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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1999
REGISTRATION NO. 333-79615
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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:
<TABLE>
<S> <C>
FRANK J. JULIAN, ESQ. JOAN E. BOROS, ESQ.
Kemper Investors Life Insurance Company Jorden Burt Boros Cicchetti Berenson & Johnson
1 Kemper Drive 1025 Thomas Jefferson Street, N.W.
Long Grove, Illinois 60049 Suite 400E
Washington, D.C. 20007
</TABLE>
E. Title of securities being registered:
Variable Portion of Modified Single Premium Variable Universal Life
Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of this registration.
The registrant is registering an indefinite amount of securities, by reason
of Section 24(f) of the Investment Company Act of 1940.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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CROSS REFERENCE SHEET TO PROSPECTUS
Cross reference sheet pursuant to Rule 404(c) showing location in
Prospectus of information required by Items of Form N-8B-2.
<TABLE>
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ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
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ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust........................................ Cover, Definitions
(b) Title of each class of securities issued............. Cover, Purchase of Policy
and Allocation of Premiums
2. Name & address of each depositor..................... Cover, Kemper Life Insurance
Company
3. Name & address of custodian.......................... Separate Account
4. Name & address of principal underwriter.............. Distribution of Policies
5. State in which organized............................. Separate Account
6. Date of organization................................. Separate Account
9. Material litigation.................................. Legal Proceedings
GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
GENERAL INFORMATION CONCERNING SECURITIES AND RIGHTS OF HOLDERS
10. (a),(b) Type of Securities................................... Cover, Purchase of Policy
and Allocation of Premiums
(c) Rights of security holders re: withdrawal or
redemption........................................... Cover, Amount Payable on
Surrender of the Policy,
Policy Loans, Cancellation
(Free Look Period)
(d) Rights of security holders re: conversion, transfer
or partial withdrawal................................ Cover, Cancellation (Free
Look Period), Amount Payable
on Surrender of the Policy,
Partial Withdrawals,
Allocation of Premiums,
Transfer of Cash Value
(e) Rights of security holders re: lapses, default, &
reinstatement........................................ No Lapse Guarantee and Grace
Period; Termination;
Reinstatement
(f) Provisions re: voting rights......................... Voting Rights
(g) Notice to security holders........................... Reports to Owners
(h) Consent of security holders.......................... Additions, Deletions, and
Substitutions of Securities,
Allocation of Premiums
(i) Other principal features............................. Charges and Deductions,
Policy Benefits and Rights,
Cash Value
INFORMATION CONCERNING SECURITIES UNDERLYING TRUST'S SECURITIES
11. Unit of specified securities in which security
holders have an interest............................. Cover, Separate Account
Investments: the Portfolios
12. (a)-(d) Name of company, name & address of its custodian..... Cover, Separate Account
Investments: the Portfolios
INFORMATION CONCERNING LOADS, FEES, CHARGES & EXPENSES
13. (a) With respect to each load, fee, charge & expense..... Charges and Deductions
(b) Deductions for sales charges......................... Withdrawal Charge
(c) Sales load as percentage of amount invested.......... Withdrawal Charge
(d)-(g) Other loads, fees & expenses......................... Charges and Deductions
</TABLE>
i
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<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
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INFORMATION CONCERNING OPERATION OF TRUST
14. Procedure for applications for & issuance of trust's
securities........................................... Application for a Policy,
Allocation of Premiums,
Distribution of Policies
15. Procedure for receipt of payments from purchases of
trust's securities................................... Application for a Policy,
Allocation of Premiums,
Premiums, Transfer of Cash
Value
16. Acquisition and disposition of underlying
securities........................................... Cover, Separate Account
Investments: the Portfolios
17. (a) Procedure for withdrawal............................. Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation (Free Look
Period)
(b) Redemption or repurchase............................. Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation (Free Look
Period)
(c) Cancellation or resale............................... Not Applicable
18. (a) Income of the Trust.................................. Portfolios, Allocation of
Premiums
19. Procedures for keeping records & furnishing
information to security holders...................... Portfolios, Reports to
Owners
21. (a)&(b) Loans to security holders............................ Policy Loans
23. Bonding arrangements for depositor................... Safekeeping of the Separate
Account's Assets
24. Other material provisions............................ General Policy Provisions
ORGANIZATION, PERSONNEL & AFFILIATED PERSONS OF DEPOSITOR
ORGANIZATION & OPERATIONS OF DEPOSITOR
25. Form, state & date of organization of depositor...... KILICO
27. General character of business of depositor........... KILICO
28. (a) Officials and affiliates of the depositor............ KILICO, Officers and
Directors of KILICO
(b) Business experience of officers and directors of the
depositor............................................ Officers and Directors of
KILICO
COMPANIES OWNING SECURITIES OF DEPOSITOR
29. Each company owning 5% of voting securities of
depositor............................................ KILICO
CONTROLLING PERSONS
30. Control of depositor................................. KILICO
DISTRIBUTION & REDEMPTIONS OF SECURITIES
35. Distribution......................................... KILICO, Distribution of
Policies
38. (a) General description of method of distribution of
securities........................................... Distribution of Policies
(b) Selling agreement between trust or depositor &
underwriter.......................................... Distribution of Policies
(c) Substance of current agreements...................... Distribution of Policies
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
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PRINCIPAL UNDERWRITER
39. (a)&(b) Principal Underwriter................................ Distribution of Policies
41. Character of Underwriter's business.................. Distribution of Policies
OFFERING PRICE OR ACQUISITION VALUE OF SECURITIES OF TRUST
44. Information concerning offering price or acquisition
valuation of securities of trust. (All underlying
securities are shares in registered investment
companies.).......................................... Separate Account
Investments: the Portfolios,
Cash Value
REDEMPTION VALUATION OF SECURITIES OF TRUST
46. Information concerning redemption valuation of
securities of trust. (All underlying securities are
shares in registered investment companies.).......... Separate Account
Investments: the Portfolios,
Cash Value
PURCHASE & SALE OF INTERESTS IN UNDERLYING SECURITIES
47. Maintenance of Position.............................. Cover, Separate Account,
Separate Account
Investments: the Portfolios,
Allocation of Premiums
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
48. Custodian of trust................................... Separate Account
50. Lien on trust assets................................. Separate Account
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
51. (a) Name & address of insurer............................ Cover, KILICO
(b) Types of Contracts................................... Cover, Purchase of Policy
and Allocation of Premiums,
Federal Tax Considerations
(c) Risks insured & excluded............................. Death Benefit, Optional
Insurance Benefits,
Misstatement as to Age and
Sex, Suicide
(d) Coverage............................................. Cover, Purchase of Policy
and Allocation of Premiums
(e) Beneficiaries........................................ Death Benefit, Beneficiary
(f) Terms of cancellations & reinstatement............... Cancellation (Free Look
Period); No Lapse Guarantee
and Grace Period;
Termination; Reinstatement
(g) Method of determining amount of premium paid by
holder............................................... Purchase of Policy and
Allocation of Premiums
POLICY OF REGISTRANT
52. (a)&(c) Selection of Portfolio securities.................... Additions, Deletions, and
Substitutions of Securities
REGULATED INVESTMENT COMPANY
53. (a) Taxable status of Trust.............................. Taxation of KILICO and the
Separate Accounts
FINANCIAL AND STATISTICAL INFORMATION
59. Financial Statements................................. Financial Statements
</TABLE>
* Items not listed are not applicable to this Registration Statement.
iii
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PROSPECTUS
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MODIFIED SINGLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
(SINGLE LIFE AND SURVIVORSHIP)
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ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
THROUGH ITS KILICO VARIABLE SEPARATE ACCOUNT
1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (800) 621-5001
This prospectus describes Modified Single Premium Variable Universal Life
Insurance Policies (the "Policies") offered by Kemper Investors Life Insurance
Company ("we" or "KILICO") for prospective insured persons ages 0-90. This
prospectus describes Policies which provide insurance coverage on the life of
one Insured ("Single Life Policies") and Policies which provide insurance on the
lives of two Insureds ("Survivorship Policies"). You may pay a significant
initial Premium and, subject to certain restrictions, additional Premiums.
Under the Single Life Policies, when the Insured dies, we will pay a Death
Benefit to a Beneficiary specified by You. Under the Survivorship Policies, the
Death Benefit is payable upon the second death, as long as the Policy is in
force. While the Policy is in force, the Death Benefit is at least the amount
shown in the Policy specifications, unless you have loans or the Net Surrender
Value is insufficient to pay the monthly expense charges. The Policy does not
have a guaranteed minimum Cash Value.
If you choose a Policy with our No Lapse Guarantee, while this guarantee is
in effect your Policy will never lapse, regardless of changes in Net Surrender
Value. Instead, if the Net Surrender Value becomes insufficient to pay the
monthly charges, the Death Benefit payable will at least equal your total
Premiums paid (less any prior withdrawals of Premium). This guarantee is in
effect while you have no outstanding Policy Debt. If you choose a Policy without
this guarantee or if this guarantee is not in effect under your Policy, your
coverage under the Policy may end if the Net Surrender Value of your Policy
becomes insufficient to cover the monthly expense charges.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 6
You may allocate and reallocate your Policy's Cash Value among the
Subaccounts of the KILICO Variable Separate Account (the "Separate Account").
Each Subaccount invests exclusively in shares of one of the following
Portfolios:
Kemper Aggressive Growth Portfolio
Kemper Technology Growth Portfolio
Kemper-Dreman Financial Services Portfolio
Kemper Small Cap Growth Portfolio
Kemper Small Cap Value Portfolio
Kemper-Dreman High Return Equity Portfolio
Kemper International Portfolio
Kemper International Growth & Income Portfolio
Kemper Global Blue Chip Portfolio
Kemper Growth Portfolio
Kemper Contrarian Value Portfolio
Kemper Blue Chip Portfolio
Kemper Value+Growth Portfolio
Kemper Index 500 Portfolio
Kemper Horizon 20+ Portfolio
Kemper Total Return Portfolio
Kemper Horizon 10+ Portfolio
Kemper High Yield Portfolio
Kemper Horizon 5 Portfolio
Kemper Global Income Portfolio
Kemper Investment Grade Bond Portfolio
Kemper Government Securities Portfolio
Kemper Money Market Portfolio
Scudder VLIF Global Discovery Portfolio
Scudder VLIF Growth and Income Portfolio
Scudder VLIF International Portfolio
Scudder VLIF Capital Growth Portfolio
Warburg Emerging Markets Portfolio
Warburg Post-Venture Capital Portfolio
You may obtain more information about these Portfolios by reading the
accompanying Prospectuses for the Portfolios. Not all of the Subaccounts may be
available under your Policy.
You generally may cancel the Policy and receive a refund by returning it to
us within ten days after you receive it. In some states, however, this free look
period may be longer.
