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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1997
REGISTRATION STATEMENT 33-11803
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 10
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
COPIES TO:
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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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It is proposed that this filing will become effective (check appropriate
box)
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[ ] Immediately upon filing pursuant to [X] on May 1, 1997 pursuant to paragraph (b),
paragraph (b), or or
[ ] 60 days after filing pursuant to [ ] on (date) pursuant to paragraph (a)(1) of
paragraph (a)(1), or Rule 485.
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If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
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.
Registration of Indefinite Amount of Securities filed February 6, 1987
(File No. 33-11803) pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The Rule 24f-2 Notice for the Registrant's most recent
fiscal year was filed on February 27, 1997.
G. Amount of filing Fee:
None.
H. Approximate date of proposed public offering:
Continuous.
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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REGISTRANT ELECTS TO BE GOVERNED BY THE PROVISIONS OF RULE 6E-3(T)(B)(13)(I)(B)
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PROSPECTUS--MAY 1, 1997
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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")
issued by Kemper Investors Life Insurance Company ("KILICO"). The Policy
provides for life insurance and for the accumulation of Cash Value on a variable
basis. 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 is designed to permit the payment of a large initial premium
and, subject to certain restrictions, additional premiums. As designed, the
Policy operates substantially as a single premium policy, providing for an
initial premium payment of at least eighty percent of guideline single premiums,
as defined under Section 7702 of the Internal Revenue Code. This Policy, as
currently offered, is classified as a modified endowment contract for tax
purposes and, as such, distributions during the life of the Insured would be
taxed in a manner similar to an annuity. The minimum initial premium KILICO will
accept is $5,000. An Owner may allocate premiums and Separate Account Value
under a Policy to one or more of the Subaccounts of the Separate Account. Each
Subaccount invests in one of the following portfolios of the Investors Fund
Series (formerly Kemper Investors Fund) (the "Fund"): Money Market, Total
Return, High Yield, Growth (formerly "Equity") and Government Securities. The
other portfolios of the Fund are not currently available for investment under
the Policy. Zurich Kemper Investments, Inc. (formerly named Kemper Financial
Services, Inc.) ("ZKI"), is the investment manager of the Money Market, Total
Return, High Yield, Growth, and Government Securities Portfolios. ZKI uses the
services of Zurich Investment Management Limited ("ZIML"), an affiliate of ZKI,
as sub-adviser for the Total Return, High Yield and Growth Portfolios. The
accompanying prospectus for the Fund describes the investment objectives and the
attendant risks of the portfolios of the Fund.
Until the Trade Date, the initial premium is held in KILICO's General
Account. The initial premium will be credited with interest equivalent to the
investment experience, less additional applicable charges, of the Money Market
Subaccount, from the later of the day following the date of receipt or the
Policy Date. On the Trade Date, the initial premium and any credited investment
return will be allocated to the Money Market Subaccount, and 15 days after the
Trade Date, to one or more of the Subaccounts as specified in the Owner's
application.
KILICO guarantees that the Death Benefit payable for a Policy will never be
less than the Death Benefit stated on the Policy Schedule page, 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.
See "Federal Tax Matters", page 17 for a discussion of laws that affect the
tax treatment of the Policy.
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 IS VALID ONLY IF ACCOMPANIED OR PRECEDED
BY A CURRENT PROSPECTUS FOR THE INVESTORS FUND SERIES. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE POLICIES ARE NOT INSURED BY THE FDIC. THEY ARE
OBLIGATIONS OF THE ISSUING INSURANCE COMPANY AND ARE NOT A
DEPOSIT OF, OR GUARANTEED BY, ANY BANK OR SAVINGS
INSTITUTION AND ARE SUBJECT TO RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
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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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Page
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DEFINITIONS................................................. 1
SUMMARY..................................................... 2
KILICO AND THE SEPARATE ACCOUNT............................. 4
THE FUND.................................................... 5
THE POLICY.................................................. 7
POLICY BENEFITS AND RIGHTS.................................. 9
CHARGES AND DEDUCTIONS...................................... 13
GENERAL PROVISIONS.......................................... 14
DISTRIBUTION OF POLICIES.................................... 16
FEDERAL TAX MATTERS......................................... 17
LEGAL CONSIDERATIONS........................................ 18
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................ 18
VOTING RIGHTS............................................... 19
STATE REGULATION OF KILICO.................................. 19
DIRECTORS AND OFFICERS OF KILICO............................ 20
LEGAL MATTERS............................................... 23
LEGAL PROCEEDINGS........................................... 23
EXPERTS..................................................... 23
REGISTRATION STATEMENT...................................... 23
FINANCIAL STATEMENTS........................................ 23
APPENDIX.................................................... 53
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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 last 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
and any associated value in the General 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.
FREE-LOOK PERIOD--The period of time in which an Owner may cancel the
Policy and receive a refund. In most states, an Owner may cancel the Policy
within 10 days of the date it is received by the Owner. 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.
FUND--Investors Fund Series (formerly Kemper Investors Fund), an open-end
investment company 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--Guideline Single Premium is the maximum initial
amount of premium that can be paid while retaining qualification as a life
insurance policy under the Internal Revenue Code.
INSURANCE AGE--The Insurance Age is the Age of the Insured on the first day
of any Policy Year. If the first day of a Policy Year falls on the Insured's
birthday, the Age attained on such date is the Insurance Age.
INSURED--The person whose life is covered by the Policy and who is named on
the Policy Schedule.
MATURITY DATE--The Policy Date anniversary coinciding with or next
following the Insured's 95th birthday.
MONTHLY PROCESSING DATE--The same day in each month as the Policy Date.
MORTALITY AND EXPENSE RISK CHARGE--The mortality and expense risk charge is
a charge deducted in the calculation of the Accumulation Unit Value for the
assumption of mortality risks and expense guarantees.
POLICY DATE--The date shown in the Policy Schedule. The Policy Date is the
date used to determine Policy Years and Monthly Processing Dates. The Policy
Date 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.
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.
SUBACCOUNT--The subdivisions 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 Trade Date is stated in the Policy Schedule. It is the date
on which the initial premium and any credited investment experience, less
additional applicable charges, are allocated to the KILICO Money Market
Subaccount. The Trade Date is the date when KILICO accepts the risk of providing
insurance coverage to the Insured.
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. A Policy entered into on or after June 21,
1988 is considered a modified endowment contract. Further, a Policy entered into
before June 21, 1988 may, in certain circumstances, be considered a modified
endowment contract. For a Policy treated as a modified endowment contract,
certain assignments, loans and surrenders will be considered received by the
Owner and are included in the Owner's Federal gross income to the extent that
the Cash Value exceeds the Owner's investment in the Policy. Subject to
specified exceptions, the portion of any amount considered received by the Owner
that is includible in gross income is subject to an additional 10 percent tax.
(See "Federal Tax Matters," at page 17.) 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, that the current Death Benefit is required to be adjusted
through multiplication of the Cash Value by the Death Benefit Factor, 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 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 the investment
experience of the Subaccounts of the Separate Account to which premiums are
allocated. There is no guaranteed Cash Value. If the Surrender Value is
insufficient to pay charges under the Policy, the Policy will lapse unless an
additional premium payment or loan repayment is made. (See "The Policy--Premiums
and Allocation of Premiums and Separate Account Value," pages 7 and 8, "Charges
and Deductions," page 13, and "Policy Benefits and Rights," page 9.)
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 of the Separate Account, any values in the General
Account, and charges imposed in connection with the Policy. The entire
investment risk is borne by the Owner. KILICO does not guarantee a minimum
Separate Account Value. (See "Policy Benefits and Rights--Cash Value," page 10.)
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. (See "Policy Benefits and Rights--Surrender Privilege," page
12.)
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 6.00% will be charged on outstanding loan amounts. (See "Federal
Tax Matters," page 17.)
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
(proportionately from the Subaccounts, unless the Owner requests otherwise) to
KILICO's General Account. Cash Values within the General Account attributable to
premium will earn no less than 4.00% annual interest. That portion of the Cash
Values within the General Account attributable to amounts in excess of premium
will earn 6.00% annual interest. Such earnings will be allocated to the General
Account. (See "Policy Benefits and Rights--Policy Loans," page 12.)
DEATH BENEFITS. As long as the Policy remains in force, the Policy provides
a death benefit payment upon the death of the Insured. The death benefit is the
greater of the Death Benefit stated on the Policy Schedule, or a specified
multiple of the Cash Value. The Death Benefit stated on the Policy Schedule may
not be increased unless Cash Value times the Death Benefit Factor is at least
equal to the Death Benefit stated on the Policy Schedule. The death benefit
payable will be reduced by any Debt. (See "Policy Benefits and Rights--Death
Benefits," page 9.)
PREMIUMS
The minimum initial premium that may be paid under the Policy is $5,000.
The application for the Policy must accompany or precede the full minimum
initial premium. Subject to premium guidelines established under Federal tax
law, additional premiums may be paid while the Policy is in force, including
when necessary to prevent lapse. (See "The Policy--Premiums," page 7 and
"Federal Tax Matters," page 17.)
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THE SEPARATE ACCOUNT
ALLOCATION OF PREMIUMS. The portion of the premium available for allocation
equals the premium paid. An Owner indicates in the application for the Policy
the percentages of premium to be allocated among the Subaccounts of the Separate
Account. The Separate Account currently consists of five Subaccounts, each of
which invests in shares of a designated portfolio of the Fund. The investment
manager of the portfolios is Zurich Kemper Investments, Inc., an affiliate of
KILICO.
On the day following the date of receipt, the initial premium will be
allocated to the KILICO General Account. It will be credited with interest
equivalent to the investment experience of the Money Market Subaccount from the
later of the day following the date of receipt or the Policy Date. On the Trade
Date, such amount in the KILICO General Account will be allocated to the Money
Market Subaccount. Additional applicable charges which are currently the charge
for the cost of insurance will be deducted as of the Policy Date. On the Trade
Date, the Policy's Cash Value will thus be the same as if the initial premium
had been allocated to the Money Market Subaccount on the Policy Date. Fifteen
days from the Trade Date, the Separate Account Value in the Money Market
Subaccount will be allocated among the Subaccounts in accordance with the
Owner's instructions in the application. (See "Policy Issue," page 7.)
TRANSFERS. An Owner may transfer Separate Account Value among the
Subaccounts. One transfer of all or part of the Separate Account Value may be
made within a fifteen day period. (See "Allocation of Premiums and Separate
Account Value--Transfers," page 8.)
THE FUND
The following portfolios of the Investors Fund Series (formerly Kemper
Investors Fund) are currently available for investment under this Policy are
summarized below:
MONEY MARKET PORTFOLIO seeks to provide maximum current income to the
extent consistent with stability of principal from a portfolio of high quality
money market instruments that mature in 12 months or less.
TOTAL RETURN PORTFOLIO seeks a high total return, a combination of income
and capital appreciation, by investing in a combination of debt securities and
common stocks.
HIGH YIELD PORTFOLIO seeks to provide a high level of current income by
investing in fixed-income securities.
GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.
For a more detailed description of the Fund, see "KILICO and the Separate
Account--the Fund," page 5, the Fund prospectus, and Statement of Additional
Information available upon request.
CHARGES
Deductions will be made from the Policy's value in each Subaccount on the
Policy Date and on each Monthly Processing Date for the cost of insurance
charge. In addition, deductions will be imposed on the Policy's value in 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--Mortality and Expense Risk Charge," page
14.)
No sales charge is deducted from any premium payment. However, if the
Policy is surrendered or if the Cash Value is applied under a Settlement Option,
a Surrender Charge on the lesser of premium paid in the first Policy Year or
Cash Value under the Policy will be deducted from the amount payable. The
Surrender Charge starts at 9% in the first Policy Year and reduces by 1% each
Policy Year so that there is no charge in the tenth and later Policy Years.
Subject to other considerations, the Owner may decide to reduce the potential
Surrender Charge by paying less initial premium. (See "Policy Benefits and
Rights--Surrender Privilege," page 12.)
No charges are currently made from 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 17.)
In addition, the Subaccounts of the Separate Account purchase shares of the
Fund. For fees and expenses of the Fund, see the prospectus for the Fund.
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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, the Owner is generally not deemed to be in constructive receipt of the Cash
Value under a Policy until a distribution occurs through a loan or surrender. A
change of Owners, an assignment, a loan or a surrender of the Policy generally
will 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 17.)
FREE-LOOK PERIOD AND EXCHANGE RIGHTS
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 13.)
The Owner may, while the Policy is in force, exchange it at any time after
its issue, for a non-variable permanent fixed benefit life insurance policy then
currently being offered by KILICO on the life of the Insured. Such policy would
be treated and taxed as a modified endowment contract. No evidence of
insurability will be required. During the first two years after the Policy Trade
Date, 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. After two years from the Policy Trade Date, the amount of the new
policy will be for the same net amount at risk as the Policy on the exchange
data. 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.
ILLUSTRATIONS OF SEPARATE ACCOUNT VALUES
SURRENDER VALUES AND DEATH BENEFITS
Tables in the Appendix illustrate the Separate Account 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 offers annuity
and life insurance products and is admitted to do business in the District of
Columbia and all states except New York. KILICO is a wholly-owned subsidiary of
Kemper Corporation, a nonoperating holding company. Zurich Insurance Company
("Zurich"), Insurance Partners, L.P. ("IP") and Insurance Partners Offshore
(Bermuda), L.P. (together with IP, "Insurance Partners") indirectly and directly
own 80 percent and 20 percent, respectively, of Kemper Corporation.
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 the premiums under the Policy. In addition, the
Separate Account may receive and invest premiums for other variable life
insurance policies issued 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 is currently divided into five Subaccounts. Each
Subaccount invests exclusively in shares of one of the portfolios of the Fund
currently available for investment through the Separate Account. Income and both
realized and unrealized gains or losses from the assets of each Subaccount
generally are credited
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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 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 FUND
The Separate Account invests in shares of the Investors Fund Series
(formerly Kemper Investors Fund), a series type mutual fund registered with the
Commission as an open-end, management investment company. Registration of the
Fund does not involve supervision of its management, investment practices or
policies by the Commission. The Fund is designed to provide an investment
vehicle for variable life insurance and variable annuity contracts. Shares of
the Fund are sold only to insurance company separate accounts. In addition to
the Separate Account, shares of the Fund 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 both variable life insurance separate accounts and variable annuity
separate accounts, to invest simultaneously in the Fund. Currently neither
KILICO nor the Fund foresees any such disadvantages to either variable life
insurance or variable annuity owners. Management of the Fund 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 the 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 following Portfolios of the Fund: Money
Market Portfolio, Total Return Portfolio, High Yield Portfolio, Growth Portfolio
and Government Securities Portfolio. The other portfolios of the Fund are not
currently available for investment under the Policy. 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 or losses of one
Portfolio generally have no effect on the investment performance of any other
Portfolio.
The five portfolios of the Fund in which the Separate Account invests are
summarized below:
MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments that mature in twelve months or less.
TOTAL RETURN PORTFOLIO seeks a high total return, a combination of income
and capital appreciation, by investing in a combination of debt securities and
common stocks.
HIGH YIELD PORTFOLIO seeks to provide a high level of current income by
investing in fixed-income securities.
GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.
There is no assurance that any of the Portfolios of the Fund will achieve
its objective as stated in the prospectus for the Fund. More detailed
information, including a description of risks involved in investing in each of
the Portfolios, may be found in the prospectus for the Fund, which must
accompany or precede this Prospectus, and the Fund's Statement of Additional
Information available upon request from Kemper Investors Life Insurance Company,
1 Kemper Drive, Long Grove, Illinois 60049.
Zurich Kemper Investments, Inc., ("ZKI") (formerly Kemper Financial
Services, Inc.) an affiliate of KILICO, is the investment manager of the Money
Market, Total Return, High Yield, Growth and Government Securities Portfolios.
For its 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% and .55 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, and the Government
Securities Portfolio, respectively. ZKI uses the services of Zurich Investment
Management Limited ("ZIML"), an affiliate of ZKI, as sub-adviser for the Total
Return, High Yield and Growth Portfolios. ZKI pays ZIML for its services a
sub-advisory fee, payable monthly at the following annual rates applied to the
portion of the average daily net assets of the applicable Portfolio allocated by
ZKI to ZIML for management: .35 of 1% for the Total Return and Growth Portfolios
and .30 of 1% for the High Yield Portfolio.
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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 Fund and to substitute shares of
another portfolio of the Fund or of another investment company, if the shares of
a portfolio are no longer available for investment, or if in its judgment
further investment in any portfolio becomes inappropriate in view of the
purposes of the Separate Account. KILICO will not substitute any shares
attributable to 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 Fund, 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. KILICO may also
eliminate or combine one or more subaccounts, transfer assets, or it may
substitute one subaccount for another subaccount, if, in its sole discretion,
marketing, tax or investment conditions warrant. KILICO will notify all Owners
of any such changes.
If deemed by KILICO to be in the best interests of persons having voting
rights 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.
6
<PAGE> 10
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 0 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. (See "Premiums," below.) This date is the Policy Date.
PREMIUMS
Premiums are to be paid to KILICO at its Home Office. (See "Distribution of
Policies.") Checks ordinarily must be made payable to KILICO.
INITIAL PREMIUM. The minimum initial premium that KILICO will accept under
a Policy is $5,000. KILICO reserves the right to increase or decrease this
amount for a class of Policies issued after some future date.
For a given initial premium, the minimum death benefit will depend upon the
Insurance Age, sex, and rate class of the Insured. The minimum death benefit for
a given initial premium will be consistent with the assumptions for the
Guideline Single Premium calculated under section 7702 of the Internal Revenue
Code (the "Code"). (See "Federal Tax Matters.")
The initial premium will be allocated to the KILICO General Account. It
will be credited with interest equivalent to the investment experience of the
Money Market Subaccount. This premium will remain in the KILICO General Account
until the Trade Date. On the Trade Date, the initial premium, plus interest,
will be allocated to the Money Market Subaccount. Additional applicable charges,
including the charge for the cost of insurance, will be deducted as of the
Policy Date. On the Trade Date, the Policy Cash Value will thus be the same as
if the initial premium had been allocated to the Money Market Subaccount on the
Policy Date. The Separate Account Value will remain in the Money Market
Subaccount until 15 days from the Trade Date of the Policy. At the end of the 15
day period, the Separate Account Value in the Money Market Subaccount will be
allocated to the Subaccounts elected by the Owner in the application for the
Policy.
The Policy Date is the date used to determine Policy Years and Monthly
Processing Dates. The Policy Date 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 contestability period and suicide exclusion
period are measured from the Policy Date.
The Trade Date is the date when KILICO accepts the risk of providing
insurance coverage to the Insured. Insurance coverage will be limited to a
maximum of $200,000 net amount at risk by the temporary insurance provisions of
the application until the Trade Date. Monthly deductions and the crediting of
investment experience begin as of the Policy Date, even if the Trade Date of the
Policy is delayed due to underwriting requirements.
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 KILICO Money Market Subaccount.
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.")
ADDITIONAL 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 what its maximum
amount is. These premium payments will not increase the maximum possible
Surrender Charge. Except to prevent lapse, such an additional premium payment
must be at least $1,000. KILICO reserves the right to limit the ability to make
more than one additional premium payment in each Policy Year. Evidence of
insurability may be required if an additional premium payment would result in an
increase in the Death Benefit.
Several factors affect when additional premium payments may be made. For
example, assuming the maximum initial premium payment, the Policy Years in which
an Owner issue age 45 may make additional payments depend upon investment
experience. Based upon a hypothetical gross annual rate of return of 6% in the
selected Kemper Investors Fund Portfolio(s), an additional payment may first be
made in year 13, and additional payments may be made each year thereafter
subject to any applicable underwriting requirements. A higher annual rate of
return may cause the Death Benefit to exceed the minimum guaranteed death
benefit. (See "Policy Rights and Benefits.") When this occurs additional
payments are subject to underwriting requirements.
7
<PAGE> 11
EFFECT OF ADDITIONAL PREMIUMS ON DEATH BENEFIT. Any additional premiums
paid under a Policy may cause the Death Benefit to increase. (See "Policy
Benefits and Rights--Death Benefits.") An increase in the Death Benefit may
cause the cost of insurance charge to increase. (See "Charges and
Deductions--Cost of Insurance.")
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.
Fifteen days after the Trade Date (see "Policy Benefits and
Rights--Free-Look Period."), the Policy's Separate Account Value in the Money
Market Subaccount will be allocated to the Subaccounts of the Separate 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.
The Separate Account Value will vary with the investment experience of the
chosen Subaccounts. The Owner bears the entire investment risk.
TRANSFERS. Separate Account Value may be transferred among the Subaccounts
of the Separate 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.
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 transfer amount is $500.
No partial transfer may be made if the value of the Owner's remaining interest
in a Subaccount, from which amounts are to be transferred, would be less than
$500 after such transfer. 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, the Owner would bear the risk of loss in the event of a fraudulent
telephone transfer.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Lapse will occur when the Surrender Value of a Policy is
insufficient to cover the monthly deduction for the cost of insurance, 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 deduction for the cost of insurance. 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 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--Additional
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.
8
<PAGE> 12
REINSTATEMENT. If a Policy lapses because of insufficient Cash Value to
cover the monthly cost of insurance deduction, and it has not been surrendered
for its Surrender Value, it may be reinstated at any time within five 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 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. If the Policy has been in
force for two years during the lifetime of the Insured, it will be contestable
only as to statements made in the reinstatement application.
POLICY BENEFITS AND RIGHTS
DEATH BENEFITS
While the Policy is in force (see "Policy Lapse and Reinstatement--Lapse,"
above), the Death Benefit can never be less than the Death Benefit stated on the
Policy Schedule page ("guaranteed minimum death benefit").
The Death Benefit may vary with the Cash Value of the Policy, which depends
on the investment experience of the Separate Account Subaccounts to which a
Policy's Separate Account Value is allocated. An increase in the Cash Value may
increase the Death Benefit. However, while the Policy is in force, because the
Death Benefit will never be less than the guaranteed minimum death benefit, a
decrease in Cash Value may decrease the Death Benefit but never below the
guaranteed minimum death benefit.
The Death Benefit will be the greater of the guaranteed minimum death
benefit or the applicable multiple of the Cash Value. If investment experience
is sufficiently favorable, the Death Benefit may increase. Increases in the
Death Benefit are calculated by KILICO by multiplying the Cash Value by the
Death Benefit Factor. If the Cash Value were to drop because of unfavorable
investment experience, the Death Benefit would drop, but not below the Death
Benefit stated on the Policy Schedule page.
The guaranteed minimum death benefit is based on the 1980 Commissioner's
Standard Ordinary Smoker and Non-Smoker Mortality Tables [age last birthday]
(called the "1980 CSO Tables"), the Insured's sex, rate class and insurance age
at issue, and an assumed interest rate of 5.10 percent. The guaranteed minimum
death benefit is calculated by KILICO based on the applicable 1980 CSO Table and
the initial premium paid.
Representative guaranteed minimum death benefits are shown below:
<TABLE>
<CAPTION>
GUARANTEED MINIMUM DEATH BENEFIT
PER $1 SINGLE PREMIUM
------------------------------------------------------
MALE FEMALE
------------------------ ------------------------
INSURANCE AGE NON-SMOKER SMOKER NON-SMOKER SMOKER
------------- ---------- ------ ---------- ------
<C> <S> <C> <C> <C> <C>
5 .......................................... 18.196 N/A 21.735 N/A
15 .......................................... 12.510 N/A 14.975 N/A
25 .......................................... 8.852 6.854 10.186 8.652
35 .......................................... 5.915 4.614 6.785 5.783
45 .......................................... 3.929 3.138 4.537 3.939
55 .......................................... 2.671 2.236 3.098 2.787
65 .......................................... 1.905 1.696 2.164 2.203
75 .......................................... 1.461 1.379 1.582 1.530
</TABLE>
9
<PAGE> 13
Representative multiples, each of which is referred to as a Death Benefit
Factor, are shown in the table below:
<TABLE>
<CAPTION>
DEATH BENEFIT IS NO LESS THAN THE
CASH VALUE TIMES THE FOLLOWING
MULTIPLE (DEATH BENEFIT FACTOR)
ASSUMING NO DEBT
INSURANCE AGE ----------------------------------
------------- MALE FEMALE
<C> <S> <C> <C>
5 ..................................... 2.50 2.50
15 ..................................... 2.50 2.50
25 ..................................... 2.50 2.50
35 ..................................... 2.50 2.50
45 ..................................... 2.15 2.15
55 ..................................... 1.50 1.50
65 ..................................... 1.20 1.20
75 ..................................... 1.05 1.05
85 ..................................... 1.05 1.05
95 ..................................... 1.00 1.00
</TABLE>
EXAMPLES:
<TABLE>
<CAPTION>
A B
-------- --------
<S> <C> <C>
Initial Premium: $25,000 $25,000
Death Benefit on Policy Schedule (guaranteed minimum death
benefit): 98,225 98,225
Insurance Age at Issue: 45 45
Insurance Age at Death: 55 55
Cash Value on Date of Death: 75,000 50,000
Death Benefit Factor: 1.5 1.5
</TABLE>
In Example A, the Death Benefit equals $112,500, i.e., the greater of
$98,225 or $112,500 (the Cash Value at the date of death of $75,000,
multiplied by the Death Benefit Factor of 1.5). This amount less any
outstanding Debt constitutes the Death Benefit which we would pay to
the Beneficiary.
In Example B, the Death Benefit is $98,225, i.e., the greater of
$98,225 or $75,000 (the Cash Value of $50,000 multiplied by the Death
Benefit Factor of 1.5).
The difference in the Cash Value assumed is based upon different assumed
investment experience.
For a Policy, male age 45, non-smoker, under the above assumptions the
Death Benefit payable would exceed the guaranteed minimum death benefit in the
tenth Policy Year, assuming a 12% gross annual investment rate of return. (See
Appendix at pages 56 and 57.) With a lesser gross annual investment rate of
return, the Death Benefit would not exceed the guaranteed minimum death benefit
until a later Policy Year.
All or part of the Death Benefit may be paid in cash or applied under a
settlement option. (See "General Provisions--Settlement Options.")
EFFECT ON COST OF INSURANCE CHARGE. Any change in the Death Benefit will
affect the net amount at risk, which would, in turn, affect the Owner's cost of
insurance charge. (See "Charges and Deductions--Cost of Insurance Charge".)
PAYMENT OF DEATH BENEFIT. 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.")
BENEFITS AT MATURITY
If the Insured is living on the Policy anniversary following the Insured's
Age 95, KILICO will pay the Owner the Surrender Value of the Policy, on
surrender of the Policy to KILICO. 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 of the Separate Account, the frequency and amount of
premiums paid, transfers between Subaccounts, any General Account values, and
any charges assessed in connection with the Policy. An Owner may at any time
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.
10
<PAGE> 14
CALCULATION OF CASH VALUE. The Cash Value of the Policy is the total of the
Policy's Separate Account Value and the Cash Value in the General Account. 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 cost of insurance charge 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 premium payments 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 from the General Account in connection with the repayment of
a Policy loan (see "Policy Benefits and Rights--Policy Loans," page 12)
during the current Valuation Period; minus
(4) All amounts transferred from the Subaccount during the current
Valuation Period; minus
(5) The pro rata portion of the monthly cost of insurance charge
attributable to the Subaccount if a Policy Month began during the Valuation
Period. (See "Charges and Deductions--Cost of Insurance Charge.")
There will also be Cash Value in the General Account if there is a Policy
loan outstanding. The General Account is credited with amounts transferred from
Subaccounts in connection with Policy loans. The General Account balance accrues
daily interest at an effective annual rate of 4.00% for values attributable to
premium and 6.00% for values attributable to amounts in excess of premium. (See
"Policy Benefits and Rights--Policy Loans.")
ACCUMULATION UNIT VALUE. Each Subaccount has a distinct Accumulation Unit
Value. When 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
$1.00. 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 at an
annual rate of 0.90% of the assets of the Subaccount and compensates
KILICO for certain mortality and expense risks assumed. (See "Charges
and Deductions--Mortality and Expense Risk Charge.")
11
<PAGE> 15
POLICY LOANS
On and after the first Monthly Processing Date after the Policy Date of the
Policy, 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.") If the Policy is
treated as a modified endowment contract, the loan will be treated as a
distribution for federal income tax purposes and may be subject to tax,
withholding and penalties.
On the date a loan is made, Separate Account Value equal to the loan amount
will be transferred from the Separate Account to the loan account in the General
Account. Unless the Owner directs otherwise, the loaned amount will be deducted
from the Subaccounts in proportion to the values that each Subaccount bears to
the Separate Account Value of the Policy in all of the Subaccounts 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 6.00%.
Interest not paid when due will be added to the loan amount due and bear
interest at the same rate.
Cash Value in the loan account within the General Account attributable to
the premium will earn no less than 4.00% annual interest. Cash Value in the loan
account within the General Account attributable to amounts in excess of premium
will earn no less than 6.00% annual interest. Such earnings will be allocated to
the General Account.
LOAN REPAYMENT. While the Policy is in force, policy loans may be repaid
at any time, in whole or in part. Payments will be treated as payment of
outstanding Debt unless the Owner indicates that the payments should be treated
otherwise. If otherwise permitted by the guideline premium limits of the Code
where there is no indication made, the portion of a payment that exceeds the
amount of any Debt will be treated as a premium payment. If not permitted by the
Code, the amount that exceeds any Debt will be refunded to the Owner.
At the time of repayment, Cash Value in the loan account of the General
Account equal to the amount of the repayment which exceeds the difference
between interest due and interest earned will be allocated to the Subaccounts
according to the Owner's current allocation instructions, unless otherwise
requested by the Owner. Loan repayments will be applied first to reduce that
portion of the loan account attributable to interest due on loaned premium;
second, to that portion of the loan account attributable to premium; third, to
that portion of the loan account attributable to interest due on loaned amounts
in excess of premium; and fourth to that portion of the loan account
attributable to loaned amounts in excess of premium. Transfers from the General
Account to the Separate 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 cost of insurance deduction for the
next month, KILICO will notify the Owner and any assignee of record. (See
"General Provisions--Written Notices and Requests.") This 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
General Account) does not participate in the experience of the Subaccounts while
the loan is outstanding. If the amount credited to the General Account is more
than the amount that would have been earned in the Subaccounts, the Cash Value
will, and the Death Benefit may, be higher as a result of the loan. Conversely,
if the amount credited to the General Account is less than would have been
earned in the Subaccounts, the Cash Value, as well as the Death Benefit, may be
less.
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.) Partial
surrenders are not permitted.
12
<PAGE> 16
SURRENDER CHARGE. No sales charge is deducted from any premium payment.
However, a contingent deferred sales charge ("Surrender Charge") will be used to
cover expenses relating to the sale 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 (see
"General Provisions--Settlement Options"), the amount payable may reflect a
deduction for applicable Surrender Charges. A Surrender Charge will not be
assessed against Cash Values applied under a Settlement Option if the Policy has
been in force for five or more years and the Settlement Option elected provides
for benefit payments of at least five years. The amount of the Surrender Charge
will be calculated as a percentage of the lesser of premium paid in the first
Policy Year or Cash Value under the Policy. The charge decreases from 9% to 0%
depending on the length of time between the Policy Date and the date of
surrender or application under a Settlement Option, provided, however, that the
Surrender Charge will never exceed $60 per $1,000 of initial Death Benefit.
During the period from the Policy Date to the first Policy Anniversary, the rate
is 9%; on the first Policy Anniversary, the rate decreases to 8%, and on each of
the next eight Policy Anniversaries it will decrease an additional 1%. Thus,
there will be no Surrender Charge with respect to the premium paid in the first
Policy Year beginning on the ninth Policy Anniversary.
The applicable Surrender Charge will be determined based upon the date of
receipt of the written request for surrender.
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. The amount of
the refund will be 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.
