUNT VALUE
ALLOCATION OF PREMIUMS. The initial net premium will be allocated to the
Money Market Subaccount. The Separate Account Value will remain in the Money
Market Subaccount until the Trade Date, which is 30 days after the Issue Date.
On the Trade Date, the Separate Account Value in the Money Market Subaccount
will be allocated to the Subaccounts and the Fixed Account as elected by the
Owner in the application for the Policy. Additional premiums received will
continue to be allocated in accordance with the Owner's instructions in the
application unless contrary written instructions are received. Once a change in
allocation is made, all future premiums will be allocated in accordance with the
new allocation, unless contrary written instructions are received. The minimum
amount of any premium that may be allocated to a Subaccount is $50. Cash Value
may be allocated to a total of ten accounts at any given time.
The Separate Account Value will vary with the investment experience of the
chosen Subaccounts. The Owner bears the entire investment risk.
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<PAGE> 12
TRANSFERS. After the Trade Date, Separate Account Value may be transferred
among the Subaccounts and into the Fixed Account. One transfer of all or a part
of the Separate Account Value may be made within a fifteen day period. All
transfers made during a business day will be treated as one request.
Fixed Account Value may be transferred to one or more Subaccounts. One
transfer of part of the Fixed Account Value may be made once each Policy Year in
the thirty day period following the end of a Policy Year.
Transfer requests must be in writing in a form acceptable to KILICO, or by
telephone authorization under forms authorized by KILICO. (See "General
Provisions--Written Notices and Requests.") The minimum partial transfer amount
is $500. No partial transfer may be made if the value of the Owner's remaining
interest in a Subaccount or the Fixed Account, from which amounts are to be
transferred, would be less than $500 after such transfer. These minimums may be
waived for reallocations under established third party asset allocation
programs. Transfers will be based on the Accumulation Unit values next
determined following receipt of valid, complete transfer instructions by KILICO.
The transfer provision may be suspended, modified or terminated at any time by
KILICO. KILICO disclaims all liability for acting in good faith in following
instructions which are given in accordance with procedures established by
KILICO, including requests for personal identifying information, that are
designed to limit unauthorized use of the privilege. Therefore, a Policy Owner
would bear this risk of loss in the event of a fraudulent telephone transfer.
If a Policy Owner authorizes a third party to transact transfers on the
Policy Owner's behalf, we will reallocate the Cash Value pursuant to the asset
allocation program determined by such third party. However, we do not offer or
participate in any asset allocation program and we take no responsibility for
any third party asset allocation program. We may suspend or cancel acceptance of
a third party's instructions at any time and may restrict the investment options
that will be available for transfer under third party authorizations.
AUTOMATIC ASSET REALLOCATION. A Policy Owner may elect to have transfers
made automatically among the Subaccounts of the Separate Account on an annual or
a quarterly basis so that Cash Value is reallocated to match the percentage
allocations in the Policy Owner's predefined premium allocation elections.
Transfers under this program will not be subject to the $500 minimum transfer
amounts. An election to participate in the automatic asset reallocation program
must be in writing in the form prescribed by KILICO and returned to KILICO at
its home office.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Lapse will occur when the Surrender Value of a Policy is
insufficient to cover the monthly deductions, and a grace period expires without
a sufficient payment being made. (See "Charges and Deductions.")
A grace period of 61 days will be given to the Owner. It begins when notice
is sent that the Surrender Value of the Policy is insufficient to cover the
monthly deductions. Failure to make a premium payment or loan repayment during
the grace period sufficient to keep the Policy in force for three months will
cause the Policy to lapse and terminate without value.
If payment is received within the grace period, the premium or loan
repayment will be allocated to the Subaccounts and the Fixed Account in
accordance with the most current allocation instructions, unless otherwise
requested. Amounts over and above the amounts necessary to prevent lapse may be
paid as additional premiums, however, to the extent otherwise permitted. (See
"The Policy--Premiums.")
KILICO will not accept any payment that would cause the total premium
payment to exceed the maximum payment permitted by the Code for life insurance
under the guideline premium limits. However, the Owner may voluntarily repay a
portion of Debt to avoid lapse. (See "Federal Tax Matters.")
If premium payments have not exceeded the maximum payment permitted by the
Code, the Owner may choose to make a larger payment than the minimum required
payment to avoid the recurrence of the potential lapse of coverage. The Owner
may also combine premium payments with Debt repayments.
The death benefit payable during the grace period will be the Death Benefit
in effect immediately prior to the grace period, less any Debt and any unpaid
monthly deductions.
REINSTATEMENT. If a Policy lapses because of insufficient Surrender Value
to cover the monthly deductions, and it has not been surrendered for its
Surrender Value, it may be reinstated at any time within
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<PAGE> 13
three years after the date of lapse. Tax consequences may affect the decision to
reinstate. Reinstatement is subject to:
(1) receipt of evidence of insurability satisfactory to KILICO;
(2) payment of a minimum premium sufficient to cover monthly deductions for
the grace period and to keep the Policy in force three months; and
(3) payment or reinstatement of any Debt against the Policy which existed
at the date of termination of coverage.
The effective date of reinstatement of a Policy will be the Monthly
Processing Date that coincides with or next follows the date the application for
reinstatement is approved by KILICO. Suicide and incontestability provisions
will apply from the effective date of reinstatement.
POLICY BENEFITS AND RIGHTS
DEATH BENEFITS
While the Policy is in force (see "Policy Lapse and Reinstatement--Lapse,"
above), the death benefit is based on the death benefit option, the Specified
Amount and the table of death benefit percentages applicable at the time of
death. The death benefit proceeds will be equal to the death benefit minus any
Debt and minus any monthly deductions due during the grace period.
A Policy Owner may select one of two death benefit options: Option A or
Option B. An applicant designates the death benefit option in the application.
Subject to certain restrictions, the Owner can change the death benefit option
selected. So long as the Policy remains in force, the death benefit under either
option will never be less than the Specified Amount.
The Specified Amount is chosen by the Owner on the application and is
stated in the Policy Specifications. The minimum Specified Amount permitted
under the Policy is $50,000.
OPTION A. Under Option A, the death benefit will be equal to the Specified
Amount or, if greater, the Cash Value (determined as of the end of the Valuation
Period during which the Insured dies) multiplied by a death benefit percentage.
The death benefit percentages vary according to the age of the Insured and will
be at least equal to the cash value corridor in Section 7702 of the Internal
Revenue Code. The death benefit percentage is 250% for an Insured at Age 40 or
under, and it declines for older Insureds. A table showing the death benefit
percentages is in the Appendix B to this Prospectus and in the Policy.
OPTION B. Under Option B, the death benefit will be equal to the Specified
Amount plus the Cash Value (determined as of the end of the Valuation Period
during which the Insured dies) or, if greater, the Cash Value multiplied by a
death benefit percentage. The specified percentage is the same as that used in
connection with Option A and as stated in the Appendix. The death benefit under
Option B will always vary as Cash Value varies.
EXAMPLES OF OPTIONS A AND B. The following examples demonstrate the
determination of death benefits under Options A and B. The examples show three
Policies--Policies I, II, and III--with the same Specified Amount, but Cash
Values that vary as shown, and which assume an Insured is Age 35 at the time of
death and that there is no outstanding Debt.
<TABLE>
<CAPTION>
POLICY POLICY
POLICY I II III
-------- -------- --------
<S> <C> <C> <C>
Specified Amount........................ $100,000 $100,000 $100,000
Cash Value on Date of Death............. $ 25,000 $ 50,000 $ 75,000
Death Benefit Percentage................ 250% 250% 250%
Death Benefit Under Option A............ $100,000 $125,000 $187,500
Death Benefit Under Option B............ $125,000 $150,000 $187,500
</TABLE>
Under Option A, the death benefit for Policy I is equal to $100,000 since
the death benefit is the greater of the Specified Amount ($100,000) or the Cash
Value at the date of death multiplied by the death benefit percentage ($25,000 X
250% = $62,500). For both Policies II and III under Option A, the Cash Value
multiplied by the death benefit percentage ($50,000 X 250% = $125,000 for Policy
II; $75,000 X 250% = $187,500 for Policy III) is greater than the Specified
Amount ($100,000), so the death benefit is equal to the higher value. Under
Option B, the death benefit for Policy I is equal to $125,000 since the death
benefit is the greater of Specified Amount plus Cash Value ($100,000 + $25,000 =
$125,000) or the
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<PAGE> 14
Cash Value multiplied by the death benefit percentage ($25,000 X 250% =
$62,500). Similarly, in Policy II, Specified Amount plus Cash Value ($100,000 +
$50,000 = $150,000) is greater than Cash Value multiplied by the death benefit
percentage ($50,000 X 250% = $125,000). In Policy III, the Cash Value multiplied
by the death benefit percentage ($75,000 X 250% = $187,500) is greater than the
Specified Amount plus Cash Value ($100,000 + $75,000 = $175,000), so the death
benefit is equal to the higher value.
All calculations of death benefit will be made as of the end of the
Valuation Period during which the Insured dies. Death benefit proceeds may be
paid to a Beneficiary in a lump sum or under a payment plan offered under the
Policy. The Policy should be consulted for details.
Death Benefits under the Policy will ordinarily be paid within seven days
after KILICO receives all documentation required for such a payment. Payments
may be postponed in certain circumstances. (See "General Provisions --
Postponement of Payments")
CHANGES IN DEATH BENEFIT OPTION
After the first Policy Year, a Policy Owner may request that the death
benefit under the Policy be changed from Option A to Option B, or from Option B
to Option A. Changes in the death benefit option may be made only once per
Policy Year and should be made in writing to KILICO's Home Office. The effective
date of any such change is the next Monthly Processing Date after the change is
accepted.
A change in the death benefit from Option A to Option B will result in a
reduction in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the death benefit payable under Option B at the
time of the change will equal that which would have been payable under Option A
immediately prior to the change. The change in option will affect the
determination of the death benefit since Cash Value will then be added to the
new Specified Amount, and the death benefit will then vary with Cash Value.
A change in the death benefit from Option B to Option A will result in an
increase in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the death benefit payable under Option A at the
time of the change will equal that which would have been payable under Option B
immediately prior to the change. However, the change in option will affect the
determination of the death benefit since the Cash Value will no longer be added
to the Specified Amount in determining the death benefit. From that point on,
the death benefit will equal the new Specified Amount (or, if higher, the Cash
Value times the applicable specified percentage).
A change in death benefit option may affect the future monthly cost of
insurance charge since this charge varies with the net amount at risk, which
generally is the amount by which the death benefit exceeds Cash Value. (See
"Charges and Deductions--Cost of Insurance Charge.") Assuming that the Policy's
death benefit would not be equal to Cash Value times a death benefit percentage
under either Option A or B, changing from Option B to Option A will generally
decrease the future net amount at risk, and therefore decrease the future cost
of insurance charges. Changing from Option A to Option B will generally result
in a net amount at risk that remains level. Such a change, however, will result
in an increase in the cost of insurance charges over time, since the cost of
insurance rates increase with the insured's Age.
CHANGES IN SPECIFIED AMOUNT
After the first Policy Year, a Policy Owner may request an increase or
decrease in the Specified Amount under a Policy subject to approval from KILICO.
A change in Specified Amount may only be made once per Policy Year and must be
in an amount at least equal to $25,000. Increases are not allowed after the
Insured attains age 75. Increasing the Specified Amount could increase the death
benefit under a Policy, and decreasing the Specified Amount could decrease the
death benefit. (See "Federal Tax Matters.") The amount of change in the death
benefit will depend, among other things, upon the death benefit option chosen by
the Owner and the degree to which the death benefit under a Policy exceeds the
Specified Amount prior to the change. Changing the Specified Amount could affect
the subsequent level of the death benefit while the Policy is in force and the
subsequent level of Policy values. An increase in Specified Amount may increase
the net amount at risk under a Policy, which will increase an Owner's cost of
insurance charge and the guarantee premium amount. However, the guarantee period
will not be extended as a result of an increase in Specified Amount. Conversely,
a decrease in Specified Amount may decrease the net amount at risk, which will
decrease an Owner's cost of insurance charge. A decrease in Specified Amount
will not decrease the guarantee premium.
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<PAGE> 15
INCREASES. Additional evidence of insurability satisfactory to KILICO will
be required for an increase in Specified Amount.
DECREASES. Any decrease in Specified Amount will first be applied to the
most recent increases successively, then to the original Specified Amount. A
decrease will not be permitted if the Specified Amount would fall below the
lesser of the initial Specified Amount or $50,000. If a decrease in the
Specified Amount would result in total premiums paid exceeding the premium
limitations prescribed under tax law to qualify the Policy as a life insurance
contract, KILICO will refund the Policy Owner the amount of such excess above
the premium limitations.
KILICO reserves the right to disallow a requested decrease, and will not
permit a requested decrease, among other reasons, (1) if compliance with the
guideline premium limitations under tax law resulting from the requested
decrease would result in immediate termination of the Policy, or (2) if, to
effect the requested decrease, payments to the Owner would have to be made from
Cash Value for compliance with the guideline premium limitations, and the amount
of such payments would exceed the Surrender Value under the Policy.
Any request for an increase or decrease in Specified Amount must be made by
written application to KILICO's Home Office. It will become effective on the
Monthly Processing Date on or next following KILICO's acceptance of the request.
If the Owner is not the Insured, KILICO will also require the consent of the
Insured before accepting a request.
BENEFITS AT MATURITY
If the Insured is living on the Policy Date anniversary nearest the
Insured's 100th birthday, KILICO will pay the Owner the Surrender Value of the
Policy. On the Maturity Date, the Policy will terminate and KILICO will have no
further obligations under the Policy.
CASH VALUE
The Policy's Cash Value will reflect the investment experience of the
selected Subaccounts, the frequency and amount of premiums paid, transfers
between Subaccounts, withdrawals, any Fixed Account or Loan Account values, and
any charges assessed in connection with the Policy. An Owner may make partial
withdrawals of Cash Value or surrender the Policy and receive the Policy's
Surrender Value, which equals the Cash Value less surrender charges and Debt.
(See "Surrender Privilege.") There is no minimum guaranteed Cash Value.
CALCULATION OF CASH VALUE. The Cash Value of the Policy is the total of the
Policy's Separate Account Value, Fixed Account Value and Loan Account value. The
Cash Value is determined on each Valuation Date. It will first be calculated on
the Policy Date. On that date, the Cash Value equals the initial premium, less
the monthly deductions for the first Policy Month. (See "Charges and
Deductions.")
On any Valuation Date during the Policy Year, the Policy's Separate Account
Value in any Subaccount will equal:
(1) The Policy's Separate Account Value in the Subaccount at the end
of the preceding Valuation Period, multiplied by the Investment Experience
Factor (defined below) for the current Valuation Period; plus
(2) Any net premiums received during the current Valuation Period
which are allocated to the Subaccount; plus
(3) All amounts transferred to the Subaccount, either from another
Subaccount or the Fixed Account or from the Loan Account in connection with
the repayment of a Policy loan (see "Policy Benefits and Rights--Policy
Loans,") during the current Valuation Period; minus
(4) The pro rata portion of the monthly cost of insurance charge,
administrative charge, and any other charges assessed to the Subaccount.
(See "Charges and Deductions--Cost of Insurance Charge."); minus
(5) All amounts transferred from the Subaccount during the current
Valuation Period; minus
(6) All amounts withdrawn from the Subaccount during the current
Valuation Period; minus
(7) All amounts loaned from the Subaccount during the current
Valuation Period.
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<PAGE> 16
There will also be Cash Value in the Loan Account if there is a Policy loan
outstanding. The Loan Account is credited with amounts transferred from
Subaccounts in connection with Policy loans. The Loan Account balance accrues
daily interest at an effective annual rate of 3.00%. (See "Policy Benefits and
Rights--Policy Loans.")
The Cash Value in the Fixed Account is credited with interest at the annual
rate declared by KILICO. The annual rate will never be less than 3%.
ACCUMULATION UNIT VALUE. Each Subaccount has a distinct Accumulation Unit
Value. When net premiums or other amounts are allocated to a Subaccount, a
number of units are purchased based on the Accumulation Unit Value of the
Subaccount at the end of the Valuation Period during which the allocation is
made. When amounts are transferred out of, or deducted from, a Subaccount, units
are redeemed in a similar manner.
For each Subaccount, the Accumulation Unit Value was initially set at the
same unit value as the net asset value of a share of the underlying Fund. The
Accumulation Unit Value for each subsequent Valuation Period is the Investment
Experience Factor for that Valuation Period multiplied by the Accumulation Unit
Value for the immediately preceding period. Each Valuation Period has a single
Accumulation Unit Value which applies for each day in the period. The number of
Accumulation Units will not change as a result of investment experience. The
Investment Experience Factor may be greater or less than one; therefore, the
Accumulation Unit Value may increase or decrease.
INVESTMENT EXPERIENCE FACTOR. The investment experience of the Separate
Account is calculated by applying the Investment Experience Factor to the
Separate Account Value in each Subaccount during a Valuation Period. Each
Subaccount has its own distinct Investment Experience Factor. The Investment
Experience Factor of a Subaccount for any Valuation Period is determined by
dividing (1) by (2) and subtracting (3) from the result, where:
(1) is the net result of:
a. The net asset value per share of the investment held in the
Subaccount determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the investment held in the Subaccount division, if the
"ex-dividend" date occurs during the current Valuation Period; plus or
minus
c. a charge or credit for any taxes reserved for the current valuation
period which we determine to have resulted from the investment
operations of the Subaccount;
(2) is the net asset value per share of the investment held in the
Subaccount, determined at the end of the last prior Valuation Period;
(3) is the factor representing the Mortality and Expense Risk Charge. (See
"Charges and Deductions --Mortality and Expense Risk Charge.")
POLICY LOANS
After the first Policy Year, the Owner may by written request to KILICO
borrow all or part of the maximum loan amount of the Policy. The maximum loan
amount is 90% of the Policy's Cash Value minus applicable surrender charges,
subject to the requirements of the Internal Revenue Code. The amount of any new
loan may not exceed the maximum loan amount less Debt on the date a loan is
granted. The minimum amount of a loan is $500. Any amount due an Owner under a
Policy Loan ordinarily will be paid within 7 days after KILICO receives a loan
request at its Home Office, although payments may be postponed under certain
circumstances. (See "Postponement of Payments," and "Federal Tax Matters.")
On the date a Policy loan is made, an amount equal to the loan amount will
be transferred from the Separate Account and Fixed Account to the Loan Account.
Unless the Owner directs otherwise, the loaned amount will be deducted from the
Subaccounts and the Fixed Account in proportion to the values that each bears to
the Separate Account Value of the Policy in all of the Subaccounts plus the
Fixed Account Value at the end of the Valuation Period during which the request
is received.
The loan interest will be assessed at an effective annual rate of 4.5% in
the first nine Policy Years and 3.00% thereafter. Interest not paid when due
will be added to the loan amount due upon the earlier of the next Policy Date
anniversary or when coverage ceases upon lapse, surrender, death or maturity and
bear
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<PAGE> 17
interest at the same rate. When interest is added to the loan amount, a transfer
in this amount will be made from the Separate Account and the Fixed Account to
the Loan Account.
Cash Value in the Loan Account will earn 3.00% annual interest. Such
earnings will be allocated to the Loan Account.
LOAN REPAYMENT. While the Policy is in force, policy loans may be repaid
at any time, in whole or in part. At the time of repayment, Cash Value in the
Loan Account equal to the amount of the repayment which exceeds the difference
between interest due and interest earned will be allocated to the Subaccounts
and the Fixed Account according to the Owner's current allocation instructions,
unless otherwise requested by the Owner. Transfers from the Loan Account to the
Separate Account or the Fixed Account as a result of the repayment of Debt will
be allocated at the end of the Valuation Period during which the repayment is
received. Such transfers will not be counted in determining the transfers made
within a 15 day period.
EFFECTS OF POLICY LOAN. Policy loans decrease Surrender Value and,
therefore, the amount available to pay the charges necessary to keep the Policy
in force. If Surrender Value on the day immediately preceding a Monthly
Processing Date is less than the monthly deductions for the next month, KILICO
will notify the Owner. (See "General Provisions--Written Notices and Requests.")
The Policy will lapse and terminate without value, unless a sufficient payment
is made to KILICO within 61 days of the date such notice is sent to the Owner.
(See "The Policy--Policy Lapse and Reinstatement.")
EFFECT ON INVESTMENT EXPERIENCE. A Policy Loan will have an effect on the
Cash Value of a Policy. The collateral for the loan (the amount held in the Loan
Account) does not participate in the experience of the Subaccounts or the
current interest rate of the Fixed Accounts while the loan is outstanding. If
the interest credited to the Loan Account is more than the amount that would
have been earned in the Subaccounts or the Fixed Account, the Cash Value will,
and the Death Benefit may, be higher as a result of the loan. Conversely, if the
amount credited to the Loan Account is less than would have been earned in the
Subaccounts or the Fixed Account, the Cash Value, as well as the Death Benefit,
may be less.
TAX TREATMENT. If the Policy is treated as a modified endowment contract, a
loan will be taxed in the same way as a loan from an annuity. Therefore, a loan
may be subject to Federal income tax and a 10% tax penalty may apply. (See
"Federal Tax Matters.")
SURRENDER PRIVILEGE
While the Insured is living and the Policy is in force, the Owner may
surrender the Policy for its Surrender Value. To surrender the Policy, the Owner
must make written request to KILICO at its Home Office and return the Policy to
KILICO. The Surrender Value is equal to the Cash Value less any applicable
Surrender Charge and any Debt. (See "Surrender Charge," below.)
SURRENDER CHARGE. During the first fourteen Policy Years and the first
fourteen Policy Years following an increase in Specified Amount, if the Policy
is surrendered or if the Cash Value is applied under a Settlement Option, a
Surrender Charge is assessed against the Cash Value. The Surrender Charge
consists of two components, an administrative component (issue charge) and a
sales component (deferred sales charge).
The issue charge is a level charge of $5.00 per thousand of Specified
Amount and the sum of coverage amounts for any other insureds. For issue ages up
to age 66, the full issue charge will apply in Policy Years 1-5 and will decline
by 10% each year in Policy Years 6-14 until reaching zero at the beginning of
Policy Year 15. For issue ages 66-75, the full issue charge will apply in Policy
Years 1-3 and will decline by 10% each year in Policy Years 4-11 and by 5% in
Policy Years 12-14 until reaching zero at the beginning of Policy Year 15. This
charge is designed to cover the administrative expenses associated with
underwriting and issuing a Policy, including the costs of processing
applications, conducting medical examinations, determining insurability and the
Insured's underwriting class, and establishing policy records. KILICO does not
expect to profit from the issue charge.
The deferred sales charge is equal to 30% of premiums paid up to one Target
Premium shown in the Policy and a percentage of premiums paid above one Target
Premium equal to 7.5% for issue ages up to age 66 and 5% for issue ages 66-75.
For issue ages up to age 66, the full deferred sales charge will apply in Policy
Years 1-5 and will decline by 10% each year in Policy Years 6-14 until reaching
zero at the beginning of Policy Year 15. For issue ages 66-75, the full deferred
sales charge will apply in Policy Years 1-3 and will decline by 10% each year in
Policy Years 4-11 and by 5% in Policy Years 12-14 until reaching zero at the
beginning of Policy Year 15. The deferred sales charge is to reimburse KILICO
for some of the expenses of distributing the Policies.
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During the first fourteen Policy Years following an increase in Specified
Amount, an additional surrender charge will apply. The additional charge will be
calculated as described above based on the amount of the increase, years
commencing on the date of the increase and Target Premium associated with the
increase.
The applicable Surrender Charge will be determined based upon the date of
receipt of the written request for surrender.
PARTIAL WITHDRAWALS. After the first Policy Year, a Policy Owner may make
withdrawals of amounts less than the Surrender Value. The minimum amount of each
withdrawal is $500 and the maximum amount at any time that a surrender charge is
assessable is 10% of the Surrender Value. A $25 withdrawal charge will be
imposed for processing each withdrawal. (See "Charges and Deductions.") A
withdrawal will decrease the Cash Value by the amount of the withdrawal and, if
Death Benefit Option A is in effect, will reduce the Specified Amount by the
amount of the withdrawal.
FREE-LOOK PERIOD AND EXCHANGE RIGHTS
The Owner may, until the end of the period of time specified in the Policy,
examine the Policy and return it for a refund. The applicable period of time
will depend on the state in which the Policy is issued; however, it will be at
least 10 days from the date the Policy is received by the Owner, or, 45 days
after the Owner completes the application for insurance, whichever is later. The
amount of the refund will be the sum of the Cash Value in the Money Market
Subaccount plus the total amount of monthly deductions and deductions made
against Premiums. An Owner seeking a refund should return the Policy to KILICO
at its Home Office or to the agent who sold the Policy.
At any time during the first two years after the Issue Date, the Owner may
exchange the Policy for a non-variable permanent fixed benefit life insurance
policy then currently being offered by KILICO or an affiliate on the life of the
Insured. No evidence of insurability will be required. The amount of the new
policy may be, at the election of the Owner, either the initial Death Benefit or
the same net amount at risk as the Policy on the exchange date. All Debt under
the Policy must be repaid and the surrender of the Policy is required before the
exchange is made. The Policy Date and issue age will be the same as existed
under the Policy.
CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUMS
A state and local premium tax charge of 2.5% is deducted from each premium
payment under the Policy prior to allocation of the net premium. This charge is
to reimburse KILICO for the payment of state premium taxes. KILICO expects to
pay an average state premium tax rate of approximately 2.5% but the actual
premium tax attributable to a Policy may be more or less. In addition, a charge
for federal taxes equal to 1% of each premium payment will be deducted to
compensate KILICO for a higher corporate income tax liability resulting from
changes made to the Internal Revenue Code by the Omnibus Budget Reconciliation
Act of 1990.
COST OF INSURANCE CHARGE
A monthly deduction is made from the Subaccounts and the Fixed Account for
the cost of insurance to cover KILICO's anticipated mortality costs. The cost of
insurance charge is deducted monthly in advance and is allocated among the
Subaccounts and the Fixed Account in proportion each bears to the Cash Value of
the Policy less Debt.
The cost of insurance will be deducted on the Policy Date and on each
Monthly Processing Date thereafter by the cancellation of units. If the Monthly
Processing Date falls on a day other than a Valuation Date, the charge will be
determined on the next Valuation Date. The cost of insurance charge is
determined by multiplying the applicable cost of insurance rate (see below) by
the "net amount at risk" for each policy month. The net amount at risk is equal
to the Death Benefit minus the Cash Value on the Monthly Processing Date.
COST OF INSURANCE RATE. The monthly cost of insurance rates are based on
the issue age, sex, rate class of the Insured and Policy Year. The monthly cost
of insurance rates will be determined by KILICO based on its expectations as to
future mortality experience. Any change in the schedule of rates will apply to
all individuals of the same class as the Insured. The cost of insurance rate may
never exceed those shown in
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the table of guaranteed maximum cost of insurance rates in the Policy. The
guaranteed maximum cost of insurance rates are based on the 1980 Commissioner's
Standard Ordinary Smoker and Non-Smoker Mortality Tables, Age Nearest Birthday,
published by the National Association of Insurance Commissioners.
RATE CLASS. The rate class of an Insured will affect the cost of insurance
rate. KILICO currently places Insureds in preferred rate classes and rate
classes involving a higher mortality risk. The cost of insurance rates for rate
classes involving a higher mortality risk are multiples of the preferred rates.
(See "Charges and Deductions--Cost of Insurance Rate," above.)
MORTALITY AND EXPENSE RISK CHARGE
A daily charge is deducted from the Subaccounts of the Separate Account for
mortality and expense risks assumed by KILICO. This charge will be at an annual
rate of 0.90%. KILICO may profit from this charge.
The mortality and expense risk assumed is that KILICO's estimates of
longevity and of the expenses incurred over the lengthy period the Policy may be
in effect--which estimates are the basis for the level of other charges KILICO
makes under the Policy--will not be correct.
MONTHLY ADMINISTRATIVE CHARGE
KILICO deducts a monthly administrative expense charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to owners. This charge is designed only to
reimburse KILICO for certain actual administrative expenses. KILICO does not
expect to recover from this charge any amount in excess of aggregate maintenance
expenses. Currently, this charge is $5 per month.
OTHER CHARGES
SURRENDER CHARGE. During the first fourteen Policy Years and the first
fourteen Policy Years following an increase in Specified Amount, if the Policy
is surrendered or if the Cash Value is applied under a Settlement Option, a
Surrender Charge is assessed against the Cash Value. The Surrender Charge
consists of two components, an administrative component (issue charge) and a
sales component (deferred sales charge).
The issue charge is a level charge of $5.00 per thousand of Specified
Amount and the sum of coverage amounts for any other insureds. For issue ages up
to age 66, the full issue charge will apply in Policy Years 1-5 and will decline
by 10% each year in Policy Years 6-14 until reaching zero at the beginning of
Policy Year 15. For issue ages 66-75, the full issue charge will apply in Policy
Years 1-3 and will decline by 10% each year in Policy Years 4-11 and by 5% in
Policy Years 12-14 until reaching zero at the beginning of Policy Year 15. This
charge is designed to cover the administrative expenses associated with
underwriting and issuing a Policy, including the costs of processing
applications, conducting medical examinations, determining insurability and the
Insured's underwriting class, and establishing policy records. KILICO does not
expect to profit from the issue charge.
The deferred sales charge is equal to 30% of premiums paid up to one Target
Premium shown in the Policy and a percentage of premiums paid above one Target
Premium equal to 7.5% for issue ages up to age 66 and 5% for issue ages 66-75.
For issue ages up to age 66, the full deferred sales charge will apply in Policy
Years 1-5 and will decline by 10% each year in Policy Years 6-14 until reaching
zero at the beginning of Policy Year 15. For issue ages 66-75, the full deferred
sales charge will apply in Policy Years 1-3 and will decline by 10% each year in
Policy Years 4-11 and by 5% in Policy Years 12-14 until reaching zero at the
beginning of Policy Year 15. The deferred sales charge is to reimburse KILICO
for some of the expenses of distributing the Policies.
During the first fourteen Policy Years following an increase in Specified
Amount, an additional surrender charge will apply. The additional charge will be
calculated as described above based on the amount of the increase, years
commencing on the date of the increase and Target Premium associated with the
increase.
The applicable Surrender Charge will be determined based upon the date of
receipt of the written request for surrender.
WITHDRAWAL CHARGE. A charge of $25 will be imposed for each partial
withdrawal. This charge is designed to reimburse KILICO for the administrative
expenses related to the withdrawal. KILICO does not expect to recover any amount
in excess of aggregate expenses.
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TAXES. Currently, no charges are made against the Separate Account for
Federal, state or other taxes that may be attributable to the Separate Account.
KILICO may, however, in the future impose charges for Federal income taxes
attributable to the Separate Account. Charges for other taxes, if any,
attributable to the Policy may also be made. (See "Federal Tax Matters.")
CHARGES AGAINST THE FUND. Under the investment advisory agreements between
each Fund, on behalf of the portfolios, and the investment manager and/or
adviser, such entities provide investment advisory and/or management services
for the portfolios. The Funds are responsible for the advisory fees and various
other expenses. The investment advisory fees differ with respect to each of the
portfolios of the Funds. (See "The Funds.") KILICO may receive compensation from
the investment advisers of the Funds for services related to the Funds. Such
compensation will be consistent with the services rendered or the cost savings
resulting from the arrangement. For more information concerning the investment
advisory fees and other charges against the portfolios of the Funds, see the
prospectuses for the Funds and the Statements of Additional Information
available upon request.
SYSTEMATIC WITHDRAWAL PLAN. A charge of $50 is imposed to enter into a
Systematic Withdrawal Plan (SWP.) In addition, a $25 charge will be imposed each
time a change is made to the SWP. These charges are to reimburse KILICO for
expenses related to the administration of the SWP. (See "Systematic Withdrawal
Plan.")
REDUCTION OF CHARGES. KILICO may reduce certain charges and the minimum
initial premium in special circumstances that result in lower sales,
administrative, or mortality expenses. For example, special circumstances may
exist in connection with group or sponsored arrangements, sales to KILICO
policyowners, or sales to employees or clients of members of the Kemper group of
companies. The amounts of any reductions will reflect the reduced sales effort
and administrative costs resulting from, or the different mortality experience
expected as a result of, the special circumstances. Reductions will not be
unfairly discriminatory against any person, including the affected Owners and
owners of all other policies funded by the Separate Account.
GENERAL PROVISIONS
SETTLEMENT OPTIONS
The Owner, or Beneficiary at the death of the Insured if no election by the
Owner is in effect, may elect to have all of the Death Benefit or Surrender
Value of this Policy paid in a lump sum or have the amount applied to one of the
Settlement Options. Payments under these options will not be affected by the
investment experience of the Separate Account after proceeds are applied under a
Settlement Option. Payment will be made as elected by the payee on a monthly,
quarterly, semi-annual or annual basis. The option selected must result in a
payment that is at least equal to KILICO's required minimum, according to rules
in effect at the time the option is chosen. If at any time the payments are less
than the minimum payment, KILICO may increase the period between payments to
quarterly, semi-annual or annual so that the payment is at least equal to our
minimum payment or to make the payment in one lump sum.
The Cash Value on the day immediately preceding the date on which the first
benefit payment is due will first be reduced by any applicable Surrender Charge
and Debt. The Surrender Value will be used to determine the benefit payment. The
payment will be based on the settlement option elected in accordance with the
appropriate settlement option table.
OPTION 1--INCOME FOR SPECIFIED PERIOD. KILICO will pay income for the
period and payment mode elected but not less than 5 years nor more than 30
years.
OPTION 2--LIFE INCOME. KILICO will pay a monthly income to the payee during
the payee's lifetime. If this Option is elected, annuity payments terminate
automatically and immediately on the death of the payee without regard to the
number or total amount of payments made. Thus, it is possible for an individual
to receive only one payment if death occurred prior to the date the second
payment was due.
OPTION 3--LIFE INCOME WITH INSTALLMENTS GUARANTEED. KILICO will pay a
monthly income for the guaranteed period elected and thereafter for the
remaining lifetime of the payee. The period elected may only be 5, 10, 15 or 20
years.
OPTION 4--JOINT AND SURVIVOR ANNUITY. KILICO will pay the full monthly
income while both payees are living. Upon the death of either payee, the income
will continue during the lifetime of the surviving payee. The surviving payee's
income shall be the percentage of such full amount chosen at the time of
election of this option. The percentages available are 50%, 66 2/3%, 75% and
100%. Payments terminate automatically
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and immediately upon the death of the surviving payee without regard to the
number or total amount of payments received.
KILICO's consent is necessary for any other payment methods.
The guaranteed monthly payments are based on an interest rate of 2.50% per
year and, where mortality is involved, the "1983 Table a" individual mortality
table developed by the Society of Actuaries, with a 5 year setback.
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount due upon: (a) Policy termination at the
Maturity Date, (b) surrender of the Policy, (c) payment of any Policy loan, or
(d) death of the Insured, may be postponed whenever:
(1) The New York Stock Exchange is closed other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC;
(2) The SEC by order permits postponement for the protection of
Owners; or
(3) An emergency exists, as determined by the SEC, as a result of
which disposal of securities of the Fund is not reasonably practicable or
it is not reasonably practicable to determine the value of the net assets
of the Separate Account.
Transfers may also be postponed under these circumstances.
PAYMENT NOT HONORED BY BANK. The portion of any payment due under the
Policy which is derived from any amount paid to KILICO by check or draft may be
postponed until such time as KILICO determines that such instrument has been
honored by the bank upon which it was drawn.
THE CONTRACT
The Policy, any endorsements, and the application constitute the entire
contract between KILICO and the Owner. All statements made by the Insured or
contained in the application will, in the absence of fraud or misrepresentation,
be deemed representations and not warranties.
Only the President, the Secretary, or an Assistant Secretary of KILICO is
authorized to change or waive the terms of a Policy. Any change or waiver must
be in writing and signed by one of those persons.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured is misstated, the Death Benefit will be
changed to what the cost of insurance on the previous Monthly Processing Date
would have purchased based on the correct sex and age.
INCONTESTABILITY
KILICO may contest the validity of a Policy if any material
misrepresentations are made in the application. However, a Policy will be
incontestable after it has been in force during the lifetime of the Insured for
two years from the Issue Date. A new two year contestability period will apply
to increases in insurance, and to reinstatements beginning with the effective
date of the increase or reinstatement.
SUICIDE
Suicide by the Insured, while sane or insane, within two years from the
Issue Date of the Policy is a risk not assumed under the Policy. KILICO's
liability for such suicide is limited to the premiums paid less any withdrawals
and Debt. When the laws of the state in which a Policy is delivered require less
than a two year period, the period or amount paid will be as stated in such
laws.