The Policies are modified endowment contracts for Federal income tax
purposes, except in certain cases as described in "Federal Tax Considerations"
beginning on page 34. Accordingly, the death benefit under your Policy generally
is not subject to federal income tax, and federal income tax on any growth in
your Policy's Cash Value generally is deferred until you withdraw it by taking a
loan, partial withdrawal, or other distribution from your Policy during the life
of the Insured. In addition, any taxable withdrawal taken before age 59 1/2 will
also be subject to an additional ten percent federal penalty tax, with certain
exceptions.
In certain states the Policies may be offered as group policies with
individual ownership represented by Certificates. The discussion of Policies in
this Prospectus applies equally to Certificates under group policies, unless the
context specifies otherwise.
THE POLICIES AND THE INVESTMENTS IN THE SEPARATE ACCOUNT ARE NOT
DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK.
THE POLICIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED. THE POLICIES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
IF YOU ALREADY OWN A VARIABLE LIFE INSURANCE POLICY, IT MAY NOT BE
ADVANTAGEOUS FOR YOU TO BUY ADDITIONAL COVERAGE OR REPLACE YOUR
EXISTING POLICY WITH THE POLICY DESCRIBED IN THIS PROSPECTUS.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT
PROSPECTUSES FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THOSE
PROSPECTUSES ARE MISSING OR OUTDATED, PLEASE CONTACT US AND WE WILL
SEND YOU THE PROSPECTUS YOU NEED.
YOU CAN FIND THIS PROSPECTUS AND OTHER INFORMATION ABOUT THE SEPARATE
ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") AT THE SEC'S WEBSITE AT http://www.sec.gov.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
The Policies may not be available in all states.
1
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TABLE OF CONTENTS
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<TABLE>
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PAGE
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DEFINITIONS................................................. 4
SUMMARY..................................................... 6
FEES AND EXPENSES........................................... 10
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS............... 13
Application for a Policy.................................. 13
Simplified Underwriting................................ 13
Standard Underwriting.................................. 13
Premiums.................................................. 14
Allocation of Premiums.................................... 14
Cash Value................................................ 14
Accumulation Unit Value................................... 15
Transfer of Cash Value.................................... 15
Transfers Authorized by Telephone......................... 15
Automatic Dollar Cost Averaging........................... 16
Automatic Asset Rebalancing............................... 16
INVESTMENT OPTIONS.......................................... 17
Separate Account Investments: the Portfolios.............. 17
Voting Rights............................................. 19
Additions, Deletions, and Substitutions of Securities..... 20
The DCA Fixed Account..................................... 20
POLICY BENEFITS AND RIGHTS.................................. 21
Death Benefit............................................. 21
Accelerated Death Benefit Rider........................... 22
Policy Loans.............................................. 22
Amount Payable on Surrender of the Policy................. 23
Partial Withdrawals....................................... 23
Systematic Withdrawals.................................... 24
Settlement Option Payments................................ 24
No Lapse Guarantee and Grace Period....................... 26
Termination............................................... 27
Maturity Benefit and Extended Maturity.................... 27
Reinstatement............................................. 27
Cancellation (Free Look Period)........................... 27
Postponement of Payments.................................. 28
CHARGES AND DEDUCTIONS...................................... 29
Separate Account Charges.................................. 29
Mortality and Expense Risk Charge...................... 29
Reserve for Taxes...................................... 29
Monthly Deduction......................................... 29
Cost of Insurance Charge............................... 29
Tax Charge............................................. 30
Administration Charge.................................. 30
Records Maintenance Charge............................. 30
Portfolio Expenses........................................ 30
Withdrawal Charge......................................... 31
Free Withdrawal Amount and Waiver of Withdrawal Charge.... 31
Transfer Fee.............................................. 32
Reduction of Charges...................................... 32
</TABLE>
2
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<TABLE>
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PAGE
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GENERAL POLICY PROVISIONS................................... 32
Reports to Owners......................................... 32
Limit on Right to Contest................................. 32
Suicide................................................... 32
Misstatement as to Age and Sex............................ 33
Beneficiary............................................... 33
Assignment................................................ 33
Creditors' Claims......................................... 33
Dividends................................................. 33
Notice and Elections...................................... 33
Modification.............................................. 33
Survivorship Policies..................................... 34
FEDERAL TAX CONSIDERATIONS.................................. 34
Taxation of KILICO and the Separate Account............... 34
Tax Status of the Policy.................................. 34
Diversification Requirements........................... 35
Owner Control.......................................... 35
Tax Treatment of Life Insurance Death Benefit Proceeds.... 35
Accelerated Death Benefit.............................. 36
Tax Deferral During Accumulation Period................... 36
Policies Which Are MECs................................... 36
Characterization of a Policy as a MEC.................. 36
Tax Treatment of Withdrawals, Loans, Assignments and
Pledges Under MECs.................................... 36
Penalty Tax............................................ 36
Aggregation of Policies................................ 36
Policies Which are not MECs............................... 36
Tax Treatment of Withdrawals Generally................. 36
Tax Treatment of Loans................................. 36
Survivorship Policies..................................... 37
Treatment of Maturity Benefits and Extension of Maturity
Date................................................... 37
Actions to Ensure Compliance with the Tax Law............. 37
Federal Income Tax Withholding............................ 37
Tax Advice................................................ 37
DESCRIPTION OF KILICO AND THE SEPARATE ACCOUNT.............. 37
KILICO.................................................... 37
Officers and Directors of KILICO.......................... 38
Separate Account.......................................... 40
Safekeeping of the Separate Account's Assets.............. 40
State Regulation of KILICO................................ 41
YEAR 2000 MATTERS........................................... 41
DISTRIBUTION OF POLICIES.................................... 42
LEGAL PROCEEDINGS........................................... 42
LEGAL MATTERS............................................... 42
REGISTRATION STATEMENT...................................... 42
EXPERTS..................................................... 43
FINANCIAL STATEMENTS........................................ 43
CHANGE OF ACCOUNTANTS....................................... 43
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. WE DO NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS BASED IN THIS PROSPECTUS.
3
<PAGE> 9
DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION UNIT--An accounting unit of measurement which we use to
calculate the value of a Subaccount.
ACCUMULATION UNIT VALUE--The value of an Accumulation Unit determined for a
Valuation Period according to the formula stated in your Policy.
ANNUITY UNIT--An accounting unit of measurement which we use to calculate
the amount of variable payments under a settlement option.
ANNUITY UNIT VALUE--The value of an Annuity Unit determined for a Valuation
Period according to the formula stated in your Policy.
BENEFICIARY(IES)--The person(s) named by you to receive the Death Benefit
under the Policy.
CASH VALUE--The sum of the Separate Account Value plus the Fixed Account
Value plus the Loan Account Value.
DCA FIXED ACCOUNT--The portion of the Cash Value allocated to our general
account for purposes of participating in our Dollar Cost Averaging program.
DEATH BENEFIT--The amount payable to the Beneficiary under the Policy upon
the death of the Insured(s), before payment of any unpaid Policy Debt or Policy
charges.
DEDUCTION DAY--The same day in each month as the Effective Date. The day of
the month on which the Monthly Deduction is taken from your Cash Value.
EFFECTIVE DATE--The effective date of insurance coverage under the Policy,
as stated in the Policy specifications. It is used to determine Policy
Anniversaries, Policy Years and the Deduction Day. If the Effective Date
otherwise would be the 29th, 30th or 31st of a month, the Effective Date will be
the 28th day of that month.
FIXED ACCOUNT--The portion of the Cash Value allocated to our general
account.
FIXED ACCOUNT VALUE--The value of the Fixed Account, including the DCA
Fixed Account and any initial Premium (plus interest) paid prior to the Issue
Date.
GUIDELINE SINGLE PREMIUM--The "Guideline Single Premium" as defined in
Section 7702 of the Code.
INSURED--A person whose life is insured under the Policy. Under a
Survivorship Policy, there initially are two Insureds.
INVESTMENT EXPERIENCE FACTOR--The factor we use to determine the change in
value of an Accumulation Unit in any Valuation Period. We determine the
Investment Experience Factor separately for each Subaccount.
ISSUE AGE--An Insured's age on his or her most recent birthday before the
Effective Date.
ISSUE DATE--The issue date stated in the Policy specifications. It is the
date all requirements for coverage and Premium have been received, and the
Policy is approved.
LOAN ACCOUNT--An account established for amounts transferred from the
Subaccounts as security for outstanding Policy Debt.
LOAN ACCOUNT VALUE--The value of the Loan Account.
MATURITY DATE--For Single Life Policies, the Policy Anniversary nearest the
Insured's 100th birthday. For Survivorship Policies, the Policy Anniversary
nearest the younger Insured's 100th birthday.
MONTHLY DEDUCTION--The amount deducted from the Cash Value on each
Deduction Day for the cost of insurance charge, the Administration Charge, the
Tax Charge, the Records Maintenance Charge (when due), and the cost of any
benefit rider.
NET SURRENDER VALUE--The Surrender Value minus all outstanding Policy Debt.
NO LAPSE GUARANTEE--Our guarantee that, if you have no outstanding Policy
Debt, your Policy will never lapse regardless of changes in the Net Surrender
Value. If the Net Surrender Value becomes insufficient to
4
<PAGE> 10
cover the monthly charges, however, Your Death Benefit may be reduced to equal
your total Premiums (less any prior withdrawals of Premium). The No Lapse
Guarantee is not available under all Policies.
OWNER ("YOU, YOUR, YOURS")--The person(s) having the privileges of
ownership defined in the Policy. The Owner(s) may or may not be the same
person(s) as the Insured(s). If your Policy is issued pursuant to a retirement
plan, your ownership privileges may be modified by the plan.
POLICY ANNIVERSARY--The same day and month as the Effective Date for each
subsequent year the Policy remains in force.
POLICY DEBT--The sum of all unpaid Policy Loans and accrued loan interest.
POLICY YEAR--Each twelve-month period beginning on the Effective Date and
each Policy Anniversary.
PORTFOLIO(S)--The underlying portfolios in which the Subaccounts invest.
Each Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PREMIUM--An amount paid to us as payment for the Policy by you or on your
behalf.
SEC--The United States Securities and Exchange Commission.
SEPARATE ACCOUNT--KILICO Variable Separate Account, a unit investment trust
registered with the SEC under the Investment Company Act of 1940.
SEPARATE ACCOUNT VALUE--The sum of the Subaccount Values of the Policy on
the Valuation Date.
SPECIFIED AMOUNT--The amount of insurance under your Policy. As of the
Effective Date, the Specified Amount is the amount shown on your Policy's
specifications page. Thereafter, the Specified Amount is reduced to reflect
partial withdrawals.
SUBACCOUNT--A division of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SUBACCOUNT VALUE--The value of the assets held in a Subaccount.
SURRENDER VALUE--The Cash Value less any applicable Withdrawal Charge.
TAX CODE--The Internal Revenue Code of 1986, as amended.