The Owner may, while the Policy is in force, exchange it at any time after
its issue, for a non-variable permanent fixed benefit life insurance policy then
currently being offered by KILICO on the life of the Insured. Such policy would
be treated and taxed as a modified endowment contract. No evidence of
insurability will be required. During the first two years after the Policy Trade
Date, 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. After two years from the Policy Trade Date, the amount of the new
policy will be for 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
COST OF INSURANCE CHARGE
A monthly deduction is made from the Subaccounts 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 in proportion
to the value of each Subaccount to the Separate Account Value.
The cost of insurance will be deducted on the Policy Date and on each
Monthly Processing Date thereafter. 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 sex, Insurance Age and rate class of the Insured. 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 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, 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 standard 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 standard rates. (See
"Charges and Deductions--Cost of Insurance Rate," above.)
13
<PAGE> 17
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%. This rate is guaranteed not to increase for the duration of the
Policy.
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.
OTHER CHARGES
SURRENDER CHARGE. If the Policy is surrendered or if the Cash Value is
applied under a Settlement Option, a Surrender Charge on the lesser of the
premium paid in the first Policy Year or the Cash Value under the Policy will be
deducted from the amount payable. The charge starts at 9% in the first Policy
Year and reduces to 0%, depending on the length of time between the payment and
the date of surrender or application under a Settlement Option. Subject to other
considerations, the Owner may decide to reduce the potential Surrender Charge by
paying less initial premium. The Surrender Charges are intended to compensate
KILICO for expenses in connection with the distribution of the Policy. Surrender
Charges are described in more detail under "Policy Benefits--Surrender
Privilege."
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 agreement between
the Fund, on behalf of the Portfolios, and ZKI, ZKI provides investment advisory
services for the Portfolios. The Fund is responsible for the advisory fee and
all its other expenses. The investment advisory fee differs with respect to each
of the Portfolios of the Fund and is described beginning on page 5 of this
Prospectus. For more information concerning the investment advisory fee and
other charges against the Portfolios of the Fund, see the prospectus for the
Fund and the Statement of Additional Information available upon request.
REDUCTION OF CHARGES. KILICO may reduce certain charges and the minimum
initial premium in special circumstances that result in lower 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, 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. The minimum amount
that may be placed under a Settlement Option is $4,000 unless KILICO consents to
a lesser amount. 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. If the amount of any payment under a
Settlement Option is less than $100, KILICO may increase the interval between
payments to a quarterly, semi-annual or annual payment to make the payment at
least $100.
The Cash Value on the day immediately preceding the date on which the first
benefit payment is due shall first be reduced by any applicable Surrender Charge
and Debt. The Surrender Value shall be used to determine the benefit payment.
For Settlement Options 1 through 5, the payment shall be based upon 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 3 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 annuitant
14
<PAGE> 18
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. Annuity payments terminate automatically and
immediately upon the death of the surviving payee without regard to the number
or total amount of payments received.
OPTION 5--PENSION AND SURVIVOR ANNUITY. KILICO will pay the full monthly
income during the lifetime of the primary payee. Such payments will continue
whether or not the secondary payee is living. If the primary payee dies before
the secondary payee dies, the benefits will continue during the lifetime of the
secondary payee. However, such benefits will be for the percentage chosen for
such continuation at the time this option is elected. Annuity payments terminate
automatically and immediately upon the death of the surviving payee without
regard to the number or total amount of payments received.
OPTION 6--INCOME OF SPECIFIED AMOUNT. KILICO will pay the amount elected
for as long as the amount applied and interest will last. The minimum income
which may be elected is $10.00 per month for each $1,000 applied.
OPTION 7--PROCEEDS LEFT AT INTEREST. KILICO will hold the amount applied on
deposit, subject to any withdrawal limits stated in the supplementary contract.
Interest will be paid on the amount deposited.
KILICO consent is necessary for any other payment methods.
Interest on funds held by KILICO under Settlement Options 1, 6 and 7 shall
be at the rate of 4% per year. The sums payable under Settlement Options 2, 3, 4
and 5 are based on the 1971 Individual Annuity Mortality Tables, male and
female, at 4% interest per year, unless otherwise required by law. Interest
shall be compounded annually. Additional interest, if any, will be paid as
determined by KILICO, in its sole discretion.
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 Commission;
(2) The Commission by order permits postponement for the protection of
Owners; or
(3) An emergency exists, as determined by the Commission, as a result
of which disposal of securities of the 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 Cash Value and Death
Benefit will be recalculated from the Policy Date based on the correct sex and
age.
15
<PAGE> 19
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 Cash Value less any Debt. When the
laws of the state in which a Policy is delivered require less than a two year
period, or return of premium paid, 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.
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, transfers, Policy loans and repayments and charges made during the
Policy Year. 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.
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"), a
wholly owned subsidiary of KILICO.
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 6.75%. In
lieu of part of the 6.75%, a service fee at an annual rate of .25 of 1% on
assets which have been maintained and serviced may also be paid to the principal
underwriter or the licensed broker-dealers. 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. The aggregate amount of gross
commissions paid by KILICO on the sale of the Policy was $2,415, $2,231 and
$25,764 in 1996, 1995 and 1994, respectively.
16
<PAGE> 20
FEDERAL TAX MATTERS
The ultimate effect of Federal income taxes on the Policy, on Settlement
Options and on the economic benefit to the Owner, Beneficiary or payee depends
on KILICO's tax status, and upon the tax status of the individual concerned.
KILICO'S TAX STATUS
Under current interpretations of Federal income tax law, KILICO is taxed as
a life insurance company and the operations of the Separate Account are treated
as part of the total operations of KILICO. The operations of the Separate
Account do not materially affect KILICO's Federal income tax liability because
KILICO is allowed a deduction to the extent that net investment income of the
Separate Account is applied to increase Owners' equity. KILICO may incur state
and local taxes attributable to the Separate Account. At present, these taxes
are not significant. Accordingly, KILICO does not charge or credit the Separate
Account for Federal, state or local taxes. Thus, the Separate Account may
realize net investment income, such as interest, dividends or capital gains, and
reinvest such income all without tax consequences to the Separate Account.
If there is a material change in applicable Federal, state or local law,
however, charges or credits may be made to the Separate Account for Federal,
state or local taxes, or reserves for such taxes, if any, attributable to the
Separate Account. Such charges or credits will be determined independent of the
taxes actually paid by KILICO.
TAX STATUS OF THE POLICY
The Technical and Miscellaneous Revenue Act of 1988 altered the Federal
income tax treatment of loans and predeath distributions under life insurance
policies classified as "modified endowment contracts."
A Policy entered into on or after June 21, 1988 is considered a modified
endowment contract. Further, a Policy entered into before June 21, 1988 is
considered a modified endowment contract if the Death Benefit payable under the
Policy is increased on or after June 21, 1988 as a result of the payment of
additional premium and the Owner did not have a unilateral right before June 21,
1988 to obtain such increase without providing additional evidence of
insurability. Finally, a Policy is considered a modified endowment contract if
the Death Benefit increases by more than $150,000 over the Death Benefit on
October 20, 1988 and, on or after the date of such increase, there is a
"material change" to the Policy. A material change does not include an increase
in the Death Benefit, if the increase is attributable to (1) premiums necessary
to fund the Death Benefit as of October 20, 1988 increased by $150,000, or (2)
the crediting of earnings with respect to such premiums. An exchange of a policy
entered into before June 21, 1988 under section 1035 of the Internal Revenue
Code is considered a material change, but does not cause the new policy to be
treated as a modified endowment contract so long as no additional premiums are
paid.
A Policy treated as a modified endowment contract is subject to the
following rules:
First, the amount of a Policy loan (or, if a Policy is assigned or pledged,
the amount of Cash Value assigned or pledged) is considered received by the
Owner and is included in the Owner's Federal gross income to the extent that the
Cash Value exceeds the Owner's investment in the Policy. The Owner's investment
in the Policy is the initial premium (or, if a Policy is issued in exchange for
another policy under section 1035 of the Internal Revenue Code, the Owner's
investment in the other policy), increased by additional premiums and by amounts
included in the Owner's gross income.
Second, all modified endowment contracts issued by KILICO (or an affiliate)
to the same Owner during a calendar year are to be aggregated and considered a
single contract for purposes of determining the amount includible in gross
income. Under this rule, amounts received by the Owner are includible in gross
income to the extent that total cash value exceeds total investment in such
aggregated contracts.
Third, the portion of any amount considered received by the Owner that is
includible in gross income is subject to an additional 10-percent tax. The
additional tax does not apply to any amount that is (1) received on or after the
date the Owner attains age 59 1/2; (2) distributed as a result of the Owner
becoming disabled; or (3) one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (of life
expectancy) of the Owner or the joint lives (or life expectancies) of the Owner
and the Owner's beneficiary.
The United States Congress may in the future consider additional
legislation that, if enacted, could adversely affect the tax treatment of life
insurance policies, including loans and other distributions and undistributed
appreciation. There is no way of predicting whether, when or in what form
Congress will enact any such proposal or any other legislation affecting life
insurance policies. Any such legislation could have retroactive effect
regardless of the date of enactment.
17
<PAGE> 21
The Policy is a life insurance contract for Federal income tax purposes
under current Section 7702 of the Internal Revenue Code. As such, the Death
Benefit is excludable from the gross income of the Beneficiary. Also, the Owner
is not deemed to be in constructive receipt of the Cash Value, including
increments thereon, until a distribution occurs through a loan or actual
surrender. Interest paid on a loan under the Policy is not deductible by the
individual Owner. Section 7702 of the Internal Revenue Code imposes certain
conditions with respect to premiums received under the Policy. KILICO intends to
monitor the premiums to assure compliance.
If there is a surrender or exchange of a Policy, KILICO may be required to
withhold Federal income tax from the portion of the money received that is
includable in the Owner's Federal gross income. An Owner may, however, make an
election not to have such tax withheld but the election must be made before
KILICO makes payment.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner and Beneficiary.
The Secretary of the Treasury has issued final regulations establishing
diversification provisions for variable life insurance contracts. Failure to
meet the diversification requirements could result in taxation of KILICO and
immediate taxation of the Owner of the Policy to the extent of appreciation on
the Owner's investment. KILICO will monitor compliance with these tests. A
special test exists for variable life insurance contracts that invest in United
States Treasury obligations. A separate account that issues variable life
insurance contracts need not meet the diversification test to the extent that it
invests in securities issued by the United States Treasury.
OTHER CONSIDERATIONS
Because of the complexity of the law in its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Policy or the exercise of elections under a Policy. The above comments
concerning the Federal income tax consequences are not exhaustive and are not
intended as tax advice. Counsel and other competent advisers should be consulted
for more complete information. This discussion is based on KILICO's
understanding of Federal income tax laws as they are currently interpreted by
the Internal Revenue Service. No representation is made as to the likelihood of
continuation of these current laws and interpretations. KILICO also believes the
Policy meets other requirements concerning Owner control over investments.
However, the Secretary of the Treasury has not issued regulations on this
subject. Such regulations, if adopted, could include requirements not included
in the Policy. Because the guidance has not been published, there can be no
assurance as to content or even whether application will be prospective only.
KILICO will make modifications to the Policy to comply with such regulations.
LEGAL CONSIDERATIONS
On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
The Policy described in this Prospectus contains cost of insurance rates that
distinguish between men and women. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact of
Federal, state and local laws, including Title VII of the Civil Rights Act, the
Equal Pay Act, and NORRIS and subsequent cases on any employment-related
insurance or fringe benefit program before purchasing this Policy.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
KILICO holds the assets of the Separate Account. The assets are kept
segregated and held separate and apart from the general funds of KILICO. KILICO
maintains records of all purchases and redemptions of the shares of each
Portfolio of the Fund by each of the Subaccounts.
VOTING RIGHTS
To the extent required by law, KILICO will vote the 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 the Fund's shares in its own right, it may elect to do so.
Owners of all Policies participating in each Subaccount shall have voting
rights with respect to that Subaccount, based upon each Owner's proportionate
interest in that Subaccount as measured by units.
18
<PAGE> 22
Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio of
the Fund.
KILICO will vote shares of the Fund 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 a Portfolio of the
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.
19
<PAGE> 23
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 (52) Chief Executive Officer, President and Director of Federal
Chief Executive Officer since Kemper Life Assurance Company (FKLA) and Fidelity Life
February 1992. President since Association (FLA) since 1988. Chief Executive Officer,
November 1993. Director since President and Director of Zurich Life Insurance Company of
1992. America (ZLICA) and Zurich Direct, Inc. (ZD) since March
1996. Chairman of the Board and Director of Investors
Brokerage Services, Inc. (IBS) and Investors Brokerage
Services Insurance Agency, Inc. (IBSIA) since 1993. Chairman
of the Board of FKLA and FLA from April 1988 to January
1996. Chairman of the Board of KILICO from February 1992 to
January 1996. Executive Vice President and Director of
Kemper Corporation (K-Corp.) from January 1994 and March
1996, respectively. Executive Vice President of Kemper
Financial Companies, Inc. from January 1994 to January 1996
and Director from 1992 to January 1996.
Eliane C. Frye (49) Executive Vice President of FKLA and FLA since 1995.
Executive Vice President since Executive Vice President of ZLICA and ZD since March 1996.
1995. Director of IBS and IBSIA since 1995. Senior Vice President
of KILICO, FKLA and FLA from 1993 to 1995. Vice President of
FKLA and FLA from 1988 to 1993.
Frederick L. Blackmon (45) Senior Vice President and Chief Financial Officer of FKLA
Senior Vice President and Chief since December 1995. Senior Vice President and Chief
Financial Officer since December Financial Officer of FLA since January 1996. Senior Vice
1995. President and Chief Financial Officer of ZLICA since March
1996. Senior Vice President, Chief Financial Officer and
Director of ZD since March 1996. Treasurer and Chief
Financial Officer of K-Corp. since January 1996. Chief
Financial Officer of Alexander Hamilton Life Insurance
Company from April 1989 to November 1995.
James C. Harkensee (38) Senior Vice President of FKLA and FLA since January 1996.
Senior Vice President since Senior Vice President of ZLICA since 1995. Senior Vice
January 1996. President of ZD since 1995. Vice President of ZLICA from
1992 to 1995. Chief Actuary of ZLICA from 1991 to 1994.
Assistant Vice President of ZLICA from 1990 to 1992. Vice
President of ZD from 1994 to 1995.
James E. Hohmann (41) Senior Vice President and Chief Actuary of FKLA since
Senior Vice President and Chief December 1995. Senior Vice President and Chief Actuary of
Actuary since December 1995. FLA since January 1996. Senior Vice President and Chief
Actuary of ZLICA since March 1996. Senior Vice President,
Chief Actuary and Director of ZD since March 1996. Managing
Principal (Partner) of Tillinghast-Towers Perrin from
January 1991 to December 1995. Consultant/Principal
(Partner) of Tillinghast-Towers Perrin from November 1986 to
January 1991.
Edward K. Loughridge (42) Senior Vice President and Corporate Development Officer of
Senior Vice President and FKLA and FLA since January 1996. Senior Vice President and
Corporate Development Officer Corporate Development Officer for ZLICA and ZD since March
since January 1996. 1996. Senior Vice President of Human Resources of
Zurich-American Insurance Group from February 1992 to March
1996.
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
Debra P. Rezabek (41) Senior Vice President of FKLA and FLA since March 1996.
Senior Vice President since 1996. Corporate Secretary of FKLA and FLA since January 1996. Vice
General Counsel since 1992. President of KILICO, FKLA and FLA since 1995. General
Corporate Secretary since January Counsel and Director of Government Affairs of FKLA and FLA
1996. since 1992 and of KILICO since 1993. Senior Vice President,
General Counsel and Corporate Secretary of ZLICA since March
1996. Senior Vice President, General Counsel, Corporate
Secretary and Director of ZD since March 1996. Secretary of
IBS and IBSIA since 1993. Director of IBS and IBSIA from
1993 to 1996. Assistant General Counsel of FKLA and FLA from
1988 to 1992. General Counsel and Assistant Secretary of
KILICO, FKLA and FLA from 1992 to 1996. Assistant Secretary
of K-Corp. since January 1996.
George Vlaisavljevich (54) Senior Vice President of FKLA, FLA and ZLICA since October
Senior Vice President since 1996. Director of IBS and IBSIA since October 1996.
October 1996. Executive Vice President of The Copeland Companies from
April 1983 to September 1996.
Loren J. Alter (58) Director of FKLA, FLA and Zurich Kemper Investments, Inc.
Director since January 1996. (ZKI) since January 1996. Director of ZLICA since May 1979.
Executive Vice President of Zurich Insurance Company since
1979. President, Chief Executive Officer and Director of
K-Corp. since January 1996.
William H. Bolinder (53) Chairman of the Board and Director of FKLA and FLA since
Chairman of the Board and Director January 1996. Chairman of the Board of ZLICA and ZD since
since January 1996. March 1995. Chairman of the Board of K-Corp. since January
1996. Vice Chairman and Director of ZKI since January 1996.
Member of the Corporate Executive Board of Zurich Insurance
Group since October 1994. Chairman of the Board of American
Guarantee and Liability Insurance Company, Zurich American
Insurance Company of Illinois, American Zurich Insurance
Company and Steadfast Insurance Company since 1995. Chief
Executive Officer of American Guarantee and Liability
Insurance Company, Zurich American Insurance Company of
Illinois, American Zurich Insurance Company and Steadfast
Insurance Company from 1986 to June 1995. President of
Zurich Holding Company of America since 1986. Manager of
Zurich Insurance Company, U.S. Branch since 1986.
Underwriter for Zurich American Lloyds since 1986.
Daniel L. Doctoroff (38) Director of FKLA, FLA and K-Corp. since January 1996.
Director since January 1996. Director of ZLICA since March 1996. Managing Partner of
Insurance Partners Advisors, L.P. since February 1994. Vice
President of Keystone, Inc. since October 1992. Managing
Director of Rosecliff Inc./Oak Hill Partners, Inc. since
August 1987. Director of Bell & Howell Company since 1989;
Specialty Foods Corporation since 1993; and Capstar Hotel
Company since 1995.
Steven M. Gluckstern (45) Director of FKLA, FLA and K-Corp. since January 1996.
Vice Chairman and Director since Director of ZLICA since March 1996. Vice Chairman of FKLA
January 1996. and FLA since January 1996. Member of the Corporate
Executive Board of Zurich Insurance Group since March 1997.
Chairman of the Board and Director of ZKI 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.
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
Markus Rohrbasser (42) Director of FKLA, FLA and ZLICA since May 1997. Chief
Director since May 1997. Financial Officer and Member of the Corporate Executive
Board of Zurich Insurance Company since January 1997. Member
of Enlarged Corporate Executive Board and Chief Executive
Officer of Union Bank of Switzerland (North America) from
1992 to 1997.
Michael P. Stramaglia (37) Director of FKLA and FLA since January 1996. Director of
Director since January 1996. ZLICA since March 1996. President of Zurich Life Insurance
Company of Canada (ZLICC) since June 1994. Chief Operating
Officer of ZLICC since March 1997. President of KEZMO,
L.L.C. and President of KEZLI, L.L.C. since 1995. Chief
Executive Officer of ZLICC from June 1994 to March 1997.
Executive Vice President and Chief Operating Officer of
ZLICC from June 1993 to June 1994. Senior Vice President of
the Corporate Division of ZLICC from January 1990 to June
1993. Director of ZLICC, Zurich Life of Canada Holdings
Limited, Zurich Indemnity Company of Canada, Zurich Canadian
Holdings Limited, and Zurmex Canada Holdings Limited.
Paul H. Warren (41) Director of FKLA, FLA and K-Corp. since January 1996.
Director since January 1996. Director of ZLICA since March 1996. Partner of Insurance
Partners Advisors, L.P. since March 1994. Managing Director
of International Insurance Advisors since March 1992. Vice
President of J.P. Morgan from June 1986 to March 1992.
Director of Unionamerica Holdings plc since June 1993;
Unionamerica Insurance Company since September 1993; Tarquin
plc since November 1994; Charman Underwriting Agencies Ltd.
since November 1994; and Corporate Health Dimensions since
March 1997.
</TABLE>
22
<PAGE> 26
LEGAL MATTERS
All matters of Illinois law pertaining to the Policy, including the
validity of the Policy and KILICO's right to issue the Policy under Illinois
Insurance Law, have been passed upon by Debra P. Rezabek, Senior Vice President,
General Counsel, and Corporate Secretary of KILICO. Katten Muchin & Zavis,
Washington, D.C., has advised KILICO on certain legal matters concerning Federal
securities laws applicable to the issue and sale of Policies.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. KILICO is not a party
in any litigation that is of material importance in relation to its total assets
or that relates to the Separate Account.
EXPERTS
The consolidated balance sheets of KILICO as of December 31, 1996 and
January 4, 1996 and the related consolidated statements of operations,
stockholder's equity, and cash flows for the periods from January 4, 1996 to
December 31, 1996 and for each of the years in the two year period ended
December 31, 1995 and the statements of assets and liabilities and policy
owners' equity of the Separate Account as of December 31, 1996 and the related
statements of operations for the year then ended, and the statements of changes
in policy owners' equity for the years ended December 31, 1996 and 1995 have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering KILICO's
financial statements contains an explanatory paragraph that states as a result
of the acquisition of its parent, Kemper Corporation, the consolidated financial
information for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.
Actuarial matters included in this prospectus have been examined by Steven
D. Powell, FSA as stated in the opinion filed as an exhibit to the Registration
Statement.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies. For further information concerning the Separate Account, KILICO and
the Policy, reference is made to the Registration Statement as amended with
exhibits. Copies of the Registration Statement are available from the
Commission.
FINANCIAL STATEMENTS
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.
23
<PAGE> 27
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
24
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
KEMPER INVESTORS LIFE INSURANCE COMPANY:
We have audited the accompanying statements of assets and liabilities and
policy owners' equity of the Money Market Subaccount, Total Return Subaccount,
High Yield Subaccount, Growth Subaccount, and Government Securities Subaccount
of KILICO Variable Separate Account (the Account) as of December 31, 1996 and
the related statements of operations for the year then ended, and the statements
of changes in policy owners' equity for each of the years in the two-year period
then ended. These financial statements are the responsibility of the Account'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. Our procedures included
confirmation of investments owned at December 31, 1996 by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Money Market Subaccount,
Total Return Subaccount, High Yield Subaccount, Growth Subaccount, and
Government Securities Subaccount at December 31, 1996 and the results of their
operations, and changes in their policy owners' equity for the periods stated in
the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 26, 1997
25
<PAGE> 29
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY TOTAL GOVERNMENT
MARKET RETURN HIGH YIELD GROWTH SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in underlying portfolio funds, at
current value..................................... $1,038 3,097 1,507 2,362 3,990
Dividends and other receivables..................... 3 -- 3 -- 2
------ ----- ----- ----- -----
Total assets.................................. 1,041 3,097 1,510 2,362 3,992
LIABILITIES AND POLICY OWNERS' EQUITY
Liabilities:
Mortality and expense risk charges................ 4 6 -- 2 6
Other............................................. -- -- 2 -- 1
------ ----- ----- ----- -----
Total liabilities............................. 4 6 2 2 7
------ ----- ----- ----- -----
Policy owners' equity............................... $1,037 3,091 1,508 2,360 3,985
====== ===== ===== ===== =====
ANALYSIS OF POLICY OWNERS' EQUITY
Excess of proceeds from units sold over payments for
units redeemed.................................... $ 519 1,316 669 1,077 2,052
Accumulated net investment income................... 518 819 745 479 1,352
Accumulated net realized gain on sales of
investments....................................... -- 457 12 617 275
Unrealized appreciation of investments.............. -- 499 82 187 306
------ ----- ----- ----- -----
Policy owners' equity............................... $1,037 3,091 1,508 2,360 3,985
====== ===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 30
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY GOVERNMENT
MARKET TOTAL RETURN HIGH YIELD GROWTH SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dividends and capital gains distributions.......... $58 166 170 280 287
Mortality and expense risk charges................. 12 24 16 19 36
--- --- --- ---- ----
Net investment income.............................. 46 142 154 261 251
--- --- --- ---- ----
Net realized and unrealized gain on investments:
Net realized gain on sales of investments........ -- 128 9 397 17
Change in unrealized appreciation (depreciation)
of investments................................. -- 117 34 (228) (203)
--- --- --- ---- ----
Net realized and unrealized gain (loss) on
investments...................................... -- 245 43 169 (186)
--- --- --- ---- ----
Net increase in policy owners' equity resulting
from operations.................................. $46 387 197 430 65
=== === === ==== ====
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 31
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONEY MARKET
SUBACCOUNT
--------------------
1996 1995
---- ----
<S> <C> <C>
Operations:
Net investment income..................................... $ 46 68
Net realized gain on sales of investments................. -- --
Change in unrealized appreciation (depreciation)
of investments.......................................... -- --
------ -----
Net increase in policy owners' equity
resulting from operations............................. 46 68
------ -----
Account unit transactions:
Proceeds from units sold.................................. 270 76
Net transfers (to) from subaccounts....................... 55 (348)
Payments for units redeemed............................... (336) (104)
------ -----
Net increase (decrease) in policy owners' equity
from account unit transactions........................ (11) (376)
------ -----
Total increase (decrease) in policy owners' equity.......... 35 (308)
Policy owners' equity:
Beginning of year......................................... 1,002 1,310
------ -----
End of year............................................... $1,037 1,002
====== =====
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 32
<TABLE>
<CAPTION>
GOVERNMENT
TOTAL RETURN HIGH YIELD GROWTH SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------- ------------- ------------- -------------
1996 1995 1996 1995 1996 1995 1996 1995
- ---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C>
142 47 154 75 261 102 251 214
128 14 9 54 397 31 17 45
117 442 34 106 (228) 301 (203) 404
- ----- ----- ----- ----- ----- ----- ----- -----
387 503 197 235 430 434 65 663
- ----- ----- ----- ----- ----- ----- ----- -----
43 -- 6 17 121 3 22 12
484 72 (567) 270 65 508 (37) (502)
(376) (146) (217) (147) (179) (143) (162) (251)
- ----- ----- ----- ----- ----- ----- ----- -----
151 (74) (778) 140 7 368 (177) (741)
- ----- ----- ----- ----- ----- ----- ----- -----
538 429 (581) 375 437 802 (112) (78)
2,553 2,124 2,089 1,714 1,923 1,121 4,097 4,175
- ----- ----- ----- ----- ----- ----- ----- -----
3,091 2,553 1,508 2,089 2,360 1,923 3,985 4,097
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
29
<PAGE> 33
KILICO VARIABLE SEPARATE ACCOUNT
NOTES TO 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, a wholly-owned subsidiary of Kemper Corporation, was acquired by an
investor group led by Zurich Insurance Company ("Zurich") on January 4, 1996.
The Separate Account receives and invests premiums under certain variable
life insurance policies ("Policy"). The Separate Account is divided into five
Subaccounts and each Subaccount invests exclusively in a corresponding Portfolio
of the Investors Fund Series (The "Fund"), an open-end diversified management
investment company. The Fund has added additional Subaccounts, which are not
available investment vehicles to certain policy owners of the Separate Account.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and liabilities as
well as the disclosure of contingent amounts at the date of the financial
statements. As a result, actual results reported as income and expenses could
differ from the estimates reported in the accompanying financial statements.
SECURITY VALUATION
The investments are stated at current value which is based on the closing
bid price, net asset value, at December 31, 1996.
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.
30
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF INVESTMENTS
Investments, at cost, at December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
------ -------
<S> <C> <C>
INVESTMENT PORTFOLIO
Kemper Investors Fund Money Market Portfolio.............. 1,038 $ 1,038
Kemper Investors Fund Total Return Portfolio.............. 1,100 2,598
Kemper Investors Fund High Yield Portfolio................ 1,177 1,425
Kemper Investors Fund Growth Portfolio.................... 700 2,175
Kemper Investors Fund Government Securities Portfolio..... 3,304 3,684
-------
TOTAL INVESTMENTS.................................... $10,920
=======
</TABLE>
The underlying investments are summarized below.
MONEY MARKET PORTFOLIO: This Portfolio invests primarily in short-term
obligations of major banks and corporations.
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).
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.
GROWTH 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).
GOVERNMENT SECURITIES PORTFOLIO: This Portfolio invests primarily in U.S.
Government Securities. The Portfolio may also invest in fixed-income securities
other than U.S. Government securities and may engage in options and financial
futures transactions.
(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 $131,500 and $1,900 for the Select and
Power V Variable Universal Life products, respectively for the year ended
December 31, 1996. 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, 1996, KILICO received contingent deferred sales charges of approximately
$27,800 and $0 for the Select and Power V Variable Universal Life products,
respectively.
Zurich Kemper Investments, Inc. ("ZKI"), formerly Kemper Financial
Services, Inc., 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 ZKI.