ASSIGNMENT
No assignment of a Policy is binding on KILICO until it is received by
KILICO at its Home Office. KILICO assumes no responsibility for the validity of
the assignment. Any claim under an assignment is subject to proof of the extent
of the interest of the assignee. If this Policy is assigned, the rights of the
Owner and Beneficiary are subject to the rights of the assignee of record.
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NONPARTICIPATING
This Policy will not pay dividends. It will not participate in any of
KILICO's surplus or earnings.
OWNER AND BENEFICIARY
The Owner may, at any time during the life of the Insured and while the
Policy is in force, designate a new Owner.
Primary and secondary Beneficiaries may be designated by the Owner in the
application. If changed, the primary or secondary Beneficiary is as shown in the
latest change filed with KILICO. If no Beneficiary survives the Insured, the
Insured's estate will be the Beneficiary. The interest of any Beneficiary may be
subject to that of an assignee.
Any change of Owner or Beneficiary must be made in writing in a form
acceptable to KILICO. The change will take effect as of the date the request is
signed. KILICO will not be liable for any payment made or other action taken
before the notice has been received at KILICO's Home Office.
RECORDS AND REPORTS
KILICO will maintain all records relating to the Separate Account. KILICO
will send Owners, at their last known address of record, an annual report
stating the Death Benefit, the Accumulation Unit Value, the Cash Value and
Surrender Value under the Policy, and indicating any additional premium
payments, partial withdrawals, transfers, Policy loans and repayments and
charges made during the Policy Year. In addition, Owners will be sent
confirmations and acknowledgments of various transactions. Owners will also be
sent annual and semi-annual reports for the Fund to the extent required by the
1940 Act.
WRITTEN NOTICES AND REQUESTS
Any written notice or request to be sent to KILICO should be sent to its
Home Office, 1 Kemper Drive, Long Grove, Illinois 60049. The notice or request
should include the Policy number and the Insured's full name. Any notice sent by
KILICO to an Owner will be sent to the address shown in the application unless
an address change has been filed with KILICO.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, a Policy Owner may elect to add one or
more of the following optional insurance benefits to the Policy by a Rider at
the time of application for a Policy. These optional benefits are: waiver of all
monthly deductions against the Policy in the event of total disability of the
Insured; term insurance on the Insured's dependent children; acceleration of the
payment of a portion of the death benefit when the Insured is terminally ill;
and term insurance on an additional insured specified by the Owner. The cost of
any additional insurance benefits will be deducted as part of the monthly
deductions. Certain restrictions may apply. Restrictions and provisions related
to these benefits are more fully described in the applicable rider. Samples of
the provisions are available from KILICO upon written request.
DOLLAR COST AVERAGING
A Policy Owner may predesignate a portion of the Cash Value under a Policy
attributable to the Fixed Account, the Money Market Subaccount or the Government
Securities Subaccount (the designated account is referred to as the "DCA
Account") to be automatically transferred on a monthly basis to one or more of
the other Subaccounts and the Fixed Account. A Policy Owner may enroll in this
program at the time the Policy is issued or anytime thereafter by properly
completing the Dollar Cost Averaging enrollment form and returning it to KILICO
at its home office at least five (5) business days prior to the 10th day of a
month which is the date that all Dollar Cost Averaging transfers will be made
("Transfer Date").
Transfers will commence on the first Transfer Date following the Trade
Date. Transfers will be made in the amounts designated by the Policy Owner and
must be at least $500 per Subaccount or General Account. The total Cash Value in
the DCA Account at the time Dollar Cost Averaging is elected must be at least
equal to the greater of $10,000 or the amount designated to be transferred on
each Transfer Date multiplied by the duration selected. Dollar Cost Averaging
will cease automatically if the Cash Value does not equal or exceed the amount
designated to be transferred on each Transfer Date and the remaining amount will
be transferred.
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Dollar Cost Averaging will terminate when (i) the number of designated
monthly transfers has been completed, (ii) the Cash Value attributable to the
DCA Account is insufficient to complete the next transfer, (iii) the Policy
Owner requests termination in writing and such writing is received by KILICO at
its home office at least five business days prior to the next Transfer Date in
order to cancel the transfer scheduled to take effect on such date, or (iv) the
Policy is surrendered. KILICO reserves the right to amend Dollar Cost Averaging
on thirty days notice or terminate it at any time.
A Policy Owner may initiate, reinstate or change Dollar Cost Averaging or
change existing Dollar Cost Averaging terms by properly completing the new
enrollment form and returning it to KILICO at its home office at least five (5)
business days, (ten (10) business days for Fixed Account transfers), prior to
the next Transfer Date such transfer is to be made.
When utilizing Dollar Cost Averaging, a Policy Owner must be invested in
the DCA Account and may be invested in the Fixed Account and a maximum of eight
other Subaccounts at any given time.
SYSTEMATIC WITHDRAWAL PLAN
KILICO administers a Systematic Withdrawal Plan ("SWP") which allows
certain Policy Owners to preauthorize periodic withdrawals after the first
Policy Year. Policy Owners entering into a SWP agreement instruct KILICO to
withdraw selected amounts from the Fixed Account, or from a maximum of two
Subaccounts on a monthly, quarterly, semi-annual or annual basis. Currently the
SWP is available to Policy Owners who request a minimum $500 periodic payment.
The amounts distributed under the SWP are partial withdrawals and will be
subject to surrender charges, if applicable. (See "Policy Benefits and
Rights--Surrender Privileges.") The $25 withdrawal charge does not apply.
However, a charge of $50 will be imposed at the time a SWP is established. In
addition, a $25 charge will be imposed each time a change is made to the SWP.
These charges are designed to reimburse KILICO for expenses related to the
administration of the SWP. Withdrawals taken under the SWP may be subject to
income taxes, withholding and tax penalties. See "Federal Income Taxes." Policy
Owners interested in the SWP may obtain an application and full information
concerning this program and its restrictions from their representative or
KILICO's home office. The right is reserved to amend the SWP on thirty days'
notice. The SWP may be terminated at any time by the Contract Owner or KILICO.
DISTRIBUTION OF POLICIES
The Policy is sold by licensed insurance representatives who represent
KILICO and who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. The Policy is distributed
through the principal underwriter, Investors Brokerage Services, Inc. ("IBS"),
an affiliate of KILICO. IBS is engaged in the sale and distribution of other
variable life policies and annuities.
Gross commissions paid by KILICO on the sale of the Policy plus fees for
marketing services provided by affiliates of KILICO are not more than 115% up to
the commission target premium and 5% of excess premium in the first year and 5%
of total premium in renewal years two through ten. Beginning in the second
Policy Year, a service fee at an annual rate of .05% increasing by .05% per year
to .30% in the seventh and later years on assets which have been maintained and
serviced may also be paid. Firms to which service fees and commissions may be
paid include affiliated broker-dealers. In addition to the commissions described
above, KILICO may, from time to time, pay or allow additional promotional
incentives, in the form of cash or other compensation, to licensed
broker-dealers that sell the Policies. 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 Policy or
other contracts issued by KILICO.
FEDERAL TAX MATTERS
The ultimate effect of Federal income taxes on the Policy, on settlement
options and on the economic benefit to the Owner, Beneficiary or payee depends
on KILICO's tax status, and upon the tax status of the individual concerned.
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KILICO'S TAX STATUS
Under current interpretations of Federal income tax law, KILICO is taxed as
a life insurance company and the operations of the Separate Account are treated
as part of the total operations of KILICO. The operations of the Separate
Account do not materially affect KILICO's Federal income tax liability because
KILICO is allowed a deduction to the extent that net investment income of the
Separate Account is applied to increase Owners' equity. KILICO may incur state
and local taxes attributable to the Separate Account. At present, these taxes
are not significant. Accordingly, KILICO does not charge or credit the Separate
Account for Federal, state or local taxes. Thus, the Separate Account may
realize net investment income, such as interest, dividends or capital gains, and
reinvest such income all without tax consequences to the Separate Account.
If there is a material change in applicable Federal, state or local law,
however, charges or credits may be made to the Separate Account for Federal,
state or local taxes, or reserves for such taxes, if any, attributable to the
Separate Account. Such charges or credits will be determined independent of the
taxes actually paid by KILICO.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code ("Code") provides that if certain
tests are met, a Policy will be treated as a life insurance policy for federal
tax purposes. KILICO will monitor compliance with these tests. The Policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death benefit payable under a Policy is excludable
from gross income of the beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those
policies issued or materially changed on or after June 21, 1988 on which the
total premiums paid during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits after seven level
annual premiums. The Code provides for taxation of surrenders, partial
surrenders, loans, collateral assignments and other pre-death distributions from
modified endowment contracts in the same way annuities are taxed. Modified
endowment contract distributions are defined by the Code as amounts not received
as an annuity and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into the policy. A 10%
tax penalty also applies to the taxable portion of such distributions unless the
Policy Owner is over age 59 1/2 or disabled, or if other exceptions apply.
It may not be advantageous to replace existing insurance with Policies
described in this prospectus. It may also be disadvantageous to purchase a
policy to obtain additional insurance protection if the purchaser already owns
another variable life insurance policy.
The Policies offered by this prospectus may or may not be issued as
modified endowment contracts. KILICO will monitor premiums paid and will notify
the Policy Owner when the Policy's non-modified endowment status is in jeopardy.
If a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Owner pursuant to
Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this
potential effect and seek further information before initiating any changes in
the terms of the Policy. Under certain conditions, a Policy may become a
modified endowment as a result of a material change or a reduction in benefits
as defined by Section 7702A(c) of the Code.
In addition to meeting the tests required under Section 7702 and Section
7702A, Section 817(h) of the Code requires that the investments of separate
accounts such as the Separate Account be adequately diversified. Regulations
issued by the Secretary of the Treasury, set the standards for measuring the
adequacy of this diversification. A variable life policy that is not adequately
diversified under these regulations would not be treated as life insurance under
Section 7702 of the Code. To be adequately diversified, each Subaccount of the
Separate Account must meet certain tests. KILICO believes that the investments
of the Separate Account meet the applicable diversification standards.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfers between funds, exchanges of funds or
changes in investment objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code, KILICO will take
whatever steps are available to remain in compliance.
KILICO will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
21
<PAGE> 25
A total surrender or cancellation of the Policy by lapse may have adverse
tax consequences depending on the circumstances.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
OTHER CONSIDERATIONS
Because of the complexity of the law in its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Policy or the exercise of elections under a Policy. The above comments
concerning the Federal income tax consequences are not exhaustive and are not
intended as tax advice. Counsel and other competent advisers should be consulted
for more complete information. This discussion is based on KILICO's
understanding of Federal income tax laws as they are currently interpreted by
the Internal Revenue Service. No representation is made as to the likelihood of
continuation of these current laws and interpretations. KILICO also believes the
Policy meets other requirements concerning Owner control over investments.
However, the Secretary of Treasury has not issued regulations on this subject.
Such regulations, if adopted, could include requirements not included in the
Policy. Because the guidance has not been published, there can be no assurance
as to content or even whether application will be prospective only. KILICO will
make modifications to the Policy to comply with such regulations.
LEGAL CONSIDERATIONS
On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
The Policy described in this Prospectus contains cost of insurance rates that
distinguish between men and women. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact of
federal, state and local laws, including Title VII of the Civil Rights Act, the
Equal Pay Act, and Norris and subsequent cases on any employment-related
insurance or fringe benefit program before purchasing this Policy.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
KILICO holds the assets of the Separate Account. The assets are kept
segregated and held separate and apart from the general funds of KILICO. KILICO
maintains records of all purchases and redemptions of the shares of each
portfolio of the Funds by each of the Subaccounts.
VOTING INTERESTS
To the extent required by law, KILICO will vote a Fund's shares held in the
Separate Account at regular and special shareholder meetings of the Fund in
accordance with instructions received from persons having voting interests in
the corresponding Subaccounts of the Separate Account. If, however, the 1940 Act
or any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result KILICO determines that it is permitted to
vote a Fund's shares in its own right, it may elect to do so.
Owners of all Policies participating in each Subaccount shall have voting
interests with respect to that Subaccount, based upon each Owner's proportionate
interest in that Subaccount as measured by units.
Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio of
the Funds.
KILICO will vote shares of the Funds for which it has not received timely
instructions in proportion to the voting instructions that KILICO has received
with respect to all variable policies participating in a portfolio. KILICO will
also vote any Fund shares attributed to amounts it has accumulated in the
Subaccounts in the same proportions that Owners vote.
KILICO may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the subclassification or investment objective
of the Fund or of one or more of its portfolios or to approve or disapprove an
investment advisory contract for a portfolio of the Fund. In addition, KILICO
itself may disregard voting instructions in favor of changes initiated by an
Owner in the investment policy or the investment adviser of
22
<PAGE> 26
a portfolio of a Fund if KILICO reasonably disapproves of such changes. A
proposed change would be disapproved only if the change is contrary to state law
or prohibited by state regulatory authorities, or if KILICO determines that the
change would have an adverse effect on its General Account in that the proposed
investment policy for a portfolio may result in overly speculative or unsound
investments. In the event KILICO does disregard voting instructions, a summary
of that action and the reasons for such action will be included in the next
annual report to Owners.
STATE REGULATION OF KILICO
KILICO, a stock life insurance company organized under the laws of
Illinois, is subject to regulation by the Illinois Department of Insurance. An
annual statement is filed with the Director of Insurance on or before March 1st
of each year covering the operations and reporting on the financial condition of
KILICO as of December 31st of the preceding year. Periodically, the Director of
Insurance examines the liabilities and reserves of KILICO and the Separate
Account and certifies to their adequacy, and a full examination of KILICO's
operations is conducted by the National Association of Insurance Commissioners
at least once every three years.
In addition, KILICO is subject to the insurance laws and regulations of
other states within which it is licensed to operate. Generally, the insurance
department of any other state applies the laws of the state of domicile in
determining permissible investments.
DIRECTORS AND OFFICERS OF KILICO
The directors and principal officers of KILICO are listed below together
with their current positions and their other business experience during the past
five years. The address of each officer and director is 1 Kemper Drive, Long
Grove, Illinois 60049.
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
- ------------------------------ ------------------------------------------------------------------
<S> <C>
John B. Scott (51) Chief Executive Officer and President of Federal Kemper Life
Chief Executive Officer since Assurance Company and Fidelity Life Association since 1988. Chief
February 1992. President since Executive Officer and President of Zurich Life Insurance Company
November 1993. Director since of America since January 1996. Chairman of the Board of Federal
1992. Kemper Life Assurance Company 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
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.
Jerome J. Cwiok (48) Executive Vice President of Federal Kemper Life Assurance Company
Executive Vice President since and Fidelity Life Association since 1995. Executive Vice President
1995. of Zurich Life Insurance Company of America since March 1996.
Senior Vice President of KILICO, Federal Kemper Life Assurance
Company and Fidelity Life Association from 1993 to 1995. Vice
President of Federal Kemper Life Assurance Company and Fidelity
Life Association since 1993. Executive Vice President of Academy
Insurance Group from 1986 to 1993.
Eliane C. Frye (47) Executive Vice President of Federal Kemper Life Assurance Company
Executive Vice President since and Fidelity Life Association since 1995. Executive Vice President
1995. of Zurich Life Insurance Company of America since March 1996.
Senior Vice President of KILICO from 1992 to 1995. Senior Vice
President of Federal Kemper Life Assurance Company and Fidelity
Life Association from 1993 to 1995. Vice President of Federal
Kemper Life Assurance Company and Fidelity Life Association from
1988 to 1993.
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
- ------------------------------ ------------------------------------------------------------------
<S> <C>
Frederick L. Blackmon (43) Senior Vice President and Chief Financial Officer of Federal
Senior Vice President and Kemper Life Assurance Company and Fidelity Life Association since
Chief Financial Officer since November 1995. Treasurer and Chief Financial Officer of Kemper
November 1995. Corporation since January 1996. Senior Vice President and Chief
Financial Officer of Zurich Life Insurance Company of America
since March 1996. Chief Financial Officer of Alexander Hamilton
Life Insurance Company from April 1989 to November 1995.
James E. Hohmann (40) Senior Vice President and Chief Actuary of Federal Kemper Life
Senior Vice President and Assurance Company and Fidelity Life Association since December
Chief Actuary since December 1995. Senior Vice President and Chief Actuary of Zurich Life
1995. Insurance Company of America since March 1996. Managing Principal
(Partner) of Tillinghast--Towers Perrin from January 1991 to
December 1995. Consultant/Principal (Partner) of
Tillinghast--Towers Perrin from November 1986 to January 1991.
Debra P. Rezabek (40) Senior Vice President of Federal Kemper Life Assurance Company and
Senior Vice President since Fidelity Life Association since 1996. General Counsel of Federal
1996. General Counsel since Kemper Life Assurance Company and Fidelity Life Association since
1992. Corporate Secretary 1992. Corporate Secretary of Federal Kemper Life Assurance Company
since January 1996. and Fidelity Life Association since January 1996. Senior Vice
President and General Counsel of Zurich Life Insurance Company of
America since March 1996. Assistant General Counsel of Federal
Kemper Life Assurance Company and Fidelity Life Association from
1988 to 1992. Assistant Secretary of KILICO, Federal Kemper Life
Assurance Company and Fidelity Life Association from 1992 to 1996.
Assistant Secretary of Kemper Corporation since January 1996.
Loren J. Alter (57) Director of Federal Kemper Life Assurance Company, Fidelity Life
Director since January 1996. Association and Zurich Kemper Investments, Inc. since January
1996. Director of Zurich Life Insurance Company of America since
May 1979. Executive Vice President of Zurich Insurance Company
since 1979. President, Chief Executive Officer and Director of
Kemper Corporation since January 1996.
William H. Bolinder (52) Chairman of the Board and Director of Federal Kemper Life
Chairman of the Board and Assurance Company and Fidelity Life Association since January
Director since January 1996. 1996. Chairman of the Board and Director of Zurich Life Insurance
Company of America since March 1995. Chairman of the Board of
Kemper Corporation since January 1996. Vice Chairman and Director
of Zurich Kemper Investments, Inc. since January 1996. 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 1986.
Chief Executive Officer of American Guarantee and Liability
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. U.S. Manager of Zurich Insurance Company, U.S. Branch since
1986. Underwriter for Zurich American Lloyds since 1986.
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
- ------------------------------ ------------------------------------------------------------------
<S> <C>
Daniel L. Doctoroff (37) Director of Kemper Corporation, Federal Kemper Life Assurance
Director since January 1996. Company and Fidelity Life Association since January 1996. Managing
Partner of Insurance Partners Advisors, L.P. since February 1994.
Vice President of Keystone, Inc. since October 1992. Managing
Director of Rosecliff Inc./Oak Hill Partners, Inc. since August
1987. Director of Bell & Howell Company since 1989; National Re
Corporation since 1990; Specialty Foods Corporation since 1993;
and Transport Holdings Inc. since 1995.
Steven M. Gluckstern (45) Director of Kemper Corporation, Federal Kemper Life Assurance
Director since January 1996. Company and Fidelity Life Association since January 1996. Chairman
of the Board and Director of Zurich Kemper Investments, Inc. since
January 1996. Chairman of the Board and Chief Executive Officer of
Zurich Reinsurance Centre, Inc. since May 1993. President of
Centre Re, Bermuda from December 1986 to May 1993.
Michael P. Stramaglia (36) Director of Federal Kemper Life Assurance Company and Fidelity
Director since January 1996. Life Association since January 1996. Chief Executive Officer and
President of Zurich Life Insurance Company of Canada since June
1994. Executive Vice-President and Chief Operating Officer of
Zurich Life Insurance Company of Canada from June 1993 to June
1994. Senior Vice-President of the Corporate Division of Zurich
Life Insurance Company of Canada from November 1990 to January
1993. Director of Zurich Life Insurance Company of Canada, Zurich
Life of Canada Holdings Limited, Zurich Indemnity Company of
Canada, Zurich Canadian Holdings Limited, and Zurmex Canada
Holdings Limited.
Paul H. Warren (40) Director of Kemper Corporation, Federal Kemper Life Assurance
Director since January 1996. Company and Fidelity Life Association since January 1996. Partner
of Insurance Partners Advisors, L.P. since March 1994. Managing
Director of International Insurance Advisors since March 1992.
Vice President of J.P. Morgan from June 1986 to March 1992.
Director of Unionamerica Holdings plc since 1993; Unionamerica
Insurance Company since 1993; Tarquin plc since 1994; and Chairman
Underwriting Agencies Ltd. since 1994.
</TABLE>
LEGAL MATTERS
All matters of Illinois law pertaining to the Policy, including the
validity of the Policy and KILICO's right to issue the Policy under Illinois
Insurance Law, have been passed upon by Frank J. Julian, Associate General
Counsel of KILICO. Katten Muchin & Zavis, Washington, D.C., has advised KILICO
on certain legal matters concerning federal securities laws applicable to the
issue and sale of Policies.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. KILICO is not a party
in any litigation that is of material importance in relation to its total assets
or that relates to the Separate Account.
25
<PAGE> 29
EXPERTS
The financial statements of KILICO and the Separate Account have been
included in the Prospectus in reliance upon the reports 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. As
discussed in the notes to KILICO's consolidated financial statements, effective
January 1, 1994, KILICO changed its method of accounting for investment
securities to adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards ("SFAS") 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. Also, as discussed in the notes
effective January 1, 1993, KILICO changed its method of accounting for
impairment of loans receivable to adopt the provisions of SFAS 114, ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN, and changed its method of accounting for
income taxes to adopt the provisions of SFAS 109, ACCOUNTING FOR INCOME TAXES.
Actuarial matters included in this prospectus have been examined by Steven
D. Powell, FSA as stated in the opinion filed as an exhibit to the Registration
Statement.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies. For further information concerning the Separate Account, KILICO and
the Policy, reference is made to the Registration Statement as amended with
exhibits. Copies of the Registration Statement are available from the Commission
upon payment of a fee.
FINANCIAL STATEMENTS
The financial statements of the Separate Account relate to life insurance
policies other than those offered by this Prospectus. The financial statements
of KILICO that are included should be considered only as bearing upon KILICO's
ability to meet its contractual obligations under the Policy. KILICO's financial
statements do not bear on the investment experience of the assets held in the
Separate Account.
26
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
KEMPER INVESTORS LIFE INSURANCE COMPANY:
We have audited the accompanying combined statement of assets and
liabilities and policy owners' equity of the KILICO Variable Separate Account as
of December 31, 1995, and the related combined statement of operations for the
year then ended, and the combined statements of changes in policy owners' equity
for the years ended December 31, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the KILICO
Variable Separate Account as of December 31, 1995, and the combined results of
its operations for the year then ended, and the combined changes in its policy
owners' equity for the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 16, 1996
27
<PAGE> 31
KILICO VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENT OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY GOVERNMENT
MARKET TOTAL RETURN HIGH YIELD EQUITY SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at current value.......... $11,671 1,001 2,557 2,087 1,925 4,101
Dividends and other receivables........ 7 3 -- 4 -- --
------- ----- ----- ----- ----- -----
Total assets..................... 11,678 1,004 2,557 2,091 1,925 4,101
LIABILITIES AND POLICY OWNERS' EQUITY
Liabilities:
Mortality and expense risk charges... 14 2 4 2 2 4
------- ----- ----- ----- ----- -----
Policy owners' equity.................. $11,664 1,002 2,553 2,089 1,923 4,097
======= ===== ===== ===== ===== =====
ANALYSIS OF POLICY OWNERS' EQUITY
Excess of proceeds from units sold over
payments for units redeemed.......... $ 6,441 530 1,165 1,447 1,070 2,229
Accumulated net investment income...... 3,059 472 677 591 218 1,101
Accumulated net realized gain on sales
of
investments.......................... 810 -- 329 3 220 258
Unrealized appreciation of
investments.......................... 1,354 -- 382 48 415 509
------- ----- ----- ----- ----- -----
Policy owners' equity.................. $11,664 1,002 2,553 2,089 1,923 4,097
======= ===== ===== ===== ===== =====
</TABLE>
See accompanying notes to combined financial statements.
28
<PAGE> 32
KILICO VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY GOVERNMENT
MARKET TOTAL RETURN HIGH YIELD EQUITY SECURITIES
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions..................... $ 613 88 67 90 116 252
Mortality and expense risk
charges........................... 107 20 20 15 14 38
------ ---- --- --- --- ---
Net investment income............... 506 68 47 75 102 214
------ ---- --- --- --- ---
Net realized and unrealized gain on
investments:
Net realized gain on sales of
investments..................... 144 -- 14 54 31 45
Change in unrealized appreciation
of investments.................. 1,253 -- 442 106 301 404
------ ---- --- --- --- ---
Net realized and unrealized gain on
investments....................... 1,397 -- 456 160 332 449
------ ---- --- --- --- ---
Net increase in policy owners'
equity resulting from
operations........................ $1,903 68 503 235 434 663
====== ==== === === === ===
</TABLE>
See accompanying notes to combined financial statements.
29
<PAGE> 33
KILICO VARIABLE SEPARATE ACCOUNT
COMBINED STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY MARKET
COMBINED SUBACCOUNT
----------------------- --------------------
1995 1994 1995 1994
------- ------ ----- -----
<S> <C> <C> <C> <C>
Operations:
Net investment income............................................. $ 506 615 68 43
Net realized gain (loss) on sales of investments.................. 144 55 -- --
Change in unrealized appreciation (depreciation)
of investments.................................................. 1,253 (1,154) -- --
------- ------ ----- -----
Net increase (decrease) in policy owners' equity
resulting from operations..................................... 1,903 (484) 68 43
------- ------ ----- -----
Account unit transactions:
Proceeds from units sold.......................................... 108 514 76 507
Net transfers (to) from subaccounts............................... -- -- (348) 14
Payments for units redeemed....................................... (791) (563) (104) (96)
------- ------ ----- -----
Net increase (decrease) in policy owners' equity
from account unit transactions................................ (683) (49) (376) 425
------- ------ ----- -----
Total increase (decrease) in policy owners' equity.................. 1,220 (533) (308) 468
Policy owners' equity:
Beginning of year................................................. 10,444 10,977 1,310 842
------- ------ ----- -----
End of year....................................................... $11,664 10,444 1,002 1,310
======= ====== ===== =====
</TABLE>
See accompanying notes to combined financial statements.
30
<PAGE> 34
<TABLE>
<CAPTION>
GOVERNMENT
TOTAL RETURN HIGH YIELD EQUITY SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------- --------------- --------------- ---------------
1995 1994 1995 1994 1995 1994 1995 1994
- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
47 188 75 88 102 57 214 239
14 20 54 28 31 (1) 45 8
442 (458) 106 (171) 301 (143) 404 (382)
----- ----- ----- ----- ----- ----- -----
503 (250) 235 (55) 434 (87) 663 (135)
----- ----- ----- ----- ----- ----- -----
-- -- 17 6 3 1 12 --
72 (455) 270 13 508 (71) (502) 499
(146) (133) (147) (177) (143) (75) (251) (82)
----- ----- ----- ----- ----- ----- -----
(74) (588) 140 (158) 368 (145) (741) 417
----- ----- ----- ----- ----- ----- -----
429 (838) 375 (213) 802 (232) (78) 282
2,124 2,962 1,714 1,927 1,121 1,353 4,175 3,893
----- ----- ----- ----- ----- ----- -----
2,553 2,124 2,089 1,714 1,923 1,121 4,097 4,175
===== ===== ===== ===== ===== ===== =====
</TABLE>
31
<PAGE> 35
KILICO VARIABLE SEPARATE ACCOUNT
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
KILICO Variable 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 owned by Kemper Corporation which was acquired by an investor group
led by Zurich Insurance Company ("Zurich") on January 4, 1996.
The Separate Account receives and invests premiums under a variable life
insurance policy ("Policy"). The Separate Account is divided into five
Subaccounts and each Subaccount invests exclusively in a corresponding Portfolio
of the Kemper Investors Fund (The "Fund"), an open-end diversified management
investment company. The Fund has added two additional Subaccounts, the
International Portfolio and the Small Capitalization Equity Portfolio, which are
not available investment vehicles to policy owners of the Separate Account.
SECURITY VALUATION
The investments are stated at current value which is based on the closing
bid price, net asset value, at December 31, 1995.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date (date when KILICO
accepts risks of providing insurance coverage to the insured). Dividends and
capital gains distributions are recorded as income on the ex-dividend date.
Realized gains and losses from security transactions are reported on an
identified cost basis.
ACCOUNT UNIT TRANSACTIONS
Proceeds from a Policy are automatically allocated to the Money Market
Subaccount on the trade date for a 15 day period. At the end of this period, the
Separate Account value (cash value) may be allocated to other Subaccounts as
designated by the owner of the Policy.
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 policy and are, therefore, not taxed. Thus the Separate
Account may realize net investment income and capital gains and losses without
Federal income tax consequences.
32
<PAGE> 36
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF INVESTMENTS
Investments, at cost, at December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
----- -------
<S> <C> <C>
INVESTMENT PORTFOLIO
Kemper Investors Fund Money Market Portfolio.............................. 1,001 $ 1,001
Kemper Investors Fund Total Return Portfolio.............................. 991 2,175
Kemper Investors Fund High Yield Portfolio................................ 1,658 2,039
Kemper Investors Fund Equity Portfolio.................................... 590 1,510
Kemper Investors Fund Government Securities Portfolio..................... 3,231 3,592
-------
TOTAL INVESTMENTS.................................................... $10,317
=======
</TABLE>
The underlying investments and significant industry concentrations are
summarized below.
MONEY MARKET PORTFOLIO: This Portfolio invests primarily in short-term
obligations of major banks and corporations. At December 31, 1995, no industry
exceeded 20% of the Portfolio's assets.
TOTAL RETURN PORTFOLIO: This Portfolio'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 Portfolio may also make private
placement investments (which are normally restricted securities). At December
31, 1995, 21.9% of the Portfolio's assets were invested in U.S. Government
obligations. No other industry exceeded 20% of the Portfolio's assets.
HIGH YIELD PORTFOLIO: This Portfolio 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. At December 31, 1995, 21.4% of the
Portfolio's assets were invested in the broadcasting, cable systems and
publishing industry. No other industry exceeded 20% of the Portfolio's assets.
EQUITY PORTFOLIO: This Portfolio'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). At December 31, 1995, no industry exceeded 20% of the
Portfolio's assets.
GOVERNMENT SECURITIES PORTFOLIO: This Portfolio invests primarily in U.S.
Government Securities. The Portfolio will also invest in fixed-income securities
other than U.S. Government securities and will engage in options and financial
futures transactions. At December 31, 1995, the Portfolio had 84.2% of its
assets invested in U.S. Government obligations. No other industry exceeded 20%
of the Portfolio's assets.
(3) TRANSACTIONS WITH AFFILIATES
KILICO assesses a monthly charge to the Subaccounts for the cost of
insurance. The cost of insurance charge is allocated among the Subaccounts in
the proportion of each Subaccount to the Separate Account value. Cost of
insurance charges totaled approximately $140,300 for the year ended December 31,
1995. Additionally, KILICO assesses a daily charge to the Subaccounts for
mortality and expense risk assumed by KILICO at an annual rate of .90% of
assets.
Proceeds payable on the surrender of a Policy are reduced by the amount of
any applicable contingent deferred sales charge. During the year ended December
31, 1995, KILICO received contingent deferred sales charges of approximately
$5,200.
Kemper Financial Services, Inc. ("KFS"), an affiliated company, is the
investment manager of the Portfolios of the Fund which serve as the underlying
investments of the Separate Account. In connection with the acquisition of
Kemper Corporation on January 4, 1996, Zurich also acquired 100% of KFS.
33
<PAGE> 37
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(4) POLICY OWNERS' EQUITY
Policy owners' equity at December 31, 1995 is as follows (in thousands,
except unit value; differences are due to rounding):
<TABLE>
<CAPTION>
NUMBER POLICY
OF UNIT OWNERS'
UNITS VALUE EQUITY
------ ------ -------
<S> <C> <C> <C>
Money Market Subaccount................................................ 666 $1.505 $ 1,002
Total Return Subaccount................................................ 1,412 1.808 2,553
High Yield Subaccount.................................................. 1,068 1.956 2,089
Equity Subaccount...................................................... 831 2.314 1,923
Government Securities Subaccount....................................... 2,235 1.834 4,097
-------
TOTAL POLICY OWNERS' EQUITY.................................. $11,664
=======
</TABLE>
34
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Kemper Investors Life Insurance Company:
We have audited the consolidated balance sheet of Kemper Investors Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholder's equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kemper
Investors Life Insurance Company and subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in the notes to the consolidated financial statements,
effective January 1, 1994, the Company changed its method of accounting for
investment securities to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Also, as
discussed in the notes, effective January 1, 1993, the Company changed its
method of accounting for impairment of loans receivable to adopt the provisions
of SFAS 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, and changed its
method of accounting for income taxes to adopt the provisions of SFAS 109,
ACCOUNTING FOR INCOME TAXES.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 15, 1996
35
<PAGE> 39
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value (cost: 1995,
$3,643,985;
1994, $3,707,356)................................................ $3,752,325 $3,463,732
Short-term investments............................................. 372,515 204,164
Joint venture mortgage loans....................................... 120,359 351,359
Third-party mortgage loans......................................... 144,450 318,682
Other real estate-related investments.............................. 34,780 237,242
Policy loans....................................................... 289,390 277,743
Other invested assets.............................................. 29,809 40,527
---------- ----------
Total investments........................................ 4,743,628 4,893,449
Cash............................................................... 25,811 23,189
Accrued investment income.......................................... 104,402 125,543
Deferred insurance acquisition costs............................... 318,636 310,465
Federal income tax receivable...................................... 112,646 25,656
Reinsurance recoverable............................................ 502,836 642,801
Other assets and receivables....................................... 12,617 7,993
Assets held in separate accounts................................... 1,761,110 1,507,984
---------- ----------
Total assets............................................. $7,581,686 $7,537,080
========== ==========
LIABILITIES
Future policy benefits............................................. $4,573,212 $4,843,690
Ceded future policy benefits....................................... 502,836 642,801
Other accounts payable and liabilities............................. 25,943 67,261
Deferred income taxes.............................................. 112,709 41,364
Liabilities related to separate accounts........................... 1,761,110 1,507,984
---------- ----------
Total liabilities........................................ 6,975,810 7,103,100
---------- ----------
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......................................... 491,994 491,994
Unrealized gain (loss) on investments.............................. 68,502 (236,443)
Retained earnings.................................................. 42,880 175,929
---------- ----------
Total stockholder's equity............................... 605,876 433,980
---------- ----------
Total liabilities and stockholder's equity............... $7,581,686 $7,537,080
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 40
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
REVENUE
Net investment income.................................... $ 348,448 $353,084 $339,274
Realized investment losses............................... (318,700) (54,557) (27,584)
Fees and other income.................................... 38,337 31,950 25,687
--------- -------- --------
Total revenue.................................. 68,085 330,477 337,377
--------- -------- --------
BENEFITS AND EXPENSES
Benefits and interest credited to policyholders.......... 245,615 248,494 275,689
Commissions, taxes, licenses and fees.................... 31,793 26,910 33,875
Operating expenses....................................... 20,837 25,324 24,383
Deferral of insurance acquisition costs.................. (36,870) (31,852) (31,781)
Amortization of insurance acquisition costs.............. 14,423 20,809 12,376
--------- -------- --------
Total benefits and expenses.................... 275,798 289,685 314,542
--------- -------- --------
Income (loss) before income tax expense (benefit) and
cumulative effect of change in accounting principle.... (207,713) 40,792 22,835
Income tax expense (benefit)............................. (74,664) 14,431 11,142
--------- -------- --------
Income (loss) before cumulative effect of
change in accounting principle............... (133,049) 26,361 11,693
Cumulative effect of change in accounting principle...... -- -- 2,350
--------- -------- --------
Net income (loss).............................. $(133,049) $ 26,361 $ 14,043
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 41
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
CAPITAL STOCK, beginning and end of year..................... $ 2,500 $ 2,500 $ 2,500
--------- --------- --------
ADDITIONAL PAID-IN CAPITAL, beginning of year................ 491,994 409,423 310,237
Capital contributions from parent............................ -- 82,500 90,000
Transfer of limited partnership interest to parent........... -- 71 9,186
--------- --------- --------
End of year........................................ 491,994 491,994 409,423
--------- --------- --------
UNREALIZED GAIN (LOSS) ON INVESTMENTS, beginning of year..... (236,443) 93,096 39,872
Unrealized gain (loss) on revaluation of investments, net.... 304,945 (329,539) 53,224
--------- --------- --------
End of year........................................ 68,502 (236,443) 93,096
--------- --------- --------
RETAINED EARNINGS, beginning of year......................... 175,929 149,568 136,055
Net income (loss)............................................ (133,049) 26,361 14,043
Dividend of limited partnership interest to parent........... -- -- (530)
--------- --------- --------
End of year........................................ 42,880 175,929 149,568
--------- --------- --------
Total stockholder's equity......................... $ 605,876 $ 433,980 $654,587
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 42
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................... $(133,049) $ 26,361 $ 14,043
Reconcilement of net income (loss) to net cash
provided:
Realized investment losses......................... 318,700 54,557 27,584
Interest credited and other charges................ 237,984 242,591 269,766
Deferred insurance acquisition costs............... (22,447) (11,043) (19,405)
Amortization of discount and premium on
investments...................................... 4,586 (1,383) (203)
Deferred income taxes.............................. 38,423 20,809 14,596
Federal income tax receivable...................... (86,990) 809 (10,110)
Other, net......................................... (29,905) (14,161) 40,258
--------- ----------- -----------
Net cash provided from operating activities... 327,302 318,540 336,529
--------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity.................. 320,143 144,717 187,949
Fixed maturities sold prior to maturity............ 297,637 910,913 1,652,119
Mortgage loans, policy loans and other invested
assets........................................... 450,573 536,668 881,505
Cost of investments purchased or loans originated:
Fixed maturities................................... (549,867) (1,447,393) (2,322,085)
Mortgage loans, policy loans and other invested
assets........................................... (131,966) (281,059) (443,445)
Short-term investments, net........................... (168,351) 198,299 (214,999)
Net change in receivable and payable for securities
transactions....................................... (1,397) (16,553) 39,078
Net reductions in other assets........................ 1,996 2,678 8,062
--------- ----------- -----------
Net cash provided by (used in) investing
activities.................................. 218,768 48,270 (211,816)
--------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits........................................... 247,778 215,034 246,219
Withdrawals........................................ (755,917) (652,513) (516,340)
Capital contributions from parent..................... -- 82,500 90,000
Other................................................. (35,309) 3,871 16,776
--------- ----------- -----------
Net cash used in financing activities......... (543,448) (351,108) (163,345)
--------- ----------- -----------
Net increase (decrease) in cash.......... 2,622 15,702 (38,632)
CASH, beginning of period............................... 23,189 7,487 46,119
--------- ----------- -----------
CASH, end of period..................................... $ 25,811 $ 23,189 $ 7,487
========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 43
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 and interest-sensitive life insurance
products marketed primarily through a network of financial institutions,
nonaffiliated and affiliated 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 investors group comprised of
Zurich Insurance Company ("Zurich"), Insurance Partners, L.P. ("IP") and
Insurance Partners Offshore (Bermuda), L.P. (together with IP, "Insurance
Partners") acquired all of the issued and outstanding common stock of Kemper. As
a result of the change in control, Zurich and Insurance Partners indirectly and
directly own 80 percent and 20 percent, respectively, of Kemper and therefore
the Company. The consolidated financial statements of the Company as of December
31, 1995 have been prepared on a historical cost basis and have not been
adjusted to reflect the fair values of the Company's assets and liabilities as
of the date of the acquisition by Zurich and Insurance Partners.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. The statements include the accounts of
the Company on a consolidated basis. All significant intercompany balances and
transactions have been eliminated.