TRADE DATE--On the Trade Date, we allocate your initial Premium plus any
interest to the Subaccounts and/or the DCA Fixed Account according to your
instructions. In some states, the Trade Date is the same as the Issue Date. If
your state requires us to return your Premium if you cancel Your Policy during
the free look period, the Trade Date will be after the end of the free look
period, as explained at page 14 below.
VALUATION DATE--Each business day that applicable law requires us to value
the assets of the Separate Account. Currently this is each day that the New York
Stock Exchange is open for trading.
VALUATION PERIOD--The period that starts at the close of a Valuation Date
and ends at the close of the next succeeding Valuation Date.
WE, OUR, US, KILICO--Kemper Investors Life Insurance Company.
WITHDRAWAL CHARGE--The surrender charge plus the unamortized state premium
tax charge.
YOU, YOUR, YOURS--The party(s) named as Owner in the application, unless
later changed as provided in the Policy.
5
<PAGE> 11
SUMMARY
This section summarizes some of the more important features of your Policy.
The Policy is described more fully in the remainder of this Prospectus. Please
read this Prospectus carefully. Unless otherwise indicated, the description of
the Policy contained in this Prospectus assumes that the Policy is in force,
that there is no Policy Debt, and that current federal tax laws apply.
This Policy is a modified single premium variable universal life insurance
policy. The Policy has a Death Benefit, a Cash Value, and other features similar
to life insurance policies providing fixed benefits. The Policy permits the
Owner to pay a single significant initial Premium and, subject to restrictions,
additional Premiums. It is a "variable" Policy because the Cash Value and, in
some circumstances, the Death Benefit vary according to the investment
performance of the Subaccounts to which you have allocated your Premium. The
Cash Value is not guaranteed. This Policy provides you with the opportunity to
take advantage of any increase in your Cash Value, but you also bear the risk of
any decrease.
We will issue Policies on the lives of prospective Insureds age 0-90 who
meet our underwriting standards. You may purchase a Policy to provide insurance
coverage on the life of one Insured ("Single Life Policy") or a Policy to
provide insurance coverage on the lives of two Insureds ("Survivorship Policy").
PAYMENT OF PREMIUM
Your initial Premium must equal at least $10,000. You may choose a minimum
initial Premium of 90% or 100% of the Guideline Single Premium, based on the
initial Specified Amount. If you choose to pay 90% of the Guideline Single
Premium, your current cost of insurance charge will be higher and your Policy
will not include our No Lapse Guarantee. You may pay additional Premiums,
subject to the restrictions described in this Prospectus. We may refuse to
accept any Premium that would cause an increase in the Death Benefit, other than
a reinstatement Premium. We will accept any Premium at such time as it would not
cause your Policy to lose its status as a life insurance contract under the Tax
Code.
POLICY EFFECTIVE DATE
In general, your Policy will be effective and your life insurance coverage
under the Policy will begin as of the date we receive your initial Premium,
after satisfaction of the applicable underwriting requirements. While your
application is in underwriting, if You have paid your initial Premium, we may
provide you with temporary life insurance coverage in accordance with the terms
of our temporary insurance agreement. This temporary coverage will not exceed
$500,000 plus the amount of Your initial Premium. We may decline for any lawful
reason to accept your initial Premium until the Issue Date.
You may be eligible to purchase a Policy through simplified underwriting
without a medical examination if you meet our simplified underwriting criteria.
Simplified underwriting will only be available for Individual Policies and
Survivorship Policies involving spouses. Other survivorship cases will be
considered on a fully underwritten basis. You are not eligible for simplified
underwriting if the Insured is under 35 years old or over 80 years old at the
time of application.
If we approve your application, and you paid all or a portion of your
initial Premium prior to the Issue Date, we will credit interest to your Initial
Premium at our then current declared rate for the period from the Effective Date
to the Issue Date. On the Trade Date, we will allocate your initial Premium to
the Subaccounts you have selected or to the DCA Fixed Account (if you have
selected it for Dollar Cost Averaging). In some states, the Trade Date will be
the same as the Issue Date. In other states, however, which require us to return
your Premium upon cancellation of your Policy during the free look period, on
the Issue Date we will initially allocate your initial Premium (plus any
interest) to the Kemper Money Market Subaccount, and the Trade Date will depend
on the length of the free look period in your state. If the free look period is
ten days, the Trade Date will occur twenty days after the Issue Date. If the
free look period is longer, the Trade Date will occur a corresponding number of
days later. We will begin to deduct the Policy charges as of the Effective Date.
If we reject your application, we will not issue you a Policy. We will
return any Premium you have paid, adding interest as and at the rate required in
your state. We will not subtract any Policy charges from the amount we refund to
You.
POLICY BENEFITS
CASH VALUE. The Cash Value of your Policy on any Valuation Date is equal to
the sum of the Separate Account Value, the Fixed Account Value (if any), and the
Loan Account Value (if applicable). Your Cash Value
6
<PAGE> 12
will depend on the investment performance of the Subaccounts to which you have
allocated your Premiums, the amount of interest we credit to the DCA Fixed
Account and the Loan Account (if you have any Cash Value in those Accounts), as
well as the Premiums paid, partial withdrawals, and charges assessed. We do not
guarantee a minimum Cash Value.
SURRENDER OR PARTIAL WITHDRAWALS. While your Policy is in force, you may
surrender it for the Net Surrender Value. We also will deduct the Records
Maintenance Charge from your surrender proceeds, if your Cash Value on the last
Policy Anniversary was less than $50,000. Upon surrender, life insurance
coverage under your Policy will end. You may also withdraw part of your Cash
Value through a partial withdrawal, subject to the restrictions described in
"Partial Withdrawals" on page 23 below. If you take a partial withdrawal, we
will reduce the Specified Amount as described in this Prospectus on pages 21-22.
WITHDRAWAL CHARGE. If you surrender your Policy, the Withdrawal Charge will
equal a percentage of your initial Premium net of all previous withdrawal
amounts on which you paid a Withdrawal Charge. You pay a proportionate amount of
Withdrawal Charge on partial withdrawals in excess of the free withdrawal amount
described below.
The Withdrawal Charge has two parts: (1) a surrender charge, which is
intended to cover our distribution expenses; and (2) an unamortized state
premium tax charge, which is intended to cover state premium tax expenses that
are not recovered through the Tax Charge. The rate used to determine the
Withdrawal Charge depends on the year the surrender or partial withdrawal is
made. The maximum Withdrawal Charge is 10% of the initial Premium. It declines
to zero percent after the ninth Policy Year, at the rates shown in the table on
page 31.
FREE WITHDRAWALS. In each Policy Year, we will waive the Withdrawal Charge
for partial withdrawals equal to the greater of:
1. Ten percent of the Cash Value; or
2. Earnings not previously withdrawn.
We will also waive the Withdrawal Charge for qualified medical stays and
disability. For more detail see "Amount Payable on Surrender of the Policy" and
"Partial Withdrawals" on page 23.
POLICY LOANS. You may borrow money from us using your Policy as security
for the loan. Each Policy Loan must equal at least $1,000. Your total Policy
Loans may not exceed 90% of the Surrender Value of your Policy. In most
instances Policy Loans are treated as distributions for Federal tax purposes.
Therefore, you may incur tax liabilities if you borrow a Policy Loan. For more
detail, see "Policy Loans", on pages 22-23, and "Policies Which Are MECs", on
page 36.
DEATH BENEFITS. Under a Single Life Policy, while the Policy is in force,
we will pay a Death Benefit to the Beneficiary upon the death of the Insured.
Under a Survivorship Policy, we will pay the Death Benefit to the Beneficiary
upon the death of the second Insured. While your Policy is in force, the Death
Benefit will equal the greater of your Policy's then current Specified Amount
and the Cash Value multiplied by a specified percentage, except as provided
under "No Lapse Guarantee" below. Before we pay the Death Benefit, we will
subtract an amount sufficient to repay any outstanding Policy Debt and to pay
any due and unpaid charges.
NO LAPSE GUARANTEE
Under our No Lapse Guarantee, if you do not have any outstanding Policy
Debt, your Policy will never lapse, regardless of changes in the Net Surrender
Value. Your Policy will remain in force until payment of the Death Benefit or
the Maturity Date, unless you voluntarily surrender your Policy at an earlier
date. If your Net Surrender Value is insufficient to cover a Monthly Deduction
when due, we will give you a 61-day Grace Period to pay additional Premium. If
you do not pay sufficient additional Premium, at the end of the Grace Period
your Policy will stay in force but the Death Benefit will be reduced to equal
your total Premium payments (less any prior partial withdrawals of Premium). The
No Lapse Guarantee applies to your Policy unless: (a) you paid 90% of the
Guideline Single Premium at issue for your Policy or (b) your Policy has
outstanding Policy Debt.
DURATION OF COVERAGE
If the No Lapse Guarantee does not apply to your Policy and your Net
Surrender Value is insufficient to cover a Monthly Deduction when due, we will
give you a 61-day Grace Period to pay additional Premium. If you do not pay
sufficient additional Premium, your Policy will terminate at the end of the
Grace Period.
7
<PAGE> 13
ALLOCATION OF PREMIUMS
When you apply for the Policy, you specify in your application how to
allocate your initial Premium among the Subaccounts and/or the DCA Fixed
Account. Total allocations must equal 100%. You may allocate all or a portion of
your initial Premium to the DCA Fixed Account solely for the purpose of
subsequent transfers to the Subaccounts under our Automatic Dollar Cost
Averaging Program, as described on page 16.
We allocate any subsequent Premiums to the Subaccounts in the proportions
you specified in your application, until you give us new instructions. Your
initial allocation to a Subaccount must equal at least $500. You may not
allocate your Cash Value to more than 30 Subaccounts at one time. In the future,
we may change these limits. As a general rule, any subsequent Premium will be
allocated to the Subaccounts as of the date your Premium is received in our Home
Office. You may not allocate subsequent Premiums or make transfers to the DCA
Fixed Account.
TRANSFERS
You may transfer Cash Value among the Subaccounts while the Policy is in
force, by writing to us or calling us at (800) 621-5001. We currently do not
charge a transfer fee. We reserve the right to charge a fee of $25 per transfer
on each transfer after the first twelve transfers in each Policy Year, excluding
transfers under our Automatic Dollar Cost Averaging or Automatic Asset
Rebalancing Programs.
The minimum amount that may be transferred is $100 or the remaining value
in the Subaccount, if the value that would remain in the Subaccount after the
transfer would be less than $500. For more detail, see "Transfer of Cash Value"
and "Transfers Authorized by Telephone", on pages 15-16.
You may also use our Automatic Dollar Cost Averaging program or our
Automatic Asset Rebalancing program. You may not use both programs at the same
time. Under the Automatic Dollar Cost Averaging program, amounts are
automatically transferred to the Subaccounts of your choice on a monthly,
quarterly, semiannual, or annual basis. For more detail, see "Automatic Dollar
Cost Averaging", on page 16.