31
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) POLICY OWNERS' EQUITY
Policy owners' equity at December 31, 1996 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>
SELECT SUBACCOUNT
Money Market Subaccount..................................... 627 $1.567 $ 982
Total Return Subaccount..................................... 1,477 2.093 3,091
High Yield Subaccount....................................... 682 2.211 1,508
Growth Subaccount........................................... 846 2.789 2,360
Government Securities Subaccount............................ 2,137 1.864 3,985
-------
TOTAL SELECT POLICY OWNERS' EQUITY.......................... $11,926
=======
</TABLE>
<TABLE>
<CAPTION>
NUMBER POLICY
OF UNIT OWNERS'
UNITS VALUE EQUITY
------ ----- -------
<S> <C> <C> <C>
POWER V SUBACCOUNT
Money Market Subaccount..................................... 55 $1.010 $ 55
Total Return Subaccount..................................... -- 1.205 --
High Yield Subaccount....................................... -- 2.809 --
Growth Subaccount........................................... -- 3.364 --
Government Securities Subaccount............................ -- 1.278 --
TOTAL POWER V POLICY OWNERS' EQUITY......................... $ 55
=======
</TABLE>
32
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder
Kemper Investors Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Kemper
Investors Life Insurance Company and subsidiaries as of December 31, 1996 and as
of January 4, 1996, and the related consolidated statements of operations,
stockholder's equity, and cash flows for the periods from January 4, 1996 to
December 31, 1996 (post-acquisition), and for each of the years in the two-year
period ended December 31, 1995 (pre-acquisition). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned post-acquisition consolidated financial
statements present fairly, in all material respects, the financial position of
Kemper Investors Life Insurance Company and subsidiaries as of December 31, 1996
and as of January 4, 1996, and the results of their operations and their cash
flows for the post-acquisition period, in conformity with generally accepted
accounting principles. Further, in our opinion, the aforementioned
pre-acquisition consolidated financial statements present fairly, in all
material respects, the financial position of Kemper Investors Life Insurance
Company and subsidiaries and the results of their operations and their cash
flows for the pre-acquisition periods, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 4, 1996, an investor group as described in Note 1, acquired all of the
outstanding stock of Kemper Investors Life Insurance Company in a business
combination accounted for as a purchase. As a result of the acquisition, the
consolidated financial information for the periods after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, is not comparable.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997
33
<PAGE> 37
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
1996 1996
----------- ----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value (cost:
December 31, 1996, $3,929,650; January 4, 1996,
$3,749,323)............................................... $3,866,431 $3,749,323
Short-term investments...................................... 71,696 372,515
Joint venture mortgage loans................................ 110,971 110,194
Third-party mortgage loans.................................. 106,585 144,450
Other real estate-related investments....................... 50,157 34,296
Policy loans................................................ 288,302 289,390
Other invested assets....................................... 23,507 19,215
---------- ----------
Total investments................................. 4,517,649 4,719,383
Cash........................................................ 2,776 25,811
Accrued investment income................................... 115,199 104,402
Goodwill.................................................... 244,688 254,883
Value of business acquired.................................. 189,639 190,222
Deferred insurance acquisition costs........................ 26,811 --
Federal income tax receivable............................... 3,840 112,646
Reinsurance recoverable..................................... 427,165 502,836
Receivable on sales of securities........................... 32,569 902
Other assets and receivables................................ 30,277 10,540
Assets held in separate accounts............................ 2,127,247 1,761,110
---------- ----------
Total assets...................................... $7,717,860 $7,682,735
========== ==========
LIABILITIES
Future policy benefits...................................... $4,256,521 $4,585,148
Ceded future policy benefits................................ 427,165 502,836
Benefits and claims payable to policyholders................ 36,142 4,535
Other accounts payable and liabilities...................... 59,462 30,030
Deferred income taxes....................................... 60,362 53,472
Liabilities related to separate accounts.................... 2,127,247 1,761,110
---------- ----------
Total liabilities................................. 6,966,899 6,937,131
---------- ----------
Commitments and contingent liabilities
STOCKHOLDER'S EQUITY
Capital stock--$10 par value,
authorized 300,000 shares; outstanding 250,000 shares..... 2,500 2,500
Additional paid-in capital.................................. 761,538 743,104
Unrealized loss on investments.............................. (47,498) --
Retained earnings........................................... 34,421 --
---------- ----------
Total stockholder's equity........................ 750,961 745,604
---------- ----------
Total liabilities and stockholder's equity........ $7,717,860 $7,682,735
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 38
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
PREACQUISITION
----------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
REVENUE
Net investment income....................................... $299,688 $ 348,448 $353,084
Realized investment gains (losses).......................... 13,602 (318,700) (54,557)
Premium income.............................................. 7,822 236 --
Fees and other income....................................... 35,095 38,101 31,950
-------- --------- --------
Total revenue..................................... 356,207 68,085 330,477
-------- --------- --------
BENEFITS AND EXPENSES
Benefits and interest credited to policyholders............. 237,349 245,615 248,494
Commissions, taxes, licenses and fees....................... 28,135 31,793 26,910
Operating expenses.......................................... 24,678 20,837 25,324
Deferral of insurance acquisition costs..................... (27,820) (36,870) (31,852)
Amortization of insurance acquisition costs................. 2,316 14,423 20,809
Amortization of value of business acquired.................. 21,530 -- --
Amortization of goodwill.................................... 10,195 -- --
-------- --------- --------
Total benefits and expenses....................... 296,383 275,798 289,685
-------- --------- --------
Income (loss) before income tax expense (benefit)........... 59,824 (207,713) 40,792
Income tax expense (benefit)................................ 25,403 (74,664) 14,431
-------- --------- --------
Net income (loss)................................. $ 34,421 $(133,049) $ 26,361
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 39
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
PREACQUISITION
-------------------------
DECEMBER 31 JANUARY 4 DECEMBER 31 DECEMBER 31
1996 1996 1995 1994
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
CAPITAL STOCK, beginning and end of period.... $ 2,500 $ 2,500 $ 2,500 $ 2,500
-------- -------- --------- ---------
ADDITIONAL PAID-IN CAPITAL, beginning of
period...................................... 743,104 491,994 491,994 409,423
Capital contributions from parent............. 18,434 -- -- 82,500
Adjustment to reflect purchase accounting
method...................................... -- 251,110 -- --
Transfer of limited partnership interest to
parent...................................... -- -- -- 71
-------- -------- --------- ---------
End of period....................... 761,538 743,104 491,994 491,994
-------- -------- --------- ---------
UNREALIZED GAIN (LOSS) ON INVESTMENTS,
beginning of period......................... -- 68,502 (236,443) 93,096
Unrealized gain (loss) on revaluation of
investments, net............................ (47,498) -- 304,945 (329,539)
Adjustment to reflect purchase accounting
method...................................... -- (68,502) -- --
-------- -------- --------- ---------
End of period....................... (47,498) -- 68,502 (236,443)
-------- -------- --------- ---------
RETAINED EARNINGS, beginning of period........ -- 42,880 175,929 149,568
Net income (loss)............................. 34,421 -- (133,049) 26,361
Adjustment to reflect purchase accounting
method...................................... -- (42,880) -- --
-------- -------- --------- ---------
End of period....................... 34,421 -- 42,880 175,929
-------- -------- --------- ---------
Total stockholder's equity.......... $750,961 $745,604 $ 605,876 $ 433,980
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 40
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
PREACQUISITION
-------------------------
1996 1995 1994
----------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................... $ 34,421 $(133,049) $ 26,361
Reconcilement of net income (loss) to net cash
provided:
Realized investment losses (gains)............... (13,602) 318,700 54,557
Interest credited and other charges.............. 230,298 237,984 242,591
Deferred insurance acquisition costs............. (25,504) (22,447) (11,043)
Amortization of value of business acquired....... 21,530 -- --
Amortization of goodwill......................... 10,195 -- --
Amortization of discount and premium on
investments.................................... 25,743 4,586 (1,383)
Deferred income taxes............................ (897) 38,423 20,809
Net change in Federal income tax receivable...... 108,806 (86,990) 809
Other, net....................................... (22,283) (29,905) (14,161)
----------- --------- -----------
Net cash provided from operating
activities................................ 368,707 327,302 318,540
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity................ 264,383 320,143 144,717
Fixed maturities sold prior to maturity.......... 891,995 297,637 910,913
Mortgage loans, policy loans and other invested
assets......................................... 168,727 450,573 536,668
Cost of investments purchased or loans originated:
Fixed maturities................................. (1,369,091) (549,867) (1,447,393)
Mortgage loans, policy loans and other invested
assets......................................... (119,044) (131,966) (281,059)
Short-term investments, net......................... 300,819 (168,351) 198,299
Net change in receivable and payable for securities
transactions..................................... (31,667) (1,397) (16,553)
Net reductions in other assets...................... 105 1,996 2,678
----------- --------- -----------
Net cash provided by investing activities... 106,237 218,768 48,270
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits......................................... 141,159 247,778 215,034
Withdrawals...................................... (700,084) (755,917) (652,513)
Capital contributions from parent................... 18,434 -- 82,500
Other............................................... 42,512 (35,309) 3,871
----------- --------- -----------
Net cash used in financing activities....... (497,979) (543,448) (351,108)
----------- --------- -----------
Net increase (decrease) in cash........ (23,035) 2,622 15,702
CASH, beginning of period............................. 25,811 23,189 7,487
----------- --------- -----------
CASH, end of period................................... $ 2,776 $ 25,811 $ 23,189
=========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 41
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Kemper Investors Life Insurance Company and subsidiaries (the "Company")
issues fixed and variable annuity products, variable life, term life and
interest-sensitive life insurance products marketed primarily through a network
of financial institutions, securities brokerage firms, insurance agents and
financial planners. The Company is licensed in the District of Columbia and all
states except New York. The Company is a wholly-owned subsidiary of Kemper
Corporation ("Kemper"). On January 4, 1996, an investor group comprised of
Zurich Insurance Company ("Zurich"), Insurance Partners, L.P. ("IP") and
Insurance Partners Offshore (Bermuda), L.P. (together with IP, "Insurance
Partners") acquired all of the issued and outstanding common stock of Kemper. As
a result of the change in control, Zurich and Insurance Partners own 80 percent
and 20 percent, respectively, of Kemper and therefore the Company.
The financial statements include the accounts of the Company on a
consolidated basis. All significant intercompany balances and transactions have
been eliminated.
PURCHASE ACCOUNTING METHOD
The acquisition of the Company on January 4, 1996, was accounted for using
the purchase method of accounting. The consolidated financial statements of the
Company prior to January 4, 1996, were prepared on a historical cost basis in
accordance with generally accepted accounting principles. The accompanying
financial statements and notes thereto prepared prior to January 4, 1996 have
been labeled "preacquisition". The accompanying consolidated financial
statements of the Company as of January 4, 1996 (the acquisition date) and as of
and for the year ended December 31, 1996, have been prepared in conformity with
the purchase method of accounting. The Company has presented January 4, 1996
(the acquisition date), as the opening purchase accounting balance sheet for
comparative purposes throughout the accompanying financial statements and notes
thereto.
Under purchase accounting, the Company's assets and liabilities have been
marked to their relative fair market values as of the acquisition date. The
difference between the cost of acquiring the Company and the net fair market
values of the Company's assets and liabilities as of the acquisition date has
been recorded as goodwill. The Company is amortizing goodwill on a straight-line
basis over twenty-five years. The allocated cost of acquiring the Company was
$745.6 million and the acquisition resulted in goodwill of $254.9 million as of
January 4, 1996.
The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding goodwill
as of each reporting period. In the event that the Company determines that
goodwill is not recoverable, it would amortize such amounts as additional
goodwill expense in the accompanying financial statements. As of December 31,
1996, the Company believes that no such adjustment is necessary.
Purchase accounting adjustments primarily affected the recorded historical
values of fixed maturities, mortgage loans, other invested assets, deferred
insurance acquisition costs, future policy benefits and deferred income taxes.
Deferred insurance acquisition costs, and the related amortization thereof,
for policies sold prior to January 4, 1996, have been replaced by the value of
business acquired.
The value of business acquired reflects the estimated fair value of the
Company's life insurance business in force and represents the portion of the
cost to acquire the Company that is allocated to the value of the right to
receive future cash flows from insurance contracts existing at the date of
acquisition. Such value is the present value of the actuarially determined
projected cash flows for the acquired policies.
A 15 percent discount rate was used to determine such value and represents
the rate of return required by Zurich and Insurance Partners to invest in the
business being acquired. In selecting the rate of return used to value the
policies purchased, the Company considered the magnitude of the risks associated
with each of the actuarial assumptions used in determining expected future cash
flows, the cost of capital available to fund the acquisition, the perceived
likelihood of changes in insurance regulations and tax laws, the complexity of
the Company's business, and the prices paid (i.e., discount rates used in
determining other life insurance company valuations) on similar blocks of
business sold in recent periods.
38
<PAGE> 42
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The value of the business acquired is amortized over the estimated contract
life of the business acquired in relation to the present value of estimated
gross profits using current assumptions based on an interest rate equal to the
liability or contract rate on the value of business acquired. The estimated
amortization and accretion of interest for the value of business acquired for
each of the years through December 31, 2001 are as follows:
<TABLE>
<CAPTION>
PROJECTED
(IN THOUSANDS) BEGINNING ACCRETION OF ENDING
YEAR ENDED DECEMBER 31 BALANCE AMORTIZATION INTEREST BALANCE
- ----------------------------------------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1996........................................... $190,222 $(31,427) $ 9,897 $168,692
1997........................................... 168,692 (26,330) 10,152 152,514
1998........................................... 152,514 (26,769) 9,085 134,830
1999........................................... 134,830 (26,045) 8,000 116,785
2000........................................... 116,785 (24,288) 6,834 99,331
2001........................................... 99,331 (21,538) 5,867 83,660
</TABLE>
The projected ending balance of the value of business acquired will be
further adjusted to reflect the impact of unrealized gains or losses on fixed
maturities held as available for sale in the investment portfolio. Such
adjustments are not recorded in the Company's net income but rather are recorded
as a credit or charge to stockholder's equity, net of income tax. As of December
31, 1996, this adjustment increased the value of business acquired and
stockholder's equity by approximately $20.9 million and $13.6 million,
respectively.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and liabilities as
well as the disclosure of contingent assets or liabilities at the date of the
financial statements. As a result, actual results reported as revenue and
expenses could differ from the estimates reported in the accompanying financial
statements. As further discussed in the accompanying notes to the consolidated
financial statements, significant estimates and assumptions affect deferred
insurance acquisition costs, the value of business acquired, provisions for real
estate-related losses and reserves, other-than-temporary declines in values for
fixed maturities, the valuation allowance for deferred income taxes and the
calculation of fair value disclosures for certain financial instruments.
LIFE INSURANCE REVENUE AND EXPENSES
Revenue for annuities and interest-sensitive life insurance products
consists of investment income, and policy charges such as mortality, expense and
surrender charges. Expenses consist of benefits and interest credited to
contracts, policy maintenance costs and amortization of deferred insurance
acquisition costs. Also reflected in fees and other income is a ceding
commission experience adjustment received in 1995 as a result of certain
reinsurance transactions entered into by the Company during 1992. (See note
captioned "Reinsurance".)
Premiums for term life policies are reported as earned when due. Profits
for such policies are recognized over the duration of the insurance policies by
matching benefits and expenses to premium income.
DEFERRED INSURANCE ACQUISITION COSTS
The costs of acquiring new business after January 4, 1996, principally
commission expense and certain policy issuance and underwriting expenses, have
been deferred to the extent they are recoverable from estimated future gross
profits on the related contracts and policies. The deferred insurance
acquisition costs for annuities, separate account business and
interest-sensitive life insurance products are being amortized over the
estimated contract life in relation to the present value of estimated gross
profits. Deferred insurance acquisition costs related to such interest-sensitive
products also reflect the estimated impact of unrealized gains or losses on
fixed maturities held as available for sale in the investment portfolio, through
a credit or charge to stockholder's equity, net of income tax. The deferred
insurance acquisition costs for term-life insurance products are being amortized
over the premium paying period of the policies.
39
<PAGE> 43
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE POLICY BENEFITS
Liabilities for future policy benefits related to annuities and
interest-sensitive life contracts reflect net premiums received plus interest
credited during the contract accumulation period and the present value of future
payments for contracts that have annuitized. Current interest rates credited
during the contract accumulation period range from 4.0 percent to 7.5 percent.
Future minimum guaranteed interest rates vary from 3.0 percent to 4.5 percent.
For contracts that have annuitized, interest rates used in determining the
present value of future payments range principally from 3.0 percent to 12.0
percent.
Liabilities for future term life policy benefits have been computed
principally by a net level premium method. Anticipated rates of mortality are
based on the 1975-1980 Select and Ultimate Table modified by Company experience,
including withdrawals. Estimated future investment yields are a level 7 percent
for reinsurance assumed and for direct business, 8 percent for three years; 7
percent for year four; and 6 percent thereafter.
INVESTED ASSETS AND RELATED INCOME
Investments in fixed maturities are carried at fair value. Short-term
investments are carried at cost, which approximates fair value. (See note
captioned "Fair Value of Financial Instruments".)
The amortized cost of fixed maturities is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed and asset-backed securities, over the estimated life of the
security. Such amortization is included in net investment income. Amortization
of the discount or premium from mortgage-backed and asset-backed securities is
recognized using a level effective yield method which considers the estimated
timing and amount of prepayments of the underlying loans and is adjusted to
reflect differences which arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated. To the extent
that the estimated lives of such securities change as a result of changes in
prepayment rates, the adjustment is also included in net investment income. The
Company does not accrue interest income on fixed maturities deemed to be
impaired on an other-than-temporary basis, or on mortgage loans, real estate-
related bonds and other real estate loans where the likelihood of collection of
interest is doubtful.
Mortgage loans are carried at their unpaid balance, net of unamortized
discount and any applicable reserves or write-downs. Other real estate-related
investments net of any applicable reserve and write-downs include notes
receivable from real estate ventures; investments in real estate ventures,
adjusted for the equity in the operating income or loss of such ventures; common
stock carried at fair value and real estate owned carried at fair value.
Real estate reserves are established when declines in collateral values,
estimated in light of current economic conditions and calculated in conformity
with Statement of Financial Accounting Standards ("SFAS") 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN, indicate a likelihood of loss. At year-end
1995, reflecting the Company's change in strategy with respect to its real
estate portfolio, and the disposition thereof, and on January 4, 1996,
reflecting the acquisition of the Company, real estate-related investments were
valued using an estimate of the investments observable market price, net of
estimated costs to sell. Prior to year-end 1995, the Company evaluated its real
estate-related assets (including accrued interest) by estimating the
probabilities of loss utilizing various projections that included several
factors relating to the borrower, property, term of the loan, tenant
composition, rental rates, other supply and demand factors and overall economic
conditions. Generally, at that time, the reserve was based upon the excess of
the loan amount over the estimated future cash flows from the loan, discounted
at the loan's contractual rate of interest taking into consideration the effects
of recourse to, and subordination of loans held by, affiliated non-life realty
companies.
Under purchase accounting, the market value of the Company's policy loans
and other invested assets consisting primarily of venture capital investments
and a leveraged lease, became the Company's new cost basis in such investments.
Investments in policy loans and other invested assets after January 4, 1996 are
carried at cost. Other invested assets also include equity securities, not
related to real estate-related investments, which are carried at fair value.
Realized gains or losses on sales of investments, determined on the basis
of identifiable cost on the disposition of the respective investment,
recognition of other-than-temporary declines in value and changes in real
estate-related reserves and write-downs are included in revenue. Net unrealized
gains or losses on revaluation of
40
<PAGE> 44
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investments are credited or charged to stockholder's equity. Such unrealized
gains are recorded net of deferred income tax expense, while unrealized losses
are not tax benefitted.
SEPARATE ACCOUNT BUSINESS
The assets and liabilities of the separate accounts represent segregated
funds administered and invested by the Company for purposes of funding variable
annuity and variable life insurance contracts for the exclusive benefit of
variable annuity and variable life insurance contract holders. The Company
receives administrative fees from the separate account and retains varying
amounts of withdrawal charges to cover expenses in the event of early
withdrawals by contract holders. The assets and liabilities of the separate
accounts are carried at fair value.
INCOME TAX
The operations of the Company prior to January 4, 1996 have been included
in the consolidated Federal income tax return of Kemper. Income taxes receivable
or payable have been determined on a separate return basis, and payments have
been received from or remitted to Kemper pursuant to a tax allocation
arrangement between Kemper and its subsidiaries, including the Company. The
Company generally had received a tax benefit for losses to the extent such
losses can be utilized in Kemper's consolidated Federal tax return. Subsequent
to January 4, 1996, the Company and its subsidiaries will file separate Federal
income tax returns.
Deferred taxes are provided on the temporary differences between the tax
and financial statement basis of assets and liabilities.
(2) CASH FLOW INFORMATION
The Company defines cash as cash in banks and money market accounts.
Federal income tax refunded by Kemper under the tax allocation arrangement for
the period from January 1, 1996 to January 4, 1996 and for the years ended
December 31, 1995 and 1994 amounted to $108.8 million, $25.2 million and $10.7
million, respectively. The Company paid $28.1 million of Federal income taxes
directly to the United States Treasury Department during 1996.
Not reflected in the statement of cash flows are rollovers of mortgage
loans, other loans and investments totaling approximately $57.0 million in 1994.
41
<PAGE> 45
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME
The Company is carrying its fixed maturity investment portfolio at
estimated fair value as fixed maturities are considered available for sale. The
carrying value (estimated fair value) of fixed maturities compared with
amortized cost, adjusted for other-than-temporary declines in value, were as
follows:
<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
CARRYING AMORTIZED ---------------------
VALUE COST GAINS LOSSES
(in thousands) -------- --------- ----- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 92,238 $ 93,202 $ -- $ (964)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 30,853 31,519 -- (666)
Debt securities issued by foreign governments.......... 105,394 108,456 504 (3,566)
Corporate securities................................... 1,896,615 1,935,511 5,918 (44,814)
Mortgage and asset-backed securities................... 1,741,331 1,760,962 1,990 (21,621)
---------- ---------- ------ --------
Total fixed maturities.......................... $3,866,431 $3,929,650 $8,412 $(71,631)
========== ========== ====== ========
JANUARY 4, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 215,637 $ 215,637 $ -- $ --
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 24,241 24,241 -- --
Debt securities issued by foreign governments.......... 139,361 139,361 -- --
Corporate securities................................... 1,695,268 1,695,268 -- --
Mortgage and asset-backed securities................... 1,674,816 1,674,816 -- --
---------- ---------- ------ --------
Total fixed maturities.......................... $3,749,323 $3,749,323 $ -- $ --
========== ========== ====== ========
</TABLE>
Upon default or indication of potential default by an issuer of fixed
maturity securities, the Company-owned issue(s) of such issuer would be placed
on nonaccrual status and, since declines in fair value would no longer be
considered by the Company to be temporary, would be analyzed for possible
write-down. Any such issue would be written down to its net realizable value
during the fiscal quarter in which the impairment was determined to have become
other than temporary. Thereafter, each issue on nonaccrual status is regularly
reviewed, and additional write-downs may be taken in light of later
developments.
The Company's computation of net realizable value involves judgments and
estimates, so such value should be used with care. Such value determination
considers such factors as the existence and value of any collateral security;
the capital structure of the issuer; the level of actual and expected market
interest rates; where the issue ranks in comparison with other debt of the
issuer; the economic and competitive environment of the issuer and its business;
the Company's view on the likelihood of success of any proposed issuer
restructuring plan; and the timing, type and amount of any restructured
securities that the Company anticipates it will receive.
The Company's $267.7 million real estate portfolio at December 31, 1996
consists of joint venture and third-party mortgage loans and other real
estate-related investments.
At December 31, 1996 and January 4, 1996, total impaired loans were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
1996 1996
(in millions) ----------- ---------
<S> <C> <C>
Impaired loans without reserves--gross...................... $39.8 $--
Impaired loans with reserves--gross......................... 7.6 21.9
----- -----
Total gross impaired loans........................... 47.4 21.9
Reserves related to impaired loans.......................... (4.4) (6.5)
----- -----
Net impaired loans................................... $43.0 $15.4
===== =====
</TABLE>
42
<PAGE> 46
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
Impaired loans without reserves include loans in which the deficit in
equity investments in real estate-related investments is considered in
determining reserves and write-downs. At December 31, 1996, the Company's
deficit in equity investments considered in determining reserves and write-downs
amounted to $5.9 million. The Company had an average balance of $30.8 million
and $124.2 million in impaired loans for 1996 and 1995, respectively. Cash
payments received on impaired loans are generally applied to reduce the
outstanding loan balance.
At December 31, 1996 and January 4, 1996, loans on nonaccrual status
amounted to $43.5 million and $3.5 million, respectively. The Company's
nonaccrual loans are generally included in impaired loans.
At December 31, 1996, securities carried at approximately $6.1 million were
on deposit with governmental agencies as required by law.
At December 31, 1996, the Company had six separate asset-backed securities
included in fixed maturity investments from trusts formed to securitize assets
underwritten by Green Tree Financial Corporation, which in aggregate amounted to
$90.7 million. No other investments exceeded ten percent of the Company's
stockholder's equity at December 31, 1996.
Proceeds from sales of investments in fixed maturities prior to maturity
were $892.0 million, $297.6 million and $910.9 million during 1996, 1995 and
1994, respectively. Gross gains of $9.9 million, $21.2 million and $6.0 million
and gross losses of $16.2 million, $11.9 million and $55.9 million were realized
on sales of fixed maturities in 1996, 1995 and 1994, respectively.
The following table sets forth the maturity aging schedule of fixed
maturity investments at December 31, 1996:
<TABLE>
<CAPTION>
CARRYING AMORTIZED
VALUE COST VALUE
(in thousands) -------- ----------
<S> <C> <C>
One year or less............................................ $ 36,814 $ 36,862
Over one year through five.................................. 643,741 648,811
Over five years through ten................................. 1,170,034 1,200,620
Over ten years.............................................. 274,511 282,395
Securities not due at a single maturity date(1)............. 1,741,331 1,760,962
---------- ----------
Total fixed maturities............................... $3,866,431 $3,929,650
========== ==========
</TABLE>
- ---------------
(1) Weighted average maturity of 4.6 years.
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
PREACQUISITION
-----------------------
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities.................. $250,683 $269,934 $274,231
Dividends on equity securities.............................. 646 681 1,751
Income from short-term investments.......................... 9,130 13,159 10,668
Income from mortgage loans.................................. 20,257 40,494 41,713
Income from policy loans.................................... 20,700 19,658 18,517
Income from other real estate-related investments........... 4,917 15,565 21,239
Income from other loans and investments..................... 2,480 1,555 3,533
-------- -------- --------
Total investment income.............................. 308,813 361,046 371,652
Investment expense.......................................... (9,125) (12,598) (18,568)
-------- -------- --------
Net investment income................................ $299,688 $348,448 $353,084
======== ======== ========
</TABLE>
43
<PAGE> 47
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
Realized gains (losses) for the years ended December 31, 1996, 1995 and
1994, were as follows:
<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
------------------------------------------
PREACQUISITION
--------------------------
1996 1995 1994
(in thousands) ------- --------- --------
<S> <C> <C> <C>
Real estate-related......................................... $17,462 $(325,611) $(41,720)
Fixed maturities............................................ (6,344) 9,336 (49,857)
Equity securities........................................... -- (346) 28,243
Other....................................................... 2,484 (2,079) 8,777
------- --------- --------
Realized investment gains (losses) before income tax
expense (benefit)...................................... 13,602 (318,700) (54,557)
Income tax expense (benefit)................................ 4,761 (111,545) (19,095)
------- --------- --------
Net realized investment gains (losses).................... $ 8,841 $(207,155) $(35,462)
======= ========= ========
</TABLE>
Unrealized gains (losses) are computed below as follows: fixed
maturities--the difference between fair value and amortized cost, adjusted for
other-than-temporary declines in value; equity securities and other--the
difference between fair value and cost. The change in unrealized investment
gains (losses) by class of investment for the years ended December 31, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED GAINS (LOSSES)
------------------------------------------------
PREACQUISITION
--------------------
DECEMBER 31
DECEMBER 31 JANUARY 4 --------------------
1996 1996 1995 1994
(in thousands) ------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
Fixed maturities................................... $(63,219) $-- $351,964 $(351,646)
Equity securities.................................. 1,256 -- 180 (32,710)
Adjustment to deferred insurance acquisition
costs............................................ 1,307 -- (14,277) 11,325
Adjustment to value of business acquired........... 20,947 -- -- --
-------- --- -------- ---------
Unrealized gain (loss) before income tax expense
(benefit)..................................... (39,709) -- 337,867 (373,031)
Income tax expense (benefit)....................... 7,789 -- 32,922 (43,492)
-------- --- -------- ---------
Net unrealized gain (loss) on investments... $(47,498) $-- $304,945 $(329,539)
======== === ======== =========
</TABLE>
(4) UNCONSOLIDATED INVESTEES
At December 31, 1996, the Company, along with other Kemper subsidiaries,
directly held partnership interests in a number of real estate joint ventures.
The Company's direct and indirect real estate joint venture investments are
accounted for utilizing the equity method, with the Company recording its share
of the operating results of the respective partnerships. The Company, as an
equity owner, has the ability to fund, and historically has elected to fund,
operating requirements of certain of the joint ventures. Consolidation
accounting methods are not utilized as the Company, in most instances, does not
own more than 50 percent in the aggregate, and in any event, major decisions of
the partnership must be made jointly by all partners.
As of December 31, 1996 and January 4, 1996, the Company's net equity
investment in unconsolidated investees amounted to $11.7 million and $11.4
million, respectively. The Company's share of net income related to such
unconsolidated investees amounted to $223 thousand for the year ended December
31, 1996, compared with net losses of $453 thousand, and $6.3 million for the
years ended December 31, 1995 and 1994, respectively.
Also at January 4, 1996, the Company had joint venture-related loans
totaling $21.8 million before reserves to partnerships in which Lumbermens
Mutual Casualty Company, an affiliate until August 1993 ("Lumbermens"), had
equity interests. These joint venture-related loans were sold during 1996.
44
<PAGE> 48
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT AND INTEREST RATE RISK
The Company generally strives to maintain a diversified invested asset
portfolio; however, certain concentrations of risk exist in the Company's
ownership of mortgage-backed and asset-backed securities and real estate.
Approximately 36.4 percent of the Company's investment-grade fixed
maturities at December 31, 1996 were mortgage-backed securities, down from 45.7
percent at January 4, 1996, due to sales and paydowns during 1996. These
investments had an average yield of 6.83 percent during 1996 and consisted
primarily of marketable mortgage pass-through securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation and other
investment-grade securities collateralized by mortgage pass-through securities
issued by these entities. The Company has not made any investments in
interest-only or other similarly volatile tranches of mortgage-backed
securities. The Company's mortgage-backed investments are generally of AAA
credit quality, and the markets for these investments have been and are expected
to remain liquid. The Company plans to continue to reduce its holding of such
investments over time.
As a result of purchases during 1996, approximately 8.8 percent of the
Company's investment-grade fixed maturities at December 31, 1996 consisted of
corporate asset-backed securities. The majority of the Company's investments in
asset-backed securities were backed by manufactured housing loans, auto loans
and home equity loans.
Investment income was lower in 1996, compared with both 1995 and 1994,
primarily reflecting purchase accounting adjustments related to the amortization
of premiums on fixed maturity investments. Under purchase accounting, the market
value of the Company's fixed maturity investments as of January 4, 1996 became
the Company's new cost basis in such investments. The difference between the new
cost basis and original par is then amortized against investment income over the
remaining effective lives of the fixed maturity investments. As a result of the
interest rate environment as of January 4, 1996, the market value of the
Company's fixed maturity investments was approximately $133.9 million greater
than original par. The amortization of such premiums reduced investment income
by approximately $22.7 million in 1996, compared with 1995 and 1994.
Future investment income from mortgage-backed securities and other
asset-backed securities may be affected by the timing of principal payments and
the yields on reinvestment alternatives available at the time of such payments.
As a result of purchase accounting adjustments to fixed maturities, most of the
Company's mortgage-backed securities are carried at a premium over par.
Prepayment activity resulting from a decline in interest rates on such
securities purchased at a premium would accelerate the amortization of the
premiums which would result in reductions of investment income related to such
securities. At December 31, 1996, the Company had unamortized premiums and
discounts of $24.7 million and $5.7 million, respectively, related to
mortgage-backed and asset-backed securities. The Company believes that as a
result of the purchase accounting adjustments and the current interest rate
environment, anticipated prepayment activity is expected to result in reductions
to future investment income similar to those reductions experienced by the
Company in 1996.
The Company's real estate portfolio is distributed by geographic location
and property type, as shown in the following two tables:
GEOGRAPHIC DISTRIBUTION AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
California........................... 35.2%
Illinois............................. 13.5
Hawaii............................... 11.0
Colorado............................. 7.9
Oregon............................... 7.6
Washington........................... 7.4
Florida.............................. 5.4
Texas................................ 4.2
Ohio................................. 2.7
Other states......................... 5.1
-----
Total...................... 100.0%
=====
</TABLE>
DISTRIBUTION BY PROPERTY TYPE AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
Hotel................................ 38.8%
Land................................. 24.4
Office............................... 14.1
Residential.......................... 9.1
Retail............................... 2.6
Industrial........................... 1.0
Other................................ 10.0
-----
Total...................... 100.0%
=====
</TABLE>
45
<PAGE> 49
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Real estate markets have been depressed in recent periods in areas where
most of the Company's real estate portfolio is located. Portions of California's
and Hawaii's real estate market conditions have continued to be worse than in
many other areas of the country. Real estate markets in northern California and
Illinois continue to show some stabilization and improvement.
Undeveloped land represented approximately 24.4 percent of the Company's
real estate portfolio at December 31, 1996. To maximize the value of certain
land and other projects, additional development has been proceeding or has been
planned. Such development of existing projects would continue to require
funding, either from the Company or third parties. In the present real estate
markets, third-party financing can require credit enhancing arrangements (e.g.,
standby financing arrangements and loan commitments) from the Company. The
values of development projects are dependent on a number of factors, including
Kemper's and the Company's plans with respect thereto, obtaining necessary
construction and zoning permits and market demand for the permitted use of the
property. The values of certain development projects have been written down as
of December 31, 1995, reflecting changes in plans in connection with the
Zurich-led acquisition of Kemper. There can be no assurance that such permits
will be obtained as planned or at all, nor that such expenditures will occur as
scheduled, nor that Kemper's and the Company's plans with respect to such
projects may not change substantially.
Approximately half of the Company's real estate loans are on properties or
projects where the Company, Kemper, or their affiliates have taken ownership
positions in joint ventures with a small number of partners. (See note captioned
"Unconsolidated Investees".)
At December 31, 1996, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt"), have interests constituted
approximately $101.3 million, or 37.8 percent, of the Company's real estate
portfolio. The Nesbitt ventures primarily consist of eleven hotel properties. At
December 31, 1996, the Company did not have any Nesbitt-related
off-balance-sheet legal funding commitments outstanding.