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, provisions for real estate-related losses and
reserves, other than temporary declines in values for fixed maturities, the
valuation allowance for deferred income taxes and the calculation of fair value
disclosures for certain financial instruments.
LIFE INSURANCE REVENUE AND EXPENSES
Revenue for annuities and interest-sensitive life insurance products
consists of investment income, and policy charges such as mortality, expense and
surrender charges. Expenses consist of benefits and interest credited to
contracts, policy maintenance costs and amortization of deferred insurance
acquisition costs. Also reflected in fees and other income is a ceding
commission experience adjustment received in 1995 as a result of certain
reinsurance transactions entered into by the Company during 1992. (See the note
captioned "Reinsurance".)
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. Beginning in 1994, deferred insurance
acquisition costs 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.
FUTURE POLICY BENEFITS
Liabilities for future policy benefits related to annuities and
interest-sensitive life contracts reflect net premiums received plus interest
credited during the contract accumulation period and the present value of future
payments for contracts that have annuitized. Current interest rates credited
during the contract accumulation period range from 4 percent to 8.35 percent.
Future minimum guaranteed interest rates vary from 4 percent to 8.35 percent for
periods ranging from a portion of 1996 up to a portion of 1998 and are
40
<PAGE> 44
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
generally 3 percent to 4.5 percent thereafter. For contracts that have
annuitized, interest rates used in determining the present value of future
payments range principally from 3 percent to 11.25 percent.
INVESTED ASSETS AND RELATED INCOME
Investments in fixed maturities are carried at fair value. Short-term
investments are carried at cost, which approximates fair value. (See the note
captioned "Fair Value of Financial Instruments".)
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 certain bonds
issued by real estate finance or development companies; notes receivable from
real estate ventures; investments in real estate ventures carried at cost,
adjusted for the equity in the operating income or loss of such ventures; and
real estate owned carried primarily 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. Prior to
year-end 1995, the Company evaluated its real estate-related assets (including
accrued interest) by estimating the probabilities of loss utilizing various
projections that included several factors relating to the borrower, property,
term of the loan, tenant composition, rental rates, other supply and demand
factors and overall economic conditions. Generally, at that time, the reserve
was based upon the excess of the loan amount over the estimated future cash
flows from the loan discounted at the loan's contractual rate of interest taking
into consideration the effects of recourse to, and subordination of loans held
by, affiliated non-life realty companies. At year-end 1995, reflecting the
Company's change in strategy with respect to its real estate portfolio, and the
disposition thereof, real estate-related investments were valued using an
estimate of the investments observable market price, net of estimated costs to
sell.
SFAS 114 defines "impaired loans" as loans in which it is probable that a
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. In the fourth quarter of 1994, the Company adopted
SFAS 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN--INCOME RECOGNITION
AND DISCLOSURES. SFAS 118 amends SFAS 114, providing clarification of income
recognition issues and requiring additional disclosures relating to impaired
loans. The adoption of SFAS 118 had no effect on the Company's financial
position or results of operations at or for the year ended December 31, 1994.
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. 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.
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 securities, over the estimated life of the security. Such
amortization is included in net interest income. Amortization of the discount or
premium from mortgage-backed securities is recognized using a level effective
yield method which considers the estimated timing and amount of prepayments of
the underlying mortgage 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
mortgage-backed securities change as a result of changes in prepayment rates,
the adjustment is also included in net investment income. The Company does not
accrue interest income on fixed maturities deemed to be impaired on an
other-than-temporary basis, or on mortgage loans, real estate-related bonds and
other real estate loans where the likelihood of collection of interest is
doubtful.
Policy loans are carried at their unpaid balance. Other invested assets
consist primarily of venture capital investments and a leveraged lease and are
carried at cost. Other invested assets also included equity securities which are
carried at fair value.
41
<PAGE> 45
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 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
Federal consolidated tax return.
Under SFAS 109, ACCOUNTING FOR INCOME TAXES, 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 paid to (refunded by) Kemper under the tax allocation
arrangement for the years ended December 31, 1995, 1994 and 1993 amounted to
$(25.2 million), $(10.7 million) and $4.2 million, respectively.
Not reflected in the statement of cash flows are rollovers of mortgage
loans, other loans and investments totaling approximately $57.0 million and
$146.0 million in 1994 and 1993, respectively.
The Company also transferred its equity ownership interests in two limited
partnerships during 1994 and 1993. (See the note captioned "Related-Party
Transactions".)
(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,
depending upon certain economic and business conditions.
42
<PAGE> 46
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
The carrying value (estimated fair value) of fixed maturities compared with
amortized cost, adjusted for other-than-temporary declines in value, at December
31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
CARRYING AMORTIZED ---------------------
(in thousands) VALUE COST GAINS LOSSES
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
1995
U.S. treasury securities and obligations of U.S.
government agencies and authorities............ $ 215,637 $ 212,494 $ 3,163 $ (20)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.............. 24,241 22,469 1,772 --
Debt securities issued by foreign governments.... 139,361 134,715 5,120 (474)
Corporate securities............................. 1,698,270 1,638,178 65,075 (4,983)
Mortgage-backed securities....................... 1,674,816 1,636,129 40,278 (1,591)
---------- ---------- -------- ---------
Total fixed maturities.................... $3,752,325 $3,643,985 $115,408 $ (7,068)
========== ========== ======== =========
1994
U.S. treasury securities and obligations of U.S.
government agencies and authorities............ $ 10,682 $ 10,998 $ 24 $ (340)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.............. 25,021 25,691 -- (670)
Debt securities issued by foreign governments.... 109,624 120,950 50 (11,376)
Corporate securities............................. 1,679,428 1,805,933 7,027 (133,532)
Mortgage-backed securities....................... 1,638,977 1,743,784 -- (104,807)
---------- ---------- -------- ---------
Total fixed maturities.................... $3,463,732 $3,707,356 $ 7,101 $(250,725)
========== ========== ======== =========
</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 $300 million real estate portfolio consists of joint venture
and third-party mortgage loans and other real estate-related investments.
At December 31, 1995 and 1994, total impaired loans amounted to $21.9
million and $75.9 million, respectively. Impaired loans with reserves were $21.9
million and $67.6 million with corresponding reserves of $6.5 million and $18.8
million at December 31, 1995 and 1994, respectively. The Company had an average
balance of $124.2 million and $93.9 million in impaired loans for 1995 and 1994,
respectively. Cash payments received on impaired loans are generally applied to
reduce the outstanding loan balance. At December 31, 1995 and 1994, loans on
nonaccrual status amounted to $3.5 million and $274.6 million, respectively.
Impaired loans are generally included in the Company's nonaccrual loans.
43
<PAGE> 47
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
At December 31, 1995, securities carried at approximately $5.9 million were
on deposit with governmental agencies as required by law.
Proceeds from sales of investments in fixed maturities prior to maturity
were $297.6 million, $910.9 million and $1.7 billion during 1995, 1994 and 1993,
respectively. Gross gains of $21.2 million, $6.0 million and $80.4 million and
gross losses of $4.7 million, $55.9 million and $37.8 million were realized on
sales of fixed maturities in 1995, 1994 and 1993, respectively.
The following table sets forth the maturity aging schedule of fixed
maturity investments at December 31, 1995:
<TABLE>
<CAPTION>
CARRYING AMORTIZED
(in thousands) VALUE COST VALUE
---------- ----------
<S> <C> <C>
One year or less........................................................ $ 25,617 $ 25,202
Over one year through five.............................................. 576,138 562,374
Over five years through ten............................................. 1,248,675 1,200,157
Over ten years.......................................................... 227,079 220,123
Securities not due at a single maturity date(1)......................... 1,674,816 1,636,129
---------- ----------
Total fixed maturities........................................... $3,752,325 $3,643,985
========== ==========
</TABLE>
- ---------------
(1) Weighted average maturity of 5.4 years.
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities................. $269,934 $274,231 $221,144
Dividends on equity securities............................. 681 1,751 3,084
Income from short-term investments......................... 13,159 10,668 12,155
Income from mortgage loans................................. 40,494 41,713 82,028
Income from policy loans................................... 19,658 18,517 16,826
Income from other real estate-related investments.......... 15,565 21,239 11,755
Income from other loans and investments.................... 1,555 3,533 8,008
-------- -------- --------
Total investment income............................. 361,046 371,652 355,000
Investment expense......................................... (12,598) (18,568) (15,726)
-------- -------- --------
Net investment income............................... $348,448 $353,084 $339,274
======== ======== ========
</TABLE>
Realized gains (losses) for the years ended December 31, 1995, 1994 and
1993, were as follows:
<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
-------------------------------------------
(in thousands) 1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Real estate-related................................. $(325,611) $(41,720) $(79,652)
Fixed maturities.................................... 9,336 (49,857) 36,234
Equity securities................................... (346) 28,243 17,086
Other............................................... (2,079) 8,777 (1,252)
--------- -------- --------
Realized investment losses before income tax
benefit........................................ (318,700) (54,557) (27,584)
Income tax benefit.................................. (111,545) (19,095) (7,917)
--------- -------- --------
Net realized investment losses.................... $(207,155) $(35,462) $(19,667)
========= ======== ========
</TABLE>
44
<PAGE> 48
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
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, 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED GAINS (LOSSES)
------------------------------------------
(in thousands) 1995 1994 1993
-------- --------- -------
<S> <C> <C> <C>
Fixed maturities.................................... $351,964 $(351,646) $60,258
Equity securities................................... 180 (32,710) 19,882
Adjustment to deferred insurance acquisition
costs............................................. (14,277) 11,325 --
-------- --------- -------
Unrealized gain (loss) before income tax expense
(benefit)...................................... 337,867 (373,031) 80,140
Income tax expense (benefit)........................ 32,922 (43,492) 26,916
-------- --------- -------
Net unrealized gain (loss) on investments.... $304,945 $(329,539) $53,224
======== ========= =======
</TABLE>
(4) UNCONSOLIDATED INVESTEES
At December 31, 1995, the Company, along with other Kemper subsidiaries,
directly held partnership interests or options to acquire equity interests (or
has made loans with additional interest features) 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, 1995 and 1994, the Company's net equity investment in
unconsolidated investees amounted to $17.1 million and $45.4 million,
respectively. The Company's share of net losses related to such unconsolidated
investees amounted to $453 thousand and $6.3 million for the years ended
December 31, 1995 and 1994, respectively.
Also at December 31, 1995, the Company had joint venture-related loans
totaling $21.8 million before reserves to partnerships in which Lumbermens
Mutual Casualty Company, an affiliate until August 1993 ("Lumbermens"), and
Fidelity Life Association ("FLA"), an affiliated mutual insurance company, had
equity interests. These joint venture-related loans totaled $37.5 million before
reserves at December 31, 1994. (See the note captioned "Financial
Instruments--Off-Balance-Sheet Risk".)
(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-backed securities and real estate. Approximately 45.7 percent of the
Company's investment-grade fixed maturities at December 31, 1995 were
mortgage-backed securities, down from 49.2 percent at December 31, 1994. 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 of AAA
credit quality, and the markets for these investments have been and are expected
to remain liquid. The Company plans to continue to reduce its holding of such
investments over time.
Future investment income from mortgage-backed securities may be affected by
the timing of principal payments and the yields on reinvestment alternatives
available at the time of such payments. Due to the
45
<PAGE> 49
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT RISK (CONTINUED)
fact that the Company's investments in mortgage-backed securities were
predominately made since 1992, the current interest rate environment is not
expected to cause any material extension of the average maturities of these
investments. With the exception of many of the Company's September 1994
purchases of such investments, most of these investments were purchased by the
Company at discounts. Prepayment activity on securities purchased at a discount
is not expected to result in any material losses to the Company because
prepayments would generally accelerate the reporting of the discounts as
investment income. 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, 1995, the Company had
unamortized discounts and premiums of $17.0 million and $11.0 million,
respectively, related to mortgage-backed securities. Given the credit quality,
liquidity and anticipated payment characteristics of the Company's investments
in mortgage-backed securities, the Company believes that the associated risk can
be managed without material adverse consequences on its consolidated financial
statements.
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, 1995 DISTRIBUTION BY PROPERTY TYPE
AS OF DECEMBER 31, 1995
<TABLE>
<S> <C>
California................... 28.7%
Illinois..................... 24.4
Texas........................ 10.2
Oregon....................... 7.4
Colorado..................... 6.5
Hawaii....................... 6.2
Washington................... 5.7
Florida...................... 4.8
Ohio......................... 2.9
Other(1)..................... 3.2
-----
Total.............. 100.0%
=====
Hotel........................ 34.3%
Office....................... 30.2
Land......................... 17.2
Residential.................. 4.8
Retail....................... 4.5
Industrial................... 3.0
Other........................ 6.0
-----
Total.............. 100.0%
=====
</TABLE>
- ---------------
(1) No other single location exceeded 2.0 percent.
Real estate markets have been depressed in recent periods in areas where
most of the Company's real estate portfolio is located. California real estate
market conditions have continued to be worse than in many other areas of the
country. Real estate markets in northern California and Illinois show some
stabilization and improvement.
Undeveloped land represented approximately 17.2 percent of the Company's
real estate portfolio at December 31, 1995. 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
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.
The majority of the Company's real estate loans are on properties or
projects where the Company, Kemper, or their affiliates have taken ownership
positions in joint ventures with a small number of partners. (See the note
captioned "Unconsolidated Investees".)
46
<PAGE> 50
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT RISK (CONTINUED)
At December 31, 1995, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt") have interests constituted
approximately $99.7 million, or 33.3 percent, of the Company's real estate
portfolio. The Nesbitt ventures primarily consist of eleven hotel properties. At
December 31, 1995, the Company did not have any Nesbitt-related
off-balance-sheet legal funding commitments outstanding.
At December 31, 1995, loans to and investments in a master limited
partnership (the "MLP") between subsidiaries of Kemper and subsidiaries of
Lumbermens, constituted approximately $66.0 million, or 22.0 percent, of the
Company's real estate portfolio. The Company's interest in the MLP is a less
than one percent limited partnership interest, and Kemper's interest is 75
percent at December 31, 1995. Prior to 1995, Kemper's interest was 50 percent.
At December 31, 1995, MLP-related commitments accounted for approximately $29.8
million of the Company's off-balance-sheet legal commitments, of which the
Company expects to fund $17.0 million.
At December 31, 1995, the Company's loans to and investments in projects
with the Prime Group, Inc. or its affiliates totaled approximately $24.8
million, or 8.3 percent, of the Company's real estate portfolio. Prime
Group-related commitments accounted for $165.6 million of the off-balance-sheet
legal commitments at December 31, 1995, of which the Company expects to fund
$15.0 million.
(6) INCOME TAXES
Income tax expense (benefit) was as follows for the years ended December
31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
--------- ------- -------
<S> <C> <C> <C>
Current.................................................. $(113,087) $(6,898) $(5,773)
Deferred................................................. 38,423 21,329 16,915
--------- ------- -------
Total.......................................... $ (74,664) $14,431 $11,142
========= ======= =======
</TABLE>
Included in the current tax benefit is the recognition of a net operating
loss carryover at December 31, 1995 which will be 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 will file a stand alone Federal income tax return. Previously, the
Company had filed a consolidated Federal income tax return with Kemper. In the
first quarter of 1996, the Company and Kemper settled the outstanding balances
for the short period under the tax allocation agreement with Kemper making a
payment to the Company of approximately $30 million. The Company's receivable
from Kemper for all remaining balances under the tax allocation agreement, after
adjusting for the $30 million payment, totaled approximately $82.6 million at
December 31, 1995. Such remaining amounts are expected to be settled in the
fourth quarter of 1996.
The actual income tax expense (benefit) for 1995, 1994 and 1993 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 1995, 1994, and 1993 to income (loss) before
income tax expense (benefit) and cumulative effect of change in accounting
principle.
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Computed expected tax expense (benefit)....................... $(72,700) $14,277 $7,992
Difference between "expected" and actual tax expense
(benefit):
State taxes................................................. (1,370) 645 332
Foreign tax credit.......................................... (183) (155) 358
Change in tax rate.......................................... -- -- 1,441
Change in valuation allowance............................... -- -- 701
Other, net.................................................. (411) (336) 318
-------- ------- -------
Total actual tax expense (benefit).................. $(74,664) $14,431 $11,142
======== ======= =======
</TABLE>
47
<PAGE> 51
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
Under SFAS 109 ACCOUNTING FOR INCOME TAXES, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Under SFAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. SFAS 109 allows recognition of deferred tax assets if future realization
of the tax benefit is more likely than not, with a valuation allowance for the
portion that is not likely to be realized.
The implementation of SFAS 109 in 1993 resulted in a one-time increase to
earnings of $2.4 million.
Under SFAS 109, a valuation allowance is established 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 Kemper's Federal income tax
return or a change in circumstances which causes the recognition of the benefits
to become more likely than not. During 1995 and 1994, the change in the
valuation allowance 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 liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
(in thousands) 1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Deferred Federal tax assets:
Unrealized losses on investments..................... $ -- $ 85,331 $ --
Life policy reserves................................. 42,512 51,519 60,446
Real estate-related.................................. 21,920 39,360 45,851
Other investment-related............................. 1,725 7,435 12,498
Other................................................ 6,864 6,415 5,804
--------- --------- --------
Total deferred Federal tax assets................. 73,021 190,060 124,599
Valuation allowance.................................. (15,201) (100,532) (15,201)
--------- --------- --------
Total deferred Federal tax assets after valuation
allowance....................................... 57,820 89,528 109,398
--------- --------- --------
Deferred Federal tax liabilities:
Deferred insurance acquisition costs................. 111,523 108,663 100,834
Unrealized gains on investments...................... 37,919 -- 49,193
Depreciation and amortization........................ 18,767 18,878 21,367
Other................................................ 2,320 3,351 2,049
--------- --------- --------
Total deferred Federal tax liabilities............ 170,529 130,892 173,443
--------- --------- --------
Net deferred Federal tax liabilities................... $(112,709) $ (41,364) $(64,045)
========= ========= ========
</TABLE>
The valuation allowance is subject to future adjustments based on, among
other items, Kemper's estimates of future operating earnings and capital gains.
The tax returns through the year 1986 have been examined by the Internal
Revenue Service ("IRS"). Changes proposed are not material to the Company's
financial position. The tax returns for the years 1987 through 1990 are
currently under examination by the IRS.
(7) RELATED-PARTY TRANSACTIONS
The Company received cash capital contributions of $82.5 million and $90.0
million during 1994 and 1993, respectively.
48
<PAGE> 52
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) RELATED-PARTY TRANSACTIONS (CONTINUED)
In 1994 and 1993, the Company transferred the majority of its deficit
equity ownership interest in two limited partnerships to another Kemper
subsidiary resulting in an increase of the Company's additional paid-in capital
of $71 thousand and $9.2 million, respectively. The Company also paid a non-cash
dividend of $530 thousand in December 1993, which represented the positive
equity ownership interests of the majority of one of its limited partnerships.
Net losses associated with the Company's ownership interests in these limited
partnerships amounted to $0.4 million, $1.4 million and $5.4 million in 1995,
1994 and 1993, respectively, and are included in the Company's consolidated
statement of operations.
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, 1995 and 1994, joint venture mortgage loans
totaled $120 million and $351 million, respectively, and during 1995, 1994 and
1993, the Company earned interest income on these joint venture loans of $19.6
million, $22.0 million and $63.1 million, respectively.
All of the Company's personnel are employees of Federal Kemper Life
Assurance Company ("FKLA"), an affiliated company. The Company is allocated
expenses for the utilization of FKLA employees and facilities, the investment
management services of Zurich Kemper Investments, Inc. ("ZKI"), an affiliated
company, and the information systems of Kemper Service Company ("KSvC"), a ZKI
subsidiary, based on the Company's share of administrative, legal, marketing,
investment management, information systems and operation and support services.
During 1995, 1994 and 1993, expenses allocated to the Company from ZKI and KSvC
amounted to $4.4 million, $6.5 million and $3.1 million, respectively. The
Company also paid to ZKI investment management fees of $3.4 million, $6.0
million and $6.7 million during 1995, 1994 and 1993, respectively. In addition,
expenses allocated to the Company from FKLA during 1995, 1994 and 1993 amounted
to $14.3 million, $11.1 million and $13.1 million, respectively.
During 1995, 1994 and 1993, the Company sold certain mortgages and real
estate-related investments, net of reserves, amounting to approximately $3.5
million, $154.0 million and $343.7 million respectively, to KFC Portfolio Corp.,
an affiliated non-life realty company, in exchange for cash. No gain or loss was
recognized on these sales. The Company also paid KFC Portfolio Corp. $1.8
million in 1995 related to the management of the Company's real estate
portfolio.
(8) REINSURANCE
In the ordinary course of business, the Company enters into reinsurance
agreements to diversify risk and limit its overall financial exposure to certain
blocks of fixed-rate annuities. The Company generally cedes 100 percent of the
related annuity liabilities under the terms of the reinsurance agreements.
Although these reinsurance agreements contractually obligate the reinsurers to
reimburse the Company, they do not discharge the Company from its primary
liabilities and obligations to policyholders. As such, these amounts paid or
deemed to have been paid are recorded on the Company's consolidated balance
sheet as reinsurance recoverables and ceded future policy benefits.
In 1992 and 1991, the Company entered into 100 percent indemnity
reinsurance agreements ceding $515.7 million and $416.3 million, respectively,
of its fixed-rate annuity liabilities to FLA. FLA is a mutual insurance company
that shares common management with the Company and FKLA and common board members
with the Company, FKLA and Kemper. As of December 31, 1995, the reinsurance
recoverable related to the fixed-rate annuity liabilities ceded to FLA amounted
to approximately $503 million. During 1995 the Company recorded income of $4.4
million related to a ceding commission experience adjustment from the 1992
reinsurance agreement.
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company and FKLA sponsor a welfare plan that provides medical and life
insurance benefits to their 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
49
<PAGE> 53
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
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 discount rate used in determining the allocated postretirement benefit
obligation was 7.25 percent and 8 percent for 1995 and 1994, respectively. The
assumed health care trend rate used was based on projected experience for 1995
and 1996, 10 percent in 1997, gradually declining to 6 percent by the year 2000
and remaining at that level thereafter.
The status of the plan as of December 31, 1995 and 1994, was as follows:
Accumulated postretirement benefit obligation:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Retirees.......................................................................... $234 $206
Fully eligible active plan participants........................................... 111 58
Other active plan participants.................................................... 427 101
Unrecognized gain (loss) from actuarial experience................................ (85) 314
---- ----
Accrued liability....................................................... $687 $679
==== ====
Components of the net periodic postretirement benefit cost:
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Service cost-benefits attributed to service during the period..................... $ 58 $ 31
Interest cost on accumulated postretirement benefit obligations................... 41 43
Amortization of unrecognized actuarial gain....................................... (19) (35)
---- ----
Total................................................................... $ 80 $ 39
===== =====
</TABLE>
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, 1995 and 1994 by $146 thousand and $48 thousand,
respectively, and the net postretirement health care interest and service costs
for the years ended December 31, 1995 and 1994 by $24 thousand and $14 thousand,
respectively.
During 1994, the Company adopted certain severance-related policies to
provide benefits, generally limited in time, to former or inactive employees
after employment but before retirement. The effect of adopting these policies
was immaterial.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various legal actions for which it establishes
liabilities where appropriate. In the opinion of the Company's management, based
upon the advice of legal counsel, the resolution of such litigation is not
expected to have a material adverse effect on the consolidated financial
statements.
Although none of the Company or its joint venture projects have been
identified as a "potentially responsible party" under Federal environmental
guidelines, inherent in the ownership of or lending to real estate projects is
the possibility that environmental pollution conditions may exist on or near or
relate to properties owned or previously owned on properties securing loans.
Where the Company has presently identified remediation costs, they have been
taken into account in determining the cash flows and resulting valuations of the
related real estate assets. Based on the Company's receipt and review of
environmental reports on most of the projects in which it is involved, the
Company believes its environmental exposure would be immaterial to its
consolidated results of operations. However, the Company may be required in the
future to take actions to remedy environmental exposures, and there can be no
assurance that material environmental exposures will not develop or be
identified in the future. The amount of future environmental costs is impossible
to estimate due to, among other factors, the unknown magnitude of possible
exposures, the unknown timing and extent of corrective actions that may be
required, the determination of the Company's liability in proportion to others
and the extent such costs may be covered by insurance or various environmental
indemnification agreements.
50
<PAGE> 54
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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
1995 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. Assessments
levied against the Company and charged to expense in 1995, 1994 and 1993
amounted to $5.8 million, $0.0 million and $5.8 million, respectively. Such
amounts relate to accrued guaranty fund assessments of $5.0 million and $4.0
million at December 31, 1995 and 1994, respectively. 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, 1995.
(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK
At December 31, 1995, the Company had loan commitments and stand-by
financing agreements totaling $248.2 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 $56.4 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) DERIVATIVE FINANCIAL INSTRUMENTS
The Company is party to derivative financial instruments in the normal
course of business for other than trading purposes to hedge exposures in foreign
currency fluctuations related to certain foreign fixed maturity securities held
by the Company. The following table summarizes various information regarding
these derivative financial instruments as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REPRICING
(in thousands) NOTIONAL CARRYING ESTIMATED YEARS TO FREQUENCY
1995 AMOUNT VALUE FAIR VALUE EXPIRATION (DAYS)
- ----------------------------------------------------------------- -------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Non-trading foreign exchange forward options..................... $ 43,754 $112 $112 .32 30
1994
- -----------------------------------------------------------------
Non-trading foreign exchange forward options..................... 34,541 18 18 .25 30
</TABLE>
The Company's hedges relating to foreign currency exposure are implemented
using forward contracts on foreign currencies. These are generally short
duration contracts with U.S. money-center banks. The Company records realized
and unrealized gains and losses on such investments in net income on a current
basis. The amounts of gain (loss) included in net income during 1995, 1994 and
1993 totaled $(1.0 million), $6.4 million and $(2.8 million), respectively.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at specific points in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. A significant portion of the Company's financial instruments are
carried at fair value. (See the 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
51
<PAGE> 55
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
based on judgments regarding current and future economic conditions and the risk
characteristics of the investments. Although fair value estimates are calculated
using assumptions that management believes are appropriate, changes in
assumptions could significantly affect the estimates and such estimates should
be used with care.
Fair value estimates are determined for existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and certain liabilities that are not
considered financial instruments. Accordingly, the aggregate fair value
estimates presented do not represent the underlying value of the Company. For
example, the Company's subsidiaries are not considered financial instruments,
and their value has not been incorporated into the fair value estimates. In
addition, tax ramifications related to the realization of unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Fixed maturities and equity securities: Fair values for fixed maturity
securities and for equity securities were determined by using market quotations,
or independent pricing services that use prices provided by market makers or
estimates of fair values obtained from yield data relating to instruments or
securities with similar characteristics, or fair value as determined in good
faith by the Company's portfolio manager, ZKI.
Cash and short-term investments: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate fair values.
Mortgage loans and other real estate-related investments: Fair values for
mortgage loans and other real estate-related investments for year-end 1994 were
estimated on a project-by-project basis. Generally, the projected cash flows of
the collateral were discounted using a discount rate of 10 to 12 percent. The
resulting collateral estimates were then used to determine the value of the
Company's real estate-related investments. Fair values for mortgage loans and
other real estate-related investments for year-end 1995 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 1995 and 1994 to be 4.5 percent and 5.5 percent,
respectively, while the assumed average market crediting rate was 5.5 percent in
1995 and 6.5 percent in 1994.
52
<PAGE> 56
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------
1995 1994
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
(in thousands) VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities(1)........................ $3,752,325 $3,752,325 $3,463,732 $3,463,732
Cash and short-term investments............ 398,326 398,326 227,353 227,353
Mortgage loans and other real
estate-related assets................... 299,589 299,589 907,283 804,867
Policy loans............................... 289,390 289,390 277,743 277,743
Other invested assets...................... 29,809 21,043 40,527 40,527
Financial instruments recorded as
liabilities:
Life policy benefits....................... 4,573,212 4,488,297 4,843,690 4,709,561
</TABLE>
- ---------------
(1) Includes $112 and $18 carrying value and fair value for 1995 and 1994,
respectively, of derivative securities used to hedge the foreign currency
exposure on certain specific foreign fixed maturity investments.
(14) STOCKHOLDER'S EQUITY--RETAINED EARNINGS
The maximum amount of dividends which can be paid by insurance companies
domiciled in the State of Illinois to shareholders without prior approval of
regulatory authorities is restricted. The maximum amount of dividends which can
be paid by the Company without prior approval in 1996, assuming that there is
sufficient statutory earned surplus, is $38.3 million. The Company paid no cash
dividends in 1995, 1994 or 1993.
The Company's net income (loss) and stockholder's equity as determined in
accordance with statutory accounting principles were as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)............................................. $(64,707) $ 44,491 $(36,178)
======== ======== ========
Statutory surplus............................................. $383,374 $416,243 $329,430
======== ======== ========
</TABLE>
53
<PAGE> 57
APPENDIX A
ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES,
DEATH BENEFITS
The tables in this Prospectus have been prepared to help show how values
under a Policy change with investment experience. The tables illustrate how Cash
Values, Surrender Values (reflecting the deduction of Surrender Charges, if any)
and Death Benefits under a Policy issued on an insured of a given age would vary
over time if the hypothetical gross investment rates of return were a uniform,
after tax, annual rate of 0%, 6%, and 12%. If the hypothetical gross investment
rate of return averages 0%, 6%, or 12%, but fluctuates over or under those
averages throughout the years, the Cash Values, Surrender Values and Death
Benefits may be different.
The amounts shown for the Cash Value, Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the Subaccounts is lower than the gross return. This is
because of a daily charge to the Subaccounts for assuming mortality and expense
risks, which is equivalent to an effective annual charge of 0.90%. This charge
is guaranteed not to exceed an effective annual rate of 0.90%. In addition, the
net investment returns also reflect the deduction of the Fund investment
advisory fees and other Fund expenses, (.92%, the average of the fees and
expenses). The tables also reflect applicable charges and deductions including a
3.5% deduction against premiums, a monthly administrative charge of $5 and
monthly charges for providing insurance protection. For each hypothetical gross
investment rate of return, tables are provided reflecting current and guaranteed
cost of insurance charges. Hypothetical gross average investment rates of return
of 0%, 6% and 12% correspond to the following approximate net annual investment
rate of return of -1.82%, 4.18% and 10.18%, on a current basis. On a guaranteed
basis, these rates of return would be -1.82%, 4.18% and 10.18%, respectively.
Cost of insurance rates vary by issue age, sex, rating class and Policy Year
and, therefore, are not reflected in the approximate net annual investment rate
of return above.
Values are shown for Policies which are issued to a male standard nonsmoker
and a male preferred nonsmoker. Values for Policies issued on a basis involving
a higher mortality risk would result in lower Cash Values, Surrender Values and
Death Benefits than those illustrated. Females generally have a more favorable
rate structure than males.
The tables also reflect the fact that no charges for federal, state or
other income taxes are currently made against the Separate Account. If such a
charge is made in the future, it will take a higher gross rate of return than
illustrated to produce the net after-tax returns shown in the tables.
Upon request, KILICO will furnish an illustration based on the proposed
Insured's age, sex and premium payment requested.