Under the Automatic Asset Rebalancing program, you periodically can
readjust the percentage of your Cash Value allocated to each Subaccount to
maintain a pre-set level. Investment results will shift the balance of your Cash
Value allocations. If you elect Automatic Asset Rebalancing, we periodically
transfer your Cash Value back to the specified percentages annually,
semiannually, quarterly, or at your request. For more detail, see "Automatic
Asset Rebalancing", on pages 16-17.
THE SEPARATE ACCOUNT
You can allocate and reallocate your Cash Value among the Subaccounts, each
of which in turn invests in a single Portfolio. Under the Policy, the Separate
Account currently invests in the following Portfolios:
KEMPER VARIABLE SERIES:
Kemper Aggressive Growth Portfolio
Kemper Technology Growth Portfolio
Kemper-Dreman Financial Services Portfolio
Kemper Small Cap Growth Portfolio
Kemper Small Cap Value Portfolio
Kemper-Dreman High Return Equity Portfolio
Kemper International Portfolio
Kemper International Growth & Income Portfolio
Kemper Global Blue Chip Portfolio
Kemper Growth Portfolio
Kemper Contrarian Value Portfolio
Kemper Blue Chip Portfolio
Kemper Value+Growth Portfolio
Kemper Index 500 Portfolio
Kemper Horizon 20+ Portfolio
Kemper Total Return Portfolio
Kemper Horizon 10+ Portfolio
Kemper High Yield Portfolio
Kemper Horizon 5 Portfolio
Kemper Global Income Portfolio
Kemper Investment Grade Bond Portfolio
Kemper Government Securities Portfolio
Kemper Money Market Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND
(CLASS A SHARES):
Scudder VLIF Global Discovery Portfolio
Scudder VLIF Growth and Income Portfolio
Scudder VLIF International Portfolio
Scudder VLIF Capital Growth Portfolio
WARBURG PINCUS TRUST:
Warburg Emerging Markets Portfolio
Warburg Post-Venture Capital Portfolio
Each Portfolio holds its assets separate from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies,
which are described in the accompanying Prospectuses for the Portfolios.
8
<PAGE> 14
CHARGES
CHARGES ASSESSED ON THE SUBACCOUNTS. On each Valuation Date, we deduct a
Mortality and Expense Risk Charge from the Separate Account. The Mortality and
Expense Charge equals an annual rate of .90% of average daily net assets, and is
intended to compensate us for expenses incurred and certain mortality and
expense risks assumed under the Policies. See "Mortality and Expense Risk
Charge" on page 29 below.
MONTHLY DEDUCTION. We also deduct a Monthly Deduction from your Cash Value.
The Monthly Deduction consists of the cost of insurance charge, the
Administration Charge, the Tax Charge, and the cost of any benefit rider. We
also deduct the Records Maintenance Charge on each Policy Anniversary, if your
Policy's Cash Value was less than $50,000 on the previous Policy Anniversary.
The cost of insurance charge covers our anticipated mortality costs. If your
Initial Premium exceeds $500,000, your cost of insurance charges may be lower.
The Administration Charge is intended to compensate us for some of our
administrative costs under the Policy. The Tax Charge covers state premium tax
expenses under the Policies and certain federal tax liabilities resulting from
our receipt of Premiums under the Policies, as required by law. The Records
Maintenance Charge reimburses us for certain administrative costs associated
with the Policies. See "Monthly Deduction", on pages 29-30 below.
WITHDRAWAL CHARGE. We impose a Withdrawal Charge to cover a portion of our
premium tax expenses and a portion of the sales expenses we incur in
distributing the Policies. These sales expenses include agents' commissions,
advertising, and the printing of Prospectuses. See "Withdrawal Charge" on page 7
above and in "Withdrawal Charge" on page 31 below.
TRANSFER FEE. We currently do not charge a transfer fee. Under the Policy,
however, we reserve the right to charge a fee of $25 per transfer on each
transfer in excess of twelve transfers in a single Policy Year, excluding
Portfolio Rebalancing and Automatic Dollar Cost Averaging transfers. See
"Transfer Fee" on page 32 below.
The charges assessed under the Policy are summarized in the table entitled
"Policy Charges and Deductions" on pages 10-11 below, and described in more
detail in "Charges and Deductions", beginning on page 29.
In addition to our charges under the Policy, each Portfolio deducts amounts
from its assets to pay its investment advisory fee and other expenses. The
Prospectuses for the Portfolios describe their respective charges and expenses
in more detail. We may receive compensation from the investment advisers or
administrators of the Portfolios. Such compensation will be consistent with the
services we provide or the cost savings resulting from the arrangement and
therefore may differ between Portfolios. We also may receive fees from the
Portfolios to assist us in distributing the Policies.
TAX TREATMENT UNDER CURRENT FEDERAL TAX LAW
Your Policy is structured to meet the definition of a life insurance
contract under the Tax Code. We may need to limit the amount of Premiums you pay
under the Policy to ensure that your Policy continues to meet that definition.
In most circumstances, your Policy will be considered a "modified endowment
contract", which is a form of life insurance contract under the Tax Code.
Special rules govern the tax treatment of modified endowment contracts. Under
current tax law, death benefit payments under modified endowment contracts, like
death benefit payments under other life insurance contracts, generally are
excluded from the gross income of the beneficiary. Withdrawals and Policy Loans,
however, are treated differently. Amounts withdrawn and Policy Loans are treated
first as income, to the extent of any gain, and then as a return of Premium. The
income portion of the distribution is includable in your taxable income. Also,
an additional ten percent federal penalty tax is generally imposed on the
taxable portion of amounts received before age 59 1/2. For more information on
the tax treatment of the Policy, see "Federal Tax Considerations", beginning on
page 34, and consult your tax adviser.
FREE-LOOK PERIOD
In most states, you may cancel your Policy by returning it to us no later
than ten days after you receive it. In other states, however, this free look
period may be longer, as provided by state law. If you return your Policy, the
Policy terminates and, in some states, we will pay you an amount equal to your
Premium (less any Policy Debt). In some other states, however, we will return
your Cash Value. Since state laws differ as to the consequences of returning a
Policy, You should refer to your Policy for specific information about your
circumstances.
ILLUSTRATION OF HOW POLICY VALUES CHANGE WITH EXPERIENCE
At your request we will furnish you with a free, personalized illustration
of Cash Value, Surrender Value and Death Benefit. The illustration will be
personalized to reflect the proposed Insureds' age, sex, underwriting
classification, proposed initial Premium, and any available riders requested.
The illustrated Cash Value, Surrender
9
<PAGE> 15
Value and Death Benefit will be based on certain hypothetical assumed rates of
return for the Separate Account. Your actual investment experience probably will
differ, and as a result the actual values under the Policy at any time may be
higher or lower than those illustrated. The personalized illustrations will
follow the methodology and format of the hypothetical illustrations that we
filed with the SEC in the registration statement.
FEES AND EXPENSES
The following tables are designed to help you understand the fees and
expenses that you bear, directly or indirectly, as a Policy Owner. The first
table describes the Policy Charges and deductions you directly bear under the
Policy. The second table describes the fees and expenses of the Portfolios that
you bear indirectly when you purchase a Policy. (See "Charges and Deductions",
beginning on page 29).
POLICY CHARGES AND DEDUCTIONS
CHARGES DEDUCTED FROM THE SEPARATE ACCOUNT:
Mortality and Expense Risk
Charge: 0.90% of average daily net assets(1)
Federal Income Tax Charge:Currently none.(2)
CHARGES DEDUCTED FROM CASH VALUE:(3)
Monthly Cost of Insurance Charge:
CURRENT: The lower of: (i) the product of the
applicable current asset-based cost of insurance
charge times the Cash Value on the Deduction Day;(4)
and (ii) the product of the applicable guaranteed cost
of insurance rate times the net amount at risk.
If your initial Premium is no more than $500,000 and
you pay 100% of the Guideline Single Premium, the
current asset-based rate for Single Life Policies for
the Standard (NT)(5) rate class is 0.55% annually of
Cash Value for the first ten Policy Years and 0.25%
thereafter and the rate for Survivorship Policies for
the Standard (NT) rate class is 0.45% for the first
ten Policy Years and 0.20% thereafter.
If your initial Premium is more than $500,000 and you
pay 100% of the Guideline Single Premium, the current
asset-based rate for Single Life Policies for the
Standard (NT) rate class is 0.25% for the first ten
Policy Years and 0.10% thereafter and the rate for
Survivorship Policies for the Standard (NT) rate class
is 0.20% for the first ten Policy Years and 0.10%
thereafter.
GUARANTEED: Ranges from $.06 per $1,000 of net amount
at risk to $83.33 per $1,000 of net amount at risk.(6)
Administration Charge(7) 0.35% annually of average monthly Cash Value for
Policy Years 1-10
0.25% annually of average monthly Cash Value for
Policy Years 11 and later
Tax Charge(7) 0.40% annually of the average monthly Cash Value for
Policy Years 1-10
0.00% for Policy Years 11 and later
Records Maintenance
Charge(8) $30.00 per year, deducted annually, if your Cash Value
is less than $50,000 on the most recent Policy
Anniversary.
TRANSACTION CHARGES:
Transfer Fee:(9) Currently none.
MAXIMUM WITHDRAWAL
CHARGE:(10) 10% of the initial Premium
- ---------------
(1) Deducted each Valuation Period at a rate equivalent to the effective annual
rate shown, multiplied by the Separate Account Value on the relevant
Valuation Date, times the number of days in the relevant Valuation
10
<PAGE> 16
Period. No mortality and expense risk charge is deducted from the Kemper
Money Market II Subaccount, which is only available for Automatic Dollar
Cost Averaging that will deplete the owner's Subaccount Value by the end of
the first Policy Year.
(2) We currently do not assess a charge for federal income taxes that may be
attributed to the operations of the Separate Account. We reserve the right
to do so in the future. See "Charges and Deductions", beginning on page 29.
(3) Assessed monthly, allocated pro rata among all active Subaccounts and the
DCA Fixed Account.
(4) The asset-based cost of insurance rate differs depending on Policy type and
history of tobacco use of the Insured(s). The current-asset based cost of
insurance rates also reflect whether you pay 90% or 100% of the Guideline
Single Premium at issue (based on the initial Specified Amount). The
asset-based rates that we set will reflect our expectations as to mortality
experience under the Policies and other relevant factors, such that the
aggregate actual cost of insurance charges paid under the Policies will
compensate us for our aggregate mortality risks under the Policies. In our
discretion, We may change the asset-based rate used in the current cost of
insurance formula. Even if we change the asset-based rate, however, you
will never be charged more than the amount determined using the guaranteed
cost of insurance tables in your Policy. For further explanation, see
"Charges and Deductions--Monthly Deduction--Cost of Insurance Charge", on
page 29.
(5) The Standard (NT) rate class is our best rate class for Insureds who have
not used tobacco of any kind within the past 36 months.