At December 31, 1996, loans to and investments in a master limited
partnership (the "MLP") between subsidiaries of Kemper and subsidiaries of
Lumbermens, constituted approximately $53.0 million, or 19.8 percent, of the
Company's real estate portfolio. The Company's interest in the MLP is a less
than one percent limited partnership interest and Kemper's interest is 75
percent at December 31, 1996. At December 31, 1996, MLP-related commitments
accounted for approximately $9.4 million of the Company's off-balance-sheet
legal commitments, which the Company expects to fund.
At December 31, 1996, the Company's loans to and investments in projects
with the Prime Group, Inc. or its affiliates totaled approximately $(5.3)
million. Negative amounts represent the Company's share of project related
operating losses in excess of the Company's investment. Prime Group-related
commitments, however, accounted for $145.2 million of the off-balance-sheet
legal commitments at December 31, 1996, of which the Company expects to fund
$15.9 million.
(6) INCOME TAXES
Income tax expense (benefit) was as follows for the years ended December
31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
PREACQUISITION
----------------------
1996 1995 1994
(in thousands) ------- --------- -------
<S> <C> <C> <C>
Current.................................................... $26,300 $(113,087) $(6,898)
Deferred................................................... (897) 38,423 21,329
------- --------- -------
Total............................................ $25,403 $ (74,664) $14,431
======= ========= =======
</TABLE>
Included in the 1995 current tax benefit is the recognition of a net
operating loss carryover at December 31, 1995 which was utilized against taxable
income on Kemper's consolidated short-period Federal income tax return for the
January 1 through January 4, 1996 tax year. Beginning January 5, 1996, the
Company and its subsidiaries will each file a stand alone Federal income tax
return. Previously, the Company had filed a consolidated Federal income tax
return with Kemper. In 1996, the Company and Kemper settled all outstanding
balances under the tax allocation agreement.
46
<PAGE> 50
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
The actual income tax expense (benefit) for 1996, 1995 and 1994 differed
from the "expected" tax expense (benefit) for those years as displayed below.
"Expected" tax expense (benefit) was computed by applying the U.S. Federal
corporate tax rate of 35 percent in 1996, 1995, and 1994 to income (loss) before
income tax expense (benefit).
<TABLE>
<CAPTION>
PREACQUISITION
---------------------
1996 1995 1994
(in thousands) ------- -------- -------
<S> <C> <C> <C>
Computed expected tax expense (benefit)..................... $20,938 $(72,700) $14,277
Difference between "expected" and actual tax expense
(benefit):
State taxes............................................... 913 (1,370) 645
Amortization of goodwill.................................. 3,568 -- --
Foreign tax credit........................................ -- (183) (155)
Other, net................................................ (16) (411) (336)
------- -------- -------
Total actual tax expense (benefit)................ $25,403 $(74,664) $14,431
======= ======== =======
</TABLE>
Deferred tax assets and liabilities are generally determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company only records deferred tax
assets if future realization of the tax benefit is more likely than not, with a
valuation allowance recorded for the portion that is not likely to be realized.
The Company has established a valuation allowance to reduce the deferred
Federal tax asset related to real estate and other investments to the amount
that, based upon available evidence, is, in management's judgment, more likely
than not to be realized. Any reversals of the valuation allowance are contingent
upon the recognition of future capital gains in the Company's Federal income tax
return or a change in circumstances which causes the recognition of the benefits
to become more likely than not. The change in the valuation allowance is related
solely to the change in the net deferred Federal tax asset or liability from
unrealized gains or losses on investments.
47
<PAGE> 51
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred Federal tax liability were as follows:
<TABLE>
<CAPTION>
PREACQUISITION
---------------------
DECEMBER 31
DECEMBER 31 JANUARY 4 ---------------------
1996 1996 1995 1994
(in thousands) ----------- --------- --------- --------
<S> <C> <C> <C> <C>
Deferred Federal tax assets:
Unrealized losses on investments............. $ 16,624 $ -- $ -- $ 85,331
Life policy reserves......................... 46,452 46,654 42,512 51,519
Real estate-related.......................... 20,642 27,736 21,920 39,360
Other investment-related..................... 5,409 1,773 1,725 7,435
Other........................................ 8,159 9,750 6,864 6,415
-------- -------- --------- --------
Total deferred Federal tax assets......... 97,286 85,913 73,021 190,060
Valuation allowance.......................... (31,825) (15,201) (15,201) (100,532)
-------- -------- --------- --------
Total deferred Federal tax assets after
valuation allowance..................... 65,461 70,712 57,820 89,528
-------- -------- --------- --------
Deferred Federal tax liabilities:
Deferred insurance acquisition costs......... 9,384 -- 111,523 108,663
Value of business acquired................... 66,373 66,578 -- --
Other investment-related..................... 28,855 37,919 -- --
Unrealized gains on investments.............. -- -- 37,919 --
Depreciation and amortization................ 15,473 15,490 18,767 18,878
Other........................................ 5,738 4,197 2,320 3,351
-------- -------- --------- --------
Total deferred Federal tax liabilities.... 125,823 124,184 170,529 130,892
-------- -------- --------- --------
Net deferred Federal tax liabilities........... $(60,362) $(53,472) $(112,709) $(41,364)
======== ======== ========= ========
</TABLE>
The valuation allowance is subject to future adjustments based on, among
other items, the Company's estimates of future operating earnings and capital
gains.
The tax returns through the year 1986 have been examined by the Internal
Revenue Service ("IRS"). Changes proposed are not material to the Company's
financial position. The tax returns for the years 1987 through 1993 are
currently under examination by the IRS.
(7) RELATED-PARTY TRANSACTIONS
The Company received cash capital contributions of $18.4 million and $82.5
million during 1996 and 1994, respectively.
The Company has loans to joint ventures, consisting primarily of mortgage
loans on real estate, in which the Company and/or one of its affiliates has an
ownership interest. At December 31, 1996 and January 4, 1996, joint venture
mortgage loans totaled $111.0 million and $110.2 million, respectively, and
during 1996, 1995 and 1994, the Company earned interest income on these joint
venture loans of $9.5 million, $19.6 million and $22.0 million, respectively.
All of the Company's personnel are employees of Federal Kemper Life
Assurance Company ("FKLA"), an affiliated company. The Company is allocated
expenses for the utilization of FKLA employees and facilities, the investment
management services of Zurich Kemper Investments, Inc. ("ZKI"), an affiliated
company, and the information systems of Kemper Service Company ("KSvC"), a ZKI
subsidiary, based on the Company's share of administrative, legal, marketing,
investment management, information systems and operation and support services.
During 1996, 1995 and 1994, expenses allocated to the Company from ZKI and KSvC
amounted to $1.7 million, $4.4 million and $6.5 million, respectively. The
Company also paid to ZKI investment management fees of $3.6 million, $3.4
million and $6.0 million during 1996, 1995 and 1994, respectively. In addition,
expenses
48
<PAGE> 52
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) RELATED-PARTY TRANSACTIONS (CONTINUED)
allocated to the Company from FKLA during 1996, 1995 and 1994 amounted to $10.5
million, $14.3 million and $11.1 million, respectively.
During 1995 and 1994, the Company sold certain mortgages and real
estate-related investments, net of reserves, amounting to approximately $3.5
million and $154.0 million, respectively, to an affiliated non-life realty
company, in exchange for cash. No gain or loss was recognized on these sales.
During 1996, the Company purchased approximately $24.5 million of real
estate-related investments from such affiliated non-life realty subsidiaries for
cash. The Company also paid to Kemper real estate subsidiaries $1.8 million in
both 1996 and 1995, related to the management of the Company's real estate
portfolio.
(8) REINSURANCE
In the ordinary course of business, the Company enters into reinsurance
agreements to diversify risk and limit its overall financial exposure to certain
blocks of fixed-rate annuities and to individual death claims. The Company
generally cedes 100 percent of the related annuity liabilities under the terms
of the reinsurance agreements. Although these reinsurance agreements
contractually obligate the reinsurers to reimburse the Company, they do not
discharge the Company from its primary liabilities and obligations to
policyholders. As such, these amounts paid or deemed to have been paid are
recorded on the Company's consolidated balance sheet as reinsurance recoverables
and ceded future policy benefits.
In 1992 and 1991, the Company entered into 100 percent indemnity
reinsurance agreements ceding $515.7 million and $416.3 million, respectively,
of its fixed-rate annuity liabilities to FLA. FLA is a mutual insurance company
that shares common management and common board members with the Company, FKLA
and Kemper. As of December 31, 1996 and January 4, 1996, the reinsurance
recoverable related to the fixed-rate annuity liabilities ceded to FLA amounted
to $427.0 million and $502.8 million, respectively. During 1995, the Company
recorded income of $4.4 million related to a ceding commission experience
adjustment from the 1992 reinsurance agreement.
In December 1996, the Company assumed on a yearly renewable term basis
approximately $14.4 billion (face amount) of term life insurance from FKLA. As a
result of this transaction, the Company recorded premiums and reserves of
approximately $7.3 million. The difference between the cash transferred, which
represents the statutory reserves of the business assumed, and the reserves
recorded under generally accepted accounting principles, of approximately $18.4
million, was deemed to be a capital contribution from Kemper and was recorded as
additional paid-in-capital during 1996.
The Company's retention limit on term life insurance is $300 thousand (face
amount) on the life of any one individual with the excess amounts ceded to
outside reinsurers. The term life insurance business assumed from FKLA during
1996 did not have any individual contracts greater than $300 thousand in face
amount. Reserves ceded to outside reinsurers on the Company's direct business
amounted to approximately $94 thousand as of December 31, 1996.
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
FKLA sponsors a welfare plan that provides medical and life insurance
benefits to its retired and active employees and the Company is allocated a
portion of the costs of providing such benefits. The Company is self insured
with respect to medical benefits, and the plan is not funded except with respect
to certain disability-related medical claims. The medical plan provides for
medical insurance benefits at retirement, with eligibility based upon age and
the participant's number of years of participation attained at retirement. The
plan is contributory for pre-Medicare retirees, and will be contributory for all
retiree coverage for most current employees, with contributions generally
adjusted annually. Postretirement life insurance benefits are noncontributory
and are limited to $10,000 per participant.
The allocated accumulated postretirement benefit obligation accrued by the
Company amounted to $1.7 million and $687 thousand at December 31, 1996 and
January 4, 1996, respectively.
The discount rate used in determining the allocated postretirement benefit
obligation was 7.75 percent and 7.25 percent for 1996 and 1995, respectively.
The assumed health care trend rate used was based on projected
49
<PAGE> 53
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
experience for 1996 and 1997, 10 percent in 1998, gradually declining to 5.0
percent by the year 2001 and remaining at that level thereafter.
A one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of December 31, 1996 and January 4, 1996 by $56 thousand and $146 thousand,
respectively.
During 1995, the Company adopted certain severance-related policies to
provide benefits, generally limited in time, to former or inactive employees
after employment but before retirement. The effect of adopting these policies
was immaterial.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various legal actions for which it establishes
liabilities where appropriate. In the opinion of the Company's management, based
upon the advice of legal counsel, the resolution of such litigation is not
expected to have a material adverse effect on the consolidated financial
statements.
Although none of the Company or its joint venture projects have been
identified as a "potentially responsible party" under Federal environmental
guidelines, inherent in the ownership of or lending to real estate projects is
the possibility that environmental pollution conditions may exist on or near or
relate to properties owned or previously owned on properties securing loans.
Where the Company has presently identified remediation costs, they have been
taken into account in determining the cash flows and resulting valuations of the
related real estate assets. Based on the Company's receipt and review of
environmental reports on most of the projects in which it is involved, the
Company believes its environmental exposure would be immaterial to its
consolidated results of operations. However, the Company may be required in the
future to take actions to remedy environmental exposures, and there can be no
assurance that material environmental exposures will not develop or be
identified in the future. The amount of future environmental costs is impossible
to estimate due to, among other factors, the unknown magnitude of possible
exposures, the unknown timing and extent of corrective actions that may be
required, the determination of the Company's liability in proportion to others
and the extent such costs may be covered by insurance or various environmental
indemnification agreements.
See the note captioned "Financial Instruments--Off-Balance-Sheet Risk"
below for the discussion regarding the Company's loan commitments and standby
financing agreements.
The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during the years
1996 and prior. The Company's financial statements include provisions for all
known assessments that are expected to be levied against the Company as well as
an estimate of amounts (net of estimated future premium tax recoveries) that the
Company believes it will be assessed in the future for which the life insurance
industry has estimated the cost to cover losses to policyholders. The Company is
also contingently liable for any future guaranty fund assessments related to
insolvencies of unaffiliated insurance companies, for which the life insurance
industry has been unable to estimate the cost to cover losses to policyholders.
No specific amount can be reasonably estimated for such insolvencies as of
December 31, 1996.
(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK
At December 31, 1996, the Company had future legal loan commitments and
stand-by financing agreements totaling $197.4 million to support the financing
needs of various real estate investments. To the extent these arrangements are
called upon, amounts loaned would be secured by assets of the joint ventures,
including first mortgage liens on the real estate. The Company's criteria in
making these arrangements are the same as for its mortgage loans and other real
estate investments. The Company presently expects to fund approximately $39.6
million of these arrangements. These commitments are included in the Company's
analysis of real estate-related reserves and write-downs. The fair values of
loan commitments and standby financing agreements are estimated in conjunction
with and using the same methodology as the fair value estimates of mortgage
loans and other real estate-related investments.
50
<PAGE> 54
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) DERIVATIVE FINANCIAL INSTRUMENTS
The Company was party to derivative financial instruments in the normal
course of business for other than trading purposes to hedge exposures in foreign
currency fluctuations related to certain foreign fixed maturity securities held
by the Company. The Company sold its interest in such securities during 1996.
The following table summarizes various information regarding these derivative
financial instruments as of January 4, 1996:
<TABLE>
<CAPTION>
WEIGHTED
(IN THOUSANDS) WEIGHTED AVERAGE
AVERAGE REPRICING
NOTIONAL CARRYING ESTIMATED YEARS TO FREQUENCY
JANUARY 4, 1996 AMOUNT VALUE FAIR VALUE EXPIRATION (DAYS)
--------------- -------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Non-trading foreign exchange forward options................ $43,754 $112 $112 .32 30
</TABLE>
The Company's hedges relating to foreign currency exposure were implemented
using forward contracts on foreign currencies. These are generally
short-duration contracts with U.S. money-center banks. The Company records
realized and unrealized gains and losses on such investments in net income on a
current basis. The amounts of gain (loss) included in net income during 1996,
1995 and 1994 totaled $227 thousand, $(1.0) million and $6.4 million,
respectively.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at specific points in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. A significant portion of the Company's financial instruments are
carried at fair value. (See note captioned "Invested Assets and Related
Income".) Fair value estimates for financial instruments not carried at fair
value are generally determined using discounted cash flow models and assumptions
that are based on judgments regarding current and future economic conditions and
the risk characteristics of the investments. Although fair value estimates are
calculated using assumptions that management believes are appropriate, changes
in assumptions could significantly affect the estimates and such estimates
should be used with care.
Fair value estimates are determined for existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and certain liabilities that are not
considered financial instruments. Accordingly, the aggregate fair value
estimates presented do not represent the underlying value of the Company. For
example, the Company's subsidiaries are not considered financial instruments,
and their value has not been incorporated into the fair value estimates. In
addition, tax ramifications related to the realization of unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Fixed maturities and equity securities: Fair values for fixed maturity
securities and for equity securities were determined by using market quotations,
or independent pricing services that use prices provided by market makers or
estimates of fair values obtained from yield data relating to instruments or
securities with similar characteristics, or fair value as determined in good
faith by the Company's portfolio manager, ZKI.
Cash and short-term investments: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate fair values.
Mortgage loans and other real estate-related investments: Fair values for
mortgage loans and other real estate-related investments were estimated based
upon the investments observable market price, net of estimated costs to sell.
The estimates of fair value should be used with care given the inherent
difficulty of estimating the fair value of real estate due to the lack of a
liquid quotable market.
Other loans and investments: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate fair values. The
fair values of policy loans were estimated by discounting the expected future
cash flows using an interest rate charged on policy loans for similar policies
currently being issued.
Life policy benefits: Fair values of the life policy benefits regarding
investment contracts (primarily deferred annuities) and universal life contracts
were estimated by discounting gross benefit payments, net of contractual
premiums, using the average crediting rate currently being offered in the
marketplace for similar contracts with
51
<PAGE> 55
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
maturities consistent with those remaining for the contracts being valued. The
Company had projected its future average crediting rate in 1996 to be 4.75
percent, while the assumed average market crediting rate was 5.8 percent in
1996.
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1996 and January 4, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JANUARY 4, 1996
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities(1)........................... $3,866,431 $3,866,431 $3,749,323 $3,749,323
Cash and short-term investments............... 74,472 74,472 398,326 398,326
Mortgage loans and other real estate-related
assets..................................... 267,713 267,713 288,940 288,940
Policy loans.................................. 288,302 288,302 289,390 289,390
Other invested assets......................... 23,507 23,507 19,215 19,215
Financial instruments recorded as liabilities:
Life policy benefits.......................... 4,249,264 4,101,588 4,585,148 4,585,148
</TABLE>
- ---------------
(1) Includes $112 thousand carrying value and fair value for January 4, 1996, of
derivative securities used to hedge the foreign currency exposure on certain
specific foreign fixed maturity investments.
(14) STOCKHOLDER'S EQUITY--RETAINED EARNINGS
The maximum amount of dividends which can be paid by insurance companies
domiciled in the State of Illinois to shareholders without prior approval of
regulatory authorities is restricted. The maximum amount of dividends which can
be paid by the Company without prior approval in 1997 is $40.9 million. The
Company paid no cash dividends in 1996, 1995 or 1994.
The Company's net income (loss) and stockholder's equity as determined in
accordance with statutory accounting principles were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $ 37,287 $(64,707) $ 44,491
======== ======== ========
Statutory surplus........................................... $411,837 $383,374 $416,243
======== ======== ========
</TABLE>
52
<PAGE> 56
APPENDIX
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%. In addition,
the net investment returns also reflect the deduction of the Fund investment
advisory fees and other Fund expenses, approximated at 0.65%. The tables also
reflect the fact that KILICO makes 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
- -1.55%, 4.45% and 10.45%, respectively. Cost of insurance rates vary by age, sex
and rating class and, therefore, are not reflected in the approximate net annual
investment rate of return above.
The values shown are for Policies which are issued as standard. Values for
Policies issued on a substandard basis would result in lower Cash Values,
Surrender Values and Death Benefits than those illustrated.
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.
53
<PAGE> 57
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER $10,000 INITIAL PREMIUM ISSUE AGE 25
$88,520 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ --------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1..................... $10,500 $9,733 $8,857 $88,520 $10,329 $ 9,429 $88,520
2..................... 11,025 9,469 8,712 88,520 10,674 9,874 88,520
3..................... 11,576 9,209 8,565 88,520 11,035 10,335 88,520
4..................... 12,155 8,953 8,416 88,520 11,412 10,812 88,520
5..................... 12,763 8,701 8,266 88,520 11,806 11,306 88,520
6..................... 13,401 8,452 8,114 88,520 12,218 11,818 88,520
7..................... 14,071 8,206 7,960 88,520 12,650 12,350 88,520
8..................... 14,775 7,964 7,805 88,520 13,101 12,901 88,520
9..................... 15,513 7,726 7,648 88,520 13,573 13,473 88,520
10..................... 16,289 7,481 7,481 88,520 14,058 14,058 88,520
15..................... 20,789 6,191 6,191 88,520 16,726 16,726 88,520
20..................... 26,533 4,649 4,649 88,520 19,744 19,744 88,520
25..................... 33,864 2,661 2,661 88,520 23,051 23,051 88,520
30..................... 43,219 0 0 0 26,499 26,499 88,520
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-------------------------------
POLICY CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
------ -------- --------- --------
<S> <C> <C> <C>
1..................... $ 10,926 $ 10,026 $ 88,520
2..................... 11,951 11,151 88,520
3..................... 13,084 12,384 88,520
4..................... 14,337 13,737 88,520
5..................... 15,724 15,224 88,520
6..................... 17,257 16,857 88,520
7..................... 18,953 18,653 88,520
8..................... 20,830 20,630 88,520
9..................... 22,905 22,805 88,520
10..................... 25,192 25,192 88,520
15..................... 40,721 40,721 101,804
20..................... 65,732 65,732 145,924
25..................... 105,857 105,857 202,188
30..................... 170,337 170,337 267,429
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND 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 SHOWN IN THE PROSPECTUS APPENDIX.
(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.
54
<PAGE> 58
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER $10,000 INITIAL PREMIUM ISSUE AGE 25
$88,520 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ --------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1..................... $10,500 $9,728 $8,852 $88,520 $10,325 $ 9,425 $88,520
2..................... 11,025 9,462 8,705 88,520 10,667 9,867 88,520
3..................... 11,576 9,202 8,557 88,520 11,026 10,326 88,520
4..................... 12,155 8,946 8,408 88,520 11,403 10,803 88,520
5..................... 12,763 8,693 8,258 88,520 11,796 11,296 88,520
6..................... 13,401 8,443 8,105 88,520 12,208 11,808 88,520
7..................... 14,071 8,195 7,949 88,520 12,636 12,336 88,520
8..................... 14,775 7,947 7,787 88,520 13,080 12,880 88,520
9..................... 15,513 7,697 7,620 88,520 13,540 13,440 88,520
10..................... 16,289 7,445 7,445 88,520 14,017 14,017 88,520
15..................... 20,789 6,116 6,116 88,520 16,629 16,629 88,520
20..................... 26,533 4,547 4,547 88,520 19,589 19,589 88,520
25..................... 33,864 2,543 2,543 88,520 22,834 22,834 88,520
30..................... 43,219 0 0 0 26,179 26,179 88,520
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-------------------------------
POLICY CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
------ -------- --------- --------
<S> <C> <C> <C>
1..................... $ 10,921 $ 10,021 $ 88,520
2..................... 11,943 11,143 88,520
3..................... 13,074 12,374 88,520
4..................... 14,327 13,727 88,520
5..................... 15,712 15,212 88,520
6..................... 17,243 16,843 88,520
7..................... 18,935 18,635 88,520
8..................... 20,804 20,604 88,520
9..................... 22,866 22,766 88,520
10..................... 25,143 25,143 88,520
15..................... 40,597 40,597 101,493
20..................... 65,495 65,495 145,399
25..................... 105,448 105,448 201,405
30..................... 169,610 169,610 266,288
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND 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 SHOWN IN THE PROSPECTUS APPENDIX.
(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 NON-SMOKER $10,000 INITIAL PREMIUM ISSUE AGE 45
$39,290 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ --------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1..................... $10,500 $9,747 $8,870 $39,290 $10,345 $ 9,445 $39,290
2..................... 11,325 9,487 8,728 39,290 10,695 9,895 39,290
3..................... 11,576 9,222 8,576 39,290 11,056 10,356 39,290
4..................... 12,155 8,950 8,413 39,290 11,424 10,824 39,290
5..................... 12,763 8,670 8,236 39,290 11,800 11,300 39,290
6..................... 13,401 8,382 8,046 39,290 12,184 11,784 39,290
7..................... 14,071 8,082 7,839 39,290 12,574 12,274 39,290
8..................... 14,775 7,766 7,611 39,290 12,967 12,767 39,290
9..................... 15,513 7,435 7,360 39,290 13,364 13,264 39,290
10..................... 16,289 7,095 7,095 39,290 13,772 13,772 39,290
15..................... 20,789 5,125 5,125 39,290 15,903 15,903 39,290
20..................... 26,533 2,294 2,294 39,290 18,008 18,008 39,290
25..................... 33,864 0 0 0 19,735 19,735 39,290
30..................... 43,219 0 0 0 20,624 20,624 39,290
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-------------------------------
POLICY CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
------ -------- --------- --------
<S> <C> <C> <C>
1..................... $ 10,943 $ 10,043 $ 39,290
2..................... 11,977 11,177 39,290
3..................... 13,116 12,416 39,290
4..................... 14,370 13,770 39,290
5..................... 15,751 15,251 39,290
6..................... 17,276 16,876 39,290
7..................... 18,957 18,657 39,290
8..................... 20,812 20,612 39,290
9..................... 22,862 22,762 39,290
10..................... 25,136 25,136 39,463
15..................... 40,553 40,553 54,340
20..................... 65,452 65,452 79,851
25..................... 105,357 105,357 122,214
30..................... 169,799 169,799 181,685
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS AND 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 SHOWN IN THE PROSPECTUS APPENDIX.
(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 NON-SMOKER $10,000 INITIAL PREMIUM ISSUE AGE 45
$39,209 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ------------------------------- -------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ --------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1..................... $10,500 $9,744 $8,867 $39,290 $10,342 $ 9,442 $39,290
2..................... 11,325 9,484 8,725 39,290 10,692 9,892 39,290
3..................... 11,576 9,217 8,571 39,290 11,051 10,351 39,290
4..................... 12,155 8,932 8,406 39,290 11,417 10,817 39,290
5..................... 12,763 8,662 8,229 39,290 11,791 11,291 39,290
6..................... 13,401 8,371 8,036 39,290 12,172 11,772 39,290
7..................... 14,071 8,069 7,827 39,290 12,559 12,259 39,290
8..................... 14,775 7,753 7,598 39,290 12,951 12,751 39,290
9..................... 15,513 7,420 7,346 39,290 13,346 13,246 39,290
10..................... 16,289 7,068 7,068 39,290 13,744 13,744 39,290
15..................... 20,789 4,923 4,923 39,290 15,718 15,718 39,290
20..................... 26,533 1,693 1,693 39,290 17,472 17,462 39,290
25..................... 33,864 0 0 0 18,490 18,490 39,290
30..................... 43,219 0 0 0 17,668 17,668 39,290
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-------------------------------
POLICY CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
------ -------- --------- --------
<S> <C> <C> <C>
1..................... $ 10,940 $ 10,040 $ 39,290
2..................... 11,973 11,173 39,290
3..................... 13,110 12,410 39,290
4..................... 14,362 13,762 39,290
5..................... 15,742 15,242 39,290
6..................... 17,263 16,863 39,290
7..................... 18,941 18,641 39,290
8..................... 20,794 20,594 39,290
9..................... 22,841 22,741 39,290
10..................... 25,106 25,106 39,417
15..................... 40,415 40,415 54,156
20..................... 65,045 65,045 79,355
25..................... 104,335 104,335 121,028
30..................... 167,401 167,401 179,120
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS AND 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 SHOWN IN THE PROSPECTUS APPENDIX.
(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
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484(B) (1)
UNDER THE SECURITIES ACT OF 1933
Pursuant to the Distribution Agreement filed as Exhibit 1-A(3)(a) to this
Registration Statement, Kemper Investors Life Insurance Company (KILICO) and the
Separate Account have agreed 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 agrees to indemnify KILICO and the Separate Account
against any and all claims, demands, liabilities and expenses which KILICO or
the Separate Account may incur, arising out of or based upon any act or deed of
IBS or of any registered representative of an NASD member investment dealer
which has an agreement with IBS and is acting in accordance with KILICO's
instructions.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
KILICO or the Separate Account (by virtue of the fact that they may also be
agents, employees or controlling persons of IBS) pursuant to the foregoing
provisions, or otherwise KILICO and the Separate Account have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
may be against public policy as expressed in the Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by KILICO or the Separate Account of
expenses incurred or paid by a director, officer or controlling person of KILICO
or the Separate Account in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, KILICO and the Separate Account
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
REPRESENTATION REGARDING FEES AND CHARGES PURSUANT TO
SECTION 26 OF THE INVESTMENT COMPANY ACT OF 1940
Kemper Investors Life Insurance Company (KILICO) represents that the fees
and charges deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by KILICO.
II-1
<PAGE> 62
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 57 pages.
The undertaking to file reports.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of
1933.
Representation Regarding Fees and Charges Pursuant to Section
26 of the Investment Company Act of 1940.
The signatures.
Written consents of the following persons:
A. David F. Dierenfeldt, Esq. (included in Opinion filed as
Exhibit 3(a)).
B. KPMG Peat Marwick LLP, independent auditors (filed as Exhibit
6(a)).
C. Steven D. Powell, FSA (included in Opinion filed as Exhibit
3(b)).
The following exhibits:
<TABLE>
<S> <C>
(2) 1-A(1) KILICO Resolution establishing the Separate Account
(3) 1-A(3)(a) Distribution Agreement between KILICO and Investors Brokerage
Services, Inc. (IBS)
1-A(3)(b)(i) Specimen Selling Group Agreement of Kemper Financial Services, Inc.
and KILICO Distribution Organization Agreement
(1) 1-A(3)(b)(ii) Addendum to Selling Group Agreement of Kemper Financial Services, Inc.
(4) 1-A(3)(b)(iii) Specimen Selling Group Agreement of IBS
(4) 1-A(3)(b)(iv) General Agent Agreement
1-A(3)(c) Schedules of commissions
1-A(5) Specimen Policy
(2) 1-A(6)(a) KILICO Articles of Incorporation
(4) 1-A(6)(b) By-Laws of KILICO
1-A(8) Subscription Agreement between KILICO and Kemper Investors Fund on
behalf of Variable Separate Account
1-A(10) Application for Policy
3(a) Opinion and consent of legal officer of KILICO as to legality of
policies being registered
3(b) Opinion and consent of actuarial officer of KILICO regarding
prospectus illustrations and actuarial matters
6(a) Consent of independent auditors
8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(ii)
(2) 11 Representation, description and undertakings regarding mortality
and expense risk charge, pursuant to Rule 6e-3(T)(b)(13)(iii)(F)
</TABLE>
- ---------------
(1) Filed with the Post-Effective Amendment No. 8 of the Registrant on Form S-6
filed on April 27, 1995.
(2) Filed with the Registration Statement of the Registrant on Form S-6 filed on
December 26, 1995 (File No. 33-65399).
(3) Filed with the Registration Statement on Form S-1 filed on April 12, 1996
(File No. 333-02491).
(4) Filed with Amendment No. 2 to the Registration Statement on Form S-1 on
April 23, 1997 (File No. 333-02491).
II-2
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
KILICO Variable Separate Account, certifies that it meets the requirements for
effectiveness of this Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Long Grove and State of Illinois on
the 24th day of April, 1997.
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 24th day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/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/ LOREN J. ALTER* Director
- ----------------------------------------------
Loren J. Alter
/s/ DANIEL L. DOCTOROFF* Director
- ----------------------------------------------
Daniel L. Doctoroff
/s/ STEVEN M. GLUCKSTERN* Director
- ----------------------------------------------
Steven M. Gluckstern
/s/ MICHAEL P. STRAMAGLIA* Director
- ----------------------------------------------
Michael P. Stramaglia
/s/ PAUL H. WARREN* Director
- ----------------------------------------------
Paul H. Warren
*By: /s/ FRANK J. JULIAN
- ----------------------------------------------
Frank J. Julian
Attorney-in-Fact**
April 24, 1997
</TABLE>
** Pursuant to Power of Attorney forms filed as Exhibit 24 to Amendment No. 2 to
the Registration Statement of Kemper Investors Life Insurance Company on Form
S-1 filed on April 23, 1997 (File No. 333-02491), which are hereby
incorporated herein by reference.
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
1-A(3)(b)(i) Specimen Selling Group Agreement of Kemper Financial
Services, Inc. and KILICO Distribution Organization
Agreement.
1-A(3)(c) Schedules of Commissions.
1-A(5) Specimen Policy.
1-A(8) Subscription Agreement between KILICO and Kemper
Investors Fund on behalf of Variable Separate Account.
1-A(10) Application for Policy.
3(a) Opinion and consent of legal officer of KILICO as to
legality of policies being registered.
3(b) Opinion and consent of actuarial officer of KILICO
regarding prospectus illustrations and actuarial
matters.
6(a) Consent of Independent Auditors.