54
<PAGE> 58
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER $1,000. ANNUAL PREMIUM ISSUE AGE 35
$100,000 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
12% HYPOTHETICAL
0% HYPOTHETICAL 6% HYPOTHETICAL GROSS INVESTMENT
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PAID PLUS --------------------------------- -------------------------------- ---------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------ --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 724 17 100,000 774 68 100,000 825 118
2 2,153 1,429 648 100,000 1,576 794 100,000 1,729 947
3 3,310 2,112 1,255 100,000 2,401 1,544 100,000 2,715 1,858
4 4,526 2,771 1,840 100,000 3,250 2,318 100,000 3,791 2,859
5 5,802 3,409 2,403 100,000 4,125 3,118 100,000 4,966 3,960
6 7,142 4,019 3,046 100,000 5,020 4,047 100,000 6,247 5,273
7 8,549 4,603 3,678 100,000 5,938 5,013 100,000 7,643 6,718
8 10,027 5,161 4,298 100,000 6,880 6,017 100,000 9,168 8,306
9 11,578 5,693 4,909 100,000 7,846 7,062 100,000 10,836 10,052
10 13,207 6,216 5,525 100,000 8,855 8,164 100,000 12,677 11,987
11 14,917 6,730 6,148 100,000 9,909 9,326 100,000 14,712 14,130
12 16,713 7,237 6,778 100,000 11,010 10,550 100,000 16,961 16,501
13 18,599 7,736 7,415 100,000 12,160 11,838 100,000 19,445 19,124
14 20,579 8,227 8,059 100,000 13,362 13,193 100,000 22,190 22,022
15 22,657 8,711 8,711 100,000 14,617 14,617 100,000 25,223 25,223
16 24,840 9,187 9,187 100,000 15,929 15,929 100,000 28,574 28,574
17 27,132 9,656 9,656 100,000 17,299 17,299 100,000 32,277 32,277
18 29,539 10,118 10,118 100,000 18,731 18,731 100,000 36,368 36,368
19 32,066 10,573 10,573 100,000 20,227 20,227 100,000 40,889 40,889
20 34,719 11,020 11,020 100,000 21,789 21,789 100,000 45,883 45,883
25 50,113 10,923 10,923 100,000 28,575 28,575 100,000 78,636 78,636
30 69,761 8,599 8,599 100,000 35,318 35,318 100,000 131,633 131,633
35 94,836 2,275 2,275 100,000 41,110 41,110 100,000 215,714 215,714
40 126,840 (11,752) 0 100,000 44,302 44,302 100,000 349,794 349,794
45 167,685 (42,893) 0 100,000 40,832 40,832 100,000 565,945 565,945
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ -------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 100,000
18 100,000
19 100,000
20 100,000
25 105,372
30 160,592
35 250,228
40 374,279
45 594,242
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
55
<PAGE> 59
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER $1,000. ANNUAL PREMIUM ISSUE AGE 35
$100,000 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
12% HYPOTHETICAL
0% HYPOTHETICAL 6% HYPOTHETICAL GROSS INVESTMENT
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PAID PLUS --------------------------------- -------------------------------- ---------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------ --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 723 16 100,000 773 67 100,000 824 117
2 2,153 1,425 644 100,000 1,572 790 100,000 1,725 943
3 3,310 2,106 1,249 100,000 2,395 1,538 100,000 2,708 1,851
4 4,526 2,764 1,832 100,000 3,241 2,310 100,000 3,781 2,850
5 5,802 3,398 2,391 100,000 4,112 3,105 100,000 4,952 3,945
6 7,142 4,007 3,034 100,000 5,006 4,032 100,000 6,230 5,256
7 8,549 4,590 3,665 100,000 5,922 4,997 100,000 7,623 6,698
8 10,027 5,147 4,285 100,000 6,862 6,000 100,000 9,145 8,283
9 11,578 5,676 4,892 100,000 7,824 7,040 100,000 10,807 10,023
10 13,207 6,177 5,486 100,000 8,810 8,119 100,000 12,624 11,933
11 14,917 6,647 6,065 100,000 9,816 9,234 100,000 14,609 14,026
12 16,713 7,086 6,626 100,000 10,844 10,385 100,000 16,779 16,320
13 18,599 7,492 7,170 100,000 11,893 11,571 100,000 19,154 18,833
14 20,579 7,863 7,695 100,000 12,962 12,794 100,000 21,756 21,587
15 22,657 8,198 8,198 100,000 14,049 14,049 100,000 24,606 24,606
16 24,840 8,495 8,495 100,000 15,155 15,155 100,000 27,731 27,731
17 27,132 8,749 8,749 100,000 16,276 16,276 100,000 31,160 31,160
18 29,539 8,953 8,953 100,000 17,406 17,406 100,000 34,921 34,921
19 32,066 9,104 9,104 100,000 18,543 18,543 100,000 39,053 39,053
20 34,719 9,194 9,194 100,000 19,681 19,681 100,000 43,594 43,594
25 50,113 8,534 8,534 100,000 25,239 25,239 100,000 74,373 74,373
30 69,761 5,161 5,161 100,000 29,953 29,953 100,000 124,442 124,442
35 94,836 (3,252) 0 100,000 32,143 32,143 100,000 203,536 203,536
40 126,840 (21,775) 0 100,000 28,278 28,278 100,000 329,236 329,236
45 167,685 (64,123) 0 100,000 8,455 8,455 100,000 531,607 531,607
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ -------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 100,000
18 100,000
19 100,000
20 100,000
25 100,000
30 151,819
35 236,102
40 352,282
45 558,187
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
56
<PAGE> 60
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER $3,000. ANNUAL PREMIUM ISSUE AGE 55
$100,000 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------------ --------------------------------- -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ---------- --------- ------- ------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,032 787 100,000 2,180 935 100,000 2,328 1,083
2 6,457 3,968 2,499 100,000 4,392 2,922 100,000 4,835 3,365
3 9,930 5,803 4,108 100,000 6,631 4,936 100,000 7,533 5,838
4 13,577 7,539 5,619 100,000 8,902 6,983 100,000 10,448 8,529
5 17,406 9,164 7,019 100,000 11,195 9,050 100,000 13,596 11,451
6 21,426 10,721 8,588 100,000 13,553 11,420 100,000 17,045 14,913
7 25,647 12,267 10,191 100,000 16,040 13,964 100,000 20,893 18,817
8 30,080 13,804 11,830 100,000 18,662 16,688 100,000 25,183 23,209
9 34,734 15,332 13,505 100,000 21,427 19,600 100,000 29,968 28,141
10 39,620 16,850 15,215 100,000 24,342 22,707 100,000 35,304 33,669
11 44,751 18,358 16,960 100,000 27,417 26,019 100,000 41,255 39,857
12 50,139 19,857 18,741 100,000 30,659 29,543 100,000 47,892 46,776
13 55,796 21,347 20,558 100,000 34,078 33,289 100,000 55,293 54,504
14 61,736 22,827 22,410 100,000 37,683 37,266 100,000 63,548 63,131
15 67,972 24,298 24,298 100,000 41,484 41,484 100,000 72,753 72,753
16 74,521 25,760 25,760 100,000 45,493 45,493 100,000 83,020 83,020
17 81,397 27,213 27,213 100,000 49,720 49,720 100,000 94,444 94,444
18 88,617 28,657 28,657 100,000 54,177 54,177 100,000 107,045 107,045
19 96,198 30,092 30,092 100,000 58,878 58,878 100,000 120,941 120,941
20 104,158 31,518 31,518 100,000 63,834 63,834 100,000 136,268 136,268
25 150,340 21,578 21,578 100,000 86,603 86,603 100,000 237,080 237,080
30 209,282 (8,154) 0 100,000 119,288 119,288 125,253 395,181 395,181
35 284,509 (97,968) 0 100,000 157,008 157,008 164,858 638,100 638,100
40 380,519 (411,771) 0 100,000 203,214 203,214 205,246 1,026,438 1,026,438
45 503,055 (2,584,062) 0 100,000 266,594 266,594 266,594 1,693,207 1,693,207
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 106,722
18 118,820
19 131,826
20 145,807
25 248,934
30 414,940
35 670,005
40 1,036,702
45 1,693,207
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
57
<PAGE> 61
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER $3,000. ANNUAL PREMIUM ISSUE AGE 55
$100,000 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------------- ------------------------------------ -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ----------- --------- ------- ---------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,030 785 100,000 2,178 933 100,000 2,326 1,081
2 6,457 3,962 2,492 100,000 4,385 2,915 100,000 4,827 3,358
3 9,930 5,795 4,100 100,000 6,623 4,928 100,000 7,523 5,829
4 13,577 7,527 5,608 100,000 8,890 6,970 100,000 10,434 8,515
5 17,406 9,152 7,007 100,000 11,181 9,036 100,000 13,579 11,435
6 21,426 10,663 8,530 100,000 13,493 11,360 100,000 16,981 14,848
7 25,647 12,053 9,977 100,000 15,819 13,743 100,000 20,668 18,592
8 30,080 13,310 11,336 100,000 18,153 16,180 100,000 24,667 22,693
9 34,734 14,421 12,594 100,000 20,486 18,659 100,000 29,014 27,187
10 39,620 15,372 13,737 100,000 22,806 21,171 100,000 33,750 32,115
11 44,751 16,150 14,752 100,000 25,108 23,710 100,000 38,929 37,531
12 50,139 16,745 15,629 100,000 27,389 26,273 100,000 44,619 43,503
13 55,796 17,142 16,353 100,000 29,644 28,855 100,000 50,904 50,115
14 61,736 17,329 16,912 100,000 31,870 31,454 100,000 57,886 57,469
15 67,972 17,283 17,283 100,000 34,062 34,062 100,000 65,687 65,687
16 74,521 16,973 16,973 100,000 36,205 36,205 100,000 74,457 74,457
17 81,397 16,306 16,306 100,000 38,244 38,244 100,000 84,370 84,370
18 88,617 15,323 15,323 100,000 40,229 40,229 100,000 95,616 95,616
19 96,198 13,905 13,905 100,000 42,096 42,096 100,000 108,027 108,027
20 104,158 11,972 11,972 100,000 43,819 43,819 100,000 121,716 121,716
25 150,340 (8,555) 0 100,000 49,628 49,628 100,000 213,228 213,228
30 209,282 (66,744) 0 100,000 46,230 46,230 100,000 355,823 355,823
35 284,509 (256,141) 0 100,000 8,441 8,441 100,000 572,636 572,636
40 380,519 (1,034,340) 0 100,000 (210,236) 0 100,000 918,273 918,273
45 503,055 (16,453,799) 0 100,000 (5,702,159) 0 100,000 1,520,785 1,520,785
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 100,000
2 100,000
3 100,000
4 100,000
5 100,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
13 100,000
14 100,000
15 100,000
16 100,000
17 100,000
18 106,133
19 117,750
20 130,236
25 223,890
30 373,614
35 601,267
40 927,456
45 1,520,785
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
58
<PAGE> 62
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $1,500. ANNUAL PREMIUM ISSUE AGE 35
$150,000 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS -------------------------------- --------------------------------- -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------ --------- ------- ------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,421 368 150,000 1,508 455 150,000 1,595 542
2 3,229 2,816 1,651 150,000 3,079 1,913 150,000 3,352 2,186
3 4,965 4,186 2,908 150,000 4,716 3,438 150,000 5,288 4,010
4 6,788 5,531 4,141 150,000 6,421 5,030 150,000 7,421 6,031
5 8,703 6,852 5,349 150,000 8,197 6,694 150,000 9,772 8,269
6 10,713 8,148 6,694 150,000 10,048 8,594 150,000 12,361 10,907
7 12,824 9,421 8,039 150,000 11,976 10,593 150,000 15,215 13,832
8 15,040 10,671 9,382 150,000 13,985 12,696 150,000 18,358 17,070
9 17,367 11,898 10,726 150,000 16,077 14,905 150,000 21,822 20,650
10 19,810 13,102 12,069 150,000 18,257 17,224 150,000 25,638 24,605
11 22,376 14,285 13,414 150,000 20,528 19,657 150,000 29,843 28,972
12 25,069 15,446 14,759 150,000 22,894 22,207 150,000 34,476 33,789
13 27,898 16,586 16,106 150,000 25,359 24,879 150,000 39,581 39,100
14 30,868 17,705 17,454 150,000 27,927 27,676 150,000 45,205 44,953
15 33,986 18,804 18,804 150,000 30,603 30,603 150,000 51,401 51,401
16 37,261 19,883 19,883 150,000 33,390 33,390 150,000 58,229 58,229
17 40,699 20,943 20,943 150,000 36,294 36,294 150,000 65,752 65,752
18 44,309 21,983 21,983 150,000 39,319 39,319 150,000 74,040 74,040
19 48,099 23,004 23,004 150,000 42,470 42,470 150,000 83,172 83,172
20 52,079 24,006 24,006 150,000 45,753 45,753 150,000 93,234 93,234
25 75,170 28,751 28,751 150,000 64,347 64,347 150,000 161,158 161,158
30 104,641 33,080 33,080 150,000 87,164 87,164 150,000 271,450 271,450
35 142,254 37,029 37,029 150,000 115,167 115,167 150,000 450,533 450,533
40 190,260 40,632 40,632 150,000 149,532 149,532 159,999 741,316 741,316
45 251,528 43,918 43,918 150,000 191,705 191,705 201,290 1,213,470 1,213,470
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 150,000
15 150,000
16 150,000
17 150,000
18 150,000
19 150,000
20 150,000
25 215,952
30 331,169
35 522,618
40 793,209
45 1,274,144
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
59
<PAGE> 63
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $1,500. ANNUAL PREMIUM ISSUE AGE 35
$150,000 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
12% HYPOTHETICAL
0% HYPOTHETICAL 6% HYPOTHETICAL GROSS INVESTMENT
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
PAID PLUS --------------------------------- -------------------------------- ---------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------ --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,114 60 150,000 1,190 137 150,000 1,267 214
2 3,229 2,197 1,031 150,000 2,421 1,255 150,000 2,654 1,488
3 4,965 3,247 1,968 150,000 3,688 2,410 150,000 4,167 2,889
4 6,788 4,262 2,871 150,000 4,993 3,603 150,000 5,819 4,429
5 8,703 5,241 3,738 150,000 6,335 4,832 150,000 7,623 6,119
6 10,713 6,182 4,728 150,000 7,714 6,260 150,000 9,591 8,137
7 12,824 7,084 5,701 150,000 9,129 7,746 150,000 11,739 10,357
8 15,040 7,946 6,657 150,000 10,580 9,292 150,000 14,086 12,797
9 17,367 8,765 7,593 150,000 12,067 10,895 150,000 16,649 15,477
10 19,810 9,542 8,510 150,000 13,591 12,558 150,000 19,451 18,418
11 22,376 10,274 9,402 150,000 15,149 14,277 150,000 22,515 21,644
12 25,069 10,957 10,270 150,000 16,740 16,053 150,000 25,866 25,179
13 27,898 11,591 11,110 150,000 18,366 17,885 150,000 29,534 29,054
14 30,868 12,173 11,922 150,000 20,024 19,773 150,000 33,553 33,302
15 33,986 12,700 12,700 150,000 21,713 21,713 150,000 37,958 37,958
16 37,261 13,170 13,170 150,000 23,433 23,433 150,000 42,791 42,791
17 40,699 13,574 13,574 150,000 25,178 25,178 150,000 48,094 48,094
18 44,309 13,905 13,905 150,000 26,941 26,941 150,000 53,915 53,915
19 48,099 14,155 14,155 150,000 28,717 28,717 150,000 60,311 60,311
20 52,079 14,314 14,314 150,000 30,500 30,500 150,000 67,344 67,344
25 75,170 13,448 13,448 150,000 39,289 39,289 150,000 115,081 115,081
30 104,641 8,530 8,530 150,000 47,001 47,001 150,000 192,469 192,469
35 142,254 (3,905) 0 150,000 51,289 51,289 150,000 314,711 314,711
40 190,260 (31,401) 0 150,000 47,288 47,288 150,000 508,982 508,982
45 251,528 (94,364) 0 150,000 21,442 21,442 150,000 821,751 821,751
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ -------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 150,000
15 150,000
16 150,000
17 150,000
18 150,000
19 150,000
20 150,000
25 154,208
30 234,812
35 365,065
40 544,611
45 862,839
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
60
<PAGE> 64
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $4,500. ANNUAL PREMIUM ISSUE AGE 55
$150,000 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS --------------------------------- --------------------------------- -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ------- --------- ------- ------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,725 4,263 2,403 150,000 4,524 2,664 150,000 4,785 2,924
2 9,686 8,449 6,251 150,000 9,237 7,039 150,000 10,056 7,858
3 14,896 12,559 10,024 150,000 14,147 11,612 150,000 15,864 13,329
4 20,365 16,594 13,721 150,000 19,263 16,390 150,000 22,264 19,391
5 26,109 20,555 17,345 150,000 24,592 21,381 150,000 29,315 26,105
6 32,139 24,445 21,252 150,000 30,144 26,951 150,000 37,084 33,891
7 38,471 28,263 25,155 150,000 35,928 32,819 150,000 45,644 42,535
8 45,120 32,012 29,056 150,000 41,954 38,998 150,000 55,075 52,119
9 52,101 35,693 32,957 150,000 48,231 45,495 150,000 65,466 62,730
10 59,431 39,307 36,858 150,000 54,771 52,322 150,000 76,915 74,466
11 67,127 42,855 40,761 150,000 61,585 59,491 150,000 89,530 87,435
12 75,208 46,339 44,667 150,000 68,683 67,011 150,000 103,428 101,756
13 83,694 49,759 48,577 150,000 76,078 74,896 150,000 118,742 117,560
14 92,604 53,116 52,492 150,000 83,782 83,157 150,000 135,614 134,989
15 101,959 56,413 56,413 150,000 91,808 91,808 150,000 154,204 154,204
16 111,782 59,650 59,650 150,000 100,170 100,170 150,000 174,687 174,687
17 122,096 62,828 62,828 150,000 108,881 108,881 150,000 197,255 197,255
18 132,926 65,948 65,948 150,000 117,956 117,956 150,000 222,120 222,120
19 144,297 69,011 69,011 150,000 127,410 127,410 150,000 249,516 249,516
20 156,237 72,018 72,018 150,000 137,260 137,260 150,000 279,702 279,702
25 225,511 86,254 86,254 150,000 193,040 193,040 202,692 483,475 483,475
30 313,924 99,241 99,241 150,000 261,493 261,493 274,568 814,349 814,349
35 426,763 111,088 111,088 150,000 345,500 345,500 362,775 1,351,599 1,351,599
40 570,779 121,895 121,895 150,000 448,595 448,595 453,081 2,223,949 2,223,949
45 754,583 131,754 131,754 150,000 575,115 575,115 575,115 3,640,411 3,640,411
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 158,669
15 178,877
16 200,890
17 222,898
18 246,553
19 271,973
20 299,281
25 507,649
30 855,067
35 1,419,179
40 2,246,189
45 3,640,411
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
61
<PAGE> 65
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $4,500. ANNUAL PREMIUM ISSUE AGE 55
$150,000 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------------- ------------------------------------ -----------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ --------- ----------- --------- ------- ---------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,725 3,075 1,214 150,000 3,297 1,437 150,000 3,520 1,660
2 9,686 6,002 3,804 150,000 6,641 4,443 150,000 7,308 5,110
3 14,896 8,781 6,246 150,000 10,031 7,496 150,000 11,392 8,856
4 20,365 11,409 8,536 150,000 13,468 10,595 150,000 15,802 12,929
5 26,109 13,875 10,665 150,000 16,943 13,733 150,000 20,568 17,358
6 32,139 16,170 12,977 150,000 20,450 17,257 150,000 25,726 22,533
7 38,471 18,284 15,175 150,000 23,983 20,875 150,000 31,317 28,209
8 45,120 20,199 17,243 150,000 27,530 24,574 150,000 37,386 34,430
9 52,101 21,896 19,159 150,000 31,077 28,341 150,000 43,984 41,248
10 59,431 23,352 20,904 150,000 34,610 32,161 150,000 51,177 48,728
11 67,127 24,550 22,456 150,000 38,120 36,026 150,000 59,046 56,952
12 75,208 25,474 23,802 150,000 41,603 39,931 150,000 67,698 66,026
13 83,694 26,103 24,921 150,000 45,053 43,870 150,000 77,258 76,076
14 92,604 26,416 25,792 150,000 48,465 47,840 150,000 87,883 87,258
15 101,959 26,384 26,384 150,000 51,833 51,833 150,000 99,761 99,761
16 111,782 25,956 25,956 150,000 55,137 55,137 150,000 113,120 113,120
17 122,096 24,997 24,997 150,000 58,296 58,296 150,000 128,232 128,232
18 132,926 23,565 23,565 150,000 61,385 61,385 150,000 145,322 145,322
19 144,297 21,485 21,485 150,000 64,313 64,313 150,000 164,155 164,155
20 156,237 18,639 18,639 150,000 67,044 67,044 150,000 184,927 184,927
25 225,511 (11,771) 0 150,000 76,956 76,956 150,000 323,790 323,790
30 313,924 (98,215) 0 150,000 75,008 75,008 150,000 540,165 540,165
35 426,763 (379,805) 0 150,000 29,668 29,668 150,000 869,155 869,155
40 570,779 (1,537,009) 0 150,000 (241,236) 0 150,000 1,393,624 1,393,624
45 754,583 (24,467,369) 0 150,000 (7,091,810) 0 150,000 2,307,887 2,307,887
<CAPTION>
POLICY DEATH
YEAR BENEFIT
- ------ ---------
<S> <C>
1 150,000
2 150,000
3 150,000
4 150,000
5 150,000
6 150,000
7 150,000
8 150,000
9 150,000
10 150,000
11 150,000
12 150,000
13 150,000
14 150,000
15 150,000
16 150,000
17 150,000
18 161,307
19 178,929
20 197,872
25 339,980
30 567,174
35 912,613
40 1,407,561
45 2,307,887
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
62
<PAGE> 66
APPENDIX B
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT
- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95-99 100
</TABLE>
* ATTAINED AGE AS OF THE BEGINNING OF THE POLICY YEAR
63
<PAGE> 67
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484(B)(1)
UNDER THE SECURITIES ACT OF 1933
Pursuant to the Distribution Agreement filed as Exhibit 1-A(3)(a) to this
Registration Statement, Kemper Investors Life Insurance Company (KILICO) and the
Separate Account will agree to indemnify Investors Brokerage Services, Inc.
(IBS) against any claims, liabilities and expenses which IBS may incur under the
Securities Act of 1933, common law or otherwise, arising out of or based upon
any alleged untrue statements of material fact contained in any registration
statement or prospectus of the Separate Account, or any omission to state a
material fact therein, the omission of which makes any statement contained
therein misleading. IBS will agree to indemnify KILICO and the Separate Account
against any and all claims, demands, liabilities and expenses which KILICO or
the Separate Account may incur, arising out of or based upon any act or deed of
IBS or of any registered representative of an NASD member investment dealer
which has an agreement with IBS and is acting in accordance with KILICO's
instructions.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
KILICO or the Separate Account (by virtue of the fact that they may also be
agents, employees or controlling persons of IBS) pursuant to the foregoing
provisions, or otherwise KILICO and the Separate Account have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
may be against public policy as expressed in the Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by KILICO or the Separate Account of
expenses incurred or paid by a director, officer or controlling person of KILICO
or the Separate Account in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, KILICO and the Separate Account
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-1
<PAGE> 68
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The Facing sheet.
* Reconciliation and tie between items in N-8B-2 and Prospectus.
The prospectus consisting of 63 pages.
The undertaking to file reports.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act
of 1933.
The signatures.
Written consents of the following persons:
A. Frank J. Julian, Esq. (Included in Opinion filed as Exhibit
3(a)).
C. KPMG Peat Marwick, independent auditors (Filed as Exhibit
6(a)).
D. Steven Powell, FSA (Included in Opinion filed as Exhibit
3(b)).
The following exhibits:
<TABLE>
<S> <C>
*1-A(1) KILICO Resolution establishing the Separate Account
*1-A(3)(a) Distribution Agreement between KILICO and Investors Broker-
age Services, Inc. (IBS)
*1-A(3)(b) Specimen Selling Group Agreement of IBS and KILICO General
Agent Agreement
1-A(3)(c) Schedules of commissions
1-A(5) Form of Policy
*1-A(6)(a) KILICO Articles of Incorporation
*1-A(6)(b) By-Laws of KILICO
1-A(8)(a) Form of Participation Agreement among KILICO, American
Skandia Trust and American Skandia Investment Services,
Incorporated
1-A(8)(b) Form of Service Agreement between KILICO and American
Skandia Investment Services, Incorporated
1-A(10) Application for Policy
2 Specimen Notice of Withdrawal Right
3(a) Opinion and consent of legal officer of KILICO as to
legality of policies being registered
3(b) Opinion and consent of actuarial officer of KILICO
regarding prospectus illustrations and actuarial matters
6(a) Consent of independent auditors
8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii)
*11 Representation, description and undertakings regarding
mortality and expense risk charge pursuant to Rule
6e-3(T)(b)(13)(iii)(F)
</TABLE>
- -------------------------
* Filed with the Registration Statement of the Registrant on Form S-6 filed on
or about December 26, 1995 (File No. 33-65399).
II-2
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
KILICO Variable Separate Account, 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 4th day
of June, 1996.
KILICO VARIABLE SEPARATE ACCOUNT
(Registrant)
By: Kemper Investors Life Insurance
Company
(Depositor)
By:
/s/ JOHN B. SCOTT
------------------------------------
John B. Scott, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following directors
and principal officers of Kemper Investors Life Insurance Company in the
capacities indicated on the 4th day of June, 1996.
<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
Frederick L. Blackmon Principal Accounting Officer)
/s/ DANIEL L. DOCTOROFF Director
- -----------------------------------------------
Daniel L. Doctoroff
/s/ LOREN J. ALTER Director
- -----------------------------------------------
Loren J. Alter
/s/ STEVEN M. GLUCKSTERN Director
- -----------------------------------------------
Steven M. Gluckstern
/s/ PAUL H. WARREN Director
- -----------------------------------------------
Paul H. Warren
/s/ MICHAEL P. STRAMAGLIA Director
- -----------------------------------------------
Michael P. Stramaglia
</TABLE>
II-3
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER TITLE PAGES
- ------------- --------------------------------------------------------------------- ----------
<S> <C> <C>
1-A(3)(c) Schedules of commissions
1-A(5) Form of Policy
1-A(8)(a) Form of Participation Agreement among KILICO, American Skandia Trust
and American Skandia Investment Services, Incorporated
1-A(8)(b) Form of Service Agreement between KILICO and American Skandia
Investment Services, Incorporated
1-A(10) Application for Policy
2 Specimen Notice of Withdrawal Right
3(a) Opinion and consent of legal officer of KILICO as to legality of
policies being registered
3(b) Opinion and consent of actuarial officer of KILICO regarding
prospectus illustrations and actuarial matters
6(a) Consent of Independent Auditors
8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii)
</TABLE>
<PAGE> 1
EXHIBIT 1-A(3)(c)
COMMISSIONS
<TABLE>
<CAPTION>
Up to
Target Excess
------ ------
<S> <C> <C>
1. First Year 115% 5%
2. Years 2 through 10 5% 5%
3. Years 11+ 0% 0%
</TABLE>
4. Trail 5 basis points ("b.p.") starting in the
second policy year, increasing by 5 b.p.
per year to 30 b.p. per year in the seventh
and later years.
5. Quality Recognition Program No.
6. The commission reduction factors will not be used on this plan.
7. Commission chargebacks will apply in the first and second years.
The chargeback will be 100% in the first year and 50% in the
second year.
COMMISSIONS ON INCREASES IN COVERAGE
1. Ratio = A/B
a. A = Commission Phase Target Premium (commission target
based on increase).
b. B = Total Commission Target Premium.
2. Ratio * Premium Paid is commissioned at the rate associated with
the phase of A.
3. This is a first year payment only; the increase will receive the same
rate as the basic coverage in year 2 and thereafter.
<PAGE> 1
EXHIBIT 1-A(5)
KEMPER INVESTORS LIFE INSURANCE COMPANY [KEMPER LOGO]
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049-0001
Telephone 847-550-5500
<TABLE>
<S> <C> <C> <C>
Insured JOHN DOE Issue Age 35
Policy Date JUN 01 1996 Policy Number 5006003
Initial Specified
Amount $50,000 Date of Issue JUN 01 1996
</TABLE>
RIGHT TO CANCEL
This policy may be returned to us within 10 days of the time you receive it, or
45 days after you complete the application for insurance, whichever is later.
It may be mailed or delivered to us or to the agent who sold it. Upon our
receipt, this policy will be deemed void from the beginning. The Cash Value of
the policy plus any monthly deductions and any deductions made against premiums
will be refunded within seven days of our receipt of a notice of cancellation
and the return of this policy. This amount will be at least equal to the
premiums paid.
On the Maturity Date, if the insured is living and this policy is in force, we
will pay the Net Surrender Value to you. If the insured dies prior to the
Maturity Date and this policy is in force, we will pay to the beneficiary the
death benefit in force at the time of the insured's death. Payment made to you
or to the beneficiary will be made subject to the terms of this policy.
This policy is issued in consideration of the attached application(s) and
payment of the Initial Premium. The terms on this and the following pages are
part of the policy.
Signed for the Kemper Investors Life Insurance Company at its home office in
Long Grove, Illinois.
[SIG.] [SIG.]
Secretary President
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
NON-PARTICIPATING -- NO ANNUAL DIVIDENDS
TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED
ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE
DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH
BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND
TERMINATION PROVISIONS.
This policy is a legal contract between you and us.
READ YOUR POLICY CAREFULLY.
Policy Form No. S-600 3AK
<PAGE> 2
INDEX
PAGE NO.
Death Benefit Provisions 8
Definitions 5
General Account Provisions 11
General Provisions 6-8
Non-Forfeiture Provisions 13
Policy Loan Provisions 15
Settlement Option Table 19
Settlement Provisions 17-18
Surrender Value Provisions 16
Transfer Provisions 14
Transfer, Withdrawal, Loan and Surrender Procedures 17
Variable Account Provisions 11-13
Withdrawal Provisions 15
Additional Benefits, if any, listed in the Policy Specifications are described
in the additional benefit agreements that follow the Settlement Option Table.
<PAGE> 3
POLICY SPECIFICATIONS
INSURED JOHN DOE 35 ISSUE AGE
POLICY DATE JUN 01, 1996 5006003 POLICY NUMBER
INITIAL SPECIFIED $50,000 JUN 01, 1996 DATE OF ISSUE
AMOUNT
DEATH BENEFIT A
OPTION
COVERAGE INFORMATION
RATE
BENEFIT DESCRIPTION CLASS COVERAGE MATURITY OR MONTHLY
PERCENT AMOUNT EXPIRY DATE RATE
FLEXIBLE PREMIUM VARIABLE LIFE* 100 50,000 JUN 01, 2061 SEE PAGE D
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE
SHOWN IF PREMIUMS PAID AFTER THE INITIAL PREMIUM ARE INSUFFICIENT TO CONTINUE
THE COVERAGE TO SUCH DATE. EVEN IF COVERAGE CONTINUES TO THE MATURITY DATE,
THERE MAY BE NO NET CASH SURRENDER VALUE TO BE PAID ON THAT DATE. COVERAGE
AMOUNT UNDER OPTION A IS THE SPECIFIED AMOUNT INCLUSIVE OF THE CASH VALUE.
PREMIUM INFORMATION
INITIAL PREMIUM $297.50
MONTHLY GUARANTEE PREMIUM $24.80
GUARANTEE PERIOD 3 YEARS
PLANNED PERIODIC PREMIUM $500.00 ANNUAL
INSURED RATE CLASS STANDARD NONSMOKER
PAGE A
<PAGE> 4
POLICY SPECIFICATIONS
INSURED JOHN DOE 35 ISSUE AGE
POLICY DATE JUN 01, 1996 5006003 POLICY NUMBER
DEDUCTION DAY DAY 01 OF EACH MONTH
DEDUCTION PERIOD 65 YEARS, 00 MONTHS
MINIMUM SPECIFIED AMOUNT $50,000
MINIMUM CHANGE IN SPECIFIED AMOUNT $25,000
MINIMUM WITHDRAWAL AMOUNT $500.00
PARTIAL WITHDRAWAL CHARGE $ 25.00
MONTHLY ADMINISTRATIVE CHARGE $ 5.00
PREMIUM CHARGES 3.50%
ISSUE CHARGE PER $1,000 $ 5.00
SURRENDER TARGET AMOUNT $322.50
SURRENDER CHARGE PERCENTAGE
<TABLE>
<CAPTION>
POLICY POLICY POLICY
YEAR PERCENT YEAR PERCENT YEAR PERCENT
<S> <C> <C> <C> <C> <C>
1 100 6 90 11 40
2 100 7 80 12 30
3 100 8 70 13 20
4 100 9 60 14 10
5 100 10 50 15 0
</TABLE>
SEE YOUR POLICY FOR FURTHER INFORMATION ON THE SURRENDER CHARGE.
TABLE OF CASH VALUE CORRIDORS
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95+ 100
*ATTAINED AGE IS THE AGE NEAREST BIRTHDAY AS OF THE BEGINNING OF THE POLICY YEAR.
</TABLE>
PAGE B
<PAGE> 5
POLICY SPECIFICATIONS
INSURED JOHN DOE 35 ISSUE AGE
POLICY DATE JUN 01, 1996 5006003 POLICY NUMBER
TRADE DATE JULY 01, 1996
SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION
MONEY MARKET 10%
TOTAL RETURN 10%
HIGH YIELD 10%
GROWTH 10%
GOVERNMENT SECURITIES 10%
INTERNATIONAL 10%
SMALL CAP GROWTH 10%
LORD ABBETT GROWTH AND INCOME 0%
BERGER CAPITAL GROWTH 0%
PIMCO TOTAL RETURN BOND 0%
T. ROWE PRICE INTERNATIONAL EQUITY 0%
JANCAP GROWTH 0%
FOUNDERS CAPITAL APPRECIATION 0%
T. ROWE PRICE ASSET ALLOCATION 0%
INVESCO EQUITY INCOME 0%
PIMCO LIMITED MATURITY BOND 0%
GENERAL ACCOUNT
FIXED ACCOUNT 30%
A MORTALITY AND EXPENSE RISK CHARGE IS ASSESSED DAILY ON THE SEPARATE ACCOUNT
VALUE OF THIS POLICY. THIS CHARGE IS GUARANTEED NOT TO EXCEED 0.90% ANNUALLY.
THE CURRENT CHARGE, ASSESSED ON A DAILY BASIS, IS 0.90% ANNUALLY.
PAGE C
<PAGE> 6
POLICY SPECIFICATIONS
INSURED JOHN DOE 35 ISSUE AGE
POLICY DATE JUN 01, 1996 6006003 POLICY NUMBER
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE NONSMOKER SMOKER AGE NONSMOKER SMOKER AGE NONSMOKER SMOKER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.08917 0.08917 34 0.13417 0.20667 67 2.15500 3.58417
2 0.08250 0.08250 35 0.14083 0.21917 68 2.41240 3.87917
3 0.08167 0.08167 36 0.14750 0.23417 69 2.66044 4.19333
4 0.07917 0.07917 37 0.15667 0.25333 70 2.94130 4.54000
5 0.07500 0.07500 38 0.16667 0.27500 71 3.31274 4.92417
6 0.07167 0.07167 39 0.17833 0.30000 72 3.63092 5.36083
7 0.06667 0.06667 40 0.19083 0.32833 73 4.05839 5.85250
8 0.06333 0.06333 41 0.20583 0.36167 74 4.54125 6.38833
9 0.06167 0.06167 42 0.22083 0.39583 75 5.06274 6.98083
10 0.06083 0.06083 43 0.23833 0.43500 76 5.61644 7.59167
11 0.06417 0.06417 44 0.25583 0.47583 77 6.21386 8.21000
12 0.07083 0.07083 45 0.27667 0.52250 78 6.83323 8.82583
13 0.08250 0.08250 46 0.29917 0.56917 79 7.49615 9.45750
14 0.09583 0.09583 47 0.32333 0.62000 80 8.22966 10.13250
15 0.10750 0.13750 48 0.34917 0.67333 81 9.05444 10.86750
16 0.11917 0.15583 49 0.37833 0.73333 82 9.99708 11.68333
17 0.12833 0.17083 50 0.40917 0.79167 83 11.07331 12.58583
18 0.13333 0.18000 51 0.44583 0.87000 84 12.26711 13.54083
19 0.13833 0.18833 52 0.48833 0.95167 85 13.55590 14.51667
20 0.14000 0.19250 53 0.53583 1.04500 86 14.91786 15.48167
21 0.13917 0.19417 54 0.59083 1.15000 87 16.34412 16.42167
22 0.13667 0.19167 55 0.65167 1.26167 88 17.80841 17.44750
23 0.13417 0.18833 56 0.71917 1.38250 89 19.33266 18.46000
24 0.13083 0.18417 57 0.79083 1.50750 90 20.94167 19.47417
25 0.12667 0.17833 58 0.86833 1.64083 91 22.66794 20.51000
26 0.12333 0.17333 59 0.95583 1.77917 92 24.57677 21.61083
27 0.12167 0.17167 60 1.05333 1.93250 93 26.76406 23.02500
28 0.12000 0.17000 61 1.16167 2.10500 94 29.63735 24.84583
29 0.12000 0.17167 62 1.28500 2.29917 95 33.93111 27.49667
30 0.12000 0.17500 63 1.42583 2.51917 96 41.27938 32.04583
31 0.12250 0.18083 64 1.58500 2.76167 97 56.03985 40.01667
32 0.12500 0.18667 65 1.76083 3.02417 98 83.33333 54.83167
33 0.12917 0.19583 66 1.95000 3.29750 99 83.33333 83.33333
</TABLE>
* THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES
SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT.
THIS PERCENT IS SHOWN ON PAGE A OF THE POLICY SPECIFICATIONS. THE RATES
ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE
SECTION OF YOUR POLICY.
PAGE D
<PAGE> 7
DEFINITION SECTION
ACCUMULATION UNIT: An accounting unit of measure used
to calculate the value of each subaccount.
CASH VALUE: The Cash Value of this policy is the sum
of the subaccount values of the Separate Account plus
the fixed account value and loan account value.
DEBT: The principal of any outstanding loan under
this policy plus any loan interest due or accrued.
FUND: An investment company or separate series
thereof, in which the subaccounts of the Separate
Account invest.
GENERAL ACCOUNT: Our assets other than those
allocated to the Separate Account or any other
Separate Account.
ISSUE AGE: The insured's age as of his or her nearest
birthday on the Policy Date.
MATURITY DATE: The Maturity Date is stated in the
Policy Specifications. It is the policy anniversary
nearest the insured's 100th birthday.
MONTHLY PROCESSING DATE: The Monthly Processing Date
is stated in the Policy Specifications. It is the
same day in each month as the Policy Date. It is the
day from which policy months are determined.
MORTALITY AND EXPENSE RISK CHARGE: A charge deducted
in the calculation of the accumulation unit value for
the assumption of mortality risks and expense
guarantees.
NET SURRENDER VALUE: The Net Surrender Value of this
policy is the Surrender Value on the date of
surrender minus any debt.
POLICY DATE, POLICY YEAR: The Policy Date is stated
in the Policy Specifications. It is used to determine
Policy Years and Monthly Processing Dates. Subsequent
Policy Years will start on anniversaries of the
Policy Date.