(6) The guaranteed cost of insurance charges are based on attained age, sex,
and history of tobacco use of the Insured. The net amount at risk is the
difference between the Death Benefit and the Cash Value. See "Charges and
Deductions--Monthly Deduction--Cost of Insurance Charge", on page 29.
(7) Deducted monthly in an amount equal to 1/12 the annual rate shown,
multiplied by the total Cash Value, including the Loan Account Value, on
the relevant Deduction Day. The Administration Charge covers certain of our
administrative expenses in connection with the Policies. The Tax Charge
covers a portion of our state premium tax expense and certain federal
income tax liability associated with the receipt of Premium.
(8) The Records Maintenance Charge is deducted annually on each Policy
Anniversary. If you surrender your Policy during a Policy Year, we will
deduct the Records Maintenance Charge from your surrender proceeds.
(9) We currently do not charge a transfer fee. Under the Policy, we reserve the
right in the future to charge a transfer fee of $25 on each transfer after
the first twelve transfers each Policy Year, excluding transfers under our
Automatic Dollar Cost Averaging and Automatic Asset Rebalancing Programs.
(10) This charge only applies upon withdrawals of the initial Premium. It does
not apply to withdrawals of any additional Premiums paid under a Policy.
The Withdrawal Charge declines to zero percent after the ninth Policy
Anniversary. It is imposed to cover a portion of our premium tax expenses
and the sales expenses incurred by us in distributing the Policies. In any
Policy Year, we will not charge any Withdrawal Charge on that portion of
your withdrawals equal to the greater of (a) ten percent of the Cash Value,
less any prior free partial withdrawal since the most recent Policy
Anniversary, or (b) earnings not previously withdrawn. See Charges and
Deductions--Withdrawal Charge, page 31.
11
<PAGE> 17
PORTFOLIO EXPENSES
(As a percentage of average net assets for the period ended December 31, 1998)
(total expense figures shown in parentheses are after fee waivers or reductions
and expense reimbursements, as indicated in the notes)
<TABLE>
<CAPTION>
TOTAL FUND OTHER TOTAL FUND ANNUAL
PORTFOLIO MANAGEMENT FEES EXPENSES EXPENSES
- --------- --------------- ---------------- -----------------
<S> <C> <C> <C>
Kemper Aggressive Growth Portfolio(2)(4).......... 0.75% 0.28% 1.03% (0.95%)
Kemper Technology Growth Portfolio(2)............. 0.75% 0.29% 1.04% (0.95%)
Kemper-Dreman Financial Services
Portfolio(2)(5)................................. 0.75% 0.97% 1.72% (0.99%)
Kemper Small Cap Growth Portfolio................. 0.65% 0.05% 0.70%
Kemper Small Cap Value Portfolio(1)............... 0.75% 0.05% 0.80%
Kemper-Dreman High Return Equity
Portfolio(2)(5)................................. 0.75% 0.45% 1.20% (0.87%)
Kemper International Portfolio.................... 0.75% 0.18% 0.93%
Kemper International Growth and Income
Portfolio(2)(5)................................. 1.00% 18.54% 19.54% (1.12%)
Kemper Global Blue Chip Portfolio(2)(5)........... 1.00% 11.32% 12.32% (1.56%)
Kemper Growth Portfolio........................... 0.60% 0.05% 0.65%
Kemper Contrarian Value Portfolio(1).............. 0.75% 0.03% 0.78%
Kemper Blue Chip Portfolio(1)..................... 0.65% 0.11% 0.76%
Kemper Value+Growth Portfolio(1).................. 0.75% 0.03% 0.78%
Kemper Index 500 Portfolio(6)..................... 0.45% 0.29% 0.74% (0.55%)
Kemper Horizon 20+ Portfolio(1)................... 0.60% 0.07% 0.67%
Kemper Total Return Portfolio..................... 0.55% 0.05% 0.60%
Kemper Horizon 10+ Portfolio(1)................... 0.60% 0.04% 0.64%
Kemper High Yield Portfolio....................... 0.60% 0.05% 0.65%
Kemper Horizon 5 Portfolio(1)..................... 0.60% 0.06% 0.66%
Kemper Global Income Portfolio(2)................. 0.75% 0.33% 1.08% (1.05%)
Kemper Investment Grade Bond Portfolio(1)......... 0.60% 0.07% 0.67%
Kemper Government Securities Portfolio............ 0.55% 0.11% 0.66%
Kemper Money Market Portfolio(3).................. 0.50% 0.04% 0.54%
Scudder VLIF Global Discovery Portfolio(7)........ 0.91% 0.81% 1.72%
Scudder VLIF Growth and Income Portfolio.......... 0.47% 0.09% 0.56%
Scudder VLIF International Portfolio.............. 0.87% 0.18% 1.05%
Scudder VLIF Capital Growth Portfolio............. 0.47% 0.04% 0.51%
Warburg Emerging Markets Portfolio(8)............. 1.25% 6.96% 8.21% (1.40%)
Warburg Post-Venture Capital Portfolio(8)......... 1.25% 0.45% 1.70% (1.40%)
</TABLE>
- ---------------
(1) Pursuant to their respective agreements with Kemper Variable Series, the
investment manager and the accounting agent have agreed, for the one year
period commencing on approximately May 1, 1999, to limit their respective
fees and to reimburse other operating expenses to the extent necessary to
limit total operating expenses of the following described Portfolios to the
amounts set forth after the Portfolio names: Kemper Value+Growth Portfolio
(.84%), Kemper Contrarian Value Portfolio (.80%), Kemper Small Cap Value
Portfolio (.84%), Kemper Horizon 5 Portfolio (.97%), Kemper Horizon 10+
Portfolio (.83%), Kemper Horizon 20+ Portfolio (.93%), Kemper Investment
Grade Bond Portfolio (.80%), and Kemper Blue Chip Portfolio (.95%). The
amounts set forth in the table above reflect actual expenses for the past
fiscal year, which were lower than these expense limits.
(2) Pursuant to their respective agreements with Kemper Variable Series, the
investment manager and the accounting agent have agreed, for the one year
period commencing on approximately May 1, 1999, to limit their respective
fees and to reimburse other operating expenses of the Kemper Aggressive
Growth, Kemper Technology Growth, Kemper-Dreman Financial Services,
Kemper-Dreman High Return Equity, Kemper International Growth and Income,
Kemper Global Blue Chip and Kemper Global Income Portfolios of Kemper
Variable Series to the levels set forth in the table above in parentheses.
Taking into effect these expense caps, for the Aggressive Growth, Technology
Growth, Financial Services, High Return Equity, International Growth and
Income, Global Blue Chip and Global Income Portfolios of Kemper Variable
Series: management fees were .67%, .66%, .02%, .42%, .00%, .00% and .72%,
respectively. Other Expenses were .28%, .29%, .97%, .45%, 1.12%, 1.56%, and
.33%, respectively, and total operating expenses were .95%, .95%, .99%,
.87%, 1.12%, 1.56%, and 1.05%, respectively. In addition, for Kemper
International Growth and Income and Kemper Global Blue Chip, the investment
manager has agreed to limit its management fee to .70% and .85%,
respectively, of such portfolios for one year from the date of this
Prospectus. The amounts
12
<PAGE> 18
set forth without parentheses in the table above reflect actual expenses for
the past fiscal year. The Total Fund Annual Expense figures set forth in
parentheses reflect the effect of the fee reductions and expense
reimbursement arrangements described above.
(3) This Portfolio is the underlying investment for the Kemper Money Market
Subaccount and the Kemper Money Market II Subaccount. The Kemper Money
Market II Subaccount is only available to allocate all or a portion of your
initial Premium for Automatic Dollar Cost Averaging that will deplete your
Subaccount Value by the end of the first Policy Year.
(4) Portfolio commenced operations after 5/1/99. "Other Expenses" have been
estimated.
(5) Portfolios commenced operations on or after 5/1/98. "Other Expenses" have
been annualized.
(6) Portfolio commenced operations after 9/1/99. "Other Expenses" have been
estimated. Pursuant to their respective agreements with Kemper Variable
Series, the investment manager and the accounting agent have agreed, for the
period from commencement of operations to April 30, 2000, to limit their
respective fees and to reimburse other operating expenses of the Kemper
Index 500 Portfolio to the level set forth in the table above in
parentheses. Taking into effect this cap for the Kemper Index 500 Portfolio,
Management Fees would be 0.26%, Other Expenses would be 0.29% and Total
Operating Expenses would be 0.55%.
(7) Until April 30, 1998, the Adviser waived a portion of its management fee to
limit the expenses of this Portfolio to 1.50% of the average daily net
assets.
(8) The expense figures shown without parentheses are for fiscal year ended
December 31, 1998. They do not reflect certain fee waivers or reductions
from the Portfolios' investment adviser and its affiliates. With such
waivers and reductions, Management Fees, Other Expenses, and Total Portfolio
Annual Expenses for the Portfolios for the fiscal year ended December 31,
1998 were: 0.20%, 1.20%, and 1.40%, respectively, for the Emerging Markets
Portfolio; and 1.08%, 0.32%, and 1.40%, respectively, for the Post-Venture
Capital Portfolio. Fee waivers and expense reimbursements may be
discontinued at any time. The Total Fund Annual Expense figures set forth in
parentheses reflect the effect of the fee waiver and expense reduction
arrangements described above.
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS
APPLICATION FOR A POLICY
You may apply to purchase a Policy by submitting a written application to
us through one of our authorized agents. We will issue Policies to insure people
who are 90 years of age or younger. When you apply for a Policy, we will require
you to submit evidence of insurability satisfactory to us. If we do not issue a
Policy to you, we will return your Premium to you.
In general, we will deliver your Policy only when (1) we have received your
initial Premium and (2) we have determined that your application meets our
underwriting requirements. If you are paying Premium from more than one source,
we will not issue your Policy until all Premium has been received. The Effective
Date will be the effective date of insurance coverage under your Policy. We use
the Effective Date to determine Policy Anniversaries, Policy Years, and
Deduction Days. The Effective Date usually will be the date when we have
received your initial Premium, after satisfaction of the applicable underwriting
requirements.
We will not accept your initial Premium with your application if it exceeds
our then-current limit. In other cases, you may choose to pay the initial
Premium with your application. If you did not submit your initial Premium with
your application, we will require you to pay your entire Premium before we place
your insurance in force.
Acceptance of your application is subject to our underwriting rules. We
reserve the right to reject your application for any lawful reason. We reserve
the right to change the terms or conditions of your Policy to comply with
differences in applicable state law. 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.
SIMPLIFIED UNDERWRITING. Under our current underwriting rules, which we may
change when and as we decide, proposed Insureds are eligible for simplified
underwriting without a medical examination, if the application responses and
requested initial Premium meet our simplified underwriting standards. Simplified
underwriting is not available if the initial Premium exceeds the limits set in
our simplified underwriting standards. For Survivorship Policies, both Insureds
must meet our simplified underwriting requirements. Simplified underwriting
limits may vary by state.