8 Procedures Memorandum, pursuant to Rule
6e-3(T)(b)(12)(ii).
</TABLE>
- ---------------
*In manually signed original only.
<PAGE> 1
EXHIBIT 1-a(3)(b)(i)
SELLING GROUP AGREEMENT KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street, Chicago, Illinois 60603
Dear Sirs: Dated____________________
As principal underwriter, we invite you to join a Selling Group for the
distribution of shares of the Kemper Mutual Funds named in the Addendum hereto,
(herein called "Funds") but only in those states in which the shares of the
respective Funds may legally be offered for sale. As exclusive agent of each of
the Funds, we offer to sell to you shares of the Funds on the following terms:
1. In all sales of these shares to the public you shall act as dealer for
your own account, and in no transaction shall you have any authority to act as
agent for the issuer, for us or for any other member of the Selling Group.
2. Orders received from you will be accepted by us only at the public
offering price applicable to each order, as established by the then current
Prospectus of Each Fund, subject to the discount, if any, hereinafter provided.
Upon receipt from you of any order to purchase shares of a Fund, we shall
confirm to you in writing or by wire to be followed by a confirmation in
writing. Additional instructions may be forwarded to you from time to time. All
orders are subject to acceptance or rejection by us in our sole discretion.
3. (a) You may offer and sell shares to your customers only at the
public offering price determined in the manner described in the
current Prospectus of each Fund. The public offering price is
the net asset value per share plus a sales charge from which you
shall receive a discount equal to a percentage of the applicable
offering price as set forth on the Addendum.
(b) The scale shown on the Addendum is applicable to purchases made
at one time by "any person," which term shall include an
individual, or an individual, his spouse and children under the
age of 21, or a trustee, guardian or other fiduciary of a single
trust estate or single fiduciary account including a pension,
profit sharing or other employee benefit trust created pursuant
to a plan qualified under Section 401 of the Internal Revenue
Code.
(c) The scale is also applicable to the concurrent purchase of shares
of two or more of the Funds (for which there is a sales charge),
and to the aggregate amount of purchases of shares of such Funds
made by any of the persons enumerated above within a thirteen
month period pursuant to a Letter of intent in the form provided
by us, which includes provision for a price adjustment, depending
upon the actual amount purchased within such period.
(d) The sales charges and dealer discounts set forth on the Addendum
are computed on a cumulative basis at the rate applicable to the
amount being purchased plus the value (at the maximum offering
price) of all shares of the Funds (for which there is a sales
charge) then held by the investor and are subject to other
discounts as set forth in the then current Prospectus of each
Fund. We must be notified by the investor or by you each time a
purchase qualifies for a reduced sales charge as a result of the
investor's existing holdings.
(e) Shares of certain Funds may be sold at net asset value to
organizations exempt from federal income tax under Section 501
(c)(3) or (13) of the Internal Revenue Code or a pension, profit
sharing or other employee benefit plan qualified under Section
401 of the Internal Revenue Code, provided that five million
dollars or more (one million dollars or more for Kemper
International Fund) is invested in the Fund by such organization
as provided in the Prospectus for such Fund (the foregoing is not
applicable for Kemper Municipal Bond Fund, Kemper California
Tax-Free Income Fund or Funds for which there is no sales
charge). Shares owned or purchased in other Kemper Mutual Funds
by such organizations are not counted for this purpose or towards
completion of a Letter of Intent. We may pay you up to .15% of
the net asset value of shares sold by you to such organizations
at net asset value in accordance with the foregoing.
4. By accepting this agreement, you agree:
(a) To purchase shares only from us or from your customers.
(b) That you will purchase shares from us only to cover purchase
orders already received from your customers, or for your own bona
fide investment.
(c) That you will not purchase shares from your customers at a price
lower than the bid price then quoted by or for the Fund involved.
You may, however, sell shares for the account of your customer to
the Fund, or to us as agent for the Fund, at the bid price
currently quoted by or for the Fund and charge your customer a
fair commission for handling the transaction.
(d) that you will not withhold placing with us orders received from
your customers so as to profit yourself as a result of such
withholding.
5. We will not accept from you any conditional orders for shares.
6. If any shares confirmed to you under the terms of this agreement are
repurchased by the issuing Fund or by us as agent for the Fund; or are tendered
for repurchase, within seven business days after the date of our confirmation of
the original purchase order, you shall forthwith refund to us the full discount
allowed to you on such shares. We agree to pay to the Fund our share of the
sales charge on such shares, and upon receipt from you of your discount, to pay
the same forthwith to the Fund. We will notify you of any such repurchase
within ten business days of such repurchase. In case of any such repurchase
from an organization purchasing shares at net asset value under paragraph 3(e)
above, you shall return any payment made by us to you under such paragraph 3(e)
with respect to such shares.
7. Payment for shares ordered from us shall be in New York clearing
house funds and must be received by the Funds' agent, DST Systems, Inc., 301
West 11th Street, Kansas City, Missouri 64105 within seven days after our
acceptance of your order. If such payment is not received, we reserve the
right, without notice, forthwith to cancel the sale or, at our option, to sell
the shares ordered back to the Fund, in which case we may hold you responsible
for any loss, including loss of profit, suffered by us as a result of your
failure to make such payment.
8. Shares sold to you hereunder shall be available in negotiable form
for delivery at DST Systems, Inc., 301 West 11th Street, Kansas City, Missouri
64015, against payment, unless other instructions have been given.
9. No person is authorized to make any representations concerning
shares of any Fund except those contained in the current Prospectus of such Fund
and in printed information subsequently issued by the Fund or by us as
information supplemental to such Prospectus.
10. All sales will be made subject to our receipt of shares from the
Fund. We reserve the right, in our discretion, without notice, to suspend sales
or withdraw the offering of shares entirely, to change the price, or to modify,
cancel or change the terms of this agreement. This agreement shall be in
substitution for any prior agreement between us regarding these shares the
Addendum hereto may be modified or supplemented from time to time by us by
notice to you.
11. Your acceptance of this agreement constitutes a representation (i)
that you are a registered security dealer and a member in good standing of the
National Association of Securities Dealers, Inc. and that you agree to comply
with all applicable state and federal laws, rules and regulations applicable to
transactions hereunder and to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., including specifically Section 26,
Article III thereof, or (ii) if you are offering and selling shares of the Funds
only in jurisdictions outside of the several states, territories and possessions
of the United States and are not otherwise required to be a member of the
National Association of Securities Dealers, Inc., that you nevertheless agree to
conduct your business in accordance with the spirit of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and to observe
the laws and regulations of the applicable jurisdiction. You likewise agree
that you will not offer or sell shares of any Fund in any state or other
jurisdiction in which they may not lawfully be offered for sale.
12. All communications to us should be sent to the address in the heading
above. Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below. This agreement shall be construed in
accordance with the laws of Illinois.
- ------------------------------------------------------------------------------
VARIABLE CONTRACTS
This Selling Group Agreement in effect between us provides for the offering
of variable contracts ("Contracts") issued by Kemper Investors Life Insurance
Company: "KILICO" for which Kemper Financial Services, Inc., ("KFS") serves as
distributor. You may offer and sell Contracts to your customers only through
your registered representatives who are variable contract licensed pursuant to
applicable state law and who have been specifically appointed by KILICO to
solicit Contracts in the applicable jurisdiction.
You may offer and sell the Contracts only in accordance with the terms and
conditions of the currently effective Prospectus or offering brochures
applicable to the Contracts and to any Fund which may serve as a funding
vehicle for the Contracts. You may not make any representation, including
any representation regarding the tax status of the Contracts, not included in
such Prospectuses, offering brochures or in any written, authorized advertising
or sales material supplied by KILICO and you shall further be liable for any
claim against KILICO or KFS arising from your failure to comply with the
provision. Any proposed advertising, printed material or presentation script
relating to the Contracts must be approved in writing by KILICO prior to its
use.
In no event shall you forward to KILCO less than any payment collected by
your registered representative, without deduction for compensation or
commission.
KEMPER FINANCIAL SERVICES, INC.
By_______________________________
Authorized Signature
We have read the foregoing agreement and accept and agree to the terms and
conditions thereof.
Firm ____________________________
Witness:_____________________________ By_______________________________
Authorized Signature
Address:_________________________
The above agreement should be executed in duplicate and one copy returned to us.
(Dealer Copy)
<PAGE> 2
KILICO
DISTRIBUTION
ORGANIZATION
AGREEMENT
<PAGE> 3
KEMPER INVESTORS LIFE INSURANCE COMPANY
120 South LaSalle Street, Chicago, Illinois 60603
DISTRIBUTION ORGANIZATION AGREEMENT
Kemper Investors Life Company, herein called the "Company, and ____________
___________________________________________________________________________
(a Corporation organized under the laws of the State of___________________),
(a partnership organized under the laws of the State of___________________),
(an individual proprietorship situated in the State of ___________________),
with offices at __________________________, City of_______________________,
State of _____________________________, Zip Code _______, herein called the
"Distribution Organization", hereby agree as follows:
1. The Company hereby appoints the Distribution Organization to represent the
Company subject to the limitations of this Agreement in the following
Territory:
2. The Distribution Organization agrees that no exclusive rights are granted
in such Territory, and accepts such non-exclusive appointment subject to all of
the terms and conditions of this Agreement, as such may be amended from time to
time. The Distribution Organization agrees to be diligently devoted to the
business of this appointment, and use its best efforts.
A. DUTIES OF THE DISTRIBUTION ORGANIZATION
The Distribution Organization shall, in accordance with the Company's rules and
practices and governmental statues, regulations and rulings:
1. Actively seek and obtain qualified individuals or agencies experienced in
life insurance and annuities for appointment as General Agents of the Company.
For purposes of this Distribution Organization Appointment, an Appointed
General Agent shall be an insurance agent or agency which has become licensed
with the Company, has entered into a General Agent Agreement with the Company
at the request of the Distribution Organization and has been accepted by the
Company and designated by the Company's records. Each appointed General Agent
and Agent shall be an independent contractor with the Company. Nothing herein
contained shall be construed to create the relationship of employer and
employee between Company and an appointed General Agent or Agent. The
Distribution Organization shall use, without
<PAGE> 4
alteration, the printed forms of General Agent's or Agent's Agreements,
furnished by the Company for the appointment of a General Agent or Agent. No
such Agreement shall be in force until approved in writing by a duly authorized
officer of the Company. The Distribution Organization shall not modify the
terms of such Agreement by means of any other Agreement with the General Agent
or Agent without the Company's approval. The Company reserves the right to
refuse to license any such proposed General Agent or Agent.
2. Provide training, supervision and administrative services to appointed
General Agents and their Agents in connection with the sale of the Company's
insurance products in accordance with the Company's rules and practices;
3. Maintain and distribute to its appointed General Agents adequate supplies
of Company authorized training, advertising and such other material as the
Company may prescribe;
4. At the Company's request, conduct preliminary underwriting activities
including arranging medical examinations and other authorized requirements in
respect of applications for the Company's life insurance policies which are
solicited by appointed General Agents and Agents in accordance with written
instructions provided by the Company;
5. Conduct its activities in respect of the Company's business only in those
locations approved by the Company in writing. The Company shall have the
option at its sole discretion, to terminate any such agreement in accordance
with the terms of the Agreement.
6. Maintain accurate records of appointed General Agent's and Agent's
activities and promptly notify the Company of any infractions of insurance laws
or regulations or Company rules by an appointed General Agent or Agent.
7. Pay all licensing fees (first time, renewal and otherwise) for all General
Agents and Agents.
8. Provide all ledgers and replacement forms. This includes obtaining the
Company's Silent Partner System and responsibility for expenses incurred in
training licensed General Agents, and Agents operating under supervision of the
Distribution Organization.
9. Provide sales/seminar support services, acting as first line of contact for
General Agents and Agents operating under supervision of the Distribution
Organization.
B. SOLICITATION/PREMIUM COLLECTION
1. The Distribution Organization is authorized, both personally, and through
General Agents and Agents jointly appointed by the Company and the Distribution
Organization (and operating under the supervision of the Distribution
Organization) to: (a) solicit and procure applications of a kind and character
satisfactory to the Company for life insurance policies and annuity contracts
specified in the attached Schedule of Commissions and Allowances, but only to
the extent such policies and contracts have been approved for sale in the
Territory, or parts of the Territory, which Schedule
<PAGE> 5
is by this reference made a part of this Agreement, as such may be amended from
time to time, and to transmit such applications to the Company; and (b) collect
the first premium on such policies and contracts issued by the Company, all in
accordance with the Company's detailed requirements with respect thereto as
such may be issued, amended or supplemented from time to time.
a. All applications for such policies and contracts shall be made on
application forms supplied by the Company, and all such completed applications
and supporting documents shall be the property of the Company and promptly
delivered to it.
b. All applications are subject to acceptance by the Company at its sole
discretion.
c. The Distribution Organization shall have no authority to alter, modify,
waive or change any of the terms, rates or conditions of the Company's
applications, policies or contracts or any other Company form. The
Distribution Organization shall have no authority except that which is
expressly set forth in this Agreement, and no other authority may be implied
from the authority expressly granted.
d. the premiums collected by the Distribution Organization shall be remitted
promptly in full, together with such application and other documentation
required by the Company, directly to the Company at the address indicated on
the signature page of this Agreement, or to such address as the Company may
designate from time to time. Checks or money orders for the Premium shall be
drawn to the order of the Company. All moneys received by the Distribution
Organization as full or partial payment of the first premium on such policies
or contracts shall be held by the Distribution Organization in a fiduciary
capacity until remittance to the Company, in accordance with the current
requirements of the Company in this regard.
e. The full amount of the first premium must be collected by the Distribution
Organization on or before delivery of any life insurance policy or any annuity
contract.
f. Notwithstanding the foregoing, the Distribution Organization, with the
written permission of the Company and upon such conditions as it may impose in
such permission, may, in lieu of remitting the entire premium collected, deduct
and retain the applicable commission, and remit the balance of the first
premium to the Company. Any such deduction and retention of the first year
commission shall be in trust for the Company until the Company notifies the
Distribution Organization in writing that the policy, to which such commission
relates, is approved or disapproved. If approved, issued and delivered
according to the rules of the Company, such commission shall then become the
property of the Distribution Organization unless otherwise subject to lien or
offset in favor of the Company. If the application for the policy is approved,
such commission will be subject to disposition as directed by the Company.
Nothing contained herein shall permit commingling of the funds of the Company
with the funds of the Distribution Organization to any extent.
g. All premiums due after the first shall be collected by the Company.
<PAGE> 6
h. The distribution Organization shall not solicit or procure applications
outside the Territory, nor in any jurisdiction in which the Distribution
Organization is not licensed as a life insurance agent or the Company is not
authorized to solicit or sell its policies and contracts. The Distribution
Organization shall not transmit any policy or certificate where the health of
the insured named thereon is other than stated in the application or health
questionnaire.
2. The Distribution Organization agrees to take all reasonable action to
prevent policies and contracts, issued pursuant to applications procured under
the terms of this Agreement, from lapsing.
3. The Distribution Organization shall not, at any time, either during or
after termination of this Agreement, induce any policyholder of the Company to
relinquish, surrender or lapse any policy issued by the Company without prior
written approval of the Company.
4. The Distribution Organization shall keep customary and accurate accounts of
receipts and disbursements and shall, at the Company's request and in
accordance with its instructions, account for all policies, receipts, premiums
and other moneys received, and all property and supplies received from the
Company. The Company may at any time during regular business hours review
and/or make copies of the records of such accounts which copies shall become
the property of the Company. The Company will furnish the Distribution
Organization a copy of the Distribution Organization's ledger account with the
Company within a reasonable time after receipt of a written request thereof.
C. DISTRIBUTION ORGANIZATION SCHEDULE OF COMMISSION AND ALLOWANCES
1. In consideration of the duties and responsibilities of the Distribution
Organization, the compensation set forth in the Schedule of Commissions and
Allowances, as amended from time to time, will be paid to the Distribution
Organization, except as provided below, on premiums paid and accepted by the
Company for the designated life insurance policies and annuity contracts listed
in the Schedule of Commissions and Allowances, which are applied for by the
appointed General Agents and Agents under the supervision of the Distribution
Organization and which are issued on and after the effective date of this
Distribution Organization Agreement. The Company may, at any time, amend the
Schedule of Commissions and Allowances and change the rates of commissions and
the period during which they shall be payable for any policies applied for on
or after the effective date of such change, and such Amended Schedule shall
supercede all other Commission Schedules without necessity of signatures, and
will become effective on the date stated on the amended Schedule.
a. No premium shall be considered paid in cash to the Company until it shall
have been actually collected and received by the Company.
b. The commissions and allowances payable under this Agreement to the
Distribution Organization except in those circumstances where payments are made
to the General Agent in accordance with a General Agent's Agreement shall be
compensation in full for: (a) all services performed by the
<PAGE> 7
Distribution Organization and the licensed General Agents and Agents operating
under the Distribution Organization's supervision under this Agreement, and (b)
all expenses incurred by the Distribution Organization and such licensed
General Agents and Agents in connection with this Agreement. In those cases
where a General Agent Agreement exists between the Distribution Organization
and the Company, commissions to the Distribution Organization will be reduced
accordingly on such business produced.
c. The Distribution Organization shall be obligated to return to the Company
commissions paid under the circumstances and conditions set forth in the
Schedule of Commissions and Allowances.
d. No further commissions shall be paid with respect to premiums received on
reinstated policies which previously had been in lapsed condition for three
months or more, unless the reinstatement was accomplished solely through the
efforts of the Distribution Organization or licensed General Agents or Agents
acting under the Distribution Organization's supervision and while this
Agreement remains in force.
e. If a new policy is issued within twelve months before or after the date of
surrender of, or date of discontinuance of premium payments on, a then or
formerly existing policy issued by the Company on the same life, the
Distribution Organization shall not be entitled to a commission on such new
policy.
f. Monies paid to the Company to be held by the Company and to be applied by
it in payment of premiums due in the future ("premiums paid in advance") shall
not be considered premiums upon which commissions, if any, are due and payable
until such monies are actually applied in payment of premiums at the time such
are due.
g. Commissions will not be paid on premiums waived or commuted by reason of
death, disability or exercise of policy options.
h. The Company shall have the right to refuse to pay commissions on policies
or contracts issued on applications submitted by licensed General Agents or
Agents operating under the Distribution Organizations's supervision, on
applicants whose permanent residence is outside the Distribution Organization's
Territory.
2. The Company may offset against any claim for commissions and any other
compensation, payable by the Company to the Distribution Organization under
this Agreement or under any other agreement with the Company now or hereafter
existing, any existing or future indebtedness of the Distribution Organization
to the Company and any advances heretofore or hereafter made by the Company to
the Distribution Organization. Such indebtedness and advances shall be a first
lien against any such compensation. The Distribution Organization may not
offset against such indebtedness any compensation accrued or to accrue under
this Agreement or under any other agreement with the Company now or hereafter
existing. All indebtedness of the Distribution Organization to the Company
shall be debited to the Distribution Organization's account. In the event the
company is required to pursue formal collection procedures in order to collect
any indebtedness under the
<PAGE> 8
terms of this Agreement, the Distribution Organization agrees to be responsible
for any expense incurred by the Company, be it the fee of a collection agent,
attorney, or other costs, including court costs.
D. ADVERTISING/SALES LITERATURE
1. All sales literature, sales materials and advertising, relating to policies
and contracts to be marketed under this Agreement, prepared by the Distribution
Organization must be first submitted to the Company for its approval, and shall
not be used with the prior written approval of an authorized officer of the
Company, and such use shall be subject to such terms, conditions and
limitations as may be imposed by the Company in such approval.
a. Such approval may abe withdrawn by the Company in whole or in part upon
notice to the Distribution Organization, shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales material and
advertising.
b. The Distribution Organization shall maintain a complete file of all such
sales literature, sales material and advertising, including specimen copies
thereof, which has been printed, published or otherwise used, with a notation
indicating the manner and extent of distribution or other use of such sales
literature, sales material and advertising (including, without limitation of
the foregoing, the dates of publication, and the names of the publications in
which any of such advertising appears). The Distribution Organization shall
report to the Company within ten days after the end of each calendar month, the
manner and extent distribution or other use of such sales literature, sales
material and advertising during such calendar month, so that the Company will
always be fully apprised thereof.
c. "Advertising: is hereby defined to be material designed to create public
interest in life insurance or annuities or in the Company, or to induce the
public to purchase, increase, modify, reinstate, or retain a policy including:
1. printed and published material, audiovisual material, descriptive
literature used in direct mail, newspapers, magazines, radio and
television scripts, billboards, and similar displays;
2. descriptive literature and sales aids of all kinds issued by the
Distribution Organization, including but not limited to circulars,
leaflets, booklets, depictions, illustrations, and form letters;
3. material used for the recruitment, training, and education of General
Agents and Agents operating under the supervision of the Distribution
Organization which is designed to be used or is used to induce the
public to purchase, increase, modify, reinstate, or retain a policy;
4. prepared sales talks, presentations, and material for use by the
Distribution Organization, and licensed General Agents and Agents
operating under the Distribution Organization's supervision.
<PAGE> 9
2. All manuals, guides, books, tapes, programs and other materials developed
by the Company which may be delivered to the Distribution Organization from
time to time, and the information contained therein, will remain the sole and
exclusive property of the Company, and shall be used solely in the solicitation
of applications for policies and contracts covered by this Agreement. These
materials may not be reproduced in any way without the prior written approval
of an authorized officer of the Company. Upon termination of this Agreement,
such items will be returned promptly to the Company. None of the information
furnished the Distribution Organization shall be disclosed to the Company's
competitors without its written consent.
E. LICENSING/INDEPENDENT CONTRACTOR
1. The Company agrees to cooperate with the Distribution Organization in
securing, to the extent required by state insurance law, the licensing of
General Agents and Agents operating under the Distribution Organization's
supervision as life insurance agents for the Company. The Distribution
Organization, however, recognizes the responsibility of supervision of such
licensed General Agents and Agents, and agrees to supervise such licensed
General Agents and Agents, and to exercise all responsibilities required by
applicable federal and state laws and regulations, and regulations of any self
regulatory organization or stock exchange.
F. RIGHTS OF THE COMPANY
1. In addition to other rights set forth herein or implied or necessitated by
the terms hereof, the Company specifically reserves the rights to: (a) modify
or amend any policy or contract form, (b) discontinue or withdraw any policy or
contract form from the Distribution Organization's Territory or any part
thereof, and this may be done without prejudice to continuing such form in any
other Territory of the Company or in any other part of the Distribution
Organization's Territory, (c) fix maximum and minimum limits on the amounts for
which any policy or contract form may be issued, (d) modify or alter the
conditions or terms under which any policy or contract form may be sold, or
regulate its sale in any way, (e) cease doing business in all or any part of
the Distribution Organization's Territory, (f) change commissions or other
compensation on policies or contracts issued in the Distribution Organization's
Territory, (f) change commissions or other compensation on policies or
contracts issued in the future upon prior notice to the Distribution
Organization, and (g) require that the Distribution Organization be bonded in
an amount which bears a reasonable relationship to the composition and volume
of the Distribution Organization's business with the Company.
G. SUPERVISION OF AGENTS
1. The Distribution Organization will cause licensed General Agents and Agents
operating under the Distribution Organization's supervision:
a. who solicit applications for the Company's insurance policies and annuity
contracts to be legally qualified and licensed to sell such policies and
contracts in the applicable jurisdictions;
<PAGE> 10
b. to solicit applications for, and to deliver, the Company's insurance
policies and annuity contracts only in jurisdictions where such policies and
contracts have been approved for sale;
c. to make no representation concerning such policies and contracts except
such as may be contained in the sales literature and materials and advertising
furnished by the Company or previously approved in writing by an officer of the
Company; and
d. not to in any manner contact, enter into discussions with, or make any
representations to any state or federal regulatory authority or representatives
thereof in relation to the Company's policies and contracts or with respect to
the Company's authority to do business.
2. Notwithstanding any of the foregoing, the Distribution Organization will
not be precluded from responding to requests for information from regulatory
bodies or otherwise taking defensive action in any actual or threatened
proceeding.
3. The Distribution Organization shall be responsible to the Company for the
acts of the Distribution Organization's licensed General Agents and Agents
operating under the Distribution Organization's supervision and shall indemnify
and hold the Company harmless from any loss or expense on account of any act by
the Distribution Organization or any of the Distribution Organization's General
Agents and licensed Agents operating under the Distribution Organization's
supervision.
H. LITIGATION
1. The Distribution Organization shall not litigate any dispute between the
Distribution Organization and any other agent or representative of the Company,
or applicant to or policyholder in the Company, upon any matter relating to the
Business of the Company without the prior written consent of an authorized
officer of the Company. In the event of such litigation, the entire expense
and damages shall be borne by the Distribution Organization. If any legal
action is brought against either the Company or the Distribution Organization
or both jointly, by reason of any alleged act, fault or failure of the
Distribution Organization in connection with the Distribution Organization's
activities hereunder, the Company may require the Distribution Organization to
defend such action. However, at its sole option, the Company may defend any
such action and expend such sums, including attorney's fees, as may in the
Company's judgment be necessary. The Distribution Organization shall pay to
the Company on demand any amount which may be recovered against the Company in
any such action and any attorney's fees and other expenses which may have been
paid by the Company therein, except in those cases when the Distribution
Organization has not been at fault.
I. TERMINATION
1. The Agency relationship hereby established shall continue during the will
and pleasure of the parties to this Agreement and shall be subject to
termination at any time by the Distribution Organization, or by the Company,
<PAGE> 11
upon, at least thirty days prior written notice to the other party in advance
of the termination date. However, except for termination for cause or failure
to meet production and/or persistency minimums described in the Schedule of
Commissions and Allowances, the Distribution Organization shall continue to be
fully responsible for one year under the terms of this Agreement for appointed
General Agents and Agents which have been appointed prior to written notice by
the Company of termination. The Distribution Organization shall receive during
such one year period the compensation under this Agreement on new business
written by such General Agents and Agents. Upon the effective date of any
termination, the Company reserves the right at its discretion to appoint a
subsequent Distribution Organization to perform duties under this Agreement or
to have the General Agent report directly to the Company. Termination for
cause may be made effective immediately upon notice.
2. Any assignment or attempt at assignment of commissions or other
compensation made by the Distribution Organization for the benefit of the
Distribution Organization's creditors or the filing of any Petition in
Bankruptcy by or against the Distribution Organization whether voluntary or
involuntary shall, without notice, constitute cancellation and termination of
this Agreement and all of the Distribution Organization's rights under this
Agreement.
3. This Agreement may be terminated for cause if the Distribution Organization
or the Distribution Organization's licensed General Agents and Agents operating
under the Distribution Organization's supervision have wrongfully withheld any
funds, property or documents belonging to the Company; have misrepresented any
product or service offered by or through the Company; have failed to comply
with the terms of this Agreement or the Company's rules and regulations
currently in force or later brought to the Distribution Organization's
attention in any manner; or if the license of the Distribution Organization or
General Agent or Agent operating under the Distribution Organization's
supervision is revoked, suspended, or refused renewal by any regulatory agency
of any branch of the government.
4. Upon termination for cause, the Distribution Organization shall have no
further rights or privileges under this Agreement, and all monies including any
fees, or other compensation or first year or renewal commissions otherwise
payable under the terms of this Agreement shall be immediately forfeited.
5. In the event of the death of the Distribution Organization (excepting in
case the Distribution Organization is a partnership) such commissions as may
become due under this Agreement shall be payable to the estate of the
Distribution Organization. If the Distribution Organization is a partnership,
then upon death of any member, the Company shall continue to pay such
commissions as may become due under this Agreement to the partnership unless or
until notified to the contrary in writing by any party claiming an interest in
such commissions.
<PAGE> 12
6. Upon death of the Distribution Organization, the Company shall have the
option, exercisable at its sole discretion, to pay a single sum in lieu of
paying renewal commissions. The single sum to be paid shall be the value of
such renewal commissions after allowing for interest and for anticipated
terminations.
7. When, after termination of this Agreement, any payment to the Distribution
Organization hereunder fails to exceed a total of $500.00 in any calendar year,
the Company shall, after the end of such year, have the option, exercisable in
its sole discretion of purchasing from the Distribution Organization any
further commissions and other emoluments payable for their present value.
"Present Value" as here used means the value of such commissions and other
emoluments determined by the Company on the basis of accepted actuarial
practices.
J. GENERAL
1. The Distribution Organization and the Company agree to cooperate fully with
each other in any state or federal regulatory investigation or proceeding to
the extent that it relates to matters pertaining to this Agreement. Without
limiting the foregoing:
a. The Company will promptly notify the Distribution Organization of notice of
any regulatory investigation or proceeding received by the Company with respect
to the Distribution Organization or any of the Distribution Organization's
licensed General Agents or Agents operating under the Distribution
Organization's supervision.
b. The Distribution Organization will promptly notify the Company of notice of
any regulatory investigation or proceeding received by the Distribution
Organization with respect to the Distribution Organization, or any of the
Distribution Organization's licensed General Agents or Agents operating under
the Distribution Organization's supervision, or any policy or contract or
activity relating to this Agreement.
2. No assignment of this Agreement or of commissions or other payments
hereunder shall be valid without the written consent of the Company.
Any notice hereunder shall be given by telegraph or by mail, postage prepaid,
addressed as indicated below or to such other address as either party may later
designate in writing.
Nothing contained herein shall prevent or restrict:
a. the Distribution Organization from acting as agent and broker for other
insurance companies in any jurisdiction, or
b. the Company from appointing other agents and brokers either within or
outside the Territory to solicit applications for its life insurance policies
and annuity contracts.
<PAGE> 13
The non-enforcement or waiver of any provision of this Agreement by either
party hereto shall not imply the subsequent waiver of such provision, or any
simultaneous or subsequent waiver of any other provision hereof.
From and after the date hereof, this Agreement including any supplemental
amendments hereto shall constitute the entire Agreement between the parties and
supersedes any prior agreement or understanding between the company and the
Distribution Organization. No amendment, modification, deletion or waiver of
the terms hereof shall be effective unless it is in writing.
To the extent this Agreement may be in conflict with any applicable law or
regulation, this Agreement shall not be deemed to affect the validity or
legality of any other provision of this Agreement.
This Agreement may be executed in any number of counterparts, all of which
shall together constitute one and the same Agreement. This Agreement shall be
governed by the laws of Illinois.
IN WITNESS WHEREOF, the said Parties have caused this Agreement to be executed
by their respective officers hereunto duly authorized as of this _______ day of
____________ 19___.
KEMPER INVESTORS LIFE INSURANCE COMPANY
120 South LaSalle Street, Chicago, Illinois 60603
By___________________________________________Title_________________________
Address____________________________________________________________________
City_____________________________State_______________________Zip___________
<PAGE> 14
DISTRIBUTION ORGANIZATION
Name of Person or Firm
To Whom Commissions are Payable
- ---------------------------------------------------------------------------
(Please Print)
Social Security Number or Tax I.D. Number (circle one)
- ---------------------------------------------------------------------------
Address
- ---------------------------------------------------------------------------
City State Zip
- ---------------------------------------------------------------------------
Signature of Distribution Organization's
Principal Agent Title
- ---------------------------------------------------------------------------
Telephone ( )
- ---------------------------------------------------------------------------
PERSONAL GUARANTEE
(If Distribution Organization is a partnership, each partner must sign; if a
Corporation, the President and such other officers and directors as may be
required by the Company must sign.)
In consideration of the Company's designation of the above Distribution
Organization, the undersigned agree, jointly and severally, to personally
guarantee any and all indebtedness of the Distribution Organization to the
Company.
Signed this _____________________ day of __________________________, 19____.
____________________________________ ______________________________________
Witness Guarantor
____________________________________ ______________________________________
Witness Guarantor
____________________________________ ______________________________________
Witness Guarantor
<PAGE> 1
EXHIBIT 1.(A)(3)(c)
COMPENSATION SCHEDULE
(Distribution Organization)
Effective Date: April 1, 1987
This Schedule is part of the Distribution Organization's Agreement between the
Distribution Organization and Kemper Investors Life Insurance Company
("Company").