PREMIUM: A dollar amount received by us in U.S.
Currency as consideration for the benefits to be
provided under this policy.
PREMIUM CHARGES: The percentage of premium charges
that are deducted from the premium before the premium
is allocated to the subaccounts or the fixed account.
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 Separate Account.
SEPARATE ACCOUNT VALUE: On any Valuation Date the
separate account value of this policy is the sum of
its subaccount values.
SUBACCOUNTS: The Separate Account has several
subaccounts. The subaccounts available under this
policy are stated in the Policy Specifications.
SUBACCOUNT VALUE: Each subaccount will be valued
separately as determined by the formula stated in
this policy.
SURRENDER VALUE: The Surrender Value of this policy
is the Cash Value on the date of surrender minus
any applicable surrender charge.
TRADE DATE: The Trade Date is 30 days following the
Issue Date of this policy. It is the date that the
money market subaccount value will be allocated to
the subaccounts and the fixed account according to
your allocation.
VALUATION DATE: Each business day on which valuation
of the assets of the Separate Account is required by
applicable law, which currently is each day that the
New York Stock Exchange is open for trading.
VALUATION PERIOD: The period that starts at the close
of a Valuation Date and ends at the close of the next
succeeding valuation date.
WE, OUR, OURS, US: Kemper Investors Life
Insurance Company
YOU, YOUR, YOURS: The party(ies) named as owner in
the application unless later changed as provided in
this policy.
S-6003 Page 5
<PAGE> 8
S-6003 Page 6
GENERAL PROVISIONS
THE CONTRACT This policy, the attached application and any
supplemental application(s) form the entire
contract. All statements made in the
application and any supplemental
application(s) are representations and not
warranties unless fraud is involved. In
addition to other reasons permitted by law,
the validity of this policy can be contested
if any material misrepresentations of fact are
made in the application, a supplementary
application or a request. No statement will
void this policy or be used to deny a claim
unless it is contained in an attached
application or supplemental application.
MODIFICATION OF POLICY Only our president, secretary or assistant
secretaries have power to approve a change in
or waive the provisions of this policy. No
agent or person other than such officers can
change or waive the terms of this policy.
OWNERSHIP OF POLICY Unless otherwise provided in the application,
the insured is the original policy owner. You
have the exclusive right to cancel or amend
this policy by agreement with us and exercise
every option and right conferred by this
policy, including the right of assignment. We
reserve the right to require the return of
this policy for endorsement for any change.
CHANGE OF OWNERSHIP Ownership may be changed during the lifetime
of the insured by written notice from you in
a form satisfactory to us. After we receive
written notice at our home office, the change
will take effect as of the date the notice
was signed. The change, however, will not
apply to any payment made or action taken by
us before the notice was received.
EFFECTIVE DATE OF COVERAGE The effective date of coverage under this
policy is the Policy Date. The Issue Date is
the same date as the Policy Date unless a
different Issue Date is stated in the Policy
Specifications. Incontestability and suicide
periods are measured from the Issue Date.
TERMINATION All coverage under this policy terminates
when any one of the following events occurs:
1. you request that coverage terminate; 2.
the insured dies; 3. this policy matures; or
4. the grace period ends.
CONTESTABILITY This policy will be incontestable after it
has been in force during the lifetime of the
insured for two years from the Issue Date.
A new two year contestability period will
apply to each increase in insurance beginning
with the effective date of each increase and
will apply only to statements made in the
application for the increase.
If the policy is reinstated, a new two year
contestability period will apply from the
effective date of the reinstatement and will
apply only to statements made in the
application for the reinstatement.
MISSTATEMENT OF AGE AND/OR SEX If the age and/or sex of the insured was
misstated, the death benefit will be adjusted
based on what the cost of insurance charged
for the most recent Monthly Processing Date,
prior to the insured's death, would have
purchased using the correct age and/or sex.
SUICIDE If the insured dies by suicide, while sane or
insane, within two years from the Issue Date,
the death benefit proceeds will be limited to
the premiums paid less any withdrawals and
Debt.
If the insured dies by suicide, while sane or
insane, within two years of any increase in
insurance, or any reinstatement, our total
liability with respect to such increase or
reinstatement will be the cost of insurance.
<PAGE> 9
GENERAL PROVISIONS (CONTINUED)
DUE PROOF OF DEATH Upon the death of the insured, written proof
of death in the form of a certified copy of
the death certificate, a written physician's
statement or any other proof satisfactory to
us is required within sixty days of such
death or as soon thereafter as is reasonably
possible.
BENEFICIARY DESIGNATION The original beneficiary is named in the
AND CHANGE OF BENEFICIARY application for this policy. If a
beneficiary is not named, the original
beneficiary is the estate of the insured.
You may change the beneficiary by filing a
written change with us subject to the
following:
1. The change must be filed during the
insured's lifetime;
2. This policy must be in force at the time a
change is filed;
3. Such change must not be prohibited by the
terms of an existing: assignment, beneficiary
designation, or other restriction;
4. Such change will take effect when we
receive it at our home office;
5. After we receive the request, the change
will take effect as of the date the request
for change was signed; however, action taken
by us before such request was received will
remain valid; and
6. The request for change must provide
information to identify the new beneficiary.
DEATH OF BENEFICIARY The interest of a beneficiary who dies before
the insured will pass to the other
beneficiaries, if any, share and share alike,
unless otherwise provided in the beneficiary
designation. If no beneficiary survives the
insured, the proceeds of this policy will be
paid to the insured's estate.
If a beneficiary dies within ten days of the
insured's death, proceeds of this policy will
be paid as if the insured had survived that
beneficiary.
ASSIGNMENT No assignment of this policy is binding on us
until it is received by us at our home
office. We assume no responsibility for the
validity of any assignment. Any claim under
an assignment is subject to proof of the
extent of the interest of the assignee. Your
rights and the rights of the beneficiary are
subject to the rights of the assignee of
record.
NON-PARTICIPATING This policy will not pay dividends. It will
not participate in any of our surplus
earnings.
REPORTS At least once each Policy Year we will send
you a report. The report will show the
premiums paid, investment experience and
charges made since the last report. The
report will also show the current death
benefit and Cash Value as well as any other
information required by statute.
RESERVES, CASH VALUE All reserves are greater than or equal to
AND DEATH BENEFIT those required by statute. Any Cash Value
and death benefit available under this policy
are at least equal to the minimum benefits
required by the statutes of the state in
which this policy is delivered.
BASIS OF COMPUTATIONS A detailed statement of the method of
computation of Cash Value under this policy
has been filed with the insurance department
of the state in which this policy is
delivered. The 1980 Commissioner's Standard
Ordinary Smoker and Nonsmoker Mortality
Tables, age nearest birthday, is the basis
for minimum Surrender Values, death benefits
and guaranteed maximum cost of insurance
rates under this policy.
S-6003 Page 7
<PAGE> 10
S-6003
GENERAL PROVISIONS (CONTINUED) Page 8
TAX TREATMENT This policy is intended to qualify as a life
insurance policy under the Internal Revenue
Code ("Code"). We may return premiums which
would disqualify the policy from tax
treatment as a life insurance policy. This
policy may be endorsed to reflect any change
in the Code and its regulations or rulings.
You will receive a copy of any such
endorsement.
Currently, no charges are made against the
Separate Account for federal, state or other
taxes that may be attributed to the Separate
Account. We may in the future, however,
impose charges for federal income taxes
attributed to the Separate Account. Charges
for other taxes, if any, attributed to this
policy may also be made.
EXCHANGE OF PLAN At any time during the first 2 years after
the Issue Date, you may exchange this policy
for a permanent fixed benefit life insurance
policy on the life of the Insured offered by
the Company or any of its affiliates. The
Face Amount of the new policy may be either
the death benefit as of this policy's Policy
Date or this policy's net amount at risk on
the date of the exchange. The new policy
will have the same policy date, issue age and
rate classification as this policy. If this
policy has benefit riders in force on the
date of exchange, each such rider may be
included in the new policy if it is available
with the new policy at the Insured's then
age. Any debt under this policy must be
repaid prior to exchange. This policy must
be surrendered. Surrender charges will not
be imposed. Evidence of insurability will
not be required. Your request for an
exchange must be in writing.
An equitable adjustment in the new
policy's premium and cash value will be made
to reflect variances, if any, in the premiums
and values under this policy and the new
policy.
DEATH BENEFIT PROVISIONS
DEATH BENEFIT The death benefit is based on the Specified
Amount, the Death Benefit Option and the
Table of Death Benefit Factors applicable at
the time of death. The Initial Specified
Amount, the Death Benefit Option and the
Table of Death Benefit Factors are shown in
the Policy Specifications.
The Specified Amount is the Initial Specified
Amount shown on the Policy Specifications,
unless changed in accordance with the Changes
provision or reduced by a cash withdrawal.
SPECIFIED AMOUNT The Death Benefit Option is shown on the
Policy Specifications, unless changed in
accordance with the Changes provision.
DEATH BENEFIT OPTION If Option A is in effect, the death benefit
is the greater of:
1. the Specified Amount; or
2. the Table of Death Benefit Factors times
the Cash Value of this policy on the date
of the insured's death.
If Option B is in effect, the death benefit
is the greater of:
1. the Specified Amount plus the Cash Value
of this policy on the date of the insured's
death; or
2. the Table of Death Benefit Factors times
the Cash Value of this policy on the date
of the insured's death.
<PAGE> 11
DEATH BENEFIT PROVISIONS (CONTINUED)
CHANGES You may change the Death Benefit Option after
the first Policy Year. The Specified Amount
will be changed as follows:
1. If the change is from Option A to Option
B, the Specified Amount after such change
will be:
a. the Specified Amount prior to such change;
minus
b. the Cash Value on the date of the change.
2. If the change is from Option B to Option
A, the Specified Amount after such change
will be:
a. the Specified Amount prior to such change;
plus
b. the Cash Value on the date of the change.
You may increase the Specified Amount after
the first Policy Year and prior to the
insured's attained age 75. You may also
decrease the Specified Amount after the first
Policy Year. The change is subject to the
following:
1. Any such decrease will reduce the
insurance in the following order:
a. the most recent increase first,
b. any other increases in the reverse order
in which they occurred; and
c. finally, against the Initial Specified
Amount.
2. Any request for an increase must be
applied for on a supplemental application.
The request for a change must be in writing.
No more than one change will be allowed in any
Policy Year. The minimum change in Specified
Amount is shown in the Policy Specifications.
The change will be effective on the first
Monthly Processing Date on or after the day we
receive the request. No changes will be
allowed if the resulting Specified Amount
would be less than the lesser of the Initial
Specified Amount or the Minimum Specified
Amount or if this policy would be disqualified
as life insurance under the Code. The Initial
Specified Amount and the Minimum Specified
Amount are shown on the Policy Specifications.
PAYMENT OF THE Death Benefits will be paid following
DEATH BENEFIT receipt by us at our home office of due proof
that the insured died while this policy was
in force. The death benefit will be
determined based upon the date of death. The
return of this policy is required before a
payment is made.
The death benefit proceeds will be equal to:
1. the death benefit; minus
2. any monthly deductions due during the
grace period; minus
3. any Debt.
PREMIUM PROVISIONS
INITIAL PREMIUM The Initial Premium is shown in the Policy
Specifications. It is payable to us or to an
authorized agent on or before delivery of
this policy.
ADDITIONAL PREMIUMS The amount and frequency of Planned Periodic
Premium are shown on the Policy
Specifications. The amount and frequency can
be changed upon request, subject to our
approval.
While this policy is in force, additional
premiums may be paid at any time prior to the
Maturity Date. We reserve the right to limit
or refund any premium if:
S-6003 Page 9
<PAGE> 12
S-6003 Page 10
PREMIUM PROVISIONS (CONTINUED)
1. the amount of the premium is below our
current minimum premium amount requirement;
2. the premium would increase the death
benefit by more than the amount of premium; or
3. the premium would disqualify the policy
as life insurance under the Code.
NET PREMIUMS The net premium equals the premium paid less
the premium charges shown in the Policy
Specifications.
PREMIUM ALLOCATION The Initial Premiums will be allocated to the
money market subaccount. On the first
Valuation Date on or following the Trade
Date, the money market subaccount value will
be allocated to the subaccounts and the fixed
account in accordance with the initial premium
allocation as shown in the Policy
Specifications. Any net premiums received
after the Trade Date will be allocated to the
subaccounts and the fixed account on the
first Valuation Date on or following the date
the premium is received in our home office in
accordance with the Initial Premium
allocation as shown in the Policy
Specifications.
The premium allocation shown in the Policy
Specifications may be changed by you. The
request for an allocation change must be in
writing.
GRACE PERIOD If the Net Surrender Value on the day
immediately preceding a Monthly Processing
Date is less than the monthly deduction for
the next month, a grace period of 61 days
will be allowed for the payment, without
evidence of insurability, of premium payment
or loan repayment equal to at least three
monthly deductions.
This grace period will begin on the day we
mail notice of the required payment to your
last known address.
If payment is not received within the grace
period, all coverage under this policy will
terminate at the end of the grace period in
accordance with the nonforfeiture provisions.
If death of the insured occurs within the
grace period, any amount payable will be
reduced by any unpaid monthly deductions.
During the Guarantee Period, the policy will
remain in force and no grace period will
begin provided the total premiums received,
less any withdrawals and any Debt, equals or
exceeds the Monthly Guarantee Premium times
the number of months since the Policy Date,
including the current month. The Guarantee
Period and Monthly Guarantee Premium are
shown in the Policy Specifications.
REINSTATEMENT If this policy lapses because of insufficient
Cash Value to cover the monthly deduction,
and has not been surrendered for its Net
Surrender Value, it may be reinstated at any
time within three years after the date of
lapse. The reinstatement is subject to:
1. receipt of evidence of insurability
satisfactory to us;
2. payment of enough premium to pay the unpaid
monthly deductions due during the last
expired grace period;
3. payment of a minimum premium sufficient to
keep this policy in force for three months;
and
4. payment of any Debt against the policy
which existed at the date of termination
of coverage.
The effective date of reinstatement of a
policy will be the Monthly Processing Date
that coincides with or next follows the date
the application for reinstatement is approved
by us.
The suicide and incontestability provisions
will apply from the effective date of
reinstatement.
<PAGE> 13
GENERAL ACCOUNT PROVISIONS
GENERAL ACCOUNT The guaranteed benefits under this policy are
provided through our General Account. The
fixed account is the only account available
to you in our General Account.
FIXED ACCOUNT The fixed account is credited with interest
rate(s) which will not be less than the
guaranteed minimum interest rate. The
guaranteed minimum interest rate is 3.00% per
year compounded daily at the daily equivalent
of a 3.00% annual effective rate.
We may declare from time to time a current
rate which is higher than the guaranteed
minimum interest rate. Each current interest
rate will be guaranteed until the next policy
anniversary.
On each policy anniversary, we will also
declare current interest rate(s) which will
apply to net premiums previously received,
and the interest thereon. These interest
rate(s) will be guaranteed until the next
policy anniversary.
FIXED ACCOUNT VALUE On any Valuation Date, the fixed account
value is equal to:
1. the sum of all net premiums allocated to
the fixed account; plus
2. any amounts transferred to the fixed
account; plus
3. the total interest credited to the fixed
account; minus
4. any pro-rata monthly deductions charged to
the fixed account; minus
5. any amounts transferred from the fixed
account; minus
6. any amounts withdrawn from the fixed
account; minus
7. any amounts loaned from the fixed account.
VARIABLE ACCOUNT PROVISIONS
SEPARATE ACCOUNT The variable benefits under this policy are
provided through the KILICO Variable Separate
Account which is referred to in this policy
as 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 have been allocated for this policy
and may be allocated for certain other
policies.
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. If the
assets of the Separate Account exceed the
liabilities under the policies supported by
the Separate Account, then the excess may
be used to cover the liabilities of our
General Account. The assets of the Separate
Account will be valued on each Valuation
Date.
SUBACCOUNT VALUE On any Valuation Date, the subaccount value
in a subaccount equals:
1. the subaccount value on the previous
Valuation Date multiplied by the investment
experience factor for the end of the current
Valuation Period; plus
2. any net premiums received and allocated to
the subaccount during the current Valuation
Period; plus
3. any amounts transferred to the subaccount
during the current Valuation Period; minus
4. the pro-rata portion of any monthly
deduction charged to the subaccount when the
Valuation Period includes a Monthly
Processing Date; minus
5. any amounts transferred from the
subaccount during the current Valuation
Period; minus
6. any amounts withdrawn from the subaccount
during the current Valuation Period; minus
7. any amounts loaned from the subaccount
during the current Valuation Period.
S-6003 Page 11
<PAGE> 14
S-6003 Page 12
VARIABLE ACCOUNT PROVISIONS (CONTINUED)
FUND Each subaccount of the Separate Account will
buy shares of an investment company or of a
separate series of an investment company
offered as an investment alternative under
the policy. The Funds are registered under
the Investment Company Act of 1940 as
open-end management investment companies.
Each series of a Fund represents a
separate investment portfolio which
corresponds to one of the subaccounts of the
Separate Account.
If we establish additional subaccounts each
new subaccount will invest in a new series of
a Fund or in shares of an investment company.
We may also add and/or substitute other
investment companies.
CHANGE OF INVESTMENT ADVISER OR Unless otherwise required by law or
INVESTMENT OBJECTIVES regulation, the investment adviser or any
investment objective may not be changed
without our consent. Any investment
objective will not be materially changed
unless a statement of the change is filed
with and approved by the Insurance
Commissioner of the State of Illinois. If
required, approval of or change of any
investment objective will be filed with
the insurance department of the state where
this policy is delivered.
RIGHTS RESERVED BY US We reserve the right, subject to compliance
with the law as currently applicable or
subsequently changed:
1. to operate the Separate Account in any
form permitted under the Investment Company
Act of 1940 or in any other form permitted by
law;
2. to take any action necessary to comply
with or obtain and continue any exemptions
from the Investment Company Act of 1940 or to
comply with any other applicable law;
3. to transfer any assets in any subaccount
to another subaccount or to one or more
separate accounts, or our General Account; or
to add, combine or remove subaccounts in the
Separate Account;
4. to delete the shares of any of the
portfolios of the Funds or any other open-end
investment company and to substitute, for the
Funds' shares held in any subaccount, the
shares of another portfolio of the Funds or
the shares of another investment company or
any other investment permitted by law; and
5. to change the way we assess charges, but
without increasing the aggregate amount
beyond that currently charged to the Separate
Account and the Funds in connection with the
policies.
When required by law, we will obtain your
approval of such changes and the approval of
any regulatory authority.
ACCUMULATION UNIT VALUE Each subaccount has an accumulation unit
value. For each subaccount the accumulation
unit value was initially set at the same unit
value as the net asset value of a share of
the underlying Portfolio. When premiums or
other amounts are allocated to a subaccount,
a number of units are purchased based on the
subaccount's accumulation unit value at the
end of the Valuation Period during which the
allocation is made. When amounts are
transferred out of or deducted from a
subaccount, units are redeemed in a similar
manner.
The accumulation unit value for each
subsequent Valuation Period is the investment
experience factor for that period multiplied
by the accumulation unit value for the
immediately preceding period. The
accumulation unit value for a Valuation
Period applies to each day in such period.
The number of accumulation units will not
change as a result of investment experience.
INVESTMENT EXPERIENCE 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 Cash Value in each subaccount during a
Valuation Period.
The investment experience factor of a
subaccount for a Valuation Period is
determined by dividing 1. by 2. and
subtracting 3. from the result, where:
1. is the net result of:
<PAGE> 15
VARIABLE ACCOUNT PROVISIONS (CONTINUED)
a. the net asset value per share of the
investment held in the subaccount determined
at the end of the current Valuation Period;
plus
b. the per share amount of any dividend or
capital gain distributions made by the
investments held in the subaccount, if the
"ex-dividend" date occurs during the current
Valuation Period; plus or minus
c. a charge or credit for any taxes reserved
for the current Valuation Period which we
determine to have resulted from the
investment operations of the subaccount;
2. is the net asset value per share of the
investment held in the subaccount, determined
at the end of the last prior Valuation
period; and
3. is the factor representing the Mortality
and Expense Risk Charge.
NONFORFEITURE PROVISIONS
CASH VALUE The Cash Value of this policy is equal to the
sum of the subaccount values plus the fixed
account value plus the loan account value.
MONTHLY DEDUCTION On each Monthly Processing Date, a monthly
deduction will be made equal to the sum of
the following:
1. the monthly cost of insurance charge for
this policy; plus
2. the monthly charge for any supplemental
benefits and riders; plus
3. the monthly administration charge.
The monthly deduction will be deducted from
the subaccounts and the fixed account in
proportion to the value that each account
bears to the separate account value plus the
fixed account value.
COST OF INSURANCE The cost of insurance is determined on each
deduction day.
1. The cost of insurance for the Initial
Specified Amount equals a. times the result
of b. minus c., where:
a. is the Cost of Insurance rate for the
Initial Specified Amount;
b. is the death benefit less any increases
in Specified Amount divided by 1.0024663; and
c. is the Cash Value applicable to the Initial
Specified Amount.
2. The cost of insurance for each increase
in the Specified Amount equals a times the
result of b. minus c., where:
a. is the Cost of Insurance rate for each
increase in the Specified Amount;
b. is the amount of the increase in the
Specified Amount divided by 1.0024663; and
c. is the Cash Value applicable to the
increased Specified Amount.
COST OF INSURANCE RATE The monthly cost of insurance rate is based
on the insured's sex, Issue Age, and Rate
Class. The cost of insurance rate will also
vary by Policy Year. The monthly cost of
insurance rate will be determined by us based
on our expectations as to future mortality
experience.
Any change in the cost of insurance rates
will apply to all individuals of the same
sex, Issue Age, Rate Class and Policy Year.
At no time will such rate ever be greater
than those shown in the Table of Guaranteed
Maximum Monthly Cost of Insurance Rates,
shown in the Policy Specifications,
multiplied by a Rate Class percent. These
rates are based on the 1980 Commissioner's
Standard Ordinary Smoker or Nonsmoker
Mortality Tables, age nearest birthday.
SUPPLEMENTAL BENEFITS AND RIDERS The monthly charges for any supplemental
benefits and riders are shown on the Policy
Specifications.
ADMINISTRATION CHARGE The monthly administration charge is shown on
the Policy Specifications.
S-6003 Page 13
<PAGE> 16
S-6003 Page 14
NONFORFEITURE PROVISIONS (CONTINUED)
INSUFFICIENT CASH VALUE This policy will terminate as provided in the
grace period provision if the Net Surrender
Value on the date immediately preceding a
Monthly Processing Date is:
1. insufficient to cover the monthly deduction
for the month following such Monthly
processing Date; and.
2. no premium payment or loan payment
sufficient to cover at least three monthly
deductions is received before the end of the
grace period.
Any deduction for the cost of insurance or
other benefits and riders after termination of
insurance will not be considered a
reinstatement of this policy or a waiver by us
of the termination.
TRANSFER PROVISIONS
TRANSFERS You may transfer all or part of the value of
each subaccount at any time to another
subaccount subject to the following
conditions:
1. transfers are not permitted until after the
Trade Date. Thereafter, one transfer will be
permitted in each fifteen day period. All
transfers which occur during one business day
will be considered a transfer;
2. the minimum amount which may be transferred
is $500.00 or, if smaller, the remaining value
of this policy's interest in a subaccount; and
3. no partial transfer will be made if your
remaining subaccount value will be less than
$500.00 after such transfer unless this
policy's interest in such subaccount is
eliminated by means of such transfer.
You may also transfer all or part of the fixed
account value to any subaccount subject to the
following conditions:
1. transfers are not permitted until after the
Trade Date. Thereafter, one transfer will be
permitted in each Policy Year during the
thirty days that follow a policy anniversary;
2. the minimum amount which may be transferred
is $500.00 or, if smaller, the remaining fixed
account value; and
3. no partial transfer will be made if your
remaining fixed account value will be less
than $500.00 after such transfer unless this
policy's fixed account value is eliminated by
means of such transfer.
We reserve the right at any time and without
prior notice to any party to terminate,
suspend or modify the transfer provision
described above. We also reserve the right to
charge up to $25 for each transfer.
Any transfer direction must clearly specify
the amount which is to be transferred and the
names of the accounts which are to be
affected. A telephone transfer direction will
be honored by us only if a properly executed
telephone transfer authorization is on file
with us, and if such transfer direction
complies with the authorization's conditions
and our administrative procedures.
<PAGE> 17
WITHDRAWAL PROVISIONS
WITHDRAWAL Cash withdrawals may be made any time after
the first Policy Year. The minimum withdrawal
amount is shown on the Policy Specifications.
The maximum withdrawal is limited to 10%
of the Net Surrender Value during the sur-
render change period. There is a charge
for each withdrawal. The withdrawal charge
is also on the Policy Specifications. You
must specify the accounts from which the
withdrawal is to be made.
EFFECT OF A WITHDRAWAL The Cash Value will be reduced by the amount
of the withdrawal. If Death Benefit Option A
is in effect, the Specified Amount will also
be reduced by the amount of the withdrawal.
POLICY LOAN PROVISIONS
POLICY LOANS Policy Loans may be made any time after the
first policy year. We will lend up to a
maximum loan amount of 90% of Surrender
Value. The amount of any new loan may not
exceed the maximum loan amount less Debt on
the date the loan is granted. The minimum
amount of a loan is $500.
On the date the loan is made, an amount equal
to the loan will be transferred from
the subaccounts and the fixed account to the
loan account held in the General Account
until the loan is repaid. Unless directed
otherwise, the loaned amount will be deducted
from the subaccounts and the fixed account in
proportion to the values that each account
bears to the separate account value plus the
fixed account value.
Should the Debt equal or exceed the Surrender
Value, this policy will terminate 61 days
after notice has been mailed to you at your
last known address.
Cash Values derived from premium received by
us in the form of a check or draft will not
be available for loans until 30 days after
deposit of such check or draft.
POLICY LOAN INTEREST The loan interest rate will be 4.50% per
year during the first 9 Policy Years and 3%
per year thereafter. Interest will be
compounded daily at the daily equivalent of
the above annual interest rates.
Interest not paid will be charged on a daily
basis and will be added to the Debt on this
policy and bear interest at the same rate.
During the existence of a loan, the loan
account value will earn 3.00% per year.
Interest will be earned on a daily basis and
will be added to the loan account.
POLICY LOAN REPAYMENT A Debt may be repaid in full or in part at
any time while this policy is in force.
As Debt is paid, the loan account value equal
to the amount of repayment which exceeds the
difference between interest due and interest
earned will be allocated to the subaccounts
and the fixed account according to the then
current premium allocation instructions.
EFFECT OF POLICY LOANS The Debt on this policy, along with the
surrender charge, will reduce the amount of
Cash Value payable upon surrender. The Debt
on this policy will also reduce the amount of
Cash Value available for withdrawal. The
death benefit payable to the beneficiary upon
the death of the insured will also be reduced
by the amount of Debt.
S-6003 Page 15
<PAGE> 18
S-6003 Page 16
SURRENDER VALUE PROVISIONS
SURRENDER This policy may be surrendered for its Net
Surrender Value upon written request by you
and return of the policy to us at our home
office. The request must be made during the
lifetime of the insured and while this policy
is in force. The return of the policy is
required before the Net Surrender Value is
paid.
Payment of the Net Surrender Value will
discharge us from our obligations under this
policy. A surrender may subject the amount
surrendered to a surrender charge.
We will pay the Net Surrender Value of this
policy to you on the Maturity Date if the
insured is living and the policy is in force.
SURRENDER CHARGE The surrender charge period for this policy is
the first 14 Policy Years after the Policy
Date and 14 Policy Years after the effective
date of any increase in the Specified Amount,
addition of a benefit rider and any increase
in the Coverage Amount of a benefit rider.
During this period a surrender charge will be
assessed if this policy is surrendered or if
the Net Surrender Value is applied for under a
settlement option.
The surrender charge for the total of the
Coverage Amounts shown in the Policy
Specifications as of the Policy Date equals
a a
- -
(c + (b x d) + (b x e)) x f where:
a. is the initial Surrender Target Amount for
the total Coverage Amount;
b. is the Total Surrender Target Amount;
c. is the Issue Charge per $1000 times the
total initial Coverage Amount;
d. is 30% of the premium paid up to the
initial Surrender Target Amount;
e. is 7.5% of the total premiums paid above
the total Surrender Target Amount for issue
ages 1-65 or 5.0% for issue ages 66-75; and
f. is the Surrender Charge Percentage.
The surrender charge for each increase in
specified amount, addition of a benefit rider
or increase in the Coverage Amount of a
benefit rider amount
a a
- -
equals (c + (b x d) + (b x e)) x f where:
a. is the Surrender Target Amount for the
increase in Coverage Amount;
b. is the Total Surrender Target Amount;
c. is the Issue Charge per $1000 times the
increase in Coverage Amount;
d. is 30% of the premium paid up to the Total
Surrender Target Amount;
e. is 7.5% of the premiums paid above the
Total Surrender Target Amount for issue ages
1-65 or 5.0% for issue ages 66-75; and
f. is the Surrender Charge Percentage for the
increase in Coverage Amount.
The Issue Charge per $1000, the Surrender
Target Amount and Surrender Charge Percentage
are shown in the Policy Specifications. The
Total Surrender Target Amount is the initial
Surrender Target Amount plus the Surrender
Target Amount for the increase in Coverage
Amount.
<PAGE> 19
TRANSFER, WITHDRAWAL, LOAN
AND SURRENDER PROCEDURES
A transfer, withdrawal, loan or surrender
will be effective at the end of the Valuation
Period following a telephone transfer
direction or receipt by us at our home office
of a written request which contains all
required information.
Accumulation units will be redeemed to the
extent necessary to achieve the dollar amount
of the transfer, withdrawal, loan or
surrender. The accumulation units credited in
each subaccount will be reduced by the number
of accumulation units redeemed. The reduction
in the number of accumulation units will be
determined on the basis of the accumulation
unit value at the end of the Valuation Period
during which the request containing all
required information is received by us. An
amount withdrawn, loaned or surrendered from
the subaccounts will be paid within seven
calendar days after the date proper written
election is received by us unless: 1. the New
York Stock Exchange is closed (other than
customary weekend and holiday closings); 2.
trading in the markets normally utilized is
restricted, or an emergency exists as
determined by the Securities and Exchange
Commission, so that disposal of investments
or determination of the valuation unit is not
reasonably practicable; or 3. such other
periods as defined by the Securities and
Exchange Commission for the protection of
owners.
If the withdrawal, loan or surrender is to be
made from the fixed account, we may defer the
payment for a period permitted by law, but
not more than six months after the written
request is received by us. During the period
of deferral, interest at the then current
interest rate will continue to be credited to
the fixed account value.
SETTLEMENT PROVISIONS
SETTLEMENT OPTIONS Instead of our paying all of the death benefit
or Net Surrender Value of this policy due in
one sum, amounts may be applied under one of
the following settlement options.
Payments under these options will not be
affected by the investment experience of any
Separate Account after proceeds are applied
under a settlement option.
Payments must be made to a natural person in
his own right, referred to below as "payee".
Payment will be made as elected on a monthly,
quarterly, semi-annual or annual basis.
The option selected must result in a payment
that is at least equal to our minimum
payment, according to our rules in effect at
the time the settlement option is chosen. If
at any time the payments are less than the
minimum payment, we have the right to
increase the period between payments to
quarterly, semi-annual or annual or to make
the payment in one lump sum so that the
payment is at least equal to our minimum
payment.
ELECTION OF SETTLEMENT OPTION Election of a settlement option may be made
by written notice to us. The election may be
made:
1. by you during the lifetime of the insured;
2. by the beneficiary if no election made by
you is in effect at the time of the death of
the insured; or
3. by the beneficiary if you reserve the
right for the beneficiary to change an
election upon the death of the insured. Such
change must be made prior to the first
settlement option payment.
An election in effect during the lifetime of
the insured will be revoked by a subsequent
change of beneficiary or an assignment of
this policy, unless provided otherwise.
S-6003 Page 17
<PAGE> 20
S-6003 Page 18
SETTLEMENT PROVISIONS (CONTINUED)
GENERAL CONDITIONS The Net Surrender Value will be used to
determine the monthly benefit payment. The
monthly benefit payment will be based upon
the settlement option elected in accordance
with the appropriate Settlement Option Table.
OPTION 1 - FIXED INSTALMENT ANNUITY We will
pay a monthly income for the period elected
but not less than 5 years nor more than 30
years.
OPTION 2 - LIFE ANNUITY We will pay a monthly
income to the payee during the payee's
lifetime.
OPTION 3 - LIFE ANNUITY WITH INSTALMENTS
GUARANTEED We will pay a monthly income for
the Guaranteed Period elected and thereafter
for the remaining lifetime of the payee. The
period elected may be 5, 10, 15 or 20 years.
OPTION 4 - JOINT AND SURVIVOR ANNUITY We will
pay the full monthly income while both payees
are living. Upon the death of either payee,
the income will continue during the lifetime
of the surviving payee. The surviving payee's
income will be the percentage of such full
amount chosen at the time of election of this
option. The percentages available are 50%,
66 2/3%, 75% and 100%.
OTHER SETTLEMENT OPTIONS May be
available with our consent.
SUPPLEMENTARY CONTRACT A supplementary contract will be issued to
reflect payments to be made under a
settlement option. If settlement is a result
of the death of the insured, its effective
date will be the date of death. Otherwise
its effective date will be the date chosen by
you.
DATE OF FIRST PAYMENT Interest under the settlement options will
begin to accrue on the effective date of the
supplementary contract. If the normal
effective date is the 29th, 30th or 31st of
the month, the effective date will be the
28th day of that month.
EVIDENCE OF AGE, SEX
AND SURVIVAL We may require satisfactory evidence of the
age and sex of any person on whose life the
income is to be based and the continued
survival of any person on whose life the
income is based.
BASIS OF SETTLEMENT OPTIONS The guaranteed monthly payments are based on
an interest rate of 2.50% per year and, where
mortality is involved the "1983 Table A"
individual mortality table developed by the
society of Actuaries, with a 5 year setback.
DISBURSEMENT OF FUNDS At the death of the payee, any unpaid
UPON DEATH OF PAYEE installments will be paid in one lump sum to
UNDER OPTIONS 1 OR 3 the estate of the payee, unless otherwise
provided in the supplementary agreement. The
lump sum will be equal to the commuted value
of the remaining instalments, based upon a
minimum interest rate of not less than 2.50%.
PROTECTION OF BENEFITS Unless otherwise provided in the
supplementary contract the payee may not: 1.
commute; 2. anticipate; 3. assign; 4.
alienate; or 5. otherwise encumber any
payment to be received.
CREDITORS The proceeds of the policy and any payment
under an option will be exempt from the claim
of creditors and from legal process to the
extent permitted by law.