STANDARD UNDERWRITING. If you are not eligible for simplified underwriting,
we will process your application in accordance with our customary underwriting
requirements. While your application is in underwriting, if you have paid your
initial Premium we may provide you with temporary life insurance coverage in
accordance with
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the terms of our temporary insurance agreement. Any temporary coverage may not
exceed $500,000 plus the amount of your initial Premium. If you did not pay your
Premium with your application, we will require you to pay your entire Premium
before we place your insurance in force. If you pay Premium through more than
one source, e.g., through the rollover of another policy, we will not place your
Policy in force until all Premium has been received.
If we approve your application, you will earn interest and/or investment
return on your Premium from the Effective Date. We will also begin to deduct the
Policy charges as of the Effective Date.
If we reject your application, we will not issue you a Policy. We will
return any Premium you have made, adding interest as and at the rate required in
your state. We will not subtract any Policy charges from the amount we refund to
You.
PREMIUMS
You must pay an initial Premium to purchase a Policy. You may choose a
minimum initial Premium of 90% or 100% of the Guideline Single Premium for your
Policy's initial Specified Amount. Your choice will affect your current cost of
insurance charge. In addition, if you choose to pay 90%, your Policy will not
include our No Lapse Guarantee. Under either option, the minimum initial Premium
is $10,000. We may waive or change this minimum.
You may pay additional Premiums at any time and in any amount necessary to
avoid termination of your Policy. In addition, we will accept any additional
Premium at such time as it would not disqualify your Policy as a life insurance
contract under the Tax Code. If you wish to repay Policy Debt (if any), you must
send written instructions with your payment; otherwise, we will treat any
payment received from you as additional Premium.
ALLOCATION OF PREMIUMS
If you pay all or a portion of your initial Premium prior to the Issue
Date, we will initially allocate your payment to our Fixed Account. If we
approve your application, we will credit interest to that amount at an effective
rate of not less than 3% annually for the period from the Effective Date to the
Issue Date.
On the Issue Date, if your state requires us to return your Premium if you
cancel your Policy during the free look period, we will initially allocate your
initial Premium (and any interest) to the Kemper Money Market Subaccount.
Subsequently, on the Trade Date, we will allocate your Cash Value to the
Subaccounts and/or the DCA Fixed Account (if you have selected it for Dollar
Cost Averaging) in accordance with your instructions. The Trade Date will depend
on the length of the free look period. If the free look period is ten days, the
Trade Date will occur twenty days after the Issue Date. If the free look period
is longer, the Trade Date will occur a corresponding number of days later.
In other states, on the Issue Date we will allocate your initial Premium
according to your instructions, because the Trade Date will be the same as the
Issue Date.
You must specify your allocation percentages in your Policy application.
The total allocation must equal 100%. We will allocate your subsequent Premiums
in those proportions, until you give us new allocation instructions. You may
change your allocation instructions orally or in writing. Your initial
allocation to a Subaccount must equal at least $500. You may not allocate your
Cash Value to more than 30 Subaccounts at one time. You may not allocate
Premiums to the DCA Fixed Account after the initial Premium.
We generally will allocate your additional Premiums to the Subaccounts as
of the date your Premium is received in our Home Office. We may refuse to accept
any Premium that would cause an increase in the Death Benefit, other than a
reinstatement Premium. We will make all valuations in connection with the
Policy, other than the initial Premium and other Premium payments requiring an
underwriting, on the date a Premium is received or your request for other action
is received at our Home Office, if that date is a Valuation Date, or on the next
succeeding Valuation Date.
CASH VALUE
Your Cash Value on any Valuation Date is the sum of the value of your
interest in the Subaccounts you have chosen, your Fixed Account Value (if any),
plus your Loan Account Value (if any). Your Cash Value may increase or decrease
daily to reflect the performance of the Subaccounts you have chosen, the
addition of interest credited to the Loan Account and the Fixed Account, the
addition of Premiums, and the subtraction of partial withdrawals and charges
assessed. There is no minimum guaranteed Cash Value.
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<PAGE> 20
On the Effective Date, your Cash Value will equal the initial Premium less
the Monthly Deduction for the first Policy Month.
The Separate Account Value equals the sum of the Subaccount Values, each of
which equals:
a. The total value of your Accumulation Units in the Subaccount; plus
b. Any Premium received and allocated to the Subaccount during the
current Valuation Period; plus
c. Any amount transferred to the Subaccount during the current
Valuation Period; minus
d. The pro-rata portion of any Monthly Deduction charged to the
Subaccount when the Valuation Period includes a Deduction Day;
minus
e. Any amount transferred from the Subaccount during the current
Valuation Period; minus
f. Any amount withdrawn from the Subaccount during the current
Valuation Period; minus
g. Any amount loaned from the Subaccount during the current Valuation
Period.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Subaccount will vary to reflect the
investment experience of the corresponding Portfolio and the deduction of
certain expenses. We will determine the Accumulation Unit Value for each
Subaccount on each Valuation Date. A Subaccount's Accumulation Unit Value for a
particular Valuation Date will equal the Subaccount's Accumulation Unit Value on
the preceding Valuation Date multiplied by the Investment Experience Factor for
that Subaccount for the Valuation Period then ended.
The Investment Experience Factor for each Subaccount is (1) divided by (2)
minus (3), where:
(1) is the sum of (a) the net asset value per share of the corresponding
Portfolio at the end of the current Valuation Period plus (b) the per
share amount of any dividend or capital gains distribution by that
Portfolio, if the "ex-dividend" date occurs in that Valuation Period;
plus or minus (c) a credit or charge for any taxes reserved for the
current Valuation Period which we determine to have resulted from the
investment operations of the Subaccount;
(2) is the net asset value per share of the corresponding Portfolio at the
end of the last prior Valuation Period; and
(3) is the factor representing the Mortality and Expense Risk Charge.
You should refer to the Prospectuses for the Portfolios which accompany
this Prospectus for a description of how the assets of each Portfolio are
valued, since that determination directly affects the investment experience of
the corresponding Subaccount and, therefore, your Cash Value.
TRANSFER OF CASH VALUE
While the Policy is in force before the Maturity Date, you may transfer
Cash Value among the Subaccounts in writing or by telephone. We currently do not
charge a transfer fee. However, under the Policy we reserve the right to charge
a fee of $25 for each transfer in excess of twelve per Policy Year, excluding
transfers under our Automatic Dollar Cost Averaging and Automatic Asset
Rebalancing Programs. You may not transfer Cash Value to the DCA Fixed Account.
The minimum amount that may be transferred from a single Subaccount is
$100, or the remaining value in the Subaccount, if the value that would remain
in the Subaccount after the transfer would be less than $500. We reserve the
right to waive or change these minimums.
As a general rule, we only make transfers on days when the New York Stock
Exchange is open for business. If we receive your request on one of those days,
we will make the transfer that day. Otherwise, we will make the transfer on the
first subsequent day on which the NYSE is open. Transfers pursuant to a
Automatic Dollar Cost Averaging or Automatic Asset Rebalancing program will be
made at the intervals you have selected in accordance with the procedures and
requirements we establish. We may suspend, modify, or terminate the transfer
provisions.
TRANSFERS AUTHORIZED BY TELEPHONE
You may make transfers by telephone, if you so advise us in writing on our
authorized forms. The cut off time for telephone transfer requests is 4:00 p.m.
Eastern time. Timely requests will be processed on that day at
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that day's price. If we receive your request after 4:00 p.m. Eastern time, we
will process your request at the next day's price.
We use procedures that we believe provide reasonable assurance that
telephone authorized transfers are genuine. For example, we tape telephone
conversations with persons purporting to authorize transfers and request
identifying information. Accordingly, we disclaim any liability for losses
resulting from allegedly unauthorized telephone transfers. We may suspend,
modify or terminate the telephone transfer privilege at any time without notice.
AUTOMATIC DOLLAR COST AVERAGING
Under our Automatic Dollar Cost Averaging program, while the Policy is in
force you may authorize us to transfer a fixed dollar amount monthly, quarterly,
semiannually, or annually to the Subaccounts of your choice in accordance with
the procedures and requirements that we establish. The transfers will continue
until you instruct us to stop, or until your chosen source of transfer payments
is exhausted. The minimum Automatic Dollar Cost Averaging transfer is $100 per
transfer. Upon early termination of your Automatic Dollar Cost Averaging
program, we will allocate the remaining amount from your source account to the
Subaccounts in accordance with your instructions in our files. If you do not
give us new instructions, we will follow the allocation instructions in our
files.
You may make Dollar Cost Averaging transfers from any Subaccount. At issue,
you may choose to allocate some or all of your initial Premium to the Kemper
Money Market II Subaccount or to the DCA Fixed Account, for purposes of
participating in the Dollar Cost Averaging Program. Amounts allocated to the
Kemper Money Market II Subaccount or the DCA Fixed Account must be transferred
to other Subaccounts by the first Policy Anniversary.
The Kemper Money Market II Subaccount invests in the Kemper Money Market
Portfolio. However, the Mortality and Expense Risk Charge is not charged to this
Subaccount.
We offer two DCA Fixed Account options in connection with the Automatic
Dollar Cost Averaging Program: a six-month option and a twelve-month option.
Amounts designated for one of these options will be transferred to the
Subaccounts within six months or twelve months of the Effective Date, as
appropriate. Until they are transferred, they will accrue interest at the rate
we declare. We may declare different rates for the six-month and the
twelve-month options. In our discretion, we may change the DCA Fixed Account
options that we offer under the Policy. For more information, see "The DCA Fixed
Account" on pages 20-21.
Your request to participate in this program will be effective when we
receive your completed application at our Home Office at the address given on
the first page of this Prospectus. Call or write us for a copy of the
application and additional information concerning the program. You may not use
Automatic Dollar Cost Averaging and Automatic Asset Rebalancing at the same
time. We may change, terminate, limit or suspend Automatic Dollar Cost Averaging
at any time.
The theory of automatic dollar cost averaging is that by spreading your
investment over time, you may be able to reduce the effect of transitory market
conditions on your investment. In addition, because a given dollar amount will
purchase more units when the unit prices are relatively low rather than when the
prices are higher, in a fluctuating market, the average cost per unit may be
less than the average of the unit prices on the purchase dates. However,
participation in this program does not assure you of a greater profit from your
purchases under the program; nor will it prevent or necessarily reduce losses in
a declining market. Moreover, other investment programs may not work in concert
with Automatic Dollar Cost Averaging. Therefore, you should monitor your use of
these programs, as well as other transfers or withdrawals, while Automatic
Dollar Cost Averaging is being used.
AUTOMATIC ASSET REBALANCING
Automatic Asset Rebalancing allows you to readjust the percentage of your
Cash Value allocated to each Subaccount to maintain a pre-set level. Over time,
the variations in each Subaccount's investment results will shift the balance of
your Cash Value allocations. Under the Automatic Asset Rebalancing feature, we
periodically will transfer your Cash Value, including new Premiums (unless you
specify otherwise), back to the percentages you specify in accordance with
procedures and requirements that we establish. you may select the Subaccounts to
include in an Automatic Asset Rebalancing program.