Compensation will be paid on premiums received on the Plan(s) of Insurance at
the percentage shown in accordance with the terms of the Distribution
Organization Agreement and the Compensation Schedule.
<TABLE>
<CAPTION>
PLANS OF INSURANCE/LIFE POLICY YEAR
6th
Plan Description 1st 2nd 3rd 4th 5th thru 10th
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Variable Life Insurance
Policy Form Series L-8001
KemperALTERNATIVE 5.75% -0- -0- -0- -0- -0-
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. BASIS FOR COMPENSATION
Compensation will be paid at the percentage shown upon receipt of premium
payment(s) under the policies identified in this Schedule.
II. CHARGE BACK OF COMPENSATION
A. Compensation will be charged back by credit against compensation to be
paid in the future and/or by requiring cash repayment by the
Distribution Organization.
B. 100% of compensation will be charged back on any policy that is
rescinded by the Company for cause.
C. With the exception of B above, surrender of a policy will result in a
charge back of compensation as follows:
Amount Withdrawn Attributable to Compensation
Premium Received Within the Charge Back
First 6 months 100%
7th through 12th month 50%
Thereafter 0%
D. No compensation adjustment will be made for termination of a policy
due to maturity or death.
III. NOTWITHSTANDING ANY OTHER PROVISION
A. The compensation specified in this Schedule will not be paid, and the
right to receive compensation and the amount of compensation to be
paid shall be determined by the Company, under the following
circumstances:
1. On policies not listed in this Schedule or introduced by the
Company after the effective date of this Schedule; and
2. On policies which are changed from the original version, under a
policy provision or otherwise, and on policies which are issued
using cash values of previously issued KILICO policies or
converted or exchanged for previously issued KILICO policies,
either under a policy provision or otherwise.
L-8010(4/87)
KEMPER INVESTORS LIFE INSURANCE COMPANY
120 S. LaSalle Street
Chicago, IL 60603
<PAGE> 2
B. Termination of the Distribution Organization's Agreement for any
reason, except termination for cause, shall not impair the right of
the agent to receive such compensation as may have accrued and been
payable on account of premium paid under policies issued on
applications procured by the Distribution Organization, or by a
licensed Agent operating under the supervision of the Distribution
Organization, prior to such termination.
WARRANTIES
In consideration of the compensation to be received under the Distribution
Organization's Agreement, as amended by this Schedule, the Distribution
Organization agrees and warrants that:
A. No person shall solicit or aid in the solicitation of any such
variable life policy unless such person shall be variable life
licensed pursuant to applicable state law, and such person has been
specifically appointed by the Company to solicit variable life
policies in the applicable jurisdictions.
B. The Distribution Organization shall not allow any person to solicit a
variable life policy unless such person is a registered representative
of a National Association of Security Dealers (NASD) broker/dealer
firm which has a Selling Group Agreement with Kemper Financial
Services, Inc.
C. All offerings and sales of variable life policies shall be made only
in accordance with the terms and conditions of a current prospectus
for the variable life policy, for any separate account, and for any
mutual funds which may serve as a funding vehicle for the variable
life policy.
D. The Distribution Organization warrants that neither the Distribution
Organization, nor any of the Distribution Organization's employees or
licensed Agents operating under the Distribution Organization's
supervision, will make any representation not included in the
product's prospectus, or authorized sales material supplied by the
Company.
E. In accordance with the terms of the Distribution Organization
Agreement, all sales material must be approved by the Company, in
writing, prior to use by the Distribution Organization or any employee
or licensed agent operating under the supervision of the Distribution
Organization.
APPLICABILITY
This Schedule supersedes and replaces any and all previous Compensation
Schedules for the policies identified in this Schedule and issued on and after
the effective date of this Schedule.
<PAGE> 3
COMPENSATION SCHEDULE
(Distribution Organization)
Effective Date: April 1, 1987
This Schedule is part of the Distribution Organization's Agreement between the
Distribution Organization and Kemper Investors Life Insurance Company
("Company").
Compensation will be paid on premiums received on the Plan(s) of Insurance at
the percentage shown in accordance with the terms of the Distribution
Organization's Agreement and the Compensation Schedule.
<TABLE>
<CAPTION>
PLANS OF INSURANCE/LIFE POLICY YEAR
6th
Plan Description 1st 2nd 3rd 4th 5th thru 10th
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Variable Life Insurance
Policy Form Series L-8001
KemperALTERNATIVE 4.50% -0- -0- -0- -0- -0-
</TABLE>
In addition to the premium compensation stated, an administrative service fee,
paid monthly, at any annual rate of .25 of 1.00% of Separate Account values
will be paid each month beginning with the policy's 13th monthly anniversary
and each succeeding monthly anniversary thereafter.
I. BASIS FOR COMPENSATION
Compensation will be paid at the percentage shown upon receipt of premium
payment(s) under the policies identified in this Schedule.
II. CHARGE BACK OF COMPENSATION
A. Compensation will be charged back by credit against compensation to be
paid in the future and/or by requiring cash repayment by the
Distribution Organization.
B. 100% of compensation will be charged back on any policy that is
rescinded by the Company for cause.
C. With the exception of B above, surrender of a policy will result in a
charge back of compensation as follows:
Amount Withdrawn Attributable to Compensation
Premium Received Within the Charge Back
First 6 months 100%
7th through 12th month 50%
Thereafter 0%
D. No compensation adjustment will be made for termination of a policy
due to maturity or death.
III. NOTWITHSTANDING ANY OTHER PROVISION
A. The compensation specified in this Schedule will not be paid, and the
right to receive compensation and the amount of compensation to be
paid shall be determined by the Company, under the following
circumstances:
1. On policies not listed in this Schedule or introduced by the
Company after the effective date of this Schedule; and
2. On policies which are changed from the original version, under a
policy provision or otherwise, and on policies which are issued
using cash values of previously issued KILICO policies or
converted or exchanged for previously issued KILICO policies,
either under a policy provision or otherwise.
L-8012 (4/87)
KEMPER INVESTORS LIFE INSURANCE COMPANY
120 S. LaSalle Street
Chicago, IL 60603
<PAGE> 4
B. Termination of the Distribution Organization's Agreement for any
reason, except termination for cause, shall not impair the right of
the agent to receive such compensation as may have accrued and been
payable on account of premium paid under policies issued on
applications procured by the Distribution Organization, or by a
licensed Agent operating under the supervision of the Distribution
Organization, prior to such termination.
WARRANTIES
In consideration of the compensation to be received under the Distribution
Organization's Agreement, as amended by this Schedule, the Distribution
Organization agrees and warrants that:
A. No person shall solicit or aid in the solicitation of any such
variable life policy unless such person shall be variable life
licensed pursuant to applicable state law, and such person has been
specifically appointed by the Company to solicit variable life
policies in the applicable jurisdictions.
B. The Distribution Organization shall not allow any person to solicit a
variable life policy unless such person is a registered representative
of a National Association of Security Dealers (NASD) broker/dealer
firm which has a Selling Group Agreement with Kemper Financial
Services, Inc.
C. All offerings and sales of variable life policies shall be made only
in accordance with the terms and conditions of a current prospectus
for the variable life policy, for any separate account, and for any
mutual funds which may serve as a funding vehicle for the variable
life policy.
D. The Distribution Organization warrants that neither the Distribution
Organization, nor any of the Distribution Organization's employees or
licensed Agents operating under the Distribution Organization's
supervision, will make any representation not included in the
product's prospectus, or authorized sales material supplied by the
Company.
E. In accordance with the terms of the Distribution Organization
Agreement, all sales material must be approved by the Company, in
writing, prior to use by the Distribution Organization or any employee
or licensed agent operating under the supervision of the Distribution
Organization.
APPLICABILITY
This Schedule supersedes and replaces any and all previous Compensation
Schedules for the policies identified in this Schedule and issued on and after
the effective date of this Schedule.
<PAGE> 5
BONUS COMPENSATION SCHEDULE
(General Agents)
Effective Date: April 1, 1987
This Schedule is part of the General Agent's Agreement between the General
Agent and Kemper Investors Life Insurance Company ("Company").
Compensation will be paid on premiums received on the Plan(s) of Insurance at
the percentage shown in accordance with the terms of the General Agent's
Agreement and the Compensation Schedule.
<TABLE>
<CAPTION>
PLANS OF INSURANCE/LIFE POLICY YEAR
6th
Plan Description 1st 2nd 3rd 4th 5th thru 10th
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Variable Life Insurance
Policy Form Series L-8001
KemperALTERNATIVE 5.25% -0- -0- -0- -0- -0-
</TABLE>
I. BASIS FOR COMPENSATION
Compensation will be paid at the percentage shown upon receipt of premium
payment(s) under the policies identified in this Schedule.
II. CHARGE BACK OF COMPENSATION
A. Compensation will be charged back by credit against compensation to be
paid in the future and/or by requiring cash repayment by the General
Agent.
B. 100% of compensation will be charged back on any policy that is
rescinded by the Company for cause.
C. With the exception of B above, surrender of a policy will result in a
charge back of compensation as follows:
Amount Withdrawn Attributable to Compensation
Premium Received Within the Charge Back
First 6 months 100%
7th through 12th month 50%
Thereafter 0%
D. No compensation adjustment will be made for termination of a policy
due to maturity or death.
III. NOTWITHSTANDING ANY OTHER PROVISION
A. The compensation specified in this Schedule will not be paid, and the
right to receive compensation and the amount of compensation to be
paid shall be determined by the Company, under the following
circumstances:
1. On policies not listed in this Schedule or introduced by the
Company after the effective date of this Schedule; and
2. On policies which are changed from the original version, under a
policy provision or otherwise, and on policies which are issued
using cash values of previously issued KILICO policies or
converted or exchanged for previously issued KILICO policies,
either under a policy provision or otherwise.
L-8008 (4/87)
KEMPER INVESTORS LIFE INSURANCE COMPANY
120 S. LaSalle Street
Chicago, IL 60603
<PAGE> 6
B. Termination of the General Agent's Agreement for any reason, except
termination for cause, shall not impair the right of the agent to
receive such compensation as may have accrued and been payable on
account of premium paid under policies issued on applications procured
by the General Agent, or by a licensed Agent operating under the
supervision of the General Agent, prior to such termination.
IV. WARRANTIES
In consideration of the compensation to be received under the General
Agent's Agreement, as amended by this Schedule, the General Agent agrees
and warrants that:
A. No person shall solicit or aid in the solicitation of any such
variable life policy unless such person shall be variable life
licensed pursuant to applicable state law, and such person has been
specifically appointed by the Company to solicit variable life
policies in the applicable jurisdictions.
B. The General Agent shall not allow any person to solicit a variable
life policy unless such person is a registered representative of a
National Association of Security Dealers (NASD) broker/dealer firm
which has a Selling Group Agreement with Kemper Financial Services,
Inc.
C. All offerings and sales of variable life policies shall be made only
in accordance with the terms and conditions of a current prospectus
for the variable life policy, for any separate account, and for any
mutual funds which may serve as a funding vehicle for the variable
life policy.
D. The General Agent warrants that neither the General Agent, nor any of
the General Agent's employees or licensed Agents operating under the
General Agent's supervision, will make any representation not included
in the product's prospectus, or authorized sales material supplied by
the Company.
E. In accordance with the terms of the General Agent's Agreement, all
sales material must be approved by the Company, in writing, prior to
use by the General Agent or any employee or licensed agent operating
under the supervision of the General Agent.
V. APPLICABILITY
This Schedule supersedes and replaces any and all previous Compensation
Schedules for the policies identified in this Schedule and issued on and
after the effective date of this Schedule.
<PAGE> 7
COMPENSATION SCHEDULE
(General Agents)
Effective Date: April 1, 1987
This Schedule is part of the General Agent's Agreement between the General
Agent and Kemper Investors Life Insurance Company ("Company").
Compensation will be paid on premiums received on the Plan(s) of Insurance at
the percentage shown in accordance with the terms of the General Agent's
Agreement and the Compensation Schedule.
<TABLE>
<CAPTION>
PLANS OF INSURANCE/LIFE POLICY YEAR
6th
Plan Description 1st 2nd 3rd 4th 5th thru 10th
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Variable Life Insurance
Policy Form Series L-8001
KemperALTERNATIVE 4.5 % -0- -0- -0- -0- -0-
</TABLE>
I. BASIS FOR COMPENSATION
Compensation will be paid at the percentage shown upon receipt of premium
payment(s) under the policies identified in this Schedule.
II. CHARGE BACK OF COMPENSATION
A. Compensation will be charged back by credit against compensation to be
paid in the future and/or by requiring cash repayment by the General
Agent.
B. 100% of compensation will be charged back on any policy that is
rescinded by the Company for cause.
C. With the exception of B above, surrender of a policy will result in a
charge back of compensation as follows:
Amount Withdrawn Attributable to Compensation
Premium Received Within the Charge Back
First 6 months 100%
7th through 12th month 50%
Thereafter 0%
D. No compensation adjustment will be made for termination of a policy
due to maturity or death.
III. NOTWITHSTANDING ANY OTHER PROVISION
A. The compensation specified in this Schedule will not be paid, and the
right to receive compensation and the amount of compensation to be
paid shall be determined by the Company, under the following
circumstances:
1. On policies not listed in this Schedule or introduced by the
Company after the effective date of this Schedule; and
2. On policies which are changed from the original version, under a
policy provision or otherwise, and on policies which are issued
using cash values of previously issued KILICO policies or
converted or exchanged for previously issued KILICO policies,
either under a policy provision or otherwise.
L-8006 (4/87)
KEMPER INVESTORS LIFE INSURANCE COMPANY
120 S. LaSalle Street
Chicago, IL 60603
<PAGE> 8
B. Termination of the General Agent's Agreement for any reason, except
termination for cause, shall not impair the right of the agent to
receive such compensation as may have accrued and been payable on
account of premium paid under policies issued on applications procured
by the General Agent, or by a licensed Agent operating under the
supervision of the General Agent, prior to such termination.
IV. WARRANTIES
In consideration of the compensation to be received under the General
Agent's Agreement, as amended by this Schedule, the General Agent agrees
and warrants that:
A. No person shall solicit or aid in the solicitation of any such
variable life policy unless such person shall be variable life
licensed pursuant to applicable state law, and such person has been
specifically appointed by the Company to solicit variable life
policies in the applicable jurisdictions.
B. The General Agent shall not allow any person to solicit a variable
life policy unless such person is a registered representative of a
National Association of Security Dealers (NASD) broker/dealer firm
which has a Selling Group Agreement with Kemper Financial Services,
Inc.
C. All offerings and sales of variable life policies shall be made only
in accordance with the terms and conditions of a current prospectus
for the variable life policy, for any separate account, and for any
mutual funds which may serve as a funding vehicle for the variable
life policy.
D. The General Agent warrants that neither the General Agent, nor any of
the General Agent's employees or licensed Agents operating under the
General Agent's supervision, will make any representation not included
in the product's prospectus, or authorized sales material supplied by
the Company.
E. In accordance with the terms of the General Agent's Agreement, all
sales material must be approved by the Company, in writing, prior to
use by the General Agent or any employee or licensed agent operating
under the supervision of the General Agent.
V. APPLICABILITY
This Schedule supersedes and replaces any and all previous Compensation
Schedules for the policies identified in this Schedule and issued on and
after the effective date of this Schedule.
<PAGE> 1
EXHIBIT 1-A(5)
KEMPER INVESTORS LIFE INSURANCE COMPANY
An Illinois stock corporation
1 Kemper Drive, Long Grove, Illinois 60049-0001
RIGHT TO CANCEL - This policy may be returned to the Company within ten days of
its receipt by the owner. It may be mailed or delivered to either the Company
or the agent who sold it. Upon receipt, this policy will be deemed void from
the beginning. Any premium paid will be refunded within seven days of receipt
of a notice of cancellation and the return of this policy.
On the Maturity Date, if the insured is living and this policy is in force, the
Company will pay the surrender value to the owner. If the insured dies prior to
the maturity date and this policy is in force, the Company will pay to the
beneficiary the death benefit in force at the time of the Insured's death.
Payment made to the owner 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 a
part of this policy.
SIGNED FOR THE COMPANY AT LONG GROVE, ILLINOIS
[sig] [sig]
Secretary President
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MATURES AT INSURANCE AGE 95
NON-PARTICIPATING
THE CASH VALUE IS BASED ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY
INCREASE OR DECREASE DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNT OR
DURATION OF THE DEATH BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE
DEATH BENEFIT AND TERMINATION PROVISIONS.
This is a legal contract between the owner and Kemper Investors Life Insurance
Company.
READ YOUR CONTRACT CAREFULLY
L-8001 (1/87)
<PAGE> 2
POLICY SCHEDULE
INITIAL
DESCRIPTION OF PLAN: PREMIUM
AMOUNT:
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE [$5,000]
MORTALITY AND EXPENSE RISK CHARGE: [.90% PER YEAR TO BE ASSESSED DAILY ON
THE SEPARATE ACCOUNT VALUE.]
POLICY NUMBER: [00000] DEATH BENEFIT: [$29,575.00]
INSURED: [JOHN DOE] POLICY DATE: [JANUARY 15, 1987]
AGE OF INSURED ON POLICY DATE: [35] MATURITY DATE: [JANUARY 15, 2048]
MONTHLY PROCESSING DAY: [15]
PREMIUM CLASS: [STANDARD/NON-SMOKER]
<PAGE> 3
POLICY SCHEDULE (CONTINUED)
INSURED: [JOHN DOE]
POLICY NUMBER: [00000]
TRADE DATE: [FEBRUARY 1, 1987]
VARIABLE ACCUMULATION UNDER SUBACCOUNTS: INITIAL ALLOCATION OF PREMIUM:
KILICO MONEY MARKET SUBACCOUNT] [20%]
KILICO TOTAL RETURN SUBACCOUNT] [20%]
KILICO HIGH YIELD SUBACCOUNT] [20%]
KILICO EQUITY SUBACCOUNT] [20%]
KILICO GOVERNMENT SECURITIES SUBACCOUNT] [20%]
<PAGE> 4
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 last birthday.
CASH VALUE - The cash value of this policy is the sum of the subaccount values
of the Separate Account plus the loan account value or prior to the trade date
any values in the general account.
DEBT - The principal of any outstanding loan under this policy plus any loan
interest due or accrued.
FUND - The Kemper Investors Fund, an open-end diversified investment company,
in which the Separate Account invests.
GENERAL ACCOUNT - The assets of the Company other than those allocated to the
Separate Account or any other separate account.
INSURANCE AGE - The age of the insured on the first day of any policy year. If
the first day of a policy year falls on the insured's birthday, the age
attained on such date is the insurance age.
MATURITY DATE - The maturity date is stated in the policy schedule. It is the
policy anniversary coinciding with or next following the insured's ninety-fifth
birthday.
MONTHLY PROCESSING DATE - The monthly processing date is stated in the policy
schedule. It is the same day in each month as the policy date. It is the day
from which policy months are determined.
MORTALITY AND EXPENSE RISK CHARGE - A charge deducted in the calculation of the
accumulation unit value for the assumption of mortality risks and expense
guarantees.
POLICY DATE, POLICY YEAR - The policy date is stated in the policy schedule.
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 the Company in U.S. currency as
consideration for the benefits to be provided under this policy.
SEPARATE ACCOUNT - A unit investment trust registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 known as 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 schedule.
SUBACCOUNT VALUE - Each subaccount shall 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: (1) any applicable surrender charge; and (2) any debt.
TRADE DATE - The trade date is stated in the policy schedule. It is the date
on which values are allocated to the KILICO Money Market subaccount.
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.
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. No statement will void this policy or be
used to deny a claim unless it is contained in the attached application(s).
MODIFICATION OF POLICY - Only the Company's 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. The owner has the exclusive right to cancel or
amend this policy by agreement with the Company and exercise every option and
right conferred by this policy, including the right of assignment. The Company
reserves the right to require the return of the policy for endorsement for any
change.
CHANGE OF OWNERSHIP - Ownership may be changed during the lifetime of the
insured by written notice from the owner in a form satisfactory to the Company.
After the Company receives written notice at its 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 the Company 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 schedule. 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) the owner requests that coverage terminate; (2)
the insured dies; (3) this policy matures; or (4) the grace period ends.
INCONTESTABILITY - This policy shall be incontestable after is has been in
force during the lifetime of the insured for two years from the issue date.
MISSTATEMENT OF AGE OR SEX - If the age or sex of the insured is misstated, the
death benefit and cash value will be recalculated from the policy date using
cost of insurance rates based on the correct sex and age.
Page 1
L-8001 (1/87)
<PAGE> 5
Page 2
L-8001 (1/87)
SUICIDE - Suicide, while sane or insane, within two years from the issue date
is a risk not assumed under this policy.
The Company's liability for such suicide is limited to the cash value less any
debt. When the laws of the state in which this policy is delivered require
less than a two year period, the period will be as stated in such laws.
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 the Company is required within
sixty days of such death or as soon thereafter as is reasonably possible.
BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY - The original beneficiary is
named in the application for this policy. If a beneficiary is not named, the
original beneficiary is the estate of the insured. The owner may change the
beneficiary by filing a written change with the Company 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 of filing for a change;
(3) such change must not be prohibited by the terms of an existing:
assignment, beneficiary designation, or other restriction;
(4) such change shall take effect upon receipt by the Company at its home
office;
(5) after receipt, the change shall take effect on the date the request for
change was signed. However, action taken by the Company before such request
was received shall remain valid; and
(6) the request for change provides information sufficient 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 survived that beneficiary.
ASSIGNMENT - No assignment of this policy is binding on the Company until it is
received by the Company at its home office. The Company assumes 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.
If this policy is assigned, the rights of the owner and beneficiary are subject
to the rights of the assignee of record.
CHANGE OF PLAN - Once during the first two policy years this policy may be
exchanged without imposition of any surrender charges for a permanent fixed
benefit life insurance policy offered by the Company on the life of the
insured. The Company will not require evidence of insurability. All
indebtedness under this policy must be repaid and the return of this policy is
required before the exchange is made.
The exchange will become effective when the Company receives at its home
office, proper written request for the policy exchange and any amount due the
Company on exchange. The amount of the new policy may be either the initial
death benefit or the same net amount at risk on the effective date of the
exchange. The new policy will have the same policy date, issue age and rate
classification as this policy. The policy owner and beneficiary of the new
policy will be the same as those of this policy on the effective date of the
exchange.
The exchange is subject to an equitable adjustment in premiums and policy
values to reflect variances, if any, in the premiums and values under both this
policy and the new policy.
NON-PARTICIPATING - This policy will not pay dividends. It will not
participate in any of the Company's surplus or earnings.
REPORTS - At least once each policy year the Company will send to the owner 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 AND DEATH BENEFIT - All reserves are greater than or equal
to those required by statute. Any cash value and death benefit that may be
available under this policy are not less than the minimum benefits required by
any statute 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 was delivered. The 1980 Commissioner's Standard
Ordinary Mortality Table, age last birthday, is the basis for minimum cash
values, death benefits and guaranteed maximum cost of insurance rates under
this policy.
TAX TREATMENT - This policy is intended to qualify as a life insurance policy
under the Internal Revenue Code. The Company 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 Internal Revenue Code and
its regulations or rulings. The owner 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 attributable to the Separate Account. The Company
may, however, in the future impose charges for federal income taxes
attributable to the Separate Account. Charges for other taxes, if any,
attributable to this policy may also be made.
PREMIUM PROVISIONS
INITIAL PREMIUM - The initial premium is stated in the policy schedule. It is
payable to the Company or to an authorized agent on or before delivery of this
policy.
ADDITIONAL PREMIUM - Subject to the premium guidelines established under
Federal tax law, additional premiums of $1,000 or more may be paid once each
policy year while this policy is in force. Evidence of insurability will be
required when the additional premium increases the death benefit. The Company
will furnish premium receipts upon request. Premiums received in
<PAGE> 6
excess of the premium guidelines will be refunded and no further premiums will
be accepted until allowed by the then current maximum premium limitations.
PREMIUM ALLOCATION - The initial premium will be held in the Company's general
account and will be credited with interest on the trade date as if the premium
had been in the KILICO Money Market subaccount, less applicable charges. On
the trade date, such values will be allocated to the KILICO Money Market
subaccount. Allocation of the KILICO Money Market subaccount value to the
subaccounts, as elected in the application by the owner, will occur 15 days
following the trade date.
The allocation stated in the application will apply until such time as changed
by the owner. The minimum initial allocation to a subaccount is $500.
GRACE PERIOD - If the surrender value on the day immediately preceding a
monthly processing date is less than the monthly cost of insurance 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 cost of insurance deductions.
This grace period will begin on the day the Company mails notice of the
required payment to the last known address of the owner and any assignee of
record.
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 cost of
insurance deductions.
REINSTATEMENT - If this policy lapses because of insufficient cash value to
cover the monthly cost of insurance deduction, and has not been surrendered for
its surrender value, it may be reinstated at any time within five years after
the date of lapse. The reinstatement is subject to:
(1) receipt of evidence of insurability satisfactory to the Company;
(2) payment of a minimum premium sufficient to keep this policy in force for
three months; and
(3) payment of any debt against this 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 the Company.
The suicide and incontestability provisions will apply from the effective date
of reinstatement. If this policy has been in force for two years during the
lifetime of the insured, it will be contestable only as to statements made in
the reinstatement application.
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
1940. It is a separate investment account maintained by the Company into which
a portion of company 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 shall not be charged with liabilities
arising out of any other business the Company may conduct.
If the assets of the Separate Account exceed the liabilities arising under the
policies supported by the Separate Account, then the excess may be used to
cover the liabilities of the Company's general account. The assets of the
Separate Account shall be valued on each valuation date.
SUBACCOUNTS - The Separate Account consists of several subaccounts as shown in
the policy schedule. The Company may, from time to time, combine or remove
subaccounts in the Separate Account and establish additional subaccounts to the
Separate Account. In such event the policy owner may be permitted to select
other subaccounts under this policy. However, the right to make any such
selection shall be limited by the terms and conditions the Company may impose
on such transactions.
SERIES FUND - Each subaccount of the Separate Account will buy shares of a
separate series of the Kemper Investors Fund. The Kemper Investors Fund is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Each series of the Kemper Investors Series Fund
represents a separate investment portfolio which corresponds to one of the
subaccounts of the Separate Account.
If the Company establishes additional subaccounts each new subaccount will
invest in a new series of the Kemper Investors Fund or in shares of another
investment company. The Company may also substitute other investment
companies.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT OBJECTIVES - Unless otherwise
required by law or regulation, the investment adviser or any investment
objective may not be changed without Company 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 THE COMPANY - The Company reserves the right, subject to
compliance with the law as currently applicable or subsequently changed:
(1) to operate the Separate Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law;
(2) to take any action necessary to comply with or obtain and continue any
exemptions from the Investment Company Act of 1940 or to comply with any other
applicable law;
L-8001 (1/87)
Page 3
<PAGE> 7
Page 4
L-8001 (1/87)
(3) to transfer any assets in any subaccount to another subaccount or to one or
more separate accounts, or the Company's 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 fund or any other
open-end investment company and to substitute, for the fund shares held in any
subaccount, the shares of another portfolio of the fund or the shares of
another investment company or any other investment permitted by law; and
(5) to change the way the Company assesses shares, but without increasing the
aggregate amount beyond that currently charged to the Separate Account and the
fund in connection with the policies.
When required by law, the Company will obtain the owner's approval of such
changes and the approval of any regulatory authority.
TRANSFER PROVISIONS
TRANSFERS - The owner 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 during the Right to Cancel period. Thereafter,
one transfer shall be permitted in each thirty day period. All transfers which
occur during one business day will be considered one transfer;
(2) the minimum amount which may be transferred is $500.00 or, if smaller, the
remaining value of this policy's interest in a subaccount; and
(3) no partial transfer shall be made if the owner's remaining subaccount value
shall be less than $500.00 after such transfer unless this policy's interest in
such subaccount is eliminated by means of such transfer.
The Company reserves the right at any time and without prior notice to any
party to terminate, suspend or modify the transfer provision described above.
Any transfer direction must clearly specify the amount which is to be
transferred and the names of the subaccounts which are to be affected. A
telephone transfer direction shall be honored by the Company only if a properly
executed telephone transfer authorization is on file with the Company, and if
such transfer direction complies with the authorization's conditions.
NONFORFEITURE PROVISIONS
CASH VALUE - The cash value of this policy is equal to the sum of the
subaccount values plus the loan account value or prior to the trade date any
values in the general account.
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 premiums received and allocated to the subaccount during the current
valuation period; plus
(3) any cash value transferred into the subaccount during the current valuation
period; minus
(4) any cash value transferred from the subaccount; minus
(5) the pro rata portion of the monthly cost of insurance deduction
attributable to a subaccount whenever a valuation period includes a monthly
processing date.
ACCUMULATION UNIT VALUE - Each subaccount has an accumulation unit value. For
each subaccount, the accumulation unit value was initially set at $1.00. 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:
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 the Company determines to have resulted from the investment operations of
the subaccount;
(2) is the net asset value per share of the investment held in the subaccount,
determined at the end of the last prior valuation period;
(3) is the factor representing the mortality and expense risk charge sated in
the policy schedule for the number of days in the valuation period.
INSUFFICIENT CASH VALUE - This policy will terminate as provided in the grace
period provision if the surrender value on the date immediately preceding a
monthly processing date is:
(1) insufficient to cover the monthly cost of insurance deduction for the month
following such monthly processing date; and
(2) no premium payment or loan repayment sufficient to cover at least three
monthly cost of insurance deductions is received before the end of the grace
period.
<PAGE> 8
Any deduction for the cost of insurance after termination of insurance will not
be considered a reinstatement of this policy or a waiver by the Company of the
termination.
COST OF INSURANCE - The cost of insurance is determined on a monthly basis.
The deduction will be allocated among the subaccounts in proportion to the
value that each subaccount bears to the separate account value at the beginning
of the policy month. The cost of insurance deduction will be made as of the
policy date and on each monthly processing date.
The cost of insurance deduction on the policy date and each monthly processing
date thereafter is equal to (1) multiplied by the result of (2) minus (3)
where:
(1) is the cost of insurance rate, as described in the cost of insurance rate
section;
(2) is the death benefit divided by 1.0032737; and
(3) is the cash value.
COST OF INSURANCE RATE - The monthly cost of insurance rate is based on the
sex, insurance age and rate classification of the insured. The monthly cost of
insurance rate will be determine by the Company based on its expectations as to
future mortality experience.
Any change in the cost of insurance rates will apply to all individuals of the
same class as the insured. At no time will such rate ever be greater than
those shown in the table of guaranteed maximum cost of insurance rates.
POLICY LOAN PROVISIONS
POLICY LOANS - On and after the first monthly processing date, the Company will
lend up to a maximum loan amount of 90% of this policy's cash value less any
applicable surrender charges. 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, subaccount values equal to the loan amount will
be transferred to the loan account held in the general account until the loan
is repaid. Amount in excess of premium will be loaned first. Unless directed
otherwise, the loaned amount will be deducted from the subaccounts is
proportion to the values that each subaccount bears to the separate account
value.
Should the debt equal or exceed the cash value less surrender charge, this
policy will terminate 61 days after notice has been mailed to the owner and to
any assignee at their last known address.
Cash values derived from premium received by the Company in the form of a check
or draft shall not be available for loans until 30 days after deposit of such
check or draft.
POLICY LOAN INTEREST - The loan interest rate will be 6.00% per year compounded
daily at the daily equivalent of a 6.00% annual rate. Interest not paid will
be charged on a daily basis and will be added to the indebtedness and bear
interest at the same rate.
POLICY LOAN REPAYMENT - A debt may be repaid in full or in part at any time
while this policy is in force.