<PAGE> 21
SETTLEMENT OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALMENT 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 INSTALMENTS GUARANTEED:
<TABLE>
<CAPTION>
Age of MONTHLY PAYMENTS GUARANTEED Age of MONTHLY PAYMENTS GUARANTEED
Male Female
Payee Payee
NONE 60 120 180 240 NONE 60 120 180 240
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 3.98 3.97 3.94 3.88 3.81 55 3.62 3.61 3.60 3.58 3.54
56 4.05 4.04 4.01 3.95 3.86 56 3.68 3.67 3.66 3.64 3.59
57 4.14 4.12 4.09 4.02 3.92 57 3.75 3.74 3.73 3.70 3.65
58 4.22 4.21 4.17 4.09 3.99 58 3.82 3.81 3.79 3.76 3.71
59 4.31 4.30 4.25 4.17 4.05 59 3.89 3.88 3.86 3.83 3.77
60 4.41 4.39 4.34 4.25 4.11 60 3.97 3.96 3.94 3.90 3.83
61 4.51 4.50 4.44 4.33 4.18 61 4.05 4.04 4.02 3.97 3.89
62 4.62 4.60 4.54 4.42 4.25 62 4.14 4.13 4.10 4.05 3.96
63 4.74 4.72 4.64 4.51 4.31 63 4.23 4.22 4.19 4.13 4.03
64 4.86 4.84 4.75 4.60 4.38 64 4.33 4.32 4.28 4.21 4.10
65 4.99 4.96 4.87 4.69 4.45 65 4.44 4.42 4.38 4.30 4.17
66 5.14 5.10 4.99 4.79 4.51 66 4.55 4.53 4.48 4.39 4.24
67 5.29 5.25 5.12 4.89 4.58 67 4.67 4.65 4.59 4.48 4.31
68 5.45 5.40 5.25 4.99 4.64 68 4.79 4.77 4.70 4.58 4.39
69 5.62 5.57 5.39 5.09 4.71 69 4.93 4.90 4.82 4.68 4.46
70 5.81 5.74 5.54 5.20 4.77 70 5.07 5.04 4.95 4.78 4.53
71 6.00 5.93 5.69 5.30 4.83 71 5.23 5.19 5.09 4.89 4.61
72 6.21 6.12 5.85 5.41 4.88 72 5.39 5.35 5.23 5.00 4.68
73 6.44 6.33 6.01 5.51 4.93 73 5.57 5.52 5.38 5.11 4.74
74 6.68 6.55 6.17 5.61 4.98 74 5.76 5.71 5.53 5.23 4.81
75 6.94 6.79 6.35 5.71 5.02 75 5.96 5.90 5.70 5.34 4.87
76 7.21 7.03 6.52 5.80 5.06 76 6.19 6.11 5.87 5.46 4.93
77 7.50 7.29 6.70 5.90 5.09 77 6.43 6.34 6.05 5.57 4.98
78 7.82 7.57 6.88 5.98 5.12 78 6.69 6.58 6.24 5.68 5.03
79 8.16 7.86 7.06 6.06 5.15 79 6.97 6.84 6.43 5.79 5.07
80 8.52 8.16 7.24 6.14 5.17 80 7.28 7.12 6.63 5.90 5.11
81 8.90 8.48 7.42 6.21 5.19 81 7.61 7.41 6.83 5.99 5.14
82 9.32 8.81 7.59 6.27 5.21 82 7.97 7.73 7.03 6.09 5.17
83 9.77 9.16 7.76 6.33 5.22 83 8.36 8.06 7.24 6.17 5.19
84 10.24 9.52 7.93 6.38 5.24 84 8.78 8.42 7.44 6.24 5.21
85 10.75 9.90 8.09 6.43 5.24 85 9.24 8.79 7.64 6.31 5.22
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
Age of Age of Female Payee
Male
Payee 55 60 65 70 75 80 85
55 3.32 3.47 3.60 3.71 3.80 3.87 3.91
60 3.41 3.60 3.79 3.96 4.11 4.22 4.30
65 3.47 3.71 3.96 4.22 4.45 4.64 4.78
70 3.52 3.80 4.11 4.46 4.80 5.12 5.38
75 3.56 3.86 4.23 4.66 5.14 5.63 6.07
80 3.58 3.90 4.31 4.81 5.42 6.11 6.80
85 3.60 3.93 4.36 4.92 5.63 6.51 7.51
S-6003 Page 19
<PAGE> 22
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MATURES AT THE INSURED'S ATTAINED AGE 100
NON-PARTICIPATING -- NO ANNUAL DIVIDENDS
This policy is a legal contract between you and us.
READ YOUR POLICY CAREFULLY.
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049-0001
Policy Form No. S-6003
<PAGE> 1
PARTICIPATION AGREEMENT
This AGREEMENT is made as of the _____ day of _____________, 199__, by and
between American Skandia Trust ("FUND"), a Massachusetts business trust,
American Skandia Investment Services, Incorporated ("ASISI"), an Investment
Advisor for Fund, and Kemper Investors Life Insurance Company ("COMPANY"), a
life insurance company organized under the laws of the State of Illinois.
WHEREAS, FUND is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
diversified investment management Company; and
WHEREAS, FUND is organized as a series fund authorized to issue separate series
of shares ("Portfolios"); and
WHEREAS, ASISI is registered as an investment advisor under the Investment
Advisors Act of 1940, as amended; and
WHEREAS, FUND has obtained an order from the Securities and Exchange
Commission, dated ___________, 199__ August 1, 1995, 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 40 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Fund to be sold to and held by certain
qualified plans and to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies; and
WHEREAS, COMPANY has registered or will register certain variable annuity and
variable life insurance contracts under the Securities Act of 1933 Act, as
amended (the "1933 Act"); and
WHEREAS, each segregated asset account of the COMPANY set forth on Schedule "A"
hereto as may be amended from time to time ("Account") is a duly organized,
validly existing segregated asset account, established by resolution of the
Board of Directors of the COMPANY, on the date shown for such Account on
Schedule A, to set aside and invest assets attributable to such variable
annuity and variable life insurance contracts; and
WHEREAS, COMPANY has registered or will register each Account as a unit
investment trust under the 1940 Act;
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the COMPANY wishes to purchase shares in the Portfolios on behalf of each
Account to fund certain variable annuity and variable life insurance contracts;
NOW, THEREFORE, and in consideration of the mutual covenants herein contained,
it is hereby agreed by and between FUND and COMPANY as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 FUND will make available to the Accounts shares of FUND Portfolios
designated by FUND and listed in Appendix "A" for purchase by the COMPANY and
its Accounts at the applicable net asset value per share on those days on which
the Fund calculates its net asset value pursuant to the rules of the Securities
and Exchange Commission and the FUND shall use reasonable efforts to calculate
such net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Trustees of the FUND (the
"Board") may refuse to sell shares of any Portfolio to
<PAGE> 2
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 Board, acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.2 Orders shall be placed for such shares with FUND or its designee pursuant
to procedures which are then in effect and which may be modified from time to
time. FUND will inform COMPANY of the procedures for placing orders with the
FUND or its designee and will undertake to inform COMPANY of any modifications
to such procedures, all such procedures to be consistent with this Agreement.
Issuance and transfer of FUND'S shares will be by book entry only. Stock
certificates will not be issued to the COMPANY or any Account. Shares ordered
from the FUND or its designee will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
For purposes of this Section 1.2, the COMPANY shall be the designee of the
FUND for receipt of orders for such shares and receipt by such designee shall
constitute receipt by the FUND; provided that, the FUND receives notice of such
orders for shares on the next following business day. Business day shall mean
any day on which the New York Stock Exchange is open for trading.
1.3 FUND agrees to redeem for cash, on COMPANY'S request, any full or
fractional shares of the FUND held by COMPANY, executing such requests on a
daily basis at the net asset value computed after receipt by FUND or its
designee of the request for redemption. For purposes of this Section 1.3, the
COMPANY shall be the designee of the FUND for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the FUND; provided that, the FUND receives notice of such request
for redemption on the next following business day. Business day shall mean any
day on which the New York Stock Exchange is open for trading.
1.4 COMPANY agrees that purchases and redemptions of Portfolio shares offered
by the then current prospectus of the FUND shall be made in accordance with the
applicable provisions of such prospectus and the FUND'S statement of additional
information. COMPANY agrees that all net amounts available under the variable
annuity and variable life insurance contracts which are listed on Schedule A
hereto, as such Schedule A may be amended by the parties in writing
("Contracts"), shall be invested in the FUND and in such other investment
companies advised by American Skandia Life Investment Management, Inc.
("Advisor") as may be agreed to in writing by the parties to this Agreement,
provided that such amounts may also be invested in an investment company other
than the FUND if (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of all of the Portfolios of the Fund; or (b)
COMPANY gives FUND sixty (60) days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the COMPANY so informs the
FUND prior to its signing this Agreement; or (d) the FUND consents in writing
to the use of such other investment company.
1.5 COMPANY shall pay for FUND shares by wire transfer no later than 10:00 am
central time on the next Business Day after contract owners of the COMPANY
enter orders to purchase Fund shares. Payment shall be made in federal funds
transmitted by wire. For the purpose of Section 2.10 and 2.11, 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.
1.6 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 the FUND'S shares. COMPANY hereby elects to receive
all such income dividends and capital gains distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. COMPANY reserves the
right to revoke this election and to receive all such income dividends and
capital gains distributions in cash.
2
<PAGE> 3
FUND shall promptly notify COMPANY of the number of shares so issued as payment
of such dividends and distributions.
1.7 FUND shall make the net asset value per share for each Portfolio available
to the COMPANY on a daily basis as soon as reasonable practical after the net
asset value per share is calculated and shall use its best efforts to make such
net asset value per share available by 6 p.m. New York time.
ARTICLE II. REPRESENTATIONS
2.1 COMPANY represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued 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. 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 segregated asset account
under applicable insurance law and has registered, prior to any issuance or
sale of the Contracts, or will register, each Account as a unit investment
trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2 COMPANY represents and warrants that the Contracts are currently treated
as annuity or variable life insurance contracts, under applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and that it will
make every effort to maintain such treatment and that it will notify the FUND
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.
2.3 COMPANY represents and warrants that all of its officers, directors,
employees, investment advisors, and other individuals/entities, if any, dealing
with the money and or securities of the Fund are and shall continue to be
covered by a blanket fidelity bond or similar coverage for the benefit of the
FUND in an amount not less than $5 million. The aforesaid includes coverage
for larceny and embezzlement and is issued by a reputable bonding company.
2.4 FUND represents and warrants that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts.
2.5 FUND represents and warrants that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification and that it will notify the COMPANY
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify as of the FUND'S fiscal year end.
2.6 FUND represents and warrants that all of its officers, directors,
employees, and investment advisors are and shall continue to be 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 bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.7 FUND represents and warrants that the FUND will diversify the assets in
each Portfolio in the manner required for the variable contracts to be treated
as such under Section 817(h) of the Code, and the rules and regulations
thereunder. In the event of a breach of this Section 2.7 by the FUND, the FUND
will take all reasonable steps (a) to notify COMPANY of such breach, and (b) to
adequately diversify the FUND so as to achieve compliance within the grace
period afforded by Regulation 817-5 of the Code.
2.8 ASISI represents and warrants that:
3
<PAGE> 4
(a) it is lawfully organized and validly existing under the laws of
the State of Connecticut;
(b) the FUND will diversify the assets in each Portfolio in the
manner required for the variable contracts to be treated as such under Section
817(h) of the Code, and the rules and regulations thereunder; and
(c) In the event of a breach of this Section 2.7 by the FUND, ASISI
will take all reasonable steps (a) to notify COMPANY of such breach, and (b) to
use its best efforts to adequately diversify the FUND so as to achieve
compliance within the grace period afforded by Regulation 817-5 of the Code.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 FUND will provide COMPANY camera ready copy of the current FUND
prospectus, and any supplements thereto for printing by COMPANY. FUND will
provide COMPANY a copy of the statement of additional information for
duplication. FUND will provide COMPANY copies of its proxy material suitable
for printing. FUND will provide COMPANY annual and semi-annual reports and any
supplements thereto, in camera-ready form.
3.2 COMPANY shall provide pass-through voting privileges to all variable
contract owners so long as the Securities and Exchange Commission continues to
interpret the 1940 Act to require such pass-through voting privileges for
variable contract owners. COMPANY shall be responsible for assuring that each
of its separate accounts participating in the FUND calculates voting privileges
in a manner consistent with the 1940 Act. It is a condition of the Agreement
that COMPANY will vote shares of FUND, for which it has not received voting
instructions as well as shares attributable to COMPANY, in the same proportion
as it votes shares for which it has received instructions.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 COMPANY will only (i) convey any information or make any representations
concerning FUND or its investment advisor, its shares or operations which are
contained in the most recent Registration Statement relating to the FUND and
any supplements thereto or (ii) use any materials or advertising which mention
the FUND or its investment advisor (including sales literature, brochures,
letters, illustrations and other similar material, whether transmitted directly
to potential applicants or published in print or audio-visual media), if, in
either case, FUND approves such items prior to use.
4.2 COMPANY shall furnish to the FUND or its designee, each piece of sales
literature or other promotional material in which the FUND or its investment
advisor or any affiliate thereof is named, at least eight (8) Business Days
prior to its use, and the Fund has five (5) days to respond and comment
thereon.
4.3 FUND will provide to the COMPANY at least one complete copy of all
Registration Statements, Prospectuses and Statements of Additional Information,
proxy statements, applications for exemptions, requests for no-action letters
and all amendments to any of the above, that relate to the FUND or its shares,
promptly after filing such documents with the Securities and Exchange
Commission.
4.4 COMPANY will provide to the FUND at least one complete copy of all
Registration Statements, Prospectuses and Statements of Additional Information,
solicitations for voting instructions, applications for exemptions, requests
for no-action letters and all amendments to any of the above, that relate to
the Contracts or each Account promptly after filing such documents with the
Securities and Exchange Commission. COMPANY will provide to the FUND, final
copies of all sales literature and other promotional literature that relates to
the FUND or its shares, promptly after they become available.
4
<PAGE> 5
4.5 For the purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the FUND or any affiliate of the FUND (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
(namely, 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
advertisement, sales literature, or published article), educational or training
materials or other communication distributed or made generally available to some
or all agents or employees, and registration statements, Prospectuses,
Statements of Additional Information, shareholder reports and proxy materials.
4.6 Neither COMPANY nor FUND will use the other's name nor any other name,
logo, trademark, service mark nor symbol that is now or may hereafter be owned
by the other party, a parent or an affiliate or subsidiary thereof, except in
the manner and to the extent that the other party agrees to in furtherance of
the purposes of this Agreement. Each party will discontinue the use of such
name, logo, trademark, service mark or symbol belonging to the other party,
parent, affiliate or subsidiary thereof on termination of this Agreement. Such
discontinuance will occur immediately or, if applicable, as soon as permitted
under applicable law or regulation.
ARTICLE V. FEES AND EXPENSES
5.1 The COMPANY shall bear the expense of printing and distributing the FUND's
prospectus, statement of additional information, proxy materials, and annual
and semi-annual reports. For providing these services, the FUND will pay
COMPANY 0.10% per annum of the average daily net asset value of FUND shares
legally owned by the Accounts of COMPANY. Such value is payable within ten
(10) days after the end of each month.
5.2 The COMPANY represents that it will pay 24f-2 fees as required by law. If
the COMPANY does not pay such fees and the FUND is obligated to pay such fees,
the COMPANY will reimburse the FUND for those fees.
ARTICLE VI. INDEMNIFICATION
6.1 COMPANY shall be solely responsible for its actions in connection with its
use of FUND and its shares and shall indemnify and hold harmless FUND,
including its officers, trustees and employees, from any losses, claims,
damages, liabilities or expenses (including reasonable attorneys fees and
disbursements) arising from the grossly negligent or intentional wrongful act
or failure to act with respect to the use of FUND or its shares by the COMPANY,
including COMPANY's officers, directors and employees; or arising from the bad
faith, willful misconduct or gross negligence in the performance by the
COMPANY, or COMPANY's officers, directors and employees, of such person's
duties either under this Agreement or to COMPANY, as applicable; or arising
from the reckless disregard of the obligations of the COMPANY, or COMPANY's
officers, directors and employees, either under this Agreement or to the
COMPANY, as applicable; or arising from COMPANY's furnishing of information to
FUND, for use in FUND's Prospectus or Statement of Additional Information,
which is misleading or omits to state a material fact necessary to make the
statements made, in light of the circumstances in which made, not misleading.
Notwithstanding the foregoing, COMPANY will not be liable to the extent ; that
any such loss, claim, damage, liability or expense (including reasonable
attorneys fees and disbursements) arises out of or is based upon an untrue
statement or omission or alleged omission made in good faith reliance upon and
in conformity with information furnished by FUND specifically for use in the
Registration Statement or sales literature relating to the variable contracts.
COMPANY shall not be liable under this Paragraph 6.1 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the FUND, its officers, trustees, or employees to the extent that such losses,
claims, damages, liabilities or expenses arose from the FUND's willful
5
<PAGE> 6
misconduct, bad faith or gross negligence in the performance of FUND's duties or
by reason of FUND's reckless disregard of its obligations under this Agreement.
6.2 FUND shall be solely responsible for its actions in connection with its
operations and shall indemnify and hold harmless COMPANY, including its
officers, directors and employees, from any losses, claims, damages,
liabilities or expenses (including reasonable attorneys fees and disbursements)
arising from the breach of its representations and warranties of this
Agreement; arising from the grossly negligent or intentional wrongful act or
failure to act by the FUND, including FUND's officers, trustees and employees;
or arising from the bad faith, willful misconduct or gross negligence in the
performance by the FUND, or FUND's officers, trustees and employees, of such
person's duties either under this Agreement or to FUND, as applicable; or
arising from the reckless disregard of the obligations of the FUND, or its
officers, trustees and employees, either under this Agreement or to the FUND,
as applicable, or arising from FUND's furnishing of information to COMPANY for
use in COMPANY's Prospectus or Statement of Additional Information which is
misleading or omits to state a material fact necessary to make the statements
made, in light of the circumstances in which made, not misleading.
Notwithstanding the foregoing, FUND will not be liable to the extent that any
such loss, claim, damage, liability or expense (including reasonable attorney's
fees and disbursements) arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in good faith
reliance upon and in conformity with information furnished by COMPANY
specifically for use in Registration Statement or sales literature relating to
FUND.
FUND shall not be liable under this Paragraph 6.2 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the COMPANY, its officers, directors or employees, to the extent that such
losses, claims, damages, liabilities or expenses arose from such party's
willful misconduct, bad faith or gross negligence in the performance of such
party's duties or by reason of such party's reckless disregard of its
obligations under this Agreement or to the COMPANY, as applicable.
6.3 ASISI shall be solely responsible for its actions in connection with its
operations and shall indemnify and hold harmless COMPANY, including its
officers, directors and employees, from any losses, claims, damages,
liabilities or expenses (including reasonable attorneys fees and disbursements)
arising from the breach of its representations and warranties of Section
2.8(b); from the grossly negligent or intentional wrongful act or failure to
act by ASISI, including ASISI's officers and employees; or arising from the bad
faith, willful misconduct or gross negligence in the performance by ASISI, or
ASISI's officers and employees, of such person's duties either under this
Agreement or to ASISI, as applicable; or arising from the reckless disregard of
the obligations of ASISI, or its officers and employees, either under this
Agreement or to ASISI, as applicable, or arising from ASISI's furnishing of
information to COMPANY for use in COMPANY's Prospectus or Statement of
Additional Information which is misleading or omits to state a material fact
necessary to make the statements made, in light of the circumstances in which
made, not misleading. Notwithstanding the foregoing, ASISI will not be liable
to the extent that any such loss, claim, damage, liability or expense
(including reasonable attorney's fees and disbursements) arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in good faith reliance upon and in conformity with
information furnished by COMPANY specifically for use in the Registration
Statement or sales literature relating to ASISI.
ASISI shall not be liable under this Paragraph 6.3 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the COMPANY, its officers, directors or employees, to the extent that such
losses, claims, damages, liabilities or expenses arose from such party's
willful misconduct, bad faith or gross negligence in the performance of such
party's duties or by reason of such party's reckless disregard of its
obligations under this Agreement or to the COMPANY, as applicable.
ARTICLE VII. POTENTIAL CONFLICTS
7.1 COMPANY agrees to inform the Board of the existence of, or any potential
of, any material irreconcilable conflict of interest of which it becomes aware
between the interests of owners of contracts
6
<PAGE> 7
using the Accounts of COMPANY which invest in the FUND and/or the interests of
owners of contracts using any other separate account of any other insurance
company which invests in the FUND.
7.2 The Board shall monitor FUND for the existence of any material
irreconcilable conflicts between the interests of the contract owners of all
separate accounts investing in the FUND.
7.3 A material irreconcilable 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, or any
similar action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing FUND; or
(f) a decision by COMPANY to disregard the voting instructions of
contract owners.
COMPANY will be responsible for assisting the Board in carrying out its
responsibilities by providing the Board with all information reasonably
necessary for the Board to consider any issue raised including, inter alia, any
potential or existing conflicts between contract owners and information as to a
decision by COMPANY to disregard voting instructions of contract owners.
It is agreed that if it is determined by a majority of the members of the
Board or a majority of its disinterested Directors that a material
irreconcilable conflict exists affecting COMPANY, COMPANY shall, at its own
expense, take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate
accounts of COMPANY from FUND or any Portfolio and reinvesting such assets in a
different investment medium, including another Portfolio of the FUND, if any,
or submitting to a vote of all affected contract owners the question of whether
segregation of assets should be implemented and, as appropriate, segregating
the assets of any particular group (i.e., annuity contract owners, life
insurance contract owners or qualified contract owners) that votes in favor of
such segregation, or offering to the affected contract owners the option of
making such a change; or
(ii) establishing a new registered management investment company or
managed separate account.
If a material irreconcilable conflict arises because of COMPANY'S
decisions to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, COMPANY may
be required, at the FUND'S election, to withdraw its Accounts' investment in
FUND. No penalty, other than applicable transaction costs, will be imposed
against an Account as a result of such a withdrawal. COMPANY agrees that any
remedial action taken by it in resolving any material conflicts of interest
will be carried out with a view only to the interest of contract owners.
7
<PAGE> 8
For purposes hereof, a majority of the disinterested members of the Board
shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event will FUND be required to
establish a new funding medium for any variable contracts. COMPANY shall not be
required by the terms hereof to establish a new funding medium for any variable
contracts if an offer to do so has been declined by vote of a majority of
adversely affected contract owners. Should FUND or any affiliate of FUND choose
to establish a new funding medium or recommend other remedial action as a way to
resolve any material irreconcilable conflict, COMPANY will recommend to its
policyowners that they decline an offer to establish a new funding medium or
take other remedial action only if it believes it is in the best interest of the
contract owners to do so.
FUND will undertake to promptly make known to COMPANY the Board's
determination of the existence of a material irreconcilable conflict and its
implications.
ARTICLE VIII. TERMINATION
8.1 This Agreement shall terminate automatically in the event of its
assignment, unless made with the written consent of each party.
8.2 This Agreement shall continue in full force and effect from its effective
date, and may be terminated at any time on six (6) months' written notice to
the other party hereto.
ARTICLE IX. MISCELLANEOUS
9.1 This Agreement shall be subject to the provisions of the federal
securities laws and the rules and regulations, thereunder, including any
exemptive relief therefrom and the orders of the Securities and Exchange
Commission setting forth such relief, and the laws of the State of Connecticut.
FUND will comply with applicable state law concerning permissible
investments for separate accounts, provided that COMPANY will notify the FUND of
any changes in such laws when COMPANY has been made aware of such changes in
connection with COMPANY contracts which utilize the FUND.
9.2 If any provisions of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
9.3 Any notice required under this Agreement shall be deemed to have been
sufficiently given when sent by registered or certified mail to the COMPANY at:
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
Attention: General Counsel
or to the FUND at:
American Skandia Trust
One Corporate Drive
Shelton, Connecticut 06484
Attention: Mary Ellen O'Leary, Secretary
or to such other address furnished to the other party pursuant hereto.
9.4 The waiver by any party of a breach by any other party of any of the
provisions of this Agreement shall not operate or be deemed as a waiver of any
other provision of this Agreement or of any subsequent breach thereof by any
party.
8
<PAGE> 9
9.5 This Agreement may be executed in any number of counterparts and by the
different parties hereto each of which shall be deemed to be an original and
all of which, when so executed and delivered by the parties, taken together,
shall constitute one and the same instrument.
9.6 This Agreement constitutes the entire agreement between the parties
hereto, and supersedes all prior agreements, written or oral, between the
parties, and may not be modified except in a written instrument executed by all
parties hereto.
9.7 It is understood by the parties that this Agreement is not to be deemed an
exclusive arrangement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed by their authorized officers as of the day and year first above
written.
AMERICAN SKANDIA TRUST
By: ________________________________________
Print Name: ________________________________
Title: _____________________________________
Attest: ____________________________________
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
For the purposes of Sections 2.8 and 6.3 only
By: ________________________________________
Print Name: ________________________________
Title: _____________________________________
Attest: ____________________________________
KEMPER INVESTORS LIFE INSURANCE COMPANY
By: ________________________________________
Print Name: ________________________________
Title: _____________________________________
Attest: ____________________________________
9
<PAGE> 10
APPENDIX A
The following portfolios are available for purchase by the COMPANY and its
Accounts:
<TABLE>
<CAPTION>
Investment Options Fund Portfolios
- --------------------------------------- ---------------------------------------
<S> <C>
Founders Capital Appreciation Portfolio Founders Capital Appreciation Portfolio
Berger Capital Growth Portfolio Berger Capital Growth Portfolio
JanCap Growth Portfolio JanCap Growth Portfolio
Lord Abbett Growth and Income Portfolio Lord Abbett Growth and Income Portfolio
INVESCO Equity Income Portfolio INVESCO Equity Income Portfolio
T. Rowe Price International Equity Portfolio T. Rowe Price International Equity Portfolio
T. Rowe Price Asset Allocation Portfolio T. Rowe Price Asset Allocation Portfolio
PIMCO Limited Maturity Bond Portfolio PIMCO Limited Maturity Bond Portfolio
PIMCO Total Return Bond Portfolio PIMCO Total Return Bond Portfolio
</TABLE>
10
<PAGE> 1
EXHIBIT 1-A(8)(b)
SERVICE AGREEMENT
This SERVICE AGREEMENT, dated as of____________, 1995 between Kemper
Investors Life Insurance Company, ("KILICO") an Illinois insurance corporation
having its principal offices and place of business at 1 Kemper Drive, T-1, Long
Grove, IL 60049, and American Skandia Investment Services, Incorporated
("ASISI"), as Investment Advisor for the American Skandia Trust (the "Fund"), a
Connecticut corporation having its principal office and place of business at
One Corporate Drive, Shelton, CT 06484.
In consideration of the promises and mutual covenants set forth in this Service
Agreement, KILICO and ASISI agree as follows:
1. KILICO agrees to provide services to beneficial shareholders of
Portfolios of the Fund ("Beneficial Holders") on behalf of ASISI, to the same
extent ASISI is authorized to provide such services, including the following
services:
a) responding to inquiries from Beneficial Holders regarding
the services performed by KILICO or any affiliate of KILICO, as
they relate to the Fund;
b) providing information to ASISI and to Beneficial Holders
with respect to shares beneficially owned by Beneficial Holders;
c) communicating directly with Beneficial Holders concerning
the Fund's operations, and portfolio composition and performance;
d) including the Fund portfolios that are offered as
underlying investment options for accounts that serve as
investment vehicles for certain variable life and/or variable
annuity contracts (the "Variable Insurance Contracts") and
qualified plan funding agreements offered by KILICO, as well as
relevant financial and performance data, in any software program
currently available or proposed, that are or will be made
available by KILICO to financial professionals that sell products
or provide investment allocation services in relation to such
products ("Portfolio Support Services");
e) updating any Portfolio Support Services and other printed
portfolio information on a quarterly basis; and
f) providing such other similar services in connection with
the Fund as ASISI may reasonably request, to the extent permitted
under applicable statutes, rules and regulations.
2. KILICO also agrees to consult, either directly or through one of its
affiliates, with ASISI in connection with the design and implementation of
shareholder servicing arrangements relating to shares issued by the Fund,
including without limitation, sponsoring and/or participating in seminars
and/or sales meetings relating to the distribution of shares of the Fund and
servicing of Fund Portfolios.
3. ASISI agrees to provide or arrange to provide, to KILICO, or its
designated representative, with the portfolio information reasonably requested
to support any Portfolio Support Services.
1
<PAGE> 2
4. ASISI recognizes KILICO as the sole legal shareholder of the shares of
the Fund purchased pursuant to the Variable Insurance Contracts offered by
KILICO. ASISI also recognizes that substantial savings in administrative and
shareholder servicing support expenses will be derived by virtue of the Fund
having a sole legal shareholder of such shares rather than multiple legal
shareholders. These substantial savings to ASISI will be the result of KILICO's
performing the services set forth in Paragraphs 1 and 2 above. In consideration
of the administrative and shareholder servicing support savings resulting from
such arrangement, ASISI agrees to pay KILICO a fee (the "Portfolio Servicing
Fee") calculated as a percentage of the average daily net asset value of all
shares in Portfolios of the Fund purchased by KILICO, including such shares
purchased through reinvestment of dividends and distributions, which fee shall
be payable monthly. The current Portfolio Servicing Fee Schedule is set forth
in Appendix A. The Portfolio Servicing Fee, which is payable ten (10) days
after the end of a calendar month, shall be payable only so long as the
portfolios of the Fund continue to be available as investment options for
accounts that serve as investment vehicles for the Variable Insurance Contracts
and qualified plan funding agreements offered by KILICO as set forth in Schedule
A ("Investment Option(s)"). If a new portfolio of the Fund becomes available or
ceases to be available as an Investment Option during a calendar month, the
Portfolio Servicing Fee payable shall be pro-rated for the time period such
portfolio was available as an Investment Option. Any Investment Option
additions or deletions will be reflected in Schedule A. Fees described in this
Paragraph 4 shall cease to accrue with respect to shares that are redeemed. Any
overpayment of compensation and fees pursuant to this Paragraph 4 shall reduce
amounts payable to KILICO in subsequent months. ASISI and KILICO agree that the
services provided thereunder will be reviewed not less than annually. Neither
ASISI nor KILICO will agree to waive any portion of the Portfolio Servicing Fee
unless clearly mandated by law, without the consent and concurrence of the
other, which consent and concurrence will not be unreasonably withheld.
5. KILICO represents, warrants and covenants that it is a corporation
organized under the laws of the State of Illinois, and has the authority,
pursuant to such laws, to enter into and perform services under this Service
Agreement, and that it may lawfully receive the Portfolio Servicing Fee under
all applicable laws.
6. ASISI represents, warrants and covenants that it is a corporation
organized under the laws of the State of Connecticut, and has the authority,
pursuant to such laws, to enter into and perform services under this Service
Agreement, and that it may lawfully pay the Portfolio Servicing Fee under all
applicable laws.
7. ASISI agrees to indemnify and hold harmless KILICO and its officers,
directors and each affiliated person of KILICO within the meaning of Section
2(a)(3) of the Investment Company Act of 1940, as amended (collectively, the
"KILICO Indemnified Parties"), from any and all loss, liability and expense
resulting from willful misfeasance, bad faith or gross negligence, or by reason
of the reckless disregard of the respective obligations and duties of the ASISI
Indemnified Parties, as defined below, under this Service Agreement, or breach
of a representation, warranty or covenant contained in paragraph 6, except to
the extent such loss, liability or expense is the result of (a) the breach of a
representation, warranty or covenant contained in paragraph 5 hereof, or (b)
the willful misfeasance, bad faith or gross negligence of any of the KILICO
Indemnified Parties in the performance of their respective duties, or by reason
of the reckless disregard of respective obligations and duties of the KILICO
Indemnified Parties under this Service Agreement.
8. KILICO agrees to indemnify and hold harmless ASISI and it officers,
directors and each affiliated person of ASISI within the meaning of Section
2(a)(3) of the Investment Company Act of 1940, as amended (collectively, the
"ASISI Indemnified Parties"), from any and all loss, liability and expense
resulting from willful misfeasance, bad faith or gross negligence, or by reason
of the reckless disregard of the respective obligations and duties of the
KILICO Indemnified Parties under this Service Agreement, or breach of a
representation, warranty or convenant
2
<PAGE> 3
contained in paragraph 5, except to the extent such loss, liability or expense
is the result of (a) the breach of a representation, warranty or covenant
contained in paragraph 6 hereof, or (b) the willful misfeasance, bad faith or
gross negligence of any of the ASISI Indemnified Parties in the performance of
their respective duties, or by reason of the reckless disregard or respective
obligations and duties of the ASISI Indemnified Parties under this Service
Agreement.
9. Either party may terminate this Service Agreement on six (6) months'
written notice to the other party. Any notice shall be sufficiently given when
sent by registered or certified mail to KILICO at:
____________________________________
____________________________________
____________________________________
Attention: _________________________
or to ASISI at:
American Skandia Investment Services, Incorporated
One Corporate Drive
P.O. Box 883
Shelton, Connecticut 06484-0883
Attention: Mr. Thomas M. Mazzaferro
Telecopy Number: (203) 929-8071
or to such other address furnished to the other party pursuant hereto.
10. In the event that ASISI ceases to act as Investment Advisor for the
Fund, this Service Agreement will terminate at the option of KILICO on thirty
(30) days written notice. This Service Agreement is terminable immediately
upon notice by one party to another upon (a) dissolution or bankruptcy of
either party, (b) a material breach of this Service Agreement by either party,
or (c) termination of the Participation Agreement, dated ___________, between
the parties and the Fund.
11. ASISI, unless otherwise objecting, agrees that an affiliate of KILICO
may provide any of the services set forth in paragraphs 1 and 2, subject to
KILICO's reasonable and good faith determination that its affiliate will
provide such services in a manner consistent with this Agreement.
12. No waiver by either party of any provision of this Service Agreement
shall operate as, or be construed as, a waiver of any subsequent breach
thereof, or waiver of any other provision of this Service Agreement.
13. In the event that any provision of this Service Agreement shall be
held invalid, the same shall not affect in any respect whatsoever the validity
of the remainder of this Service Agreement and such provision, to the extent
that the rights and mutual obligations of the parties hereto are not materially
adversely affected, shall be deemed to be severable therefrom.
14. Except as set forth in Paragraph 11, neither this Service Agreement
nor any rights or obligations hereunder shall be assignable by either ASISI or
KILICO without prior written consent of the other party thereto.
3
<PAGE> 4
15. KILICO and ASISI agree to attempt to resolve any dispute that may
arise under the Service Agreement amicably between themselves. If such
discussions fail to result in an amicable settlement, then the parties shall
arbitrate such dispute in Shelton, Connecticut. Each party shall select on
arbitrator from among the business community familiar with the type of business
conducted by ASISI and KILICO, and such two arbitrators shall select a third
arbitrator. The American Arbitration Association rules shall govern the
procedures to be followed. However, arbitration shall not be under the
auspices of the American Arbitration Association.
16. This Service Agreement shall be construed in accordance with, and its
performance shall be governed by, the laws of the State of Connecticut.
17. This Service Agreement may be amended or modified in whole or in part
only by a written Service Agreement executed by both parties.
IN WITNESS WHEREOF, the parties to this Service Agreement have caused this
Service Agreement to be executed by their authorized officers as of the day and
year first above written.
KEMPER INVESTORS LIFE INSURANCE COMPANY
By: __________________________________
Authorized Signature
Print Name:___________________________
Print Title:____________________________
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
By:__________________________________
Authorized Signature
Print Name:___________________________
Print Title:____________________________
4
<PAGE> 1
EXHIBIT 1-A(10)
[KEMPER LOGO]
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
LIFE INSURANCE APPLICATION
COMPLETE THE FOLLOWING IN ALL CASES:
Part A: General Information
Part B: Agreement
Agent's Report (located at end of set)
COMPLETE THE FOLLOWING WHEN NEEDED:
Part C: Medical Questionnaire (must be completed for all non-examined cases)
Part D: Multiple Insured Supplement
Part E: Additional Details
Pre-authorized Checking (PAC) Authorization (if electronic debit is desired)
THE FOLLOWING ARE NOT INCLUDED IN THIS SET (USE WHEN NEEDED):
Part G: Aviation Supplement
Part H: Financial Supplement
Part J: Insurance History Supplement
================================================================================
DIRECTIONS
You, as the Agent, are responsible for completing the necessary forms required
to process and underwrite this application. All forms must be completed in
full and must be legible. The directions below must be followed carefully.
DO--
- - Submit separate applications on Joint Insureds.
- - Provide full details.
- - Print application in black ink.
- - Get all required signatures.
- - Have the applicant initial all changes.
- - Complete the Agent's Report, especially Question 10 (regarding replacement)
- - Sign the Agent's Report after completing.
- - Complete the Financial Supplement, Part H, if the application is for more
than $1 million.
- - Give the Notification (below) to the applicant prior to completion of the
application.
- - Send two months' premium on all PAC cases.
DON'T--
- - Don't accept or send money on applications totalling over $500,000.
- - Don't send partial premiums--full mode premium is needed.
- - Don't use pencil.
- - Don't use whiteout.
LIFE APP/595 (TEAR HERE)
================================================================================
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
--NOTIFICATION--IMPORTANT INFORMATION--PLEASE READ BOTH SIDES CAREFULLY--
FEDERAL FAIR CREDIT REPORTING ACT NOTICE
We may request a consumer report which contains information about your
character, reputation, and mode of living, except as may be related directly or
indirectly to your sexual orientation. The information is obtained through
interviews with your friends, neighbors, and associates. It is part of our
underwriting procedure. We will furnish information about the nature of the
report to you if you write to us and ask.
THIS NOTIFICATION MUST BE GIVEN TO THE PROPOSED INSURED BEFORE THE
APPLICATION IS COMPLETED.
<PAGE> 2
[KEMPER LOGO]
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
================================================================================
Conditional Receipt (Do Not Complete And Give To Applicant Unless Payment Is
Made)
- --------------------------------------------------------------------------------
In exchange for the payment of the first required premium with the application,
the Company will provide insurance prior to policy delivery, under the
following terms.
NO INSURANCE WILL BE PROVIDED UNDER THIS RECEIPT UNLESS ALL REQUIREMENTS ARE
FIRST FULFILLED EXACTLY DURING THE LIFETIME OF THE PROPOSED INSURED. IF ALL
REQUIREMENTS ARE NOT SO MET, OR THE PROPOSED INSURED DIES BY SUICIDE, THE
LIABILITY OF THE COMPANY SHALL BE LIMITED TO A REFUND TO THE APPLICANT OF THE
PAYMENT MADE FOR THIS RECEIPT. MEDICAL REQUIREMENTS ARE DEFINED BY THE
COMPANY'S CURRENT RULES AND PRACTICES AND INCLUDE HOSPITAL AND PHYSICIAN
REPORTS, AND MEDICAL EXAMINATIONS AND TESTS. NO AGENT MAY ALTER OR WAIVE ANY
PART OF THIS RECEIPT. THIS RECEIPT PROVIDES NO INSURANCE FOR RIDERS OR
ADDITIONAL BENEFITS.