You may request Automatic Asset Rebalancing when you apply for your Policy
or by submitting a completed written request to us at our Home Office at the
address given on the first page of this Prospectus. You may not use Automatic
Asset Rebalancing and Automatic Dollar Cost Averaging at the same time. We may
change, terminate,
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limit or suspend Automatic Asset Rebalancing at any time. Please call or write
us for a copy of the request form and additional information concerning Asset
Automatic Rebalancing.
Automatic Asset Rebalancing is consistent with maintaining your allocation
of investments among market segments, although it is accomplished by reducing
your Cash Value allocated to the better performing segments. Other investment
programs may not work in concert with Automatic Asset Rebalancing. Therefore,
you should monitor your use of these programs, as well as other transfers or
withdrawals, while Automatic Asset Rebalancing is being used. We may change,
terminate, limit, or suspend Automatic Asset Rebalancing at any time.
INVESTMENT OPTIONS
SEPARATE ACCOUNT INVESTMENTS: THE PORTFOLIOS.
Each of the Subaccounts invests in the shares of one of the Portfolios.
Each Portfolio is a separate investment series of an open-end management
investment company registered under the Investment Company Act of 1940. We
briefly describe the Portfolios below. You should read the current Prospectuses
for the Portfolios for more detailed and complete information concerning the
Portfolios, their investment objectives and strategies, and the investment risks
associated with the Portfolios. If you do not have a Prospectus for a Portfolio,
contact us and we will send you a copy.
Each Portfolio holds its assets separate from the assets of the other
Portfolios, and each Portfolio has its own distinct investment objective and
policies. Each Portfolio operates as a separate investment fund, and the income,
gains, and losses of one Portfolio have no effect on the investment performance
of any other Portfolio.
The Portfolios which currently are the permissible investments of the
Separate Account under this Policy are separate series of:
- Kemper Variable Series;
- Scudder Variable Life Investment Fund (Class A Shares);
- Warburg Pincus Trust.
The investment objectives of the Portfolios are briefly described below.
PORTFOLIOS OF KEMPER VARIABLE SERIES (FORMERLY INVESTORS FUND SERIES)
KEMPER AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation through the
use of aggressive investment techniques.
KEMPER TECHNOLOGY GROWTH PORTFOLIO seeks growth of capital.
KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO seeks long-term capital
appreciation.
KEMPER SMALL CAP GROWTH PORTFOLIO seeks maximum appreciation of investors=
capital.
KEMPER SMALL CAP VALUE PORTFOLIO seeks long-term capital appreciation.
KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO seeks to achieve a high rate of
total return.
KEMPER INTERNATIONAL PORTFOLIO seeks total return, a combination of capital
growth and income, principally through an internationally diversified portfolio
of equity securities.
KEMPER INTERNATIONAL GROWTH & INCOME PORTFOLIO seeks a long-term growth of
capital and current income, primarily from foreign equity securities.
KEMPER GLOBAL BLUE CHIP PORTFOLIO seeks long-term growth of capital through
a diversified worldwide portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks.
KEMPER GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
KEMPER CONTRARIAN VALUE PORTFOLIO seeks to achieve a high rate of total
return.
KEMPER BLUE CHIP PORTFOLIO seeks growth of capital and of income.
KEMPER VALUE+GROWTH PORTFOLIO seeks growth of capital. A secondary
objective of the Portfolio is the reduction of risk over a full market cycle
compared to a portfolio of only growth stocks or only value stocks.
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KEMPER INDEX 500 PORTFOLIO seeks to match, as closely as possible, before
expenses, the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index"), which emphasizes stocks of large U.S. companies.*
KEMPER HORIZON 20+ PORTFOLIO, designed for investors with approximately a
20+ year investment horizon, seeks growth of capital, with income as a secondary
objective.
KEMPER TOTAL RETURN PORTFOLIO seeks a high total return, a combination of
income and capital appreciation.
KEMPER HORIZON 10+ PORTFOLIO, designed for investors with approximately a
10+ year investment horizon, seeks a balance between growth of capital and
income, consistent with moderate risk.
KEMPER HIGH YIELD PORTFOLIO seeks to provide a high level of current
income.
KEMPER HORIZON 5 PORTFOLIO, designed for investors with approximately a
5-year investment horizon, seeks income consistent with preservation of capital,
with growth of capital as a secondary objective.
KEMPER GLOBAL INCOME PORTFOLIO seeks to provide high current income
consistent with prudent total return asset management.
KEMPER INVESTMENT GRADE BOND PORTFOLIO seeks high current income.
KEMPER GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent
with preservation of capital.
KEMPER MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments. This Portfolio seeks to maintain a net asset value of $1.00
per share, but there is no assurance that the Portfolio will be able to do so.
PORTFOLIOS OF SCUDDER VARIABLE LIFE INVESTMENT FUND (CLASS A SHARES)
SCUDDER VLIF GLOBAL DISCOVERY PORTFOLIO seeks above-average capital
appreciation over the long term by investing primarily in the equity securities
of small companies located throughout the world.
SCUDDER VLIF GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital,
current income and growth of income from a portfolio consisting primarily of
common stocks and securities convertible into common stocks.
SCUDDER VLIF INTERNATIONAL PORTFOLIO seeks long-term growth of capital
principally from a diversified portfolio of foreign equity securities.
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO seeks to maximize long-term capital
growth from a portfolio consisting primarily of equity securities.
PORTFOLIOS OF WARBURG PINCUS TRUST
WARBURG EMERGING MARKETS PORTFOLIO seeks long-term growth of capital by
investing in equity securities of emerging markets.
WARBURG POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by
investing primarily in equity securities of issuers in their
post-venture-capital stage of development and pursues an aggressive investment
strategy.
Not all Subaccounts may be available under your Policy. You should contact
your representative for further information on the availability of the
Subaccounts.
Scudder Kemper Investments, Inc. ("Scudder Kemper") is the investment
manager for the twenty-two available Portfolios of Kemper Variable Series and
the four available Portfolios of Scudder Variable Life Investment Fund.
Scudder Investments (U.K.) Limited ("Scudder U.K."), an affiliate of
Scudder Kemper, is the subadviser for the Kemper International Portfolio and the
Kemper Global Income Portfolio. Under the terms of the Sub-Advisory Agreement
with Scudder Kemper, Scudder U.K. renders investment advisory and management
services for that portion of this Portfolio's assets that Scudder Kemper from
time to time allocates to Scudder U.K. for
- ---------------
* "Standard & Poor's(R)," "S&P(R)," "S&P500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed
for use by Scudder Kemper Investments, Inc. The Kemper Index 500 Portfolio is
not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing in the
fund. Additional information may be found in the fund's Statement of Additional
Information.
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management, including services related to foreign securities, foreign currency
transactions, and related investments.
Dreman Value Management L.L.C. ("DVM") serves as sub-adviser for the
Kemper-Dreman High Return Equity and Kemper-Dreman Financial Services
Portfolios. Under the terms of the SubAdvisory Agreement between Scudder Kemper
and DVM for each Portfolio, DVM manages the investment and reinvestment of each
Portfolio's assets in accordance with its investment objectives, policies and
limitations and subject to the supervision of Scudder Kemper and the Board of
Trustees.
Bankers Trust Company ("Bankers") serves as sub-adviser for the Kemper
Index 500 Portfolio. Under the terms of the SubAdvisory Agreement between
Scudder Kemper and Bankers, Bankers will handle day-to-day investment and
trading functions for the Portfolio under the guidance of Scudder Kemper.
Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset
Management, Inc.) is the investment adviser for the two available Portfolios of
the Warburg Pincus Trust. Abbott Capital Management LLC serves as sub-adviser
for the private-equity portfolio portion of the Warburg Pincus Post-Venture
Capital Portfolio.
We do not promise that the Portfolios will meet their investment
objectives. Amounts you have allocated to Subaccounts may grow in value, decline
in value, or grow less than you expect, depending on the investment performance
of the Portfolios in which those Subaccounts invest. You bear the investment
risk that those Portfolios possibly will not meet their investment objectives.
YOU SHOULD CAREFULLY REVIEW THE PORTFOLIOS' PROSPECTUSES BEFORE ALLOCATING
AMOUNTS TO THE SUBACCOUNTS.
Each Portfolio is subject to certain investment restrictions and policies
which may not be changed without the approval of a majority of the shareholders
of the Portfolio. See the accompanying Prospectuses of the Portfolios for
further information.
We automatically reinvest all dividends and capital gains distributions
from the Portfolios in shares of the distributing Portfolio at their net asset
value. The income and realized and unrealized gains or losses on the assets of
each Subaccount are separate and are credited to or charged against the
particular Subaccount without regard to income, gains or losses from any other
Subaccount or from any other part of our business. We will use the Premiums you
allocate to a Subaccount to purchase shares in the corresponding Portfolio and
will redeem shares in the Portfolios to meet Policy obligations or make
adjustments in reserves. The Portfolios are required to redeem their shares at
net asset value and to make payment within seven days.
Some of the Portfolios have been established by investment advisers which
manage publicly traded mutual funds having similar names and investment
objectives. While some of the Portfolios may be similar to, and may in fact be
modeled after publicly traded mutual funds, you should understand that the
Portfolios are not otherwise directly related to any publicly traded mutual
fund. Consequently, the investment performance of publicly traded mutual funds
and any similarly named Portfolio may differ substantially.
Certain of the Portfolios sell their shares to separate accounts underlying
both variable life insurance and variable annuity policies. It is conceivable
that in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity owners, each
Portfolio's Board of Directors intends to monitor events in order to identify
any material conflicts between variable life and variable annuity owners and to
determine what action, if any, should be taken in response thereto. If a Board
of Directors were to conclude that separate investment funds should be
established for variable life and variable annuity separate accounts, Owners
will not bear the attendant expenses.
VOTING RIGHTS
As a general matter, you do not have a direct right to vote the shares of
the Portfolios held by the Subaccounts to which you have allocated your Cash
Value. Under current interpretations, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed and will provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of votes for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, you are the person entitled to give voting instructions.
However, if you assign your Policy, the assignee may be entitled to give voting
instructions. Retirement plans may have different rules for voting by plan
participants.
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If you send us written voting instructions, we will follow your
instructions in voting the Portfolio shares attributable to your Policy. If you
do not send us written instructions, we will vote the shares attributable to
your Policy in the same proportions as we vote the shares for which we have
received instructions from other Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Owners.
We may, when required by state insurance regulatory authorities, disregard
Owner voting instructions if the instructions require that the shares be voted
so as to cause a change in the subclassification or investment objective of one
or more of the Portfolios or to approve or disapprove an investment advisory
contract for one or more of the Portfolios.