Repayment of debt will be applied first to reduce that portion of debt
attributable to interest on loaned premium; second, to that portion of the debt
attributable to premium; third to that portion of the debt attributable to
interest on loaned amounts in excess of premium; and fourth to that portion of
the debt attributable to loaned amounts in excess of premium.
As debt is paid, cash value in the loan account equal to the amount of
repayment which exceeds the difference between interest due and interest earned
will be allocated to the subaccounts according to the then current premium
allocation instructions.
EFFECT OF POLICY LOANS - During the existence of a loan, cash values within the
loan account attributable to premium will earn no less than 4.00% per year.
Cash values within the loan account attributable to amounts in excess of
premium (as it is adjusted from time to time pursuant to the policy loan
provision) will earn no less than 6.00% per year. Interest will be earned on a
daily basis and will be added to the loan account.
SURRENDER VALUE PROVISIONS
SURRENDER - This policy may be surrendered for its surrender value upon written
request by the owner and return of this policy to the Company at its home
office. The request must be made during the lifetime of the insured and while
this policy is in force. The return of this policy is required before the
surrender value is paid.
Payment of the surrender value shall discharge the Company from its obligations
under this policy. A surrender may subject the amount surrendered to a
surrender charge.
The Company will pay the surrender value of this policy to the owner on the
maturity date if the insured is living and this policy is in force.
SURRENDER CHARGE - During the first nine policy years a surrender charge shall
be assessed if this policy is surrendered or if the cash value is applied under
a settlement option. However, a surrender charge will not be assessed against
cash values applied under a settlement option if this policy has been in force
for five or more years and the settlement option elected provides for the
payment of benefits for at least five years.
Any applicable surrender charge shall be applied against the lesser of the
premium paid in the first policy year or the cash value at the time of the
surrender or application under a settlement option. The Surrender Charge Table
is as follows:
SURRENDER CHARGE TABLE
POLICY YEAR 1 2 3 4 5 6 7 8 9 10 & later
SURRENDER 9% 8% 7% 6% 5% 4% 3% 2% 1% 0
CHARGE
In no event will a surrender charge in any year exceed $60 per $1,000 of
initial death benefit.
L-8001 (1/87)
Page 5
<PAGE> 9
Page 6
L-8001 (1/87)
TRANSFER AND SURRENDER PROCEDURES
A surrender of transfer will be effective at the end of the valuation period
following a telephone transfer direction or receipt by the Company at its home
office of a written transfer or surrender request which contains all required
information.
Accumulation units shall be redeemed to the extent necessary to achieve the
dollar amount of the surrender or transfer. The accumulation units credited in
each subaccount shall 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 the
Company. An amount surrendered shall be paid within seven calendar days after
the date proper written election is received by the Company 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.
INSURANCE COVERAGE PROVISIONS
DEATH BENEFIT - On any valuation date the death benefit of this policy is the
greater of: (1) the death benefit stated on schedule page less debt; or (2) the
amount determined by multiplying the cash value by the factor shown in the
Table of Death Benefit Factors for the then insurance age of the insured less
debt.
PAYMENT OF DEATH BENEFIT - Death benefits will be paid following receipt by the
Company at its 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 payment is made.
Proceeds that are payable in one sum at the death of the insured will be
increased to include interest at the greater of a rate declared by the Company
or the rate provided by statute. Such interest will be paid for the period
from the date of the insured's death to the date of payment. This period will
not exceed the greater of one year or the period of time provided by statute.
SETTLEMENT PROVISIONS
SETTLEMENT OPTIONS - Instead of the Company paying all of the death benefit or
surrender value of this policy due in one sum, amount of $4,000 or more 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.
If the amount of any payment under a settlement option is less than $100, the
Company may increase the interval between payments to a quarterly, semi-annual
or annual payment to make the payment at least $100.
ELECTION OF SETTLEMENT OPTION - Election of a settlement option may be made by
written notice to the Company. This election may be made:
(1) by the owner during the lifetime of the insured;
(2) by the beneficiary if no election made by the owner is in effect at the
time of the death of the insured; or
(3) by the beneficiary if the owner reserves the right to 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 shall be revoked by a
subsequent change of beneficiary or an assignment of this policy, unless
provided otherwise.
GENERAL CONDITIONS - The cash value on the day immediately preceding the date
on which the first benefit payment is due shall first be reduced by any
applicable surrender charge and debt. The remaining value shall be used to
determine the monthly benefit payment. For settlement Options 1 through 5, the
monthly payment shall be based upon the settlement option elected in accordance
with the appropriate settlement option table.
OPTION 1
INCOME FOR SPECIFIED PERIOD - The Company will pay income for the period and
payment mode elected but not less than 3 years nor more than 30 years.
OPTION 2
LIFE INCOME - The Company will pay a monthly income to the payee during the
payee's lifetime.
OPTION 3
LIFE INCOME WITH INSTALLMENTS GUARANTEED - The Company 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 - The Company 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.
OPTION 5
PENSION AND SURVIVOR SETTLEMENT - The Company will pay the full monthly income
during the lifetime of the primary payee. Such payments will continue whether
or not the secondary payee is living. If the primary payee dies before the
secondary payee dies, the benefits will continue during the lifetime of the
secondary payee. However, such benefits will be for the percentage chosen for
such continuation at the time this option is elected.
<PAGE> 10
OPTION 6
INCOME OF SPECIFIED AMOUNT - The Company will pay the amount elected for as
long as the amount applied and interest will last. The minimum income which
may be elected is $10.00 per month for each $1,000 applied.
OPTION 7
PROCEEDS LEFT AT INTEREST - The Company will hold the amount applied on
deposit, subject to any withdrawal limits stated in the supplementary contract.
Interest will be paid on the amount deposited at the rate established by the
Company.
OTHER SETTLEMENT ARRANGEMENTS - May be available with Company 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 shall be the date of death.
Otherwise its effective date will be the date chosen by the owner.
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 - The Company 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.
INTEREST AND MORTALITY - Interest on funds held by the Company under Options 1,
6 and 7 shall be at the rate of 4.00% per year. The sums payable under the
Options 2, 3, 4 and 5 are based on the 1971 Individual Annuity Mortality
Tables, male and female, at 4.00% interest per year. Interest shall be
compounded annually. Additionally interest earnings, if any, will be paid as
determined by the Company.
DISBURSEMENT OF FUNDS UPON DEATH OF PAYEE: UNDER OPTIONS 1, 3, 6 OR 7 - At
payee's death, the following amounts will be paid in one sum to the estate of
the payee, unless otherwise provided in the supplementary contract:
(1) under Option 1 or 3, the commuted value, based on 4.00% interest, of any
remaining unpaid guaranteed installments;
(2) under Option 6, any remaining principal amount and accrued interest; and
(3) under Option 7, the amount left on deposit and unpaid interest.
PROTECTION OF BENEFITS - Unless otherwise provided in the supplementary
contract the payee may not: (1) commute; (2) anticipate; (3) assign; (4)
alienate; or (5) otherwise encumber any payment to be received.
CREDITORS - The proceeds of the policy and any payment under an option will be
exempt from the claim of creditors and from legal process to the extent
permitted by law.
L-8001 (1/87)
Page 7
<PAGE> 11
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
INSURANCE DEATH INSURANCE DEATH INSURANCE DEATH
AGE BENEFIT FACTOR AGE BENEFIT FACTOR AGE BENEFIT FACTOR
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-40 2.50 54 1.57 68 1.17
41 2.43 55 1.50 69 1.16
42 2.36 56 1.46 70 1.15
43 2.29 57 1.42 71 1.13
44 2.22 58 1.38 72 1.11
45 2.15 59 1.34 73 1.09
46 2.09 60 1.30 74 1.07
47 2.03 61 1.28 75-90 1.05
48 1.97 62 1.26 91 1.04
49 1.91 63 1.24 92 1.03
50 1.85 64 1.22 93 1.02
51 1.78 65 1.20 94 1.01
52 1.71 66 1.19 95 1.00
53 1.64 67 1.18
</TABLE>
Page 8
<PAGE> 12
OPTION TABLES
OPTION 1 - INCOME FOR SPECIFIED PERIOD*
AMOUNT OF INSTALLMENT FOR PERIOD AND PAYMENT MODE ELECTED
(FOR EACH $1000 APPLIED)
<TABLE>
<CAPTION>
SPECIFIED
PERIOD
(YEARS) ANNUAL SEMI-ANNUAL QUARTERLY MONTHLY
<S> <C> <C> <C> <C>
3 346.49 174.94 87.90 29.40
4 264.89 133.75 67.20 22.47
5 215.99 109.05 54.79 18.32
6 183.42 92.61 46.53 15.56
7 160.20 80.89 40.64 13.59
8 142.82 72.11 36.23 12.12
9 129.32 65.29 32.81 10.97
10 118.55 59.86 30.07 10.06
15 86.48 43.66 21.94 7.34
20 70.75 35.72 17.95 6.00
25 61.55 31.08 15.61 5.22
30 55.61 28.08 14.11 4.72
</TABLE>
* Values for specified periods not shown will be furnished
by the Company upon request.
OPTION 2 - LIFE INCOME*
MONTHLY INSTALLMENT FOR EACH $1000 APPLIED
<TABLE>
<CAPTION>
MONTHLY INCOME MONTHLY INCOME
AGE MALE FEMALE AGE MALE FEMALE
<S> <C> <C> <C> <C> <C>
35 4.17 3.96 60 6.20 5.56
36 4.21 3.99 61 6.35 5.69
37 4.25 4.02 62 6.51 5.82
38 4.30 4.06 63 6.69 5.96
39 4.35 4.09 64 6.87 6.11
40 4.40 4.13 65 7.07 6.27
41 4.45 4.17 66 7.28 6.45
42 4.51 4.21 67 7.51 6.64
43 4.57 4.26 68 7.75 6.85
44 4.63 4.31 69 8.01 7.08
45 4.70 4.36 70 8.30 7.33
46 4.77 4.41 71 8.60 7.60
47 4.85 4.46 72 8.93 7.90
48 4.92 4.52 73 9.28 8.22
49 5.00 4.59 74 9.67 8.57
50 5.09 4.65 75 10.08 8.95
51 5.17 4.72 76 10.53 9.37
52 5.27 4.80 77 11.02 9.82
53 5.36 4.87 78 11.54 10.32
54 5.47 4.96 79 12.12 10.86
55 5.57 5.05 80 12.74 11.46
56 5.68 5.14 81 13.41 12.11
57 5.80 5.24 82 14.14 12.82
58 5.93 5.34 83 14.95 13.59
59 6.06 5.45 84 15.84 14.43
85 16.83 15.34
</TABLE>
*Values for ages not shown will be furnished by the
Company upon request.
OPTION 3 - LIFE INCOME WITH INSTALLMENTS
GUARANTEED*
MONTHLY INSTALLMENTS FOR EACH $1000 APPLIED
<TABLE>
<CAPTION>
GUARANTEED PERIOD (M = MALE F = FEMALE)
5YR 5YR 10YR 10YR 15YR 15YR 20YR 20 YR
AGE M F M F M F M F
<S> <C> <C> <C> <C> <C> <C> <C> <C>
35 4.16 3.96 4.15 3.95 4.14 3.94 4.11 3.93
36 4.20 3.99 4.19 3.98 4.18 3.97 4.15 3.96
37 4.25 4.02 4.24 4.01 4.22 4.00 4.19 3.99
38 4.29 4.05 4.28 4.05 4.26 4.04 4.22 4.02
39 4.34 4.09 4.33 4.08 4.30 4.07 4.26 4.06
40 4.39 4.13 4.38 4.12 4.35 4.11 4.30 4.09
41 4.45 4.17 4.43 4.16 4.40 4.15 4.34 4.13
42 4.50 4.21 4.48 4.20 4.45 4.19 4.39 4.16
43 4.56 4.25 4.54 4.25 4.50 4.23 4.43 4.20
44 4.63 4.30 4.60 4.29 4.55 4.27 4.48 4.24
45 4.69 4.35 4.66 4.34 4.60 4.32 4.53 4.28
46 4.76 4.40 4.72 4.39 4.66 4.37 4.57 4.33
47 4.83 4.46 4.79 4.44 4.72 4.42 4.62 4.37
48 4.91 4.52 4.86 4.50 4.78 4.47 4.68 4.42
49 4.99 4.58 4.93 4.56 4.84 4.52 4.73 4.47
50 5.07 4.64 5.01 4.62 4.91 4.58 4.78 4.52
51 5.15 4.71 5.08 4.69 4.98 4.64 4.84 4.57
52 5.24 4.79 5.17 4.76 5.05 4.70 4.89 4.63
53 5.34 4.86 5.25 4.83 5.12 4.77 4.95 4.69
54 5.43 4.95 5.34 4.91 5.19 4.84 5.01 4.75
55 5.54 5.03 5.43 4.99 5.27 4.91 5.06 4.81
56 5.64 5.12 5.53 5.07 5.35 4.99 5.12 4.87
57 5.76 5.22 5.63 5.16 5.43 5.06 5.18 4.93
58 5.88 5.32 5.73 5.25 5.51 5.15 5.24 5.00
59 6.01 5.42 5.84 5.35 5.60 5.23 5.30 5.07
60 6.14 5.53 5.96 5.45 5.69 5.32 5.36 5.14
61 6.28 5.65 6.08 5.56 5.78 5.41 5.42 5.20
62 6.43 5.78 6.21 5.68 5.87 5.51 5.48 5.27
63 6.59 5.92 6.34 5.80 5.97 5.61 5.53 5.34
64 6.77 6.06 6.48 5.93 6.06 5.71 5.59 5.41
65 6.95 6.22 6.62 6.07 6.16 5.82 5.64 5.48
66 7.14 6.39 6.77 6.22 6.26 5.93 5.69 5.54
67 7.35 6.57 6.93 6.37 6.35 6.04 5.73 5.60
68 7.57 6.77 7.09 6.54 6.45 6.15 5.78 5.66
69 7.81 6.99 7.26 6.71 6.54 6.26 5.81 5.71
70 8.06 7.22 7.43 6.89 6.63 6.38 5.85 5.76
71 8.32 7.47 7.60 7.08 6.72 6.49 5.88 5.81
72 8.60 7.74 7.78 7.28 6.80 6.59 5.91 5.84
73 8.90 8.03 7.96 7.48 6.88 6.69 5.93 5.88
74 9.22 8.34 8.14 7.68 6.95 6.79 5.95 5.90
75 9.55 8.67 8.32 7.89 7.02 6.87 5.97 5.92
76 9.90 9.02 8.50 8.10 7.08 6.95 5.98 5.94
77 10.27 9.40 8.67 8.30 7.13 7.02 5.99 5.96
78 10.66 9.80 8.84 8.50 7.18 7.08 5.99 5.97
79 11.06 10.22 9.01 8.69 7.22 7.13 6.00 5.98
80 11.48 10.66 9.16 8.88 7.25 7.17 6.00 5.98
81 11.92 11.12 9.31 9.04 7.28 7.21 6.00 5.99
82 12.38 11.60 9.44 9.20 7.29 7.24 6.00 5.99
83 12.85 12.08 9.57 9.33 7.31 7.26 6.00 6.00
84 13.34 12.57 9.67 9.45 7.32 7.28 6.00 6.00
85 13.83 13.06 9.76 9.56 7.33 7.29 6.00 6.00
</TABLE>
*Values for ages not shown will be furnished by the
Company upon request.
Page 9
<PAGE> 13
OPTION 4 - JOINT AND SURVIVOR ANNUITY
(66-2/3% CONTINUING SURVIVOR BENEFIT)
MONTHLY INSTALLMENT FOR EACH $1000 APPLIED*
<TABLE>
<CAPTION>
MALE FEMALE AGE
AGE 55 56 57 58 59 60 61
<S> <C> <C> <C> <C> <C> <C> <C>
55 5.04 5.09 5.13 5.18 5.23 5.28 5.34
56 5.08 5.13 5.18 5.23 5.28 5.33 5.39
57 5.12 5.17 5.22 5.27 5.33 5.38 5.44
58 5.16 5.21 5.27 5.32 5.38 5.43 5.49
59 5.21 5.26 5.31 5.37 5.43 5.49 5.55
60 5.25 5.30 5.36 5.42 5.48 5.54 5.60
61 5.29 5.35 5.41 5.47 5.53 5.59 5.66
62 5.34 5.40 5.46 5.52 5.58 5.65 5.72
63 5.39 5.45 5.51 5.57 5.64 5.71 5.77
64 5.43 5.49 5.56 5.62 5.69 5.76 5.83
65 5.48 5.54 5.61 5.68 5.75 5.82 5.90
66 5.53 5.60 5.66 5.73 5.81 5.88 5.96
67 5.58 5.65 5.72 5.79 5.86 5.94 6.02
68 5.63 5.70 5.77 5.85 5.92 6.00 6.09
69 5.68 5.75 5.83 5.90 5.98 6.07 6.15
70 5.74 5.81 5.88 5.96 6.05 6.13 6.22
71 5.79 5.86 5.94 6.02 6.11 6.19 6.29
72 5.84 5.92 6.00 6.08 6.17 6.26 6.35
73 5.90 5.98 6.06 6.14 6.23 6.33 6.42
74 5.95 6.03 6.12 6.21 6.30 6.39 6.49
75 6.01 6.09 6.18 6.27 6.36 6.46 6.56
<CAPTION>
AGE 62 63 64 65 66 67 68
<S> <C> <C> <C> <C> <C> <C> <C>
55 5.39 5.45 5.50 5.56 5.62 5.69 5.75
56 5.44 5.50 5.56 5.62 5.68 5.75 5.82
57 5.50 5.56 5.62 5.68 5.75 5.82 5.89
58 5.55 5.61 5.68 5.74 5.81 5.88 5.96
59 5.61 5.67 5.74 5.81 5.88 5.95 6.03
60 5.67 5.73 5.80 5.87 5.95 6.02 6.10
61 5.73 5.79 5.87 5.94 6.02 6.10 6.18
62 5.79 5.86 5.93 6.01 6.09 6.17 6.26
63 5.85 5.92 6.00 6.08 6.16 6.25 6.34
64 5.91 5.99 6.07 6.15 6.24 6.33 6.42
65 5.97 6.05 6.14 6.22 6.31 6.41 6.51
66 6.04 6.12 6.21 6.30 6.39 6.49 6.59
67 6.11 6.19 6.28 6.38 6.47 6.58 6.68
68 6.17 6.26 6.36 6.45 6.56 6.66 6.77
69 6.24 6.33 6.43 6.53 6.64 6.75 6.87
70 6.31 6.41 6.51 6.61 6.72 6.84 6.96
71 6.38 6.48 6.58 6.69 6.81 6.93 7.06
72 6.45 6.56 6.66 6.78 6.90 7.02 7.15
73 6.52 6.63 6.74 6.86 6.98 7.11 7.25
74 6.60 6.71 6.82 6.94 7.07 7.21 7.35
75 6.67 6.78 6.90 7.03 7.16 7.30 7.45
<CAPTION>
AGE 69 70 71 72 73 74 75
<S> <C> <C> <C> <C> <C> <C> <C>
55 5.82 5.89 5.96 6.03 6.10 6.18 6.26
56 5.89 5.96 6.03 6.11 6.18 6.26 6.34
57 5.96 6.03 6.11 6.19 6.27 6.35 6.43
58 6.03 6.11 6.19 6.27 6.35 6.44 6.52
59 6.11 6.19 6.27 6.35 6.44 6.53 6.62
60 6.18 6.27 6.35 6.44 6.53 6.62 6.72
61 6.26 6.35 6.44 6.53 6.63 6.72 6.82
62 6.35 6.44 6.53 6.63 6.73 6.83 6.93
63 6.43 6.53 6.62 6.73 6.83 6.93 7.04
64 6.52 6.62 6.72 6.83 6.93 7.04 7.15
65 6.61 6.71 6.82 6.93 7.04 7.16 7.27
66 6.70 6.81 6.92 7.04 7.15 7.28 7.40
67 6.79 6.91 7.03 7.15 7.27 7.40 7.53
68 6.89 7.01 7.13 7.26 7.39 7.52 7.66
69 6.99 7.11 7.24 7.38 7.51 7.65 7.80
70 7.09 7.22 7.35 7.49 7.64 7.79 7.94
71 7.19 7.33 7.47 7.62 7.77 7.92 8.08
72 7.29 7.44 7.59 7.74 7.90 8.06 8.23
73 7.40 7.55 7.70 7.87 8.03 8.21 8.38
74 7.50 7.66 7.82 7.99 8.17 8.35 8.54
75 7.61 7.77 7.94 8.12 8.31 8.50 8.70
</TABLE>
OPTION 5 - PENSION AND SURVIVOR ANNUITY
PRIMARY PAYEE - MONTHLY INSTALLMENT FOR EACH $1000 APPLIED
WHEN THE PRIMARY PAYEE IS MALE AND THE SECONDARY
PAYEE IS FEMALE*
(100% MALE CONTINUING SURVIVOR BENEFIT)
(50% FEMALE CONTINUING SURVIVOR BENEFIT)
<TABLE>
<CAPTION>
MALE SECONDARY PAYEE - FEMALE AGE
AGE 55 56 57 58 59 60 61
<S> <C> <C> <C> <C> <C> <C> <C>
55 5.04 5.06 5.08 5.11 5.13 5.16 5.18
56 5.10 5.12 5.15 5.18 5.20 5.23 5.25
57 5.16 5.19 5.22 5.24 5.27 5.30 5.33
58 5.22 5.25 5.28 5.31 5.34 5.37 5.40
59 5.29 5.32 5.35 5.39 5.42 5.45 5.48
60 5.36 5.39 5.43 5.46 5.49 5.53 5.56
61 5.43 5.46 5.50 5.54 5.57 5.61 5.65
62 5.50 5.54 5.58 5.62 5.65 5.69 5.73
63 5.57 5.61 5.66 5.70 5.74 5.78 5.82
64 5.65 5.69 5.74 5.78 5.82 5.87 5.91
65 5.73 5.77 5.82 5.87 5.91 5.96 6.01
66 5.81 5.86 5.91 5.95 6.00 6.05 6.11
67 5.89 5.94 5.99 6.05 6.10 6.15 6.21
68 5.98 6.03 6.08 6.14 6.19 6.25 6.31
69 6.07 6.12 6.18 6.24 6.29 6.35 6.42
70 6.16 6.21 6.27 6.33 6.40 6.46 6.53
71 6.25 6.31 6.37 6.44 6.50 6.57 6.64
72 6.34 6.41 6.47 6.54 6.61 6.68 6.75
73 6.44 6.51 6.58 6.65 6.72 6.79 6.87
74 6.54 6.61 6.68 6.75 6.83 6.91 6.99
75 6.64 6.71 6.79 6.86 6.94 7.03 7.11
<CAPTION>
AGE 62 63 64 65 66 67 68
<S> <C> <C> <C> <C> <C> <C> <C>
55 5.20 5.22 5.24 5.27 5.29 5.31 5.32
56 5.28 5.30 5.32 5.35 5.37 5.39 5.41
57 5.35 5.38 5.40 5.43 5.45 5.48 5.50
58 5.43 5.46 5.49 5.51 5.54 5.57 5.59
59 5.51 5.54 5.57 5.60 5.63 5.66 5.69
60 5.60 5.63 5.66 5.69 5.73 5.76 5.79
61 5.68 5.72 5.75 5.79 5.82 5.86 5.89
62 5.77 5.81 5.85 5.89 5.92 5.96 6.00
63 5.86 5.90 5.95 5.99 6.03 6.07 6.11
64 5.96 6.00 6.05 6.09 6.14 6.18 6.23
65 6.06 6.10 6.15 6.20 6.25 6.30 6.35
66 6.16 6.21 6.26 6.31 6.37 6.42 6.47
67 6.26 6.32 6.37 6.43 6.49 6.54 6.60
68 6.37 6.43 6.49 6.55 6.61 6.67 6.74
69 6.48 6.54 6.61 6.67 6.74 6.81 6.87
70 6.59 6.66 6.73 6.80 6.87 6.94 7.02
71 6.71 6.78 6.85 6.93 7.01 7.09 7.17
72 6.83 6.90 6.98 7.06 7.15 7.23 7.32
73 6.95 7.03 7.11 7.20 7.29 7.38 7.47
74 7.07 7.16 7.25 7.34 7.43 7.53 7.63
75 7.20 7.29 7.38 7.48 7.58 7.69 7.79
<CAPTION>
AGE 69 70 71 72 73 74 75
<S> <C> <C> <C> <C> <C> <C> <C>
55 5.34 5.36 5.38 5.39 5.41 5.42 5.44
56 5.43 5.45 5.47 5.49 5.50 5.52 5.53
57 5.52 5.54 5.56 5.58 5.60 5.62 5.64
58 5.62 5.64 5.66 5.68 5.71 5.72 5.74
59 5.71 5.74 5.77 5.79 5.81 5.83 5.85
60 5.82 5.85 5.87 5.90 5.93 5.95 5.97
61 5.92 5.96 5.99 6.02 6.04 6.07 6.09
62 6.03 6.07 6.10 6.14 6.17 6.20 6.22
63 6.15 6.19 6.23 6.26 6.30 6.33 6.36
64 6.27 6.31 6.35 6.39 6.43 6.47 6.50
65 6.39 6.44 6.49 6.53 6.57 6.61 6.65
66 6.52 6.58 6.62 6.67 6.72 6.77 6.81
67 6.66 6.71 6.77 6.82 6.88 6.93 6.97
68 6.80 6.86 6.92 6.98 7.04 7.09 7.15
69 6.94 7.01 7.08 7.14 7.20 7.27 7.33
70 7.09 7.16 7.24 7.31 7.38 7.45 7.51
71 7.25 7.33 7.40 7.48 7.56 7.64 7.71
72 7.40 7.49 7.58 7.66 7.75 7.83 7.92
73 7.57 7.66 7.76 7.85 7.94 8.04 8.13
74 7.73 7.84 7.94 8.04 8.15 8.25 8.35
75 7.90 8.01 8.13 8.24 8.35 8.46 8.58
</TABLE>
*Values for other ages, sex and percent combinations will be furnished by the
Company upon request.
<PAGE> 14
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
STANDARD RATE CLASSIFICATION
Monthly Cost of Insurance - Rate per $1,000
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Insurance Male Female Insurance Male Female Insurance Male Female
Age Age Age
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 $.21921 $.15669 32 $.12668 $.11085 64 $ 1.67447 $ 1.07532
1 .08584 .07000 33 .13168 .11501 65 1.85761 1.18975
2 .08251 .06667 34 .13752 .12001 66 2.05583 1.30838
3 .08084 .06500 35 .14419 .12585 67 2.26847 1.42954
4 .07751 .06417 36 .15169 .13418 68 2.49957 1.55491
5 .07334 .06250 37 .16169 .14419 69 2.75591 1.69453
6 .06917 .06084 38 .17253 .15502 70 3.04592 1.85845
7 .06500 .05917 39 .18420 .16669 71 3.37720 2.05839
8 .06250 .05834 40 .19837 .18087 72 3.75992 2.30363
9 .06167 .05750 41 .21338 .19587 73 4.19334 2.59756
10 .06250 .05667 42 .22922 .21088 74 4.67004 2.93610
11 .06750 .05834 43 .24673 .22588 75 5.18003 3.31428
12 .07667 .06084 44 .26590 .24089 76 5.71919 3.72382
13 .08917 .06417 45 .28758 .25757 77 6.28340 4.16309
14 .10334 .06834 46 .31093 .27508 78 6.87612 4.63892
15 .11335 .07167 47 .33595 .29425 79 7.51607 5.16656
16 .12335 .07501 48 .36347 .31427 80 8.22375 5.76724
17 .13085 .07751 49 .39349 .33678 81 9.01810 6.45895
18 .13585 .08001 50 .42768 .36180 82 9.91569 7.25729
19 .13919 .08251 51 .46688 .38932 83 10.91280 8.15937
20 .14002 .08417 52 .51193 .42101 84 11.99040 9.15556
21 .13835 .08584 53 .56365 .45604 85 13.12418 10.23537
22 .13585 .08667 54 .62122 .49191 86 14.29994 11.39164
23 .13252 .08834 55 .68547 .53028 87 15.49991 12.62319
24 .12918 .09001 56 .75557 .56866 88 16.71910 13.93142
25 .12502 .09168 57 .82985 .60620 89 17.97489 15.32721
26 .12252 .09418 58 .91250 .64375 90 19.28574 16.82248
27 .12085 .09584 59 1.00518 .68630 91 20.68243 18.45266
28 .12001 .09834 60 1.10873 .73638 92 22.21791 20.28063
29 .12001 .10168 61 1.22400 .79814 93 24.04369 22.43826
30 .12085 .10418 62 1.35684 .87493 94 26.50346 25.22305
31 .12335 .10751 63 1.50727 .96927
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
L-8027 (1/87)
<PAGE> 15
<TABLE>
<CAPTION>
INDEX PAGE
POLICY SCHEDULE
<S> <C>
DEFINITIONS
ACCUMULATION UNIT .......................................................... 1
AGE......................................................................... 1
CASH VALUE ................................................................. 1
DEBT ....................................................................... 1
FUND ....................................................................... 1
GENERAL ACCOUNT ............................................................ 1
INSURANCE AGE .............................................................. 1
MATURITY DATE .............................................................. 1
MONTHLY PROCESSING DATE .................................................... 1
MORTALITY AND EXPENSE RISK CHARGE .......................................... 1
POLICY DATE, POLICY YEAR ................................................... 1
PREMIUM .................................................................... 1
SEPARATE ACCOUNT ........................................................... 1
SEPARATE ACCOUNT VALUE ..................................................... 1
SUBACCOUNTS ................................................................ 1
SUBACCOUNT VALUE ........................................................... 1
SURRENDER VALUE ............................................................ 1
TRADE DATE ................................................................. 1
VALUATION DATE ............................................................. 1
VALUATION PERIOD ........................................................... 1
GENERAL PROVISIONS
THE CONTRACT ............................................................... 1
MODIFICATION OF POLICY ..................................................... 1
OWNERSHIP OF POLICY ........................................................ 1
CHANGE OF OWNERSHIP ........................................................ 1
EFFECTIVE DATE OF COVERAGE ................................................. 1
TERMINATION ................................................................ 1
INCONTESTABILITY ........................................................... 1
MISSTATEMENT OF AGE OR SEX ................................................. 1
SUICIDE .................................................................... 1
DUE PROOF OF DEATH ......................................................... 2
BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY .......................... 2
DEATH OF BENEFICIARY ....................................................... 2
ASSIGNMENT ................................................................. 2
CHANGE OF PLAN ............................................................. 2
NON-PARTICIPATION .......................................................... 2
REPORTS .................................................................. 2
RESERVES, CASH VALUE AND DEATH BENEFIT ..................................... 2
BASIS OF COMPUTATIONS ...................................................... 2
TAX TREATMENT .............................................................. 2
PREMIUM PROVISIONS
INITIAL PREMIUM ............................................................ 2
ADDITIONAL PREMIUM ......................................................... 2
PREMIUM ALLOCATION ......................................................... 2
GRACE PERIOD ............................................................... 2
REINSTATEMENT .............................................................. 3
VARIABLE ACCOUNT PROVISIONS
SEPARATE ACCOUNT ........................................................... 3
LIABILITIES OF SEPARATE ACCOUNT ............................................ 3
SUBACCOUNTS ................................................................ 3
SERIES FUND ................................................................ 3
CHANGE OF INVESTMENT ADVISER OR INVESTMENT OBJECTIVES ...................... 3
RIGHTS RESERVED BY THE COMPANY ............................................. 3
TRANSFER PROVISIONS
TRANSFERS .................................................................. 4
NONFORFEITURE PROVISIONS
CASH VALUE ................................................................. 4
SUBACCOUNT VALUE ........................................................... 4
ACCUMULATION UNIT VALUE .................................................... 4
</TABLE>
<PAGE> 16
Page 12
<TABLE>
<S> <C>
NONFORFETURE PROVISIONS (CONTINUED)
INVESTMENT EXPERIENCE FACTOR .............................................. 4
INSUFFICIENT CASH VALUE ................................................... 4
COST OF INSURANCE ......................................................... 4
COST OF INSURANCE RATE .................................................... 5
POLICY LOAN PROVISIONS
POLICY LOANS .............................................................. 5
POLICY LOAN INTEREST ...................................................... 5
POLICY LOAN REPAYMENT ..................................................... 5
EFFECTIVE ON POLICY LOANS ................................................. 5
SURRENDER VALUE PROVISIONS
SURRENDER ................................................................. 5
SURRENDER CHARGE .......................................................... 5
SURRENDER CHARGE TABLE .................................................... 5
TRANSFER AND SURRENDER PROCEDURES ......................................... 5
INSURANCE COVERAGE PROVISIONS
DEATH BENEFIT ............................................................. 6
PAYMENT OF DEATH BENEFIT .................................................. 6
SETTLEMENT PROVISIONS
SETTLEMENT OPTIONS ........................................................ 6
ELECTION OF SETTLEMENT OPTION ............................................. 6
GENERAL CONDITIONS ........................................................ 6
OPTIONS 1-7 ............................................................... 6
OTHER SETTLEMENT ARRANGEMENTS ............................................. 7
SUPPLEMENTARY CONTRACT .................................................... 7
DATE OF FIRST PAYMENT ..................................................... 7
EVIDENCE OF AGE, SEX AND SURVIVAL ......................................... 7
INTEREST AND MORTALITY .................................................... 7
DISBURSEMENT OF FUNDS UPON DEATH OF PAYEE ................................. 7
PROTECTION OF BENEFITS .................................................... 7
CREDITORS ................................................................. 7
TABLE OF DEATH BENEFIT FACTORS ............................................ 8
OPTION TABLES ............................................................. 9-10
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES
</TABLE>
<PAGE> 17
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MATURES AT INSURANCE AGE 95
NON-PARTICIPATING
This is a legal contract between the owner and Kemper Investors Life Insurance
Company.