REQUIREMENTS -- The following must first be fulfilled for insurance to start:
A. All medical requirements are completed and received by the Company within
60 days from the date of the application;
B. The first premium has been paid in full;
C. All questions in the application have been answered;
D. All answers given in the application are true and complete;
E. The Proposed Insured is acceptable to the Company under its rules and
practices, for the plan and amount applied for, without amendment, at the
rate class applied for or a lesser premium, as of the date the
Company receives all of its medical requirements; and
F. The Proposed Insured has complied with all parts of Life Application --
Part B: Agreement.
START OF INSURANCE -- If the above requirements are first met, this Receipt
will provide insurance beginning the latest of: (1) the date of the
application; or (2) the date of receipt of all medical requirements by the
Company.
END OF INSURANCE -- Once begun, any insurance this receipt may provide ends at
the earliest of: (1) 60 days after the date of the application; (2) when the
Company sends a refund of the premium which was exchanged for this receipt; or,
(3) the date any policy issued goes into effect.
AMOUNT LIMIT -- The amount of insurance provided by this receipt is the lesser
of: (A) the initial death benefit of the insurance applied for in the
application; or (B) $500,000.
PAYMENT TERMS -- The first premium will not be considered paid unless any
check, draft, or other instrument of payment (given as premium) is paid in
accordance with its terms. ALL PREMIUM CHECKS MUST BE MADE PAYABLE TO THE
COMPANY. DO NOT MAKE CHECKS PAYABLE TO THE AGENT. DO NOT LEAVE THE PAYEE BLANK.
- --------------------------------------------------------------------------------
This receipt is given on behalf of the company selected in item 8 of Part A of
the application.
I have read and agree to the above terms.
- -------------------- --------------------------------------------------------
Dated Signature of the Owner/Applicant
Received from $
----------------------------------------------- ----------------
for coverage on
------------------------------------------(the Proposed Insured)
- -------------------- --------------------------------------------------------
Dated Signature of Agent
L-B595 (TEAR HERE)
================================================================================
MEDICAL INFORMATION BUREAU NOTICE
Information regarding your insurability will be treated as confidential.
Federal Kemper Life Assurance Company, Fidelity Life Association or Kemper
Investors Life Insurance Company (we), or our reinsurers, may, however, make a
brief report thereon to the Medical Information Bureau, a non-profit membership
organization of life insurance companies, which operates an information
exchange on behalf of its members. If you apply to another Bureau member
company for life or health insurance coverage, or a claim for benefits is
submitted to such a company, the Bureau, upon request, will supply such company
with the information in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. If you question the accuracy of
information in the Bureau's file, you may contact the Bureau and seek a
correction in accordance with the procedures set forth in the Federal Fair
Credit Reporting Act. The address of the Bureau's information office is Post
Office Box 105, Essex Station, Boston, Massachusetts 02112, telephone number
(617) 426-3660.
We, or our reinsurers, may also release information in our file to other life
insurance companies to whom you may apply for life or health insurance, or to
whom a claim for benefits may be submitted.
THIS NOTIFICATION MUST BE GIVEN TO THE PROPOSED INSURED BEFORE THE APPLICATION
IS COMPLETED.
<PAGE> 3
Policy number___________________________________
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
- -----------------------------------------------------------------
LIFE APPLICATION--PART A: GENERAL INFORMATION
- ---------------------------------------------------------------
1. PROPOSED INSURED [ ] Male [ ] Female
- --------------------------------------------------------------
First name Middle initial Last name
- --------------------------------------------------------------
Former name if changed in last five years
- --------------------------------------------------------------
Birthdate Age at nearest birthday Birthplace
(Use to calculate premium) (state or country)
- --------------------------------------------------------------
Social Security number Driver's license state/number
- --------------------------------------------------------------
2. Street Address
--------------------------------------------------------------
City State Zip
--------------------------------------------------------------
Home Phone ( )
==============================================================
3. What is your occupation?
-------------------------------------------------------------
Describe duties
-------------------------------------------------------------
Employer
--------------------------------------------------------------
Employer's street address
--------------------------------------------------------------
City State Zip
--------------------------------------------------------------
Business phone ( )
--------------------------------------------------------------
If more information is needed, you can be reached at:
[ ] Home [ ] Work Best time of day: __________
==============================================================
4. Current annual earned income:
$ ______________________________________________
===============================================================
5. OWNER APPLICANT [ ] Proposed Insured [ ] Other (complete below)
--------------------------------------------------------------
Name
-------------------------------------------------------------
Street
--------------------------------------------------------------
City State Zip
--------------------------------------------------------------
Relationship to Proposed Insured Social Security or Tax ID#
===================================================================
6. PREMIUM PAYOR (select one) [ ] Proposed Insured
[ ] Owner [ ] Other (give name & address in #16)
-------------------------------------------------------------------
7. BENEFICIARY DESIGNATION (Use Part E if additional space
is needed.)
PRIMARY BENEFICIARY(S) & ADDRESS % OF RELATIONSHIP TO
(if trust, give name/date of trust) PROCEEDS PROPOSED INSURED
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
CONTINGENT BENEFICIARY(S) & ADDRESS
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
-----------------------------------------------------------
8. This application is to: (select one)
[ ] Federal Kemper Life Assurance Company
[ ] Fidelity Life Association
[ ] Kemper Investors Life Insurance Company
=========================================================
9. NAME OF INSURANCE PLAN (if INITIAL DEATH BENEFIT
applicable, indicate type (Specified amount, if UL)
1/5/10/15-year,etc.)
----------------------------------------------------------
If Universal Life:
[ ] Option A: Specified amount includes cash value
[ ] Option B: Specified amount plus the cash value
(If neither is selected, Option A will be assigned.)
----------------------------------------------------------
Riders: [ ] WP/WMD [ ] FDR* _________ Units
[ ] WSP $____ [ ] DCR* _________ Units
[ ] _________ [ ] ____________________
*COMPLETE PART D: MULTIPLE INSURED SUPPLEMENT
==========================================================
10. If this application is to Fidelity Life Association,
select the desired dividend option, if applicable:
[ ] Pay in cash [ ] Reduce premiums [ ] Accumulate
at interest
[ ] Buy additional paid-up insurance [ ] Other
==========================================================
11. a. Have you smoked cigarettes in the past 36 months?
[ ] Yes [ ] No
b. Have you used tobacco in any other form in the
past 36 months?
[ ] Yes [ ] No
Type ____________________ Quantity __________________
==========================================================
12. Have you ever been told you had, or been treated for:
diabetes, cancer, heart disease, alcoholism, drug
abuse, or high blood pressure? [ ] Yes [ ] No
(If Yes, preferred rates will not likely be available.)
=============================================================
13. Rate class applied for:
[ ] Preferred non-tobacco [ ] Preferred tobacco
[ ] Standard non-tobacco [ ] Standard tobacco
[ ] Other _____________________________________________
==============================================================
14. a. Bill frequency: b. Bill form:
[ ] Annual [ ] Direct
[ ] Semi-Annual [ ] PAC (monthly only)
[ ] Quarterly [ ] List (monthly only)
[ ] Monthly (PAC or list only) [ ] Other _____________
(For PAC, complete authorization form.)
c. Planned periodic premium: (UL plans only) $ _____
---------------------------------------------------------
15. Amount remitted with this application, in exchange
for the conditional receipt: $________________________
DO NOT SUBMIT MONEY IF DEATH BENEFIT EXCEEDS $500,000.
==========================================================
16. SPECIAL REQUESTS
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
------------------------------[ Kemper Life Insurance
Companies LOGO]
(Continued)
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
FEDERAL KEMPER LIFE ASSURANCE COMPANY PART A (Continued)
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
===========================================================================
17. INDIVIDUAL LIFE INSURANCE IN FORCE (if none, state none.)
(Do not list group)
DATE -PURPOSE-
COMPANY AMOUNT ISSUED PERSONAL BUSINESS
----------------------------------------------------------------
a.
------------------------------------------------------------------
b.
------------------------------------------------------------------
c.
------------------------------------------------------------------
d.
------------------------------------------------------------------
e.
------------------------------------------------------------------
f.
------------------------------------------------------------------
===========================================================================
18. Is this policy to replace any existing insurance or
annuities? (If Yes, complete required replacement forms.)
[ ] Yes [ ] No
If Yes, indicate which policy(s) _____________________
===========================================================================
19. Are there life insurance applications pending with any
other companies? (If Yes, complete the following.)
[ ] Yes [ ] No
TO BE PLACED
IN ADDITION TO -PURPOSE-
COMPANY AMOUNT OUR POLICY? PERS. BUS.
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
===========================================================================
20. Have you ever been refused life insurance or been asked to pay extra
premium for life insurance? (If Yes, provide full details) [ ] Yes [ ] No
===========================================================================
21. Are you a U.S. Citizen? (If No, complete below.) [ ] Yes [ ] No
---------------------------------------------------------------------------
Country Of Citizenship / Type of Visa / Expiration Date
---------------------------------------------------------------------------
===========================================================================
22. Have you traveled or lived outside the U.S. or Canada within the past
two years, or do you intend to in the next 24 months? [ ] Yes [ ] No
(If Yes, list country, reason, frequency and length of stay in #28.)
===========================================================================
23. In the past three years, have you had three or more moving violations,
or had your driver's license suspended or revoked? [ ] Yes [ ] No
===========================================================================
24. Have you ever been convicted of reckless driving, or driving under the
influence of alcohol or drugs? [ ] Yes [ ] No
(If #23 or #24 are Yes, give details, dates & current status in #28.)
===========================================================================
25. Have you been convicted of, or are you awaiting trial for a felony?
(If Yes, give type, date & current status.) [ ] Yes [ ] No
===========================================================================
26. In the past five years have you, or do you intend to:
a. Scuba dive [ ] Yes [ ] No e. Mountain climb [ ] Yes [ ] No
b. Sky dive [ ] Yes [ ] No f. Race motorcycles [ ] Yes [ ] No
c. Parachute [ ] Yes [ ] No g. Race automobiles [ ] Yes [ ] No
d. Hang glide [ ] Yes [ ] No h. Race power boats [ ] Yes [ ] No
(If Yes, explain frequency, purpose, date of last activity & future plans.)
===========================================================================
27. In the past five years, have you flown as a pilot or crew member in any
flying activity, or do you intend to? [ ] Yes [ ] No
(If Yes, complete PART G: AVIATION SUPPLEMENT.)
===========================================================================
28. Details of Yes answers for #20, 22-26 (Use Part E if additional space
is needed.)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
================================================================================
PART B: AGREEMENT
- --------------------------------------------------------------------------------
I (we) have read all the questions and answers in the application, including
all required parts. All responses are true and complete to the best of my (our)
knowledge and belief. I (we) promise to tell the Company of any change in the
health or habits of the Proposed Insured that occurs after completing this
application, but before the Policy is delivered to me (us) and the first
premium is paid.
I (we) agree:
l. This application, including all of its parts, will be the basis for and form
part of the Policy;
2. An Agent has no authority to alter the Company's rules or requirements, this
Agreement, the Receipt, or the Policy;
3. The first premium will not be deemed paid unless any check, draft, or other
instrument of payment (given as premium) is paid in accordance with its terms;
and
4. (Except as provided in the Receipt, if given) the insurance applied for
never takes effect unless, during the lifetime of the Proposed Insured: (A)
the Policy has been issued, delivered to, and accepted by me (us); (B) the
required first premium has been paid; (C) any amendments issued with the
Policy have been completed and signed; all while the health and habits of the
Proposed Insured remain as stated in this application.
Amendments to plan, amounts, classification or benefits will be made only with
my (our) consent.
================================================================================
I (we) have received the notification about the Federal Fair Credit Reporting
Act and the Medical Information Bureau.
- --------------------------------------------------------------------------------
I hereby authorize: any licensed physician or medical practitioner; any
hospital, clinic or other medical or medically related facility; any insurance
company; the Medical Information Bureau; and any other organization,
institution or person, that has any records or knowledge of me or my health, to
give to Federal Kemper Life Assurance Company, Fidelity Life Association, A
Mutual Legal Reserve Company or Kemper Investors Life Insurance Company, or
their reinsurers, or the Medical Information Bureau, any such information. This
authorization is valid for two and one-half years from the date this form is
signed. An exact copy of this authorization is as valid as the original.,
Signed at
-------------------------------------- -------------------------------------------------------------
City and State Signature of Proposed Insured (if age 15 or over)
on
------------------------------------------- -------------------------------------------------------------
Month/Day/Year Signature of Owner/Applicant, if other than Proposed Insured
----------------------------- ------------------------------------ ---------------------
Signature of Agent/Witness Print Agent Name Agent Number
L-A5952
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, Il 60049
Policy Number
----------------
================================================================================
PART C: MEDICAL QUESTIONNAIRE
----------------------------------------------------------------------------
1. PROPOSED INSURED
----------------------------------------------------------------------------
First name Middle initial Last name
----------------------------------------------------------------------------
Amount of insurance /Birthdate / Social Security number
----------------------------------------------------------------------------
Purpose of this examination: [ ] New insurance
[ ] Change of existing policy [ ] Reinstatement of lapsed policy
----------------------------------------------------------------------------
2. Have you ever had or been treated for:
A. High blood pressure, chest pain, rheumatic fever, a heart condition,
heart murmur, irregular heart rhythm, heart attack, stroke, or other
disease of the heart or blood vessels?
B. Diabetes, a thyroid disorder, or other disease of the glands? [ ] Yes [ ] No
C. Cancer, tumor, lymph gland disorder, cyst, or any blood disorder? [ ] Yes [ ] No
D. Albumin, blood or sugar in the urine, kidney trouble, or any other disease
of the urinary or genital tract (including prostate)? [ ] Yes [ ] No
E. Epilepsy, convulsion, fainting spell, stroke, paralysis,
or any other disease of the brain or nervous system? [ ] Yes [ ] No
F. Asthma, chronic bronchitis, emphysema, pneumonia, sarcoidosis,
tuberculosis, shortness of breath, or other lung or respiratory
system ailment? [ ] Yes [ ] No
G. Ulcer, colitis, hepatitis, pancreatitis or other disorder of
the esophagus, stomach, intestines, liver, gallbladder or
pancreas? [ ] Yes [ ] No
H. Severe injuries or any disease or deformity of the muscles,
connective tissue, bones, joints or skin? [ ] Yes [ ] No
I. Any impairment of sight or hearing or disease of the eyes,
ears, nose or throat? [ ] Yes [ ] No
================================================================================
3. FAMILY RECORD ---LIVING--- ---DECEASED---
AGE STATE OF HEALTH AGE CAUSE OF DEATH
-----------------------------------------------------------------------------
Father
-----------------------------------------------------------------------------
Mother
-----------------------------------------------------------------------------
Brothers
(list individually)
-----------------------------------------------------------------------------
Sisters
(list individually)
-----------------------------------------------------------------------------
(Use #7 for additional brothers or sisters.)
============================================================================================================
4. Has any family member listed in #3 had cancer, diabetes, high
blood pressure, heart disease, or kidney disease? [ ] Yes [ ] No
(If Yes, identify family member, disorder and age at onset.)
============================================================================================================
5. Answer both parts a and b.
a. Have you smoked cigarettes in the past 36 months? [ ] Yes [ ] No
b. Have you used tobacco in any other form in the past 36 months?
Type Quantity
------------------------- -----------------------------
============================================================================================================
6. Have you ever:
A. Used narcotics, hallucinogens, barbiturates, heroin, cocaine, amphetamines,
or any other habit-forming drugs except as prescribed by a physician? [ ] Yes [ ] No
B. Been advised by a physician, psychiatrist, or psychologist to quit or reduce
your alcohol use? [ ] Yes [ ] No
C. Been advised to seek, or received treatment or counseling for alcohol or other
drug use? [ ] Yes [ ] No
D. Been advised to attend or been a member of any self-help group, such as Alcoholics
Anonymous or Narcotics Anonymous? [ ] Yes [ ] No
E. Been convicted of drug possession or distribution? [ ] Yes [ ] No
============================================================================================================
====================================================================================================================================
7. DETAILS OF ITEMS 2 THROUGH 6. Give complete details of all Yes answers. (Use #13 or Part E, if needed, for further details.)
QUESTION DATE OF DETAILS, DIAGNOSIS, NAMES AND ADDRESSES OF DOCTORS,
NUMBER OCCURRENCE TREATMENT, MEDICATION, RESULTS DURATION HOSPITALS, AND MEDICAL FACILITIES CONSULTED
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Kemper Life Insurance
Company Logo]
(Continued)
L-C595
<PAGE> 6
<TABLE>
<Capital>
<S> <C>
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company PART C (CONTINUED)
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
- ------------------------------------------------------------------------------------------------------------------------------------
8. Have you:
A. Consulted a physician, psychiatrist, psychologist, or
other medical practitioner in the last five years? [ ] Yes [ ] No
B. Had any blood studies (other than an HIV or AIDS
test), electrocardiograms, stress electrocardiograms,
or other medical tests or studies in the last
five years? [ ] Yes [ ] No
C. Tested positive for the Human Immunodeficiency
Virus (HIV) or antibody? [ ] Yes [ ] No
D. Been under observation or received treatment in
any hospital or other institution or medical facility
in the last ten years? [ ] Yes [ ] No
E. Been advised, in the last two years, to have any diagnostic
test, surgery, or hospitalization which has not been completed? [ ] Yes [ ] No
F. Ever received any sickness or disability pension, benefits,
or compensation? [ ] Yes [ ] No
G. Ever attempted suicide? [ ] Yes [ ] No
--------------------------------------------------------------------------------------------------------------------------------
9. What is your height? Weight?
------------- ---------------
Have you lost any weight in the past year? [ ] Yes [ ] No
If Yes, amount? Reason?
------------ ------------------
================================================================================================================================
10. Are you currently taking or have you been advised to take
any medication? (If Yes, list name of medication, reason
and doctor's name and address.) [ ] Yes [ ] No
11. To the best of your knowledge, do you have:
A. Any mental illness or psychiatric disorder? [ ] Yes [ ] No
B. Any physical disorder or disease? [ ] Yes [ ] No
================================================================================================================================
12. Who is your personal physician? (If none, state none.)
--------------------------------------------------------------
Name
--------------------------------------------------------------
Street
--------------------------------------------------------------
City State Zip
--------------------------------------------------------------
Date last seen? Phone ( )
--------------------------------------------------------------
Why?
--------------------------------------------------------------
What tests were made?
--------------------------------------------------------------
Were the results normal? (If No, give details below.) [ ] Yes [ ] No
--------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
13. DETAILS OF ITEMS 8 THROUGH 12. Give complete details of all Yes answers. (Use #7 or Part E, if needed, for further details.)
QUESTION DATE OF DETAILS, DIAGNOSIS, NAMES AND ADDRESSES OF DOCTORS,
NUMBER OCCURRENCE TREATMENT, MEDICATION, RESULTS DURATION HOSPITALS, AND MEDICAL FACILITIES CONSULTED
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
All statements and answers to the foregoing questions are, to the best of my knowledge and belief: (A) complete; and (B) true.
I agree (A) that they shall form a part of my application; ( B) that they shall be subject to the terms of the agreement found
in the application; and (C) that they shall become a part of any policy based on my application. I hereby authorize: any licensed
physician or medical practitioner; any hospital, clinic, or other medical or medically related facility; any insurance company;
the Medical Information Bureau; and any other organization, institution or person, that has any records or knowledge of me or
my health, to give to Federal Kemper Life Assurance Company, Fidelity Life Association, A Mutual Legal Reserve Company or Kemper
Investors Life Insurance Company, or their reinsurers, or the Medical Information Bureau, any such information. This authoriza-
tion is valid for two and one-half years from the date this form is signed. An exact copy of this authorization is as valid as
the original.
Dated at
-------------------------------------------- ----------------------------------------------------------------------------
City and State Signature of Proposed Insured
on
--------------------------------------------------
Month/day/year
----------------------------------------------------------------------------
Signature of Witness [ ] Agent [ ] Examiner
</TABLE>
L-C5952
<PAGE> 7
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
Policy number
---------------
<TABLE>
<CAPTION>
=============================================================================================================================
PART D: MULTIPLE INSURED SUPPLEMENT (use for Riders: Dependent Children's, Family Dependents', etc.)
=============================================================================================================================
1. SPOUSE OR OTHER ADULT PROPOSED FOR INSURANCE [ ] Male [ ] Female Birthdate Age Birthplace Height Weight
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Name (first, middle, last) Social Security number
-----------------------------------------------------------------------------------------------------------------------------
2. DEPENDENTS PROPOSED FOR INSURANCE Relationship
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
========================================================================
3. Has the person named in #1 above used tobacco in any form in the past 36
months? [ ] Yes [ ] No
Type Quantity
-------------------------- ----------------------------------
========================================================================
4. Has any person named above lost any weight in the past year?
[ ] Yes [ ] No
If Yes, amount? Reason?
--------------- -----------------------------------
========================================================================
5. Has any person named above ever used narcotics, hallucinogens,
barbiturates, heroin, cocaine, amphetamines, or any other habit-forming
drugs except as prescribed by a physician? [ ] Yes [ ] No
========================================================================
6. To the best of your knowledge, does any person named above have any mental
or physical impairment or disease? [ ] Yes [ ] No
========================================================================
7. Has any person named above:
A. Consulted a physician, psychiatrist, psychologist, or other
medical practitioner in the last five years? [ ] Yes [ ] No
B. Had any blood studies (other than an HIV or AIDS test),
electrocardiograms, stress electrocardiograms, or other
medical test or studies within the last five years?
[ ] Yes [ ] No
C. Been under observation or received treatment in a hospital or other
institution or medical facility in the last five years?
[ ] Yes [ ] No
D. Tested positive for the Human Immunodeficiency Virus (HIV) or antibody?
[ ] Yes [ ] No
========================================================================
8. Is any person named above currently taking, or been advised to take, any
medication? [ ] Yes [ ] No
(If Yes, list name of medication, reason & doctor's name and address.)
========================================================================
9. Has any person named above ever had or been treated for:
A. High blood pressure? [ ] Yes [ ] No D. Stroke? [ ] Yes [ ] No
B. A heart condition? [ ] Yes [ ] No E. Diabetes? [ ] Yes [ ] No
C. Chest pain? [ ] Yes [ ] No F. Cancer? [ ] Yes [ ] No
========================================================================
10. Who is the family physician? (If none, state none.)
----------------------------------------------------------------------
Name
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
----------------------------------------------------------------------
Date last seen? Phone ( )
----------------------------------------------------------------------
Which proposed insured?
----------------------------------------------------------------------
Why?
----------------------------------------------------------------------
What tests were made?
----------------------------------------------------------------------
Were the results normal? (If No, give details below.) [ ] Yes [ ] No
----------------------------------------------------------------------
======================================================================
11. DETAILS OF ITEMS 5 THROUGH 10. (If more space is needed, Use Part E.)
<TABLE>
<S> <C> <C> <C> <C> <C>
Question Name of Date of Details, diagnosis, Name and addresses of doctors,
number family member occurrence treatment, medication, results Duration hospitals, and medical facilities consulted
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
===============================================================================================================================
</TABLE>
All statements and answers to the foregoing questions are, to the best
of my knowledge and belief: (A) complete; and (B) true. I agree (A) that
they shall form a part of my application; (B) that they shall be subject
to the terms of the agreement found in the application; and (C) that they
shall become a part of any policy based on my application.
I hereby authorize: any licensed physician or medical practitioner; any
hospital, clinic, or other medical or medically related facility; any
insurance company; the Medical Information Bureau; and any other
organization, institution or person, that has any records or knowledge of
me or my health, to give to Federal Kemper Life Assurance Company, Fidelity
Life Association, A Mutual Legal Reserve Company or Kemper Investors Life
Insurance Company, or their reinsurers, or the Medical Information Bureau,
any such information. This authorization is valid for two and one-half
years from the date this form is signed. An exact copy of this
authorization is as valid as the original.
Dated at
----------------------- -----------------------------------------
City and state Signature of person named in Part D 1.,
if any, otherwise signature of Proposed
Insured who signed Part B
on
----------------------------- -----------------------------------------
Month/day/year Signature of Agent/Witness
L-D595
<PAGE> 8
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
- --------------------------------------------------------------------------------
PART E: ADDITIONAL DETAILS (use for any explanation where space is insufficient)
- --------------------------------------------------------------------------------
Part Question No. Details
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All statements and answers to the foregoing questions are, to the best of my
knowledge and belief, complete and true. I agree (a) that they shall form a
part of my application: (b) that they shall be subject to the terms of the
agreement found in Part B; and (c) that they shall become a part of any policy
based on this application.
<TABLE>
<S> <C>
Date at ___________________________________________ _____________________________________________________________________
City and state Signature of Proposed Insured (if age 15 or over)
on _______________________________________________ _____________________________________________________________________
Month/day/year Signature of Owner/Applicant, if other than Proposed Insured
_____________________________________________________________________
Signature of Agent/Witness
</TABLE>
L-E595
<PAGE> 9
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049 Policy number___________________
WRITING AGENT'S REPORT (complete in all cases)
- -------------------------------------------------------------------
1. Name of Proposed Insured
===================================================================
2. How well do you know the Proposed Insured?
[ ] Known well [ ] Not known well
[ ] Relative (state relationship)__________________________
How long known?_________________________________________________
- -------------------------------------------------------------------
3. Who first suggested the purchase of this insurance?
[ ] Agent [ ] Owner/Applicant
[ ] Proposed Insured [ ] Other_________________________
- -------------------------------------------------------------------
4. a. Did you personally see the Proposed Insured? [ ] Yes [ ] No
b. Was the application signed by the Proposed Insured
after all the questions were answered? [ ] Yes [ ] No
(If either A or B are No, explain in #11.)
- --------------------------------------------------------------------
Insured is: [ ] Single [ ] Married [ ] Divorced [ ] Widowed
- --------------------------------------------------------------------
6. a. Are you aware of anything about the health, habits,
hobbies, or other factors which might affect the
insurability of the Proposed Insured? [ ] Yes [ ] No
b. Are you aware of any reason why the Proposed
Insured might not qualify for preferred rates? [ ] Yes [ ] No
(If either A or B are Yes, explain in #11.)
- --------------------------------------------------------------------
7. Select the purpose(s) that best describe(s) the use of this insurance:
(If purpose is solely for estate conservation, Part H is required.)
-- PERSONAL -- -- BUSINESS --
[ ] Income replacement [ ] Key person
[ ] Estate conservation [ ] Buy/sell
[ ] Mortgage protection [ ] Creditor
[ ] Debt repayment [ ] Other_________________
[ ] Other____________________
- ----------------------------------------------------------------------
8. If this is business insurance:
a. Are other principals being insured also? [ ] Yes [ ] No
(if No, explain reason in #11; if Yes, give names, amounts & company.)
b. Business net worth $_____________________________________________
c. Business net income Year ______ Amount $________________________
d. Percent of business owned by Proposed Insured___________________%
- ----------------------------------------------------------------------
9. If Proposed Insured is a juvenile:
a. Did you see the child? [ ] Yes [ ] No
b. Does he/she live with parents? [ ] Yes [ ] No
c. Are all brothers and sisters insured for like
amounts? (If No, explain in #11.) [ ] Yes [ ] No
d. How much insurance is in force on the life of
the person responsible for the child's support? $______________
- ----------------------------------------------------------------------
10. a. To the best of your knowledge, does the policy
applied for involve the replacement of existing
life insurance or annuities? [ ] Yes [ ] No
b. If Yes, has the Proposed Insured replaced other
life insurance policies in the past five years? [ ] Yes [ ] No
(If both A & B are Yes, complete PART J: INSURANCE HISTORY SUPPLEMENT.)
- --------------------------------------------------------
11.EXPLANATIONS AND DETAILS____________________________
----------------------------- YOUR CALCULATION OF
----------------------------- FIRST ANNUAL PREMIUM
-----------------------------
----------------------------- Base Policy $ _______
----------------------------- _______
----------------------------- Riders _______
----------------------------- _______
----------------------------- Policy Fee _______
----------------------------- Total $ _______
-------------------------------------------------------
I represent that the above information is true and
complete to the best of my knowledge and belief, and that
the application has been completed in accordance with the
Company's rules, guidelines and instructions. I CERTIFY
THAT I HAVE GIVEN THE PROPOSED INSURED THE NOTIFICATION
ABOUT THE FEDERAL FAIR CREDIT REPORTING ACT AND THE
MEDICAL INFORMATION BUREAU. If I become aware of a
change in the health or habits of the Proposed Insured,
occurring after the date of the application but before I
deliver the policy, I promise to inform the Company of
the change and agree to withhold delivery of the policy
until instructed by the Company.
X
--------------------------------------------------------
Signature of Agent
Print Name _____________________________________________
S.S.# _____________________Share of commission__________
Address_________________________________________________
________________________________________________________
Telephone number (______) ______________________________
X_______________________________________________________
Signature of additional Agent
Print additional Agent name_____________________________
S.S.# ________________ Share of commission_____________
Address_________________________________________________
========================================================
MEDICAL REQUIREMENTS: Name of Kemper Date
Arranged by approved vendor ordered
--------------------------------------------------------
Kemper Paramed: [ ] Agent [ ] GA______________________
Blood profile/HOS:[ ] Agent [ ] GA _____________________
Inspection report: [ ] GA _____________________
APS: [ ] GA _____________________
Doctor's name(s) for APS ______________________________
________________________________________________________
GENERAL AGENT'S REPORT (complete in all cases)
________________________________________________________
G1. Have you discussed this risk with the home office?
[ ] Yes [ ] No
(Give details in #11 above.)
G2. GA name_______________________________________________
Address_______________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
Case manager__________________________________________
GA # _______________Phone number(______)______________
L-R595
<PAGE> 10
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION, A Mutual Legal Reserve Company
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049 Policy number__________________________
===============================================================================
PRE-AUTHORIZED CHECKING (PAC) AGREEMENT
- -------------------------------------------------------------------------------
Authorization to Honor Checks/Debits by Federal Kemper Life Assurance
Co./Fidelity Life Association/Kemper Investors Life Insurance Co.
<TABLE>
<S> <C>
INSTRUCTIONS IF YOU CHANGE ACCOUNTS:
1. Sign the authorization in the designated area in accordance 1. Contact your insurance agent to assist you with the change.
with your signature(s) on file at your financial institution. -OR-
2. Please notify us if you change your address. 2. Contact the Home Office to obtain a new authorization.
3. Please attach two months' modal premium.
</TABLE>
===============================================================================
As a convenience to me, I hereby request and authorize this financial
institution to pay and charge my account for checks/electronic debits drawn on
my account by Federal Kemper Life Assurance Company/Fidelity Life
Association/Kemper Investors Life Insurance Company to its own order. This
authorization will remain in effect until revoked by me in writing and until you
receive such notice. I agree that you shall be fully protected in honoring any
such check/electronic debit.
I agree that your treatment of each check/electronic debit, and your rights in
respect to it, shall be the same as if it were signed by me personally. I
further agree that if any such check/electronic debit be dishonored, whether
with or without cause, you shall be under no liability whatsoever even though
such dishonor results in the lapse of insurance.
Federal Kemper Life Assurance Company/Fidelity Life Association/Kemper Investors
Life Insurance Company is instructed to forward this authorization to you.
<TABLE>
<S> <C>
===================================================================================================================================
DEPOSITOR(S) YOUR BANK
- -------------------------------------------------------------------- -----------------------------------------------------
Name of Depositor(s) listed on the account Date of first debit Name of Bank
- --------------------------------------------------------------------
-----------------------------------------------------
Address of Bank
-----------------------------------------------------
City State Zip
X
- -------------------------------------------------------------------- -----------------------------------------------------
Signature of Depositor Bank phone
( )
------------------------------------------------------
Checking account number you wish us to debit
X
- -------------------------------------------------------------------- ------------------------------------------------------
Signature of Joint Depositor
</TABLE>
-- ATTACH A SAMPLE "VOID" CHECK (NO DEPOSIT SLIPS, PLEASE).--
================================================================================
TO: THE FINANCIAL INSTITUTION NAMED ABOVE,
So that you may comply with your depositor's request, the Company agrees:
1. To indemnify and hold you harmless from any loss you may suffer as a
consequence of your actions resulting from or in connection with the
execution and issuance of any check/electronic debit or order, whether
or not genuine, purporting to be executed by the undersigned and received
by you in the regular course of business for the purpose of payment,
including any costs or expenses reasonably incurred in connection therewith.
2. In the event that any such check/electronic debit or order shall be
dishonored whether with or without cause, and whether intentionally or
inadvertently, to indemnify you for any loss even though dishonor results
in a forfeiture of insurance.
3. To defend at our own cost and expense any action which might be brought by
any depositor or any other persons because of your actions taken pursuant to
the foregoing requests, or in any manner arising by reason of your
participation in the foregoing plan of premium collection.
John B. Scott Debra P. Rezabek
President Secretary
FEDERAL KEMPER LIFE ASSURANCE COMPANY
FIDELITY LIFE ASSOCIATION
KEMPER INVESTORS LIFE INSURANCE COMPANY
Long Grove, IL 60049
Authorized in a resolution adopted by the Board of Directors of Federal Kemper
Life Assurance Company/Fidelity Life Association (A Mutual Legal Reserve
Company) /Kemper Investors Life Insurance Company of Long Grove, Illinois on
April 29, 1963, October 16, 1958, and January 15, 1963, respectively.
L-P595 [KEMPER LOGO]
<PAGE> 11
[KEMPER LOGO]
APPLICATION TO
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 KEMPER DRIVE, LONG GROVE, IL 60049
VARIABLE UNIVERSAL LIFE SUPPLEMENT
================================================================================
Name of Proposed Insured Plan
----------------------------- -----------------------
Planned Premium Mode Payable
-------------------------------- -------------------
================================================================================
PREMIUM ALLOCATION
<TABLE>
<CAPTION>
KEMPER INVESTORS FUND AMERICAN SKANDIA TRUST FIXED ACCOUNT
% Of Premium % Of Premium % Of Premium
(Whole Percentages Only) (Whole Percentages Only) (Whole Percentages Only)
<S> <C> <C>
Subaccount Subaccount
% Money Market % PIMCO Total Return Bond %
- ------ ------ ------
% Total Return % Lord Abbett Growth & Income
- ------ ------
% High Yield % Berger Capital Growth
- ------ ------
% Growth % Invesco Equity Income
- ------ ------
% Government Securities % PIMCO Limited Maturity Bond
- ------ ------
% International % T. Rowe Price International Equity
- ------ ------
% Small Cap Growth % JanCap Growth
- ------ ------
% Founders Capital Appreciation
------
% T. Rowe Price Asset Allocation Total of subaccounts plus fixed
------ account must equal 100%
</TABLE>
================================================================================
SUITABILITY
<TABLE>
<S> <C> <C> <C>
ANNUAL EARNINGS
[ ] $25,000 to $50,000 [ ] $50,000 to $100,000 [ ] $100,000 to $200,000 [ ] over $200,000
NET WORTH
[ ] $25,000 to $75,000 [ ] $75,000 to $125,000 [ ] $125,000 to $250,000 [ ] over $250,000
FINANCIAL OBJECTIVES:
[ ] Long Term Growth [ ] Preservation of Capital [ ] Maximum Capital Appreciation
Other
-----------------------------------------------------------------------------------------------------
[ ] Check this box if you do not wish to provide this information.
</TABLE>
================================================================================
TELEPHONE AUTHORIZATION
[ ] Check here to authorize telephone transfers among the subaccounts and the
fixed account subject to the conditions of the Telephone Transfer Agreement.
================================================================================
I UNDERSTAND THAT
THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED
CONDITIONS. POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE
EXPERIENCE OF THE SEPARATE ACCOUNT. ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH
BENEFITS, POLICY VALUES, AND CASH SURRENDER VALUES ARE AVAILABLE UPON REQUEST.
RECEIPT IS ACKNOWLEDGED OF THE CURRENT PROSPECTUS FOR THE POLICY AND FOR
THE UNDERLYING FUNDS FOR THE PREMIUM ALLOCATION OPTIONS SELECTED ABOVE.
ALL STATEMENTS AND ANSWERS TO THE FOREGOING QUESTIONS ARE, TO THE BEST OF MY
KNOWLEDGE AND BELIEF: (A) COMPLETE; AND (B) TRUE. I AGREE (A) THAT THEY SHALL
FORM A PART OF MY APPLICATION; (B) THAT THEY SHALL BE SUBJECT TO THE TERMS OF
THE AGREEMENT FOUND IN THE APPLICATION; AND (C) THAT THEY SHALL BECOME A PART OF
ANY POLICY BASED ON MY APPLICATION.