In addition, we may disregard voting instructions given by Owners in the
investment objectives or the investment adviser of the Portfolios if we
reasonably disapprove of the proposed change. We would disapprove a proposed
change only if the proposed change is contrary to state law or prohibited by
state regulatory authorities or we reasonably conclude that the proposed change
would not be consistent with the investment objectives of the Portfolio or would
result in the purchase of securities for the Portfolio which vary from the
general quality and nature of investments and investment techniques utilized by
the Portfolio. If we disregard voting instructions, we will include a summary of
that action and our reasons for that action in the next semi-annual financial
report to You.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES
If the shares of any of the Portfolios are no longer available for
investment by the Separate Account or if, in our judgment, further investment in
the shares of a Portfolio is no longer appropriate in view of the purposes of
the Policy, we may add or substitute shares of another Portfolio or mutual fund
for Portfolio shares already purchased or to be purchased in the future by
Premiums under the Policy. Any substitution will comply with the requirements of
the 1940 Act.
We also reserve the right to make the following changes in the operation of
the Separate Account and the Subaccounts:
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or
obtain and continue any exemption from applicable laws;
(c) to transfer assets from one Subaccount to another, or from any
Subaccount to our General Account;
(d) to add, combine, or remove Subaccounts in the Separate Account;
(e) to assess a charge for taxes attributable to the operation of the
Separate Account or for other taxes, as described in "Charges and
Deductions--Separate Account Charges" on page 29 below; and
(f) to change the way in which we assess other charges, as long as the
total other charges do not exceed the maximum guaranteed charges under the
Policies.
If we deem it to be in the best interests of persons having voting interest
under the Policies, the Separate Account may be (a) operated as a management
company under the 1940 Act, (b) deregistered under the 1940 Act if such
registration is no longer required; or (c) combined with our other separate
accounts. To the extent permitted by law, we may also transfer assets of the
Separate Account to another separate account, or to our General Account.
If we take any of these actions, we will comply with the then applicable
legal requirements.
THE DCA FIXED ACCOUNT
THE PORTION OF THE POLICY RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND THE FIXED ACCOUNT IS NOT REGISTERED AS AN
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY,
NEITHER THE FIXED ACCOUNT NOR ANY INTEREST IN THE FIXED ACCOUNT IS SUBJECT TO
THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT, AND THE
DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION. THE STATEMENTS ABOUT THE FIXED ACCOUNT IN
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THIS PROSPECTUS MAY BE SUBJECT TO GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL
SECURITIES LAWS REGARDING ACCURACY AND COMPLETENESS.
You may allocate part or all of your initial Premium to the DCA Fixed
Account, to be transferred subsequently to the Subaccounts under our Dollar Cost
Averaging Program. In addition, we allocate your initial Premium to our Fixed
Account for the period prior to the Issue Date, if you pay all or a portion of
your initial Premium prior to the Issue Date. No other Fixed Account option
currently is available under this Contract. We reserve the right to discontinue
offering or to offer additional Fixed Account options under the Contract, in
accordance with applicable law.
The interest rate credited to amounts allocated to the Fixed Account,
including the DCA Fixed Account will be shown in your Contract. We may change
the rate credited to new Contracts at any time in our discretion. We set
interest rates in accordance with then current market conditions and other
factors.
Amounts allocated to the Fixed Account become part of the general account
of KILICO. KILICO invests the assets of the general account in accordance with
applicable laws governing the investments of insurance company general accounts.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT
While your Policy is in force, we will pay the Death Benefit proceeds upon
the death of the Insured or, if your Policy is a Survivorship Policy, upon the
death of the second Insured to die. We will pay the Death Benefit proceeds to
the named Beneficiary(ies) or, if none survives, to contingent Beneficiary(ies).
We will pay the Death Benefit proceeds in a lump sum or apply them under the
Policy's settlement options, which are described in "Settlement Option Payments"
on pages 24-26.
The Death Benefit proceeds payable to the Beneficiary equal the Death
Benefit, less any Policy Debt and less any due and unpaid charges. We will
determine the amount of the Death Benefit proceeds as of the end of the
Valuation Period following the date of death of the Insured (or second Insured).
We must receive due proof of death within 60 days after the death of an Insured,
or as soon thereafter as reasonably possible. We usually will pay the Death
Benefit proceeds within seven days after we have received all required
documentation. Payment may be postponed in certain circumstances. See
"Postponement of Payments", at page 28.
The Death Benefit generally is the greater of: (1) the Specified Amount; or
(2) the Cash Value at the date of death multiplied by a factor from the table of
death benefit factors. The death benefit factors in the table reflect the
"corridor percentages" for the guideline premium test under the Tax Code.
We set the death benefit factors so as to ensure that Policies will qualify
for favorable tax treatment. The death benefit factors vary according to the age
of the Insured. Under this formula, an increase in Cash Value due to favorable
investment experience may increase the Death Benefit above the Specified Amount,
and a decrease in Cash Value due to unfavorable investment experience may reduce
the Death Benefit (but not below the Specified Amount). However, as explained in
"No Lapse Guarantee and Grace Period" and "Termination" at pages 26-27 below, if
your Policy's Net Surrender Value is insufficient to cover a Monthly Deduction
when due, the Death Benefit may be reduced to equal your total Premium payments
(less any prior withdrawals of Premium) or, if you have any outstanding Policy
Debt, your Policy may lapse.
EXAMPLES:
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
--------- ---------
<S> <C> <C>
Specified Amount............................................ $100,000 $100,000
Insured's Age............................................... 60 60
Cash Value on Date of Death................................. $ 80,000 $ 50,000
Applicable Death Benefit Factors............................ 130% 130%
Death Benefit............................................... $104,000 $100,000
</TABLE>
In Example A, the Death Benefit equals $104,000, i.e., the greater of
$100,000 (the Specified Amount) and $104,000 (the Cash Value at the Date of
Death of $80,000, multiplied by the corridor percentage of 130%). This amount,
less any Policy Debt and unpaid charges, constitutes the Death Benefit proceeds
that we would pay to the Beneficiary.
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<PAGE> 27
In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000
(the Specified Amount) or $65,000 (the Cash Value of $50,000 multiplied by the
corridor percentage of 130%).
As explained in more detail in "Federal Tax Considerations" beginning on
page 34, we have structured the Policy to satisfy the definition of life
insurance contract under Section 7702 of the Tax Code. As a result, the Death
Benefit ordinarily will be excluded from the gross income of the Beneficiary,
and any growth in the Cash Value of the Policy will not be taxable until
distributed. However, because the Policy generally will be treated as a modified
endowment contract for tax purposes, withdrawals and Policy Debt will be treated
as coming first from any gain under your Policy, and then as a return of
Premium. The income portion of the distribution is includable in your taxable
income. In addition, a ten percent federal penalty tax may apply to the taxable
portion of the distributions received before age 59 1/2. For advice about the
tax consequences of purchasing a Policy or your specific circumstances, please
consult your tax adviser.
ACCELERATED DEATH BENEFIT RIDER
You may request payment of a portion of the Death Benefit as an Accelerated
Death Benefit if the Insured becomes terminally ill. You generally may request
an Accelerated Death Benefit of up to the lesser of 25% of the existing Death
Benefit or $250,000. Before we pay your Accelerated Death Benefit, we will
deduct a $150 administrative fee and an amount sufficient to repay any
outstanding Policy Debt. In approved states, the Accelerated Death Benefit Rider
will be issued with all Policies at no extra Premium.
If you request an Accelerated Death Benefit, the balance of the Death
Benefit is payable upon the Insured's death. We will reduce the Death Benefit
payment by the amount previously paid, increased to reflect the early payment of
a portion of the Death Benefit under this Rider. You may request an Accelerated
Death Benefit only once. Under Survivorship Policies, the Accelerated Death
Benefit may not be requested until after the death of one of the Insureds. The
total Accelerated Death Benefits available under all life insurance policies
issued to you by us or our affiliates is $250,000.
In general, the tax treatment of accelerated death benefits is the same as
the tax treatment of the Death Benefit, as described in "Federal Tax
Considerations" beginning on page 34. Please consult your tax adviser for more
information.
POLICY LOANS
While the Policy is in force, you may borrow money from us using the Policy
as the only security for your loan. Loans have priority over the claims of any
assignee or any other person. You may borrow up to 90% of the Surrender Value of
your Policy as of the end of the Valuation Period in which we receive your loan
request. Any outstanding Policy Debt will count against that limit. Thus, for
example, if the Surrender Value of your Policy was $100,000 and you already had
$50,000 in Policy Debt outstanding, you could borrow an additional $40,000
($100,000 X 90% - $50,000). The minimum loan amount is $1,000. In addition, if
you have named an irrevocable Beneficiary, you must also obtain his or her
written consent before we make a Policy Loan to You.
YOU MAY REALIZE TAXABLE INCOME WHEN YOU TAKE A POLICY LOAN. In most
instances, a Policy is treated as a "modified endowment contract" for federal
tax purposes. As a result, Policy Loans are treated as withdrawals for tax
purposes, and the amount of the loan equal to any increase in your Cash Value
may be treated as taxable income to You. In addition, you may also incur an
additional ten percent federal penalty tax. You should also be aware that
interest on Policy Loans is generally not deductible. On the other hand,
although a Policy Loan is treated as a withdrawal for tax purposes, it is
treated differently for Policy purposes. For example, under the Policy, a Policy
Loan, unlike a partial withdrawal, does not reduce the Specified Amount.
Accordingly, before you take a Policy Loan, you should consult your tax adviser
and carefully consider the potential impact of a Policy Loan on your rights and
benefits under the Policy.
While the Policy remains in force, you may repay a Policy Loan in whole or
in part without any penalty at any time while the Insured is living.
The loan interest rate on all Policy Loans will be 5.50% per year
compounded daily. Interest not paid will be charged on a daily basis and will be
added to the Policy Debt on this Policy and bear interest at the same rate.
When we make a Policy Loan to You, an amount equal to the Loan will be
transferred from the Subaccounts to the Loan Account until the Loan is repaid.
Unless you instruct us otherwise, the amount of the Loan will be deducted pro
rata from the Subaccounts and DCA Fixed Account based on their relative
Subaccount Values or DCA Fixed Account Values under your Policy. As explained in
"No Lapse Guarantee and Grace Period" at pages 26-27 below, if the Policy Debt
outstanding under your Policy should ever equal or exceed the Net Surrender
Value, your Policy will enter the grace period and may terminate if you do not
pay sufficient additional
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<PAGE> 28
Premium. We reserve the right not permit you to borrow Cash Value derived from
Premium paid in the form of a check or draft for up to 30 days after we deposit
that check or draft.
We will credit interest at an annual rate of 3.50% to your Loan Account
Value that is not attributable to "Preferred Loans." As to any Loan Account
Value attributable to "Preferred Loans", we currently credit interest at an
annual rate of