READ YOUR CONTRACT CAREFULLY
KEMPER INVESTORS LIFE INSURANCE COMPANY
An Illinois stock corporation
1 Kemper Drive, Long Grove, Illinois 60049-0001
Form L-8001 (1/87)
<PAGE> 1
EXHIBIT 1-A(8)
KEMPER INVESTORS FUND
Subscription Agreement
1. Share Subscription. The undersigned, on behalf of its KILICO
Variable Separate Account, agrees to purchase from Kemper Investors Fund (the
"Fund") the number of shares (the "Shares") of the Fund's Money Market
Portfolio, Total Return Portfolio, High Yield Portfolio, Equity Portfolio and
Investment Securities Portfolio, without par value, set forth at the end of this
Agreement on the terms and conditions set forth herein and in the Preliminary
Prospectus ("Preliminary Prospectus") described below, and hereby tenders the
amount of the price required to purchase these shares at a price of $1.00 per
share.
The undersigned understands that the Fund has prepared a registration
statement for filing with the Securities and Exchange Commission on Form N-1A,
which contains the Preliminary Prospectus which describes the Fund and the
Shares. By its signature hereto, the undersigned hereby acknowledges receipt of
a copy of the Preliminary Prospectus.
The undersigned recognizes that the Fund will be not fully operational
until such time as it commences the public offering of its shares. Accordingly,
a number of features of the Fund described in the Preliminary Prospectus,
including, without limitation, the declaration and payment of dividends, and
redemption of shares upon request of shareholders, are not, in fact, in
existence at the present time and will not be instituted until the Fund's
registration under the Securities Act of 1933 is made effective.
<PAGE> 2
2. Registration and Warranties. The undersigned hereby represents and
warrants as follows:
(a) It is aware that no Federal or state agency has made any findings
or determination as to the fairness for investment, nor any recommendation or
endorsement, of the Shares;
(b) It has such knowledge and experience of financial and
business matters as will enable it to utilize the information made available to
it in connection with the offering of the Shares, to evaluate the merits and
risks of the prospective investment and to make an informed investment decision;
(c) It recognizes that the Fund has only recently been organized and
has no financial or operating history and, further, that investment in the Fund
involves certain risks, and it has taken full cognizance of and understands all
of the risks related to the purchase of the Shares, and it acknowledges that is
has suitable financial resources and anticipated income to bear the economic
risk of such an investment;
(d) It is purchasing the Shares for its own account, for investment,
and not with any intention of redemption, distribution, or resale of the Shares,
either in whole or in part;
(e) It agrees that it will not sell or dispose of the shares or any
part thereof, except pursuant to redemption of the shares by the Fund.
(f) This Agreement and Preliminary Prospectus and such material
documents relating to the Fund as it has requested have been provided to it by
<PAGE> 3
the Fund and have been reviewed carefully by it; and
(g) It has also had the opportunity to ask questions of, and receive
answers from, representatives of the Fund concerning the Fund and the terms of
the offering.
3. The undersigned recognizes that the Fund reserves the unrestricted
right to reject or limit any subscription and to close the offer at any time.
4. It represents and warrants that it will acquire the shares solely for
its KILICO Variable Separate Account and solely for investment purposes and not
with a view to the resale or disposition of all or any part thereof, and that it
has no present plan or intention to sell or otherwise dispose of the shares or
any part thereof.
Number of shares: 100,000 each of the Money Market Portfolio, Total Return
Portfolio, High Yield Portfolio, Equity Portfolio and Investment Securities
Portfolio. Subscription price $1.00 per share for an aggregate price of
$500,000.00.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
_______ day of ___________, 1987.
KEMPER INVESTORS LIFE INSURANCE COMPANY
By:____________________________________
Title:_________________________________
<PAGE> 1
EXHIBIT 1-A(10)
KEMPER INVESTORS LIFE INSURANCE COMPANY 120 South LaSalle Street,
Chicago, Illinois 60603
APPLICATION FOR FLEXIBLE PREMIUM VARIABLE LIFE [KEMPER GROUP LOGO]
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 PAYMENT TYPE (% OF GUIDELINE SINGLE PREMIUM)
/ / Single(100%) /X/ Flexible (90%) / / Flexible (80%) Total Premium $5,000 /X/ Enclosed / / To Follow
- ------------------------------------------------------------------------------------------------------------------------------------
2 ALLOCATIONS
The initial premium will be allocated to the subaccounts selected in accordance with the policy and prospectus. The selections
must total 100%. These percentages may be changed at any time by the owner.
- ------------------------------------------------------------------------------------------------------------------------------------
/20%/ KILICO Money Market /20%/ KILICO U.S. Government /20%/ KILICO High Yield
- ------------------------------------------------------------------------------------------------------------------------------------
/20%/ KILICO Total Return /20%/ KILICO Equity / %/ / %/
- ------------------------------------------------------------------------------------------------------------------------------------
3 NAME (PROPOSED INSURED) 4 SEX 5 BIRTHDATE 6 BIRTHPLACE
John J. Doe /X/ M / /F 1 1 52 Chicago, IL
FIRST MIDDLE LAST MO DAY YR
- ------------------------------------------------------------------------------------------------------------------------------------
7 ADDRESS CITY STATE ZIP 8 MARTIAL STATUS
123 Main Street Chicago IL 60603 M
- ------------------------------------------------------------------------------------------------------------------------------------
9 SOC. SEC. NO. 10 EMPLOYER'S NAME ADDRESS
123-45-6789 County Hospital 1 N. Main Street
- ------------------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP OCCUPATION/DUTIES
Chicago IL 60603 Physician
- ------------------------------------------------------------------------------------------------------------------------------------
11 NAME OF OWNER (IF OTHER THAN PROPOSED INSURED) SOC. SEC. NO. RELATIONSHIP TO PROPOSED INSURED
- ------------------------------------------------------------------------------------------------------------------------------------
ADDRESS CITY STATE ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
12 SEND NOTICES TO:
/X/ Insured / / Owner / / Other: ADDRESS CITY STATE ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
13 PRIMARY BENEFICIARY(IES) % EACH IS TO RECEIVE RELATIONSHIP
Mary J. Doe 100% Spouse
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CONTINGENT BENEFICIARY(IES) % EACH IS TO RECEIVE RELATIONSHIP
None
- ------------------------------------------------------------------------------------------------------------------------------------
14 LIST ALL LIFE INSURANCE CURRENTLY IN FORCE
COMPANY ISSUE YEAR AMOUNT OF LIFE INSURANCE AMOUNT OF ACCIDENTAL DEATH BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
None
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
15 Is this policy to replace existing life insurance or annuities? (if yes, complete any required forms) / / Yes /X/ No
- ------------------------------------------------------------------------------------------------------------------------------------
16 HAS THE PROPOSED INSURED:
A. Within the last 3 years, engaged in any sport or avocation such as flying, skydiving, hang
gliding scuba diving or racing? / / Yes /X/ No
B. smoked cigarettes in the past 12 Months? / / Yes /X/ No
C. been rated up, postponed or declined for life insurance? / / Yes /X/ No
D. any mental or physical impairment, disease or deformity currently? / / Yes /X/ No
E. been advised to take any medication, or currently is taking medication? / / Yes /X/ No
F. been hospitalized or consulted any doctor in the past 5 years? / / Yes /X/ No
G. received medical advice or treatment for the use of alcohol or drugs in the past 5 years? / / Yes /X/ No
H. ever been treated for heart disease, high blood pressure, stroke, cancer or tumor? / / Yes /X/ No
I. ever been treated for kidney or liver disorder, diabetes or a mental or nervous disorder? / / Yes /X/ No
- ------------------------------------------------------------------------------------------------------------------------------------
17 HEIGHT WEIGHT
6'2" 180 Has proposed insured lost 10 or more pounds in the last year? / / Yes /X/ No
- ------------------------------------------------------------------------------------------------------------------------------------
18 DETAILS OF YES ANSWERS FOR ANY PART OF QUESTION 16 & 17,
CONDITION (Include routine physical exam) DATE TREATMENT NAME AND ADDRESS OF PHYSICIAN OR HOSPITAL
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
19 PERSONAL PHYSICIAN'S NAME (IF NONE, PLEASE STATE) ADDRESS CITY
Dr. W. Smith 50 E. Center Street Chicago
- ------------------------------------------------------------------------------------------------------------------------------------
STATE ZIP DATE LAST SEEN WHY?
IL 60606 1-1-87 Physical
- ------------------------------------------------------------------------------------------------------------------------------------
WHAT TESTS WERE MADE?
None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUED ON REVERSE
L-8005(3/87)
<PAGE> 2
KEMPER INVESTORS LIFE INSURANCE COMPANY 120 South LaSalle Street,
Chicago, Illinois 60603
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
20 SUITABILITY
A) Annual Salary $ B) Total Assets $ C) Total Debts $
- ------------------------------------------------------------------------------------------------------------------------------------
A) Annual Salary $ E) Other Income $ Source:
- ------------------------------------------------------------------------------------------------------------------------------------
/X/ The Proposed Owner declines to answer the foregoing parts of question #20.
- ------------------------------------------------------------------------------------------------------------------------------------
AGREEMENT
I (we) have read all the questions and answers in this application. I (we) declare 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 this application, but before the Policy is delivered to me (us) and the first premium paid.
I (we) agree:
1. this application, including all its parts, will be the basis for and form part of this 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 or draft (given as premium) is paid in accordance with its
terms; and
4. the insurance applied for never takes effect unless, during the lifetime of the Proposal 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 stared in this application.
AUTHORIZATION FOR THE RELEASE OF INFORMATION TO KEMPER INVESTORS LIFE INSURANCE COMPANY
I (we) authorize any physician, medical practitioner, hospital, clinic, other medical or medically-related facility,
insurance or reinsuring company, Medical Information Bureau, consumer reporting agency, employer, or the Veterans Administration,
having information available as to advice, diagnosis, treatment, or care or any physical or mental condition concerning me, and any
other non-medical information concerning me to give to the Company, its legal representative, the Medical Information Bureau or its
reinsurers any and all such information. This shall include information about drugs, alcoholism or mental illness. This
authorization also applies to any minor child proposed for insurance in this application. I understand the information obtained by
use of this authorization also applies to any minor child proposed for insurance in this application. I understand the information
obtained by use of this authorization will be used by the Company to determine eligibility for insurance. This authorization will be
valid for two years from the date signed. I have received and read the notice about investigative consumer reports and the Medical
Information Bureau. I know that I have a right to receive a copy of this authorization upon request. A exact copy of this
authorization is as valid as the original.
/ / I do not wish to have personal information disclosed to non-affiliates of the Company for marketing purposes and the affiliates
of the Company for purposes other than the marketing of insurance products and services.
- ------------------------------------------------------------------------------------------------------------------------------------
RECEIPT IS ACKNOWLEDGED OF THE CURRENT PROSPECTUS FOR KEMPER INVESTORS FUND AND THE KILICO VARIABLE SEPARATE ACCOUNT. THE CASH VALUE
IS BASED ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE DAILY. THIS AMOUNT IS NOT GUARANTEED. THE
AMOUNT OR DURATION OF THE DEATH BENEFIT MAY VARY.
If you want a Statement of Additional Information check here / /
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURES OF PROPOSED (IF AGE 15 OR OVER) SIGNATURE OF PROPOSED (IF OTHER THAN PROPOSED INSURED)
X John J. Doe X
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNED AT ON ON WITNESS (AGENT)
Chicago IL 1 10 87 X
CITY STATE MONTH DAY YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
AGENT'S REPORT (PLEASE PRINT)
- ------------------------------------------------------------------------------------------------------------------------------------
1. How long have you known the Proposed Insured? How well?
2. What is your estimate of the Proposed Insured's gross annual income? $ Financial worth $
3. Nationality of Proposed Insured (if not a U.S. citizen)
4. To the best of your knowledge, does the policy applied for replace any existing life insurance or annuity?
(If yes, explain) / /Yes /X/ No
5. Is the telephone transfer option requested and the necessary authorization for attached? / /Yes /X/ No
- ------------------------------------------------------------------------------------------------------------------------------------
AGENT NAME KILICO AGENT NUMBER TELEPHONE NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
FIRM NAME TELEPHONE MAILING ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP AGENT SIGNATURE
X
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL REQUESTS
</TABLE>
<PAGE> 1
[KEMPER FINANCIAL LETTERHEAD]
Exhibit 3(a)
April 20, 1992
Kemper Investors Life Insurance Company
120 South LaSalle Street
Chicago, Illinois 60603
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"), in connection with its proposed registration of units of
beneficial interest, no par value, ("Units"), of the Money Market Subaccount,
the Total Return Subaccount, the High Yield Subaccount, the Equity Subaccount
and the Government Securities Subaccount ("Subaccounts"). The Registration
Statement covers an indefinite number of Units of interest in the Subaccounts of
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 Subaccounts of 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 the 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 such corporate records of KILICO and such other
documents and laws as I consider appropriate as a basis for 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
April 20, 1992
Page 2
3. Assets allocated to the Subaccounts of the Variable Separate Account will
be owned by KILICO. The Policies provide that the portion of the assets of
the Variable Separate Account equal to the reserves and other Policy
liabilities with respect to the Variable Separate Account will not be
chargeable with liabilities arising out of any other business KILICO may
conduct.
4. When issued and sold as described above, the Policies will be duly
authorized and will constitute validly issued and binding obligations of
KILICO in accordance with their terms.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the references to my name under the heading "Legal
Matters" in the Prospectus.
Sincerely,
/s/ David F. Dierenfeldt
David F. Dierenfeldt
Counsel
<PAGE> 1
EXHIBIT 3(b)
ACTUARIAL OPINION
This opinion is supplied with the filing of Post-Effective Amendment No. 10 to
the Registration Statement on Form S-6, File No. 33-11803, by the KILICO
Variable Separate Account (the "Separate Account") and Kemper Investors Life
Insurance Company ("KILICO") covering an indefinite number of units of interest
in the Separate Account. Premiums received under KILICO's Variable Life
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, accumulated
values, cash values, and accumulated premiums included in Appendix A of the
Prospectus, based on the assumptions in the 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 nonsmoker males ages 25 and
45, than to nonsmoker males at other ages. The nonsmoker risk class generally
has a more favorable rate structure than the smoker risk classes. Female risk
classes generally have a more favorable rate structure than male risk classes.
The current and guaranteed monthly mortality rates used in the illustrations
have not been designed so as to make the relationship between current and
guaranteed rates more favorable for the ages and sexes illustrated than for a
nonsmoker male at other ages. The nonsmoker risk classes generally have lower
monthly mortality rates than the smoker risk classes. The female risk classes
generally have lower monthly mortality rates than the male risk classes.
I consent to the use of this opinion as an Exhibit to Post-Effective Amendment
No. 10 to the Registration Statement and to the reference to me under the
heading "Experts" in the Prospectus.
/s/ Steven D. Powell
------------------------------
Steven D. Powell, FSA MAAA
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 the financial statements of the subaccounts
of KILICO Variable Separate Account and to the KILICO Variable Separate Account
and to the reference to our firm under the heading "Experts" in the prospectus.
Our report on KILICO's financial statements dated March 21, 1997, contains an
explanatory paragraph that states as a result of the acquisition of its parent,
Kemper Corporation, the consolidated financial information for the periods
after the acquisition is presented on a different cost basis than that for the
periods before the acquisition and, therefore, is not comparable.
KPMG PEAT MARWICK LLP
Chicago, Illinois
April 25, 1997
<PAGE> 1
EXHIBIT 8
PROCEDURES MEMORANDUM, PURSUANT TO
RULE 6e-3(T)(b)(12)(ii) UNDER THE 1940 ACT
<PAGE> 2
March, 1987
Description of KILICO's Issuance, Transfer
and Redemption Procedures for Policies
Pursuant to Rule 6e-3(T)(b)(12)(ii)
under the Investment Company Act of 1940
I. INTRODUCTION
Set forth below is the information called for under Rule 6e-3(T)(b)(12(ii)
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.
-1-
<PAGE> 3
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 Subaccount, the Total
Return Subaccount, the High Yield Subaccount, the Equity Subaccount and the
Government Securities Subaccount (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 (the
"Fund"), a "series" type of mutual fund 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)(ii) 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 its
established procedures for its flexible premium universal life
insurance policies.
-2-
<PAGE> 4
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.
F. KILICO has filed registration statements under the Securities Act of
1933 and the Investment Company Act of 1940 for Separate Account units
of interest with respect to the Kemper Alternative and the Kemper
Select, flexible premium life insurance policies. Where the
provisions of the policies are the same they will be referred to
jointly as "policy" or "policies". Where the provisions differ, the
provisions will be distinguished by reference to "Select" or "Select
II".
-3-
<PAGE> 5
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 policies, 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 persons 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. In the case
-4-
<PAGE> 6
of the Kemper Select II, the calculation is done indirectly by
multiplying the cash value by a factor (.005). This factor produces
different rates for different mortality risks because the Net Amount
at Risk as a percentage of the cash value varies appropriately.
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, sex, health and occupation. A table showing the maximum cost of
insurance rates will be delivered as part of the policy.
Although we anticipate charging 50 b.p. for mortality for Kemper
Select II for the foreseeable future, there are potential
circumstances which may cause us to change either the level of charges
or the method (or both). There are many possibilities, but two
specific examples are: (1) The level of expected mortality or the
slope of expected mortality (by rating class) changes significantly,
(2) investment performance is significantly worse than expected, so
that the average cash value is lower and thus, the average net amount
at risk is significantly higher than expected. There are at least two
alternative procedures we can adopt to change the level and/or method
of assessing mortality charges:
-5-
<PAGE> 7
(1) Increase the level to an amount higher than 50 b.p. At the same
time, we would have the system perform an alternate calculation
equal to the maximum charge based on 1980 CSO. The cost of
insurance charge would then be the lesser of the two amounts.
(2) Assess cost of insurance based on the actual net amount at risk
for each policy, using cost of insurance rates less than or equal
to 1980 CSO.
B. Application and Initial Premium Processing
1. DEATH BENEFIT
The normal minimum initial Death Benefit for the policies varies
with the age, sex, and for the Kemper Select, also smoking status
and underwriting class of the Insured. A policy will be issued
if the following conditions are met:
a. A premium payment of at least $5,000 is paid by the Trade
Date of the policy.
b. A completed application is submitted.
c. Required underwriting information, satisfactory to KILICO,
is provided.
-6-
<PAGE> 8
There is no maximum Death Benefit for the policy, except
reinsurance satisfactory to KILICO must be obtained if the
initial net amount at risk exceeds $200,000.
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 0 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.
-7-
<PAGE> 9
Initial Premium. The minimum initial premium that KILICO will
accept under a policy is $5,000. KILICO reserves the right to
increase or decrease this amount for a class of policies issued
after some future date.
For a given initial premium, the minimum death benefit will
depend upon the Insurance Age and sex (and in addition for the
Select, the rate class) of the Insured. The minimum death
benefit for a given initial premium will be consistent with the
assumptions for the Guideline Single Premium calculated under
section 7702 of the Internal Revenue Code (the "Code").
On the day following the date of receipt the initial premium will
be allocated to the KILICO General Account. It will be credited
with interest equivalent to the investment experience of the
Money Market Subaccount. This premium will remain in the KILICO
General Account until the Trade Date. On the Trade Date the
initial premium, plus interest, will be allocated to the Money
Market Subaccount. Additional applicable charges which are
currently the charge for the cost of insurance will be deducted
as of the Policy Date. On the Trade Date the Policy Cash Value
will thus be the same as if the initial premium had been
allocated to the Money Market Subaccount on the Policy Date. The
Separate Account Value will remain in the Money Market Subaccount
until 15 days from the
-8-
<PAGE> 10
Trade Date of the Policy. At the end of the 15 day period, the
Separate Account Value in the Money Market Subaccount will be
allocated to the Subaccounts elected by the Owner in the
application for the policy.
The Policy Date is the date used to determine Policy Years and
Monthly Processing Dates. The Policy Date 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 contestability period and
suicide exclusion period are measure from the Policy Date.
The Trade Date is the date when KILICO accepts the risk of
providing insurance coverage to the Insured. Insurance coverage
will be limited to a maximum of $200,000 net amount at risk by
the temporary insurance provisions of the application until the
Trade Date. Monthly deductions and the crediting of investment
experience begin as of the Policy Date, even if the Trade Date of
the Policy is delayed due to underwriting requirements.
The cost of insurance for the full amount of coverage applied for
(which may or may not be greater than the
-9-
<PAGE> 11
$200,000 amount provided for under the temporary insurance
provision) 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. Were an insured to
die prior to the Trade Date, but KILICO had assumed the risk by
affirmatively completing underwriting, KILICO would pay the full
amount of coverage. Insurance coverage is limited to $200,000
only in cases when the insured dies prior to the Trade Date, and
KILICO would not have issued the Policy.
Additional 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 what
its maximum amount is. These premium payments will not increase
the maximum possible Surrender Charge. Except to prevent lapse,
such an additional premium payment must be at least $1,000.
KILICO reserves the right to limit the ability to make more than
one additional premium payment in each Policy Year. Evidence of
insurability may be required if an additional premium payment
would result in an increase in the Death Benefit.
-10-
<PAGE> 12
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.
Fifteen days after the Trade Date, the policy's Separate Account
Value in the Money Market Subaccount will be allocated to the
Subaccounts of the Separate 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.
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
-11-
<PAGE> 13
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.
3. KILICO may underwrite applicants for Kemper Select II for issue
eligibility for Kemper Select in which case, these delivery
period procedures will be followed.
D. Delivery Requirements
1. An agent/agency must submit all outstanding delivery
-12-
<PAGE> 14
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 and 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
-13-
<PAGE> 15
insufficient to cover the monthly deduction for the cost of
insurance, and a grace period expires without a sufficient
payment being made.
The duration of coverage depends upon the Surrender Value being
sufficient to cover the monthly deductions for cost of insurance.
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 deduction for the cost of
insurance. 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 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
-14-
<PAGE> 16
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.
F. Reinstatement
If a policy lapses because of insufficient Cash Value to cover
the monthly cost of insurance deduction, and it has not been
surrendered for its Surrender Value, it may be reinstated at any
time within five 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 keep the policy
in force three months; and
-15-
<PAGE> 17
(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. If the Policy has been in force
for two years during the lifetime of the Insured, it will be
contestable only as to statements made in the reinstatement
application.
G. Contestability
1. This policy is contestable for two years during the lifetime
of the Insured, measured from the Policy Date, for material
misrepresentations made in the initial application for the
policy. Policy changes and reinstatements may be contested
for two years after the date of the signed application for
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.
-16-
<PAGE> 18
III. TRANSFER PROCEDURES
A. Separate Account Value may be transferred among the Subaccounts of the
Separate Account. One transfer of all or a part of the Separate
Account Value may be made within a thirty day period. All transfers
made during a business day will be treated as one request.
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 transfer amount is $500 or the total amount in a
particular Subaccount. No partial transfer may be made if the
value of the Owner's remaining interest in a Subaccount, 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 acknowledgement of transfers between Subaccounts will be
provided at two points in time:
-17-
<PAGE> 19
a. A confirmation notice will be sent to the Owner within seven
days of receipt of the request.
b. The annual report will also reflect transfers.
B. Policy Loans
1. On and after the first Monthly Processing Date after the Policy
Date of the policy, 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, Separate Account Value equal to the
loan amount will be transferred from the Separate Account to the
loan account in the General Account. Unless the Owner directs
otherwise, the loaned amount will be deducted from the
Subaccounts in proportion to the values that each Subaccount
bears to
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the Separate Account Value of the policy in all of the
Subaccounts 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 cost of insurance
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 (the amount held in the General
Account) does not participate in the experience of the Subaccount
while the loan is outstanding. If the amount credited to the
General Account is more than the amount that would have been
earned in the Subaccount, the Cash Value will, and the Death
Benefit may, be higher as a result of the loan. Conversely, if
the amount credited to the General Account is less than would
have been earned in the Subaccount, 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
6.00% for the Kemper Select and 6.50% for the Select II.
Interest not paid will be added to the loan amount due and bear
interest at the same rate.
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2. Cash Value in the loan account within the General Account
attributable to the premium will earn no less than 4.00% annual
interest. Cash Value in the loan account within the General
Account attributable to amounts in excess of premium will earn no
less than 6.00% annual interest for the Kemper Select and 6.50%
annual interest for the Select II. Such earnings will be
allocated to the General Account.
D. Loan Repayment
1. While the policy is in force, policy loans may be repaid at any
time, in whole or in part. Payments will be treated as payment
of outstanding Debt unless the Owner indicates that the payments
should be treated otherwise. If otherwise permitted by the
guideline premium limits of the Code where there is no indication
made, the portion of a payment that exceeds the amount of any
Debt will be treated as a premium payment. If not permitted by
the Code, the amount that exceeds any Debt will be refunded to
the Owner.
2. At the time of repayment, Cash Value in the loan account of the
General Account equal to the amount of the repayment which
exceeds the difference between interest due and interest earned
will be allocated to the Subaccounts according to the Owner's
current allocation instructions, unless otherwise requested by
the Owner.
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Loan repayments will be applied first to reduce that portion of
the loan account attributable to interest due on loaned premium;
second, to that portion of the loan account attributable to
premium; third, to that portion of the loan account attributable
to interest due on loaned amounts in excess of premium; and
fourth to that portion of the loan account attributable to loaned
amounts in excess of premium. Transfers from the General Account
to the Separate 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 30 day period.
3. KILICO will provide written confirmation of loan repayments,
including the effective date of the payment, and the effect on
specific Subaccounts, within seven days of the receipt of
payment.
E. Policy Anniversary and Monthly Processing Date
1. For Kemper Select the Cost of Insurance (COI) is calculated on
the net amount at risk for the Kemper Select using current rates
obtained from the issue age file. These mortality rates, which
are renewable, are ultimate. An option by plan allows a
guarantee period for current rates (e.g., one policy year).
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The COI for Kemper Select II is .50 basis points per year on the
unloaned cash value.
For Kemper Select after calculating COI, substandard ratings are
applied. Increases in specified amount can be rated separately
from the original rating.
2. The calculated deductions are distributed among the funds
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 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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2. The policy will receive a refund equal to 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. Exchange Rights
1. The Owner may, while the policy is in force, exchange it at any
time after its issue, for a non-variable permanent fixed benefit
life insurance policy then currently being offered by KILICO on
the life of the Insured. No evidence of insurability will be
required.
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2. During the first two years after the policy trade date, 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.
3. After two years from the policy trade date, the amount of the new
policy will be for the same net amount at risk as the policy on
the exchange date.
4. 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.
5. The exchange will be subject to an adjustment in the Policy Cash
Value to reflect variances in contractual charges against premium
payments between the Kemper Select or Select II, as applicable,
and the new policy; however, surrender charges will have no
effect on the amount transferred to the new policy. If this
adjustment results in an increase in the policy cash value, the
adjustment will be credited toward the new policy. If this
adjustment results in a decrease in policy cash value, then
KILICO will require a payment from the policyowner for the
decrease amount and the full policy cash value will be credited
to the new policy.
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6. Once this right of exchange is exercised, all contractual
provisions will be according to the new policy selected. These
include, but are not limited to, surrender charges, current and
guaranteed monthly deduction rates, charges against premium
payments and the method of calculation of policy gross value.
C. Surrender Privilege
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. Partial surrenders are not permitted.
2. No sales charge is deducted from any premium payment. However, 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.
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3. A Surrender Charge will not be assessed against Cash Values
applied under a settlement option if the policy has been in force
for five or more years and the settlement option elected provides
for benefit payments of at least five years. The amount of the
Surrender Charge will be calculated as a percentage of the lesser
of premium paid in the first Policy Year or Cash Value under the
policy.
4. The charge decreases from 9% to 0% depending on the length of
time between the Policy Date and the date of surrender or
application under a settlement option, provided, however, that
for Kemper Select II the Surrender Charge will never exceed $60
per $1,000 of initial Death Benefit.
5. During the period from the Policy Date to the first Policy
Anniversary, the rate is 9%; on the first Policy Anniversary, the
rate decreases to 8%, and on each of the next eight Policy
Anniversaries it will decrease an additional 1%. Thus, there
will be no Surrender Charge with respect to the premium paid in
the first Policy Year beginning on the ninth Policy Anniversary.
6. The applicable Surrender Charge will be determined based upon the
date of receipt of the written request for surrender.
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7. No minimum amount of Surrender Value is guaranteed.
8. 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.
D. 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 within seven days after KILICO receives
all required documents.
*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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2. The Death Benefit may vary with the Cash Value of the policy,
which depends on the investment experience of the Separate
Account Subaccounts to which a policy's Separate Account Value is
allocated. An increase in the Cash Value may increase the Death
Benefit. However while the policy is in force, because the Death
Benefit will never be less than the guaranteed minimum death
benefit, a decrease in Cash Value may decrease the Death Benefit
but never below the guaranteed minimum death benefit.
3. The Death Benefit will be the greater of the guaranteed minimum
death benefit or the applicable multiple of the Cash Value, less
Debt.
4. 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.
F. Premium Refunds
KILICO will not normally refund premium payments unless one of the
following situations occurs:
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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 exercised 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 KILICO Money Market
Subaccount.
G. Guideline Premium Test - Tax Qualification
The Guideline Premium Test is a two part test applied to
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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
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:
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a. the guaranteed maximum mortality rates, for all durations.
b. mortality and expense risk charge, and, for Kemper Select
II, also the administrative expense charge as specified in
the contract 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.
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Death benefit factors vary only by attained age and range from
1.00 to 2.50 for Kemper Select and 1.00 to 8.33 for Kemper Select
II.
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.
H. Misstatement of Age or Sex
If the age or sex of the Insured is misstated, the Cash Value and
Death Benefit will be recalculated from the Policy Date based on the
correct sex and age.
I. 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.
J. 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.
K. 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 Cash Value less
any Debt. When the laws of the state in which a policy is delivered
require less than a two year period, or
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return of premium paid the period or amount paid 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 Fund to the extent
required by the 1940 Act.
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