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE
COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF
CLAIM CONTAINING ANY MATERIALLY FALSE INFORMATION OR CONCEALS FOR THE PURPOSE
OF MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO COMMITS A
FRAUDULENT INSURANCE ACT, WHICH IS A CRIME AND SUBJECTS SUCH PERSON TO CRIMINAL
AND CIVIL PENALTIES.
Dated at
------------------------------- -----------------------------------
City and State Signature of Proposed Insured
on
------------------------------------- -----------------------------------
Month Day Year Signature of Applicant and Owner
(If other than Proposed Insured)
Signature of Agent as Witness
-------------------------------------
VULSUPKI
<PAGE> 12
DOLLAR COST AVERAGING
I elect to Dollar Cost Average in the amount of $_______ ($500.00 minimum) per
month from ________________________ subaccount (only Money Market or Government
Securities Subaccount may be chosen) to the following subaccounts and the fixed
account. The subaccount from which Dollar Cost Averaging amounts are taken
must have an initial starting balance of at least $10,000.
<TABLE>
<CAPTION>
KEMPER INVESTORS FUND AMERICAN SKANDIA FUNDS FIXED ACCOUNT
% Of Premium
(Whole Percentages Only) (Whole Percentages Only) (Whole Percentages Only)
<S> <C> <C>
Subaccount Subaccount
% Money Market % PIMCO Total Return Bond %
- ------ ------ ------
% Total Return % Lord Abbett Growth & Income
- ------ ------
% High Yield % Berger Capital Growth
- ------ ------
% Growth % Invesco Equity Income
- ------ ------
% Government Securities % PIMCO Limited Maturity Bond
- ------ ------
% International % T. Rowe Price International Equity
- ------ ------
% Small Cap Growth % JanCap Growth
- ------ ------
% Founders Capital Appreciation
------
% T. Rowe Price Asset Allocation
------
</TABLE>
Total of subaccounts plus fixed account must equal 100%
Transfers will continue until you instruct otherwise, or until there is not
enough money in the source subaccount to make the transfer, whichever is
earlier.
================================================================================
TELEPHONE TRANSFER AGREEMENT
By requesting the telephone transfer authorization, the Owner agrees and
understands that:
1. Neither the Company nor its agents or representatives who act on its behalf
shall be subject to any claim, loss, liability, cost or expense, if it acts in
good faith in following telephone instructions pursuant to this authorization.
2. Transfers will be made subject to the conditions of the policy,
administrative regulations of the Company and the prospectus.
3. Transfers from a subaccount shall be based on the accumulation unit value
next determined following receipt of a valid complete telephone transfer
instruction.
4. This authorization shall continue in force until the earlier of: a. written
revocation is received by the company; or b. the company discontinues this
privilege.
I understand that, as a condition of allowing telephone instructions to be
made, the Company, at its sole option and without prior disclosure to me, any
person or my representative, may record all or part of any telephone
coversation, containing such instructions. All terms are binding upon my
agents, heirs and assignees.
==============================================================================
AUTOMATIC ASSET REALLOCATION
[ ] Check here to have the assets in the subaccounts redistributed to match the
premium allocation elections then in effect.
Frequency: [ ] Annually [ ] Quarterly
VULADM 8/94
<PAGE> 1
EXHIBIT 2
[KEMPER INVESTORS LIFE INSURANCE COMPANY LETTERHEAD]
DATE OF MAILING:
RE:
SPECIMEN NOTICE OF WITHDRAWAL RIGHT
This notice is sent to you in accordance with the laws administered by the
United States Securities and Exchange Commission ("SEC"). Please read it
carefully and retain it with your important records.
You have recently purchased a flexible premium variable life insurance policy
from Kemper Investors Life Insurance Company ("KILICO") under which benefits
depend on the investment experience of the KILICO Variable Separate Account.
You have, pursuant to requirements of the SEC and your policy, the right to
examine and return your policy for cancellation at any time within at least 10
days from delivery of the policy or 45 days from the date of Part 1 of the
application, whichever is later. But in any event you have until 10 days from
the date of mailing of this notice, as determined by its postmark, to return
the policy for cancellation. Upon cancellation, you will receive a refund
equal to the sum of A) the premium payments made under this policy, and B) an
amount that reflects the investment experience of the investment divisions of
the Separate Account under this policy to the date the returned policy is
received at our Office.
In determining whether or not to exercise your right you should consider, among
other things, the projected cost of your policy and the deductions from the
premiums before the payment is allocated to the Subaccounts of the Separate
Account.
You have been furnished a Prospectus which describes the deductions from your
premium. The deductions are:
A charge for state and local premium taxes equal to 2.5% of each premium
payment.
A charge for federal taxes equal to 1% of each premium payment.
Deductions from your Policy Gross Value include:
A monthly administrative expense charge equal to $5.
A charge of $25 for each partial withdrawal.
A contingent deferred sales charge (surrender charge) based on the
formula in the Policy Specifications. The surrender charge consists of
an issue charge and a deferred sales charge. The issue charge is $5.00
per thousand of specified amount. The deferred sales charge is equal to
30% of premiums paid up to the Target Premium shown in the policy and a
<PAGE> 2
percentage of premiums shown in the policy and a percentage of premiums
above the Target Premium equal to 7.5% for issue ages up to age 66 and 5%
for issue ages 66-75. The surrender charge decreases after policy year 5
for issue ages up to age 66 and after year 3 for issue ages 66-75 until
reaching zero in policy year 1.5.
A Cost of Insurance Charge based on rates no greater than the guaranteed
maximum cost of insurance rates stated in the Policy.
A deduction for any additional benefits you have chosen on your policy.
Should you decide to exercise this right of cancellation, complete the enclosed
form and return your policy as outlined in the instructions on the form,
postmarked on or before the latest date permitted for cancellation as described
above.
<PAGE> 3
[KEMPER INVESTORS LIFE INSURANCE COMPANY LETTERHEAD]
SPECIMEN REQUEST FOR WITHDRAWAL
RE:
-Instructions-
Please Read Carefully
If, after reading the enclosed notice, you elect to return your policy for
cancellation, you must:
1. Sign and date the bottom portion of this form.
2. Mail this notice together with your policy (if received by you)
to:
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
3. Make certain that the postmark on the return envelope is on or
before the last date permitted for cancellation as described in
the attached letter.
4. Check the box on the bottom portion of this form if you have not
yet received your policy at the time of mailing this form.
- - - - - - - - - To Be Filled Out By Owner - - - - - - - - - -
TO: Kemper Investors Life Insurance Company (KILICO)
Pursuant to the terms of the notice previously furnished me by KILICO, I hereby
return the policy numbered above (the "policy") for cancellation and request a
refund, reflecting investment experience of the premiums paid by me, for the
policy. I hereby release KILICO from any and all claims arising out of or in
connection with the sale or issuance of the policy under state insurance law
and I hereby acknowledge that KILICO's sole liability with respect to the
policy is the refund to me.
________________________ _______________________________
Date Signature of Policyowner
I have not yet received the policy and should it be received, I will return it
to KILICO. ____
<PAGE> 1
[ZURICH KEMPER LIFE LETTERHEAD]
EXHIBIT 3(a)
June 4, 1996
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
Dear Sirs:
This opinion is furnished in connection with the filing of an S-6 Registration
Statement ("Registration Statement") by Kemper Investors Life Insurance Company
("KILICO") for the KILICO Variable Separate Account ("Variable Separate
Account"). The Registration Statement covers an indefinite number of units of
interest in the Variable Separate Account. Premiums to be received under
individual flexible premium variable life insurance policies ("Policies")
offered by KILICO may be allocated by KILICO to the Variable Separate Account
in accordance with the owners' direction with reserves established by KILICO to
support such Policies.
The Policies are designed to provide life insurance protection and are to be
offered in a manner described in the Prospectus which is included in the
Registration Statement.
The Policies will be sold only in jurisdictions authorizing such sales.
I have examined all applicable corporate records of KILICO and such other
documentation and laws as I consider appropriate as a basis of this opinion.
On the basis of such examination, it is my opinion that:
1. KILICO is a corporation duly organized and validly existing under the
laws of the State of Illinois.
2. The Variable Separate Account is an account established and maintained by
KILICO pursuant to the laws of the State of Illinois, under which income,
gains and losses, whether or not realized, from assets allocated to the
Variable Separate Account, are, in accordance with the Policies, credited
to or charged against the Variable Separate Account without regard to
other income, gains or losses of KILICO.
<PAGE> 2
Kemper Investors Life Insurance Company
June 4, 1996
Page 2
3. Assets allocated to the Variable Separate Account will be owned by
KILICO. The policies provide that the portion of the assets of the
Variable Separate Account equal to the reserves and other Policy
liabilities with respect to the Variable Separate Account will not be
chargeable with liabilities arising out of any other business KILICO may
conduct.
4. When issued and sold as described above, the Policies will be duly
authorized and will constitute validly issued and binding obligations of
KILICO in accordance with their terms.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the references to my name under the heading "Legal Matters" in
the Prospectus.
Yours truly,
/s/ Frank J. Julian
Frank J. Julian
Associate General Counsel
<PAGE> 1
EXHIBIT 3(b)
ACTUARIAL OPINION
This opinion is supplied with the filing of a Registration Statement on Form
S-6, File No. 33-65399, by the KILICO Variable Separate Account ("Separate
Account") and Kemper Investors Life Insurance Company ("KILICO") covering an
indefinite number of units of interest in the Separate Account. Premiums
received under KILICO's Flexible Premium Variable Life Insurance Policies may
be allocated by KILICO to the Separate Account as described in the Prospectus
included in the Registration Statement.
I am familiar with the Policy provisions and the description in the Prospectus
and it is my opinion that the illustrations of death benefits, cash values,
surrender values, and accumulated premiums included in Appendix A of the
Prospectus, based on the assumptions and illustrations, are consistent with the
Policy provisions. The policy rate structure has not been designed to make the
relationship between planned premiums and benefits, as shown in the
illustrations, appear more favorable to prospective male nonsmokers ages 35
and 55, than to male nonsmokers at other ages. The nonsmoker rate class
generally has a more favorable rate structure than other rate classes. Female
rate classes generally have a more favorable rate structure than male rate
classes.
The current and guaranteed monthly mortality rates used in the illustrations
have not been designed so as to make the relationship between current and
guaranteed rates more favorable for the ages and sexes illustrated than for a
male nonsmoker at other ages. The nonsmoker rate classes generally have lower
monthly mortality rates than the other rate classes. The female rate classes
generally have lower monthly mortality rates than the male rate classes.
I consent to the use of this opinion as an Exhibit to the Registration
Statement and the reference to me under the heading "Experts" in the
Prospectus.
Steven D. Powell, FSA MAAA
/s/ Steven D. Powell
-----------------------------
Actuarial Officer - Financial
<PAGE> 1
EXHIBIT 6(a)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Kemper Investors Life Insurance Company:
We consent to the use of our reports included herein on Kemper Investors Life
Insurance Company (KILICO) and on KILICO Variable Separate Account and to the
reference to our firm under the heading "Experts" in the Prospectus. As
discussed in the notes to KILICO'S consolidated financial statements, effective
January 1, 1994, KILICO changed its method of accounting for investment
securities to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Also, as discussed in
the notes, effective January 1, 1993, KILICO changed its method of accounting
for impairment of loans receivable to adopt the provisions of SFAS 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, and changed its method of
accounting for income taxes to adopt the provisions of SFAS 109, ACCOUNTING FOR
INCOME TAXES.
KPMG PEAT MARWICK LLP
Chicago, Illinois
June 4, 1996
<PAGE> 1
EXHIBIT 8
Description of Kemper Investors Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies
Pursuant to Rule 6e-3(T)(b)(12)(iii)
under the Investment Company Act of 1940
I. INTRODUCTION
Set forth below is the information called for under Rule 6e-3(T)(b)(12)(iii)
under the Investment Company Act of 1940 ("1940 Act"). That rule provides an
exemption for separate accounts, their investment advisers, principal
underwriters and sponsoring insurance company from Sections 22(d), 22(e), and
27(c)(1) of the 1940 Act, and Rule 22c-1 promulgated thereunder, for issuance,
transfer and redemption procedures under flexible premium variable life
insurance policies to the extent necessary to comply with Rule 6e-3(T), state
administrative law or established administrative procedures of the life
insurance company. In order to qualify for the exemption, procedures must be
reasonable, fair and not discriminatory and they must be disclosed in the
registration statement filed by the separate account.
The KILICO Variable Separate Account (the "Separate Account") is registered
under the 1940 Act. Within the Separate Account are Subaccounts, which are as
of the date of this filing, the Money Market, Total Return, High Yield, Growth
Equity, Government Securities, International, Small Cap Growth, Lord Abbett
Growth and Income, JanCap Growth, T. Rowe Price International Equity, T. Rowe
Price Asset Allocation, Founder Capital Appreciation, INVESCO Equity Income,
PIMCO Total Return Bond, PIMCO Limited Maturity Bond and Berger Capital Growth
Subaccounts (the "Subaccounts). Procedures apply equally to each Subaccount
and for purposes of this description are defined in terms of the Separate
Account, except where a discussion of both the Separate Account and its
Subaccounts is necessary. Each Subaccount invests in shares of a corresponding
portfolio of the Kemper Investors Fund or the American Skandia Trust (the
"Funds"), mutual funds registered under the 1940 Act. The investment
experience of the Subaccounts of the Account depends on the market performance
of the corresponding fund portfolios.
KILICO believes its procedures meet the requirements of Rule 6e-3(T)(b)(12)
(iii) and states the following:
A. Because of the insurance nature of KILICO's flexible premium
variable life insurance policies ("policies") and due to the
requirements of state insurance laws, the procedures
necessarily differ in significant respects from procedures for
mutual funds and contractual plans for which the 1940 Act was
designed.
B. Many of the procedures used by KILICO have been adopted from
established
1
<PAGE> 2
procedures for Zurich Kemper Life's flexible premium universal life
insurance policies.
C. In structuring its procedures to comply with Rule 6e-3(T), state
insurance laws and its established administrative procedures,
KILICO has attempted to comply with the intent of the 1940 Act, to
the extent deemed feasible.
D. In general, state insurance laws require that KILICO's
procedures be reasonable, fair and not discriminatory.
E. Because of the nature of the insurance product, it is often
difficult to determine precisely when KILICO's procedures deviate
from those required under Section 22(d), 22(e) or 27(c)(1) of the
1940 Act or Rule 22c-1 thereunder. Accordingly, set out below is a
summary of the principal policy provisions and procedures which may
be deemed to constitute, either directly or indirectly, such a
deviation. The summary, while comprehensive, does not attempt to
address each and every procedure of variation which might occur
and does include certain procedural steps which might be deemed as
deviations from the above-cited sections rules.
II. ISSUANCE
This section outlines those provisions and administrative procedures which
might be deemed to constitute, either directly or indirectly, a "purchase"
transaction. Because of the insurance nature of the policy, the procedures
involved necessarily differ in certain significant respects from the purchase
procedures for mutual funds and contractual plans. The chief differences
revolve around the structure of the cost of insurance and the insurance
underwriting (i.e., evaluation of risk) process. There are also certain policy
provisions, such as reinstatement, which do not result in the issuance of a
policy but which require certain payments by the Policyowner and involve a
transfer of assets supporting the policy reserve into the Account.
A. Insurance Charges and Underwriting Standards
Cost of insurance charges for KILICO's policies will not be the same for all
policyholders. The chief reason is that the principle of pooling and
distribution of mortality risks is based on the assumption that each
Policyowner pays a cost of insurance charge commensurate with the insured
person's mortality risk. This mortality risk is actuarially determined based
upon factors such as age, smoking status, sex, health, and occupation. Each
insured is charged a monthly deduction based on applying a cost of insurance
rate commensurate with his/her mortality risk to the Net Amount at Risk. The
policies will be offered and sold pursuant to the cost of insurance schedules
and underwriting standards and in accordance with state insurance laws. Such
laws prohibit discrimination among insureds, but recognize that premiums must
be based on factors such as age,
2
<PAGE> 3
sex, health and occupation. A table showing the maximum cost of insurance
rates will be delivered as part of the policy.
B. Application and Initial Premium Processing
1. DEATH BENEFIT
The Death Benefit for the policies is based on the death benefit option
and specified amount selected and the table of death benefit percentages
applicable at the time of death. A policy will be issued if the
following conditions are met:
a. A premium payment of at least $50 is paid.
b. A completed application is submitted.
c. Required underwriting information, satisfactory to KILICO, is
provided.
2. POLICY ISSUE
Before KILICO will issue a policy, it must receive a completed
application and a full initial premium at its Home Office. A policy
ordinarily will be issued only for Insureds Age 1 through 75 who supply
satisfactory evidence of insurability to KILICO. Acceptance of an
application is subject to underwriting by KILICO. KILICO reserves the
right to decline an application for any reason.
After underwriting is complete and the policy is delivered to the owner,
insurance coverage under the policy will be deemed to have begun as of
the day following the date of receipt of a completed application and
the full initial premium. This date is the Policy Date.
3. PREMIUMS
Premiums are to be paid to KILICO at its Home Office. Checks ordinarily
must be made payable to KILICO.
Initial Premium - The minimum initial premium that KILICO will accept
under a policy is $50.00. KILICO reserves the right to increase or
decrease this amount for a class of policies issued after some future
date.
On the day following the date of receipt, the net initial premium will be
allocated to the Money Market Subaccount. This premium will remain in
the Money Market Subaccount until the Trade Date. On the Trade Date,
Separate Account Value in the Money Market
3
<PAGE> 4
Subaccount will be allocated to the Subaccounts and the Fixed Account in
accordance with elections by the Owner in the application for the policy.
The Trade Date is the date 30 days after the issue date.
The Policy Date is the date used to determine Policy Years and Monthly
Processing Dates. The Policy Date generally will be the date following
receipt of the application, except that if such date is the 29th, 30th,
or 31st of a month, the Policy Date will be the first of the following
month. Acceptance is subject to KILICO's underwriting rules, and KILICO
reserves the right to reject an application for any reason.
The Policy Date is the date when KILICO accepts the risk of providing
insurance coverage to the Insured. Monthly deductions begin as of the
Policy Date.
The cost of insurance for the full amount of coverage applied for is
applied as of the Policy Date. This is consistent with established
administrative procedures of KILICO and is permitted and consistent with
common insurance company administrative practice and insurance laws.
Planned Premiums - When applying for a Policy, a Policy Owner will
specify a planned premium payment that provides for the payment of level
premiums over a specified period of time. However, the Policy Owner is
not required to pay planned premiums. Subject to the premium guidelines
established under Federal tax law, additional premiums may be contributed
while this policy is in force, including when necessary to prevent lapse.
Upon request, KILICO will tell the Owner whether an additional premium
payment can be made and the maximum amount. These premium payments will
not increase the maximum possible Surrender Charge provided there is no
increase in coverage. Except to prevent lapse, such an additional
premium payment must be at least $50.00. Evidence of insurability may be
required if an additional premium payment would result in an increase in
the Death Benefit.
4. ALLOCATION OF PREMIUMS AND SEPARATE ACCOUNT VALUE
Allocation of Premiums - The Owner allocates premiums to Subaccounts of
the Separate Account. The Owner must indicate the initial allocation in
the policy application. On the Trade Date, the policy's Separate Account
Value in the Money Market Subaccount will be allocated to the Subaccounts
of the Separate Account and the Fixed Account in accordance with the
Owner's allocation instructions in the application. Additional premiums
received will continue to be allocated in accordance with the Owner's
instructions in the application unless contrary written instructions are
received. Once a change in allocation is made, all future premiums will
be allocated in accordance with the new allocation, unless contrary
written instructions are received.
4
<PAGE> 5
C. Delivery Period - Policies Issued - Other Than As Applied For
1. KILICO will take steps to protect itself against
anti-selection by the prospective Owner resulting from a
deterioration in the health of the proposed Insured including
requiring policies to be delivered promptly. Generally, the period
will not exceed 60 days from the date the policy is issued.
2. Failure to Complete Delivery - KILICO will review the file
to verify that delivery requirements were not satisfied.
a. If KILICO determines that delivery was satisfied, the
policy will be placed in force as of the Policy Date.
b. If delivery was not satisfied, the policy will be
terminated as of the Policy Date and any premium refunded to
the Owner, subject to the refund rules mentioned herein.
Notification will be sent to the Owner advising him or her
that delivery was never completed and that no insurance has
been in effect.
D. Delivery Requirements
1. An agent/agency must submit all outstanding delivery
requirements to the KILICO Home Office prior to the end of the
delivery period.
2. The KILICO Home Office cannot accept partial requirements;
however, if an agency does inadvertently submit only part of the
requirements necessary to complete delivery, KILICO will record any
documents as received, and return the policy to the agency with a
memo advising them of the remaining requirements.
3. Any money submitted with incomplete delivery requirements will
be returned to proposed owner with correspondence specifying the
remaining requirements.
4. If a policy is reported as delivered after the delivery period
has expired, the policy will be placed in force, subject to
underwriting approval.
5. If a policy is returned to the agency due to incomplete
requirements, a delivery extension may be obtained on the agency's
behalf.
E. Policy Lapse
Lapse will occur when the Surrender Value of a policy is insufficient to cover
the monthly deductions and a grace period expires without a sufficient payment
being made.
5
<PAGE> 6
The duration of coverage depends upon the Surrender Value being sufficient to
cover the monthly deductions.
A grace period of 61 days will be given to the Owner. It begins when notice is
sent that the Surrender Value of the policy is insufficient to cover the
monthly deductions. Failure to make a premium payment or loan repayment during
the grace period sufficient to keep the policy in force for three months will
cause the policy to lapse and terminate without value.
If payment is received within the grace period, the premium or loan repayment
will be allocated to the Subaccounts and the Fixed Account in accordance with
the most current allocation instructions, unless otherwise requested. Amounts
over and above the amounts necessary to prevent lapse may be paid as additional
premiums, however, to the extent otherwise permitted.
KILICO will not accept any payment that would cause the total premium payment
to exceed the maximum payment permitted by the Code. However, the Owner may
voluntarily repay a portion of Debt to avoid lapse.
If premium payments have not exceeded the maximum payment permitted by the
Code, the Owner may choose to make a larger payment than the minimum required
payment to avoid the recurrence of the potential lapse of coverage. The Owner
may also combine premium payments
with Debt repayments.
The death benefit payable during the grace period will be the Death Benefit in
effect immediately prior to the grace period, less any Debt and any unpaid
monthly deductions.
F. Reinstatement
If a policy lapses because of insufficient Surrender Value to cover the monthly
deductions, and it has not been surrendered for its Surrender Value, it may be
reinstated at any time within three years after the date of lapse.
Reinstatement is subject to:
1. receipt of evidence of insurability satisfactory to KILICO;
2. payment of a minimum premium sufficient to cover monthly
deductions for the grace period and to keep the policy in force
three months; and
3. payment or reinstatement of any Debt against the policy which
existed at the date of termination of coverage.
The effective date of reinstatement of a Policy will be the Monthly Processing
Date that coincides with or next follows the date the application for
reinstatement is approved by KILICO. Suicide and
incontestability provisions will a apply from the effective date of
reinstatement.
6
<PAGE> 7
G. Contestability
1. This policy is contestable for two years during the lifetime of
the Insured, measured from the Issue Date, for material
misrepresentations made in the initial application for the policy.
Policy changes and reinstatements may be contested for two years
after the effective date of change or reinstatement. No statement
will be used to contest a policy unless it is contained in an
application. The two year limitation does not apply in the event
of fraud.
III. TRANSFER PROCEDURES
A. Separate Account Value may be transferred among the Subaccounts
of the Separate Account and the Fixed Account. One transfer of all
or a part of the Separate Account Value may be made within a
fifteen day period. All transfers made during a business day will
be treated as one request. Fixed Account Value may be transferred
to one or more Subaccounts. One transfer of part of the Fixed
Account Value may be made once each Policy Year in the thirty day
period following the end of a Policy Year.
1. Transfer requests must be in writing in a form
acceptable to KILICO, or by telephone authorization under
forms authorized by KILICO.
2. The minimum partial transfer amount is $500. No
partial transfer may be made if the value of the Owner's
remaining interest in a Subaccount or the fixed account, from
which amounts are to be transferred, would be less than $500
after such transfer.
3. Transfers will be based on the Accumulation Unit
Values next determined following receipt of valid complete
transfer instructions by KILICO.
4. The transfer provision may be suspended, modified or
terminated at any time by KILICO.
5. Written acknowledgment of transfers between
Subaccounts will be provided at two points in time:
a. A confirmation notice will be sent to the Owner
within seven days of receipt of the request.
b. The annual statement will also reflect
transfers.
7
<PAGE> 8
B. Policy Loans
1. After the first policy year the Owner may by written request to
KILICO borrow all or part of the maximum loan amount of the policy.
The maximum loan amount is 90% of the policy's Cash value minus
applicable surrender charges. The amount of any new loan may not
exceed the maximum loan amount less Debt on the date a loan is
granted. The minimum amount of a loan is $500. Any amount due an
Owner under a Policy Loan ordinarily will be paid within 7 days
after KILICO receives a loan request at its Home Office, although
payments may be postponed under certain circumstances.
2. On the date a loan is made, an amount equal to the loan amount
will be transferred from the Separate Account and Fixed Account to
the loan account in the General Account. Unless the Owner directs
otherwise, the loaned amount will be deducted from the Subaccounts
and Fixed Account in proportion to the values that each bears to
the Separate Account Value of the policy in all of the Subaccounts
plus the Fixed Account Value at the end of the Valuation Period
during which the request is received.
3. If Surrender Value on the day immediately preceding a Monthly
Processing Date is less than the monthly deduction for the next
month, KILICO will notify the Owner and any assignee of record.
4. A policy loan will have an effect on the Cash Value of a
policy. The collateral for the loan (in the Loan Account) does not
participate in the experience of the Subaccounts or the current
interest rate of the Fixed Account while the loan is outstanding.
If the amount credited to the Loan Account is more than the amount
that would have been earned in the Subaccounts of the Fixed
Accounts, the Cash Value will, and the Death Benefit may, be higher
as a result of the loan. Conversely, if the amount credited to the
Loan Account is less than would have been earned in the Subaccounts
or the Fixed Accounts, the Cash Value, as well as the Death
Benefit, may be less.
C. Loan Interest
1. The loan interest will be assessed at an effective annual rate
of 4.50% in the first nine Policy Years and 3.00% thereafter.
Interest not paid will be added to the loan amount due and bear
interest at the same rate.
2. Cash Value in the loan account will earn 3.00% annual interest.
Such earnings will be allocated to the Loan Account.
8
<PAGE> 9
D. Loan Repayment
1. While the policy is in force, policy loans may be repaid at
any time, in whole or in part. At the time of repayment, Cash
Value in the loan account equal to the amount of the repayment
which exceeds the difference between interest due and interest
earned will be allocated to the Subaccounts and the Fixed Account,
according to the Owner's current allocation instructions, unless
otherwise requested by the Owner. Transfers from the Loan Account
to the Separate Account or the Fixed Account as a result of the
repayment of Debt will be allocated at the end of the Valuation
Period during which the repayment is received. Such transfers will
not be counted in determining the transfers made within a 15 day
period.
2. KILICO will provide written confirmation of loan repayments,
including the effective date of the payment, and the effect on
specific Subaccounts and the General Account, within seven days of
the receipt of payment.
E. Policy Anniversary and Monthly Processing Date
1. The Cost of Insurance (COI) is calculated on the net amount at
risk using current rates. After calculating COI, substandard
ratings are applied. Increases in specified amount can be rated
separately from the original rating.
2. The calculated monthly deductions are distributed among the
Funds and the Fixed Account according to the selected allocation
percentages specified by the policyholder.
IV. REDEMPTION PROCEDURES
The following outlines are administrative procedures attendant to transactions
which involve redemption of a policy's values.
A. Free Look Period
1. The Owner may, until the end of the period of time specified in
the policy, examine the policy and return it for a refund. The
applicable period of time will depend on the state in which the
policy is issued; however, it will be at least 10 days from the
date the policy is received by the Owner. The amount of the refund
will be at least equal to the premium paid. A refund will be at
least equal to the premium paid. An Owner seeking a refund should
return the policy to KILICO at its Home Office or to the agent who
sold the policy.
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<PAGE> 10
2. The Policyowner will receive a refund equal to the Cash Value of
the policy plus any monthly deductions and any deductions made
against premiums. The amount of the refund will at least equal the
premium paid.
3. Refunds will be made within seven working days of receipt of the
request, providing the original payment has had sufficient time
from the date of our deposit to clear the payor's bank account.
Normally, this is 30 days for payments made by personal check,
money order or cashier's check. Any refund or portion thereof is
subject to being held in KILICO's office until this time
requirement is met. If only a portion of the refund is needed to
meet the time requirements, the undisputed portion will be released
within the seven day time frame. The disputed portion will be
held until the time requirement is met and then refunded by
separate check. Any refund that needs to be held to meet the time
requirement from KILICO date of deposit can be expedited if the
payor submits proof that the item has been honored by the bank.
B. Surrender Privilege and Charges
1. While the Insured is living and the policy is in force, the
Owner may surrender the policy for its Surrender Value. To
surrender the policy, the Owner must make written request to KILICO
at its Home Office and return the policy to KILICO. The Surrender
Value is equal to the Cash Value less any applicable Surrender
Charge and any Debt. After the first Policy Year , a Policy Owner
may make withdrawals of amounts less than the Surrender Value. The
minimum amount of each withdrawal is $500 and the maximum amount is
10% of the Surrender Value. A $25 withdrawal charge will be
imposed for processing each withdrawal. A withdrawal will decrease
the Cash Value by the amount of the withdrawal.
2. A 2.5% charge is deducted from each premium to reimburse
KILICO for the payment of state premium taxes. In addition, a
charge for federal taxes equal to 1% of each premium payment will be
deducted to compensate KILICO for a higher corporate income tax
liability resulting from changes made to the Internal Revenue Code
by the Omnibus Budget Reconciliation Act of 1990.
3. A contingent deferred sales charge ("Surrender Charge") will be
used to cover expenses relating to the distribution of the policy
including commissions paid to sales personnel, and other promotion
and acquisition expenses. If this policy is surrendered or if the
Cash Value is applied under a Settlement Option, the amount
payable may reflect a deduction for applicable Surrender Charges.
4. The applicable Surrender Charge will be determined based upon
the date of receipt of the written request for surrender.
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5. The Surrender Charge consists of an administrative component
(issue charge) and a sales component (deferred sales charge). The
issue charge is a level charge of $5.00 per thousand of initial
Specified Amount. For issue ages up to age 66, the full issue
charge will apply in Policy Years 1-5 and will decline by 10% each
year in Policy Years 6-14 until reaching zero at the beginning of
Policy Year 15. For issue ages 66-75, the full issue charge will
apply in Policy Years 1-3 and will decline by 10% each year in
Policy Years 4-11 and by 5% in Policy Years 12-14 until reaching
zero at the beginning of Policy Year 15.
The deferred sales charge is equal to 30% of premiums paid up
to one Target Premium shown in the Policy and a percentage of
premiums paid above one Target Premium equal to 7.5% for issue ages
up to age 66 and 5% for issue ages 66-75. For issue ages 66, the
full deferred sales charge will apply in Policy Years 1-5 and will
decline by 10% each year in Policy Years 6-14 until reaching zero
at the beginning of Policy Year 15. For issue ages 66-75, the full
deferred sales charge will apply in Policy Years 1-3 and will
decline by 10% each year in Policy Years 4-11 and by 5% in Policy
Years 12-14 until reaching zero at the beginning of Policy Year 15.
6. KILICO will make the payment of Surrender Value out of its
General Account and at the same time, transfer assets from the
Separate Account to the General Account in an amount equal to the
policy reserves in the Separate Account.
C. Death Claims
1. KILICO will ordinarily pay a death benefit to the beneficiary
within seven calendar days after receipt, at its Home Office, of
the policy, due proof of death of the insured and all other
requirements necessary* to make payment. KILICO will send the
check to the beneficiary with seven days after KILICO receives all
required documents.
2. KILICO will make payment of the death benefit out of its General
Account, and will transfer assets from the Separate Account to the
General Account in an amount equal to the reserve in the Separate
Account. The excess, if any, of the death benefit over the amount
transferred will be paid out of the General Account reserve
maintained for that purpose.
*State insurance laws impose various requirements, such as receipt of a tax
waiver, before payment of the death benefit may be made. In addition,
payment of the death benefit is subject to the provisions of the policies
regarding suicide and incontestability.
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D. Premium Refunds
KILICO will not normally refund premium payments unless one of the
following situations occurs:
1. The Insured is rated substandard during the underwriting process
and the Owner does not accept the rating.
2. The proposed Insured is determined to be uninsurable by KILICO's
standards.
3. The premium paid is in permanent suspense because underwriting
requirements were never completed.
4. The delivery period has expired and delivery has not been
completed.
5. The Owner exercises the Free Look Privilege.
6. The premium payment would disqualify the policy as life
insurance coverage; (see Guideline Premium Test) however, in this
instance, the payment will first be applied as a repayment of any
outstanding loans.
7. In the event an application is declined by KILICO, the initial
premium will be refunded, together with the earnings credited based
on the investment experience of the Money Market Subaccount.
E. Guideline Premium Test - Tax Qualification
The Guideline Premium Test is a two part test applied to determine if a policy
qualifies as life insurance as defined in the IRS Code, Section 7702.
1. Part I - Guideline Premium Limitation. The sum of the actual
premiums paid into the contract cannot exceed the greater of:
a. the guideline single premium, or
b. the sum of the guideline level premiums at that time.
2. The guideline single premium is the premium needed at issue for
the future benefits under contract, computed on the basis of:
a. the guaranteed mortality charges specified in the
contract.
b. other guaranteed charges specified in the contract, and
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c. an interest rate which is the greater of an annual
effective rate of six percent or the rate or rates guaranteed
at issue.
3. For this plan the guideline single premium is based on:
a. the guaranteed maximum mortality rates, for all
durations.
b. mortality and expense risk charge, and
c. six percent interest
4. Guideline level premiums are the annual premium version of the
guideline single premium based on the above assumptions and a
premium payment period extending to age 95. The interest rate used
will be four percent. At the point where a policy is recognized as
being out of compliance, the Death Benefit must be decreased or
premiums refunded as necessary for qualification as life insurance.
5. Part II - Cash Value Corridor Requirement. The Cash Value test
regulates the ratio of the policy Cash Value to the death benefit
regardless of the effect of the guideline premium limit. The death
benefit payable under the contract must always be greater than or
equal to the policy Cash Value times the death benefit factor.
Death benefit factors vary only by attained age and range from 1.00
to 2.50 for the KILICO VUL.
A check for compliance will be made at the time premiums are
applied and at least annually thereafter. If a violation is
detected, the agent will be notified and monies refunded.
F. Misstatement of Age or Sex
If the age or sex of the Insured is misstated, the Death Benefit will be
adjusted based on what the cost of insurance charged for the most recent
Monthly Processing Date prior to the Insured's death would have purchased using
the correct age and/or sex.
G. Postponement of Payments
Payment of any amount due upon: (a) policy termination at the maturity date,
(b) surrender of the policy, (c) payment of any policy loan, or (d) death of
the Insured, may be postponed whenever:
1. The New York Stock Exchange is closed other than customary
weekend and holiday closing, or trading on the New York Stock
Exchange is restricted as determined by the SEC;
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2. The SEC by order permits postponement for the protection of
Owners; or
3. An emergency exists, as determined by the SEC, as a result of
which disposal of securities of the Fund is not reasonably
practicable or it is not reasonably practicable to determine the
value of the net assets of the Separate Account.
Transfers may also be postponed under these circumstances.
H. Payment Not Honored by Bank
The portion of any payment due under the policy which is derived from any
amount paid to KILICO by check or draft may be postponed until such time as
KILICO determines that such instrument has been honored by the bank upon which
it was drawn.
I. Suicide
Suicide by the Insured, while sane or insane, within two years from the Policy
Date of the policy is a risk not assumed under the policy. KILICO's liability
for such suicide is limited to the premiums paid less any withdrawals and debt.
When the laws of the state in which a policy is delivered require less than a
two year period, the period will be as stated in such laws.
V. RECORDS AND REPORTS
KILICO will maintain all records relating to the Separate Account. KILICO will
send Owners, at their last known address of record, an annual report stating
the Death Benefit, the Accumulation Unit Value, the Cash Value and Surrender
Value under the policy, and indicating any additional premium payments,
transfers, policy loans and repayments and charges made during the Policy Year.
Owners will also be sent annual and semi-annual reports for the Funds to the
extent required by the 1940 Act.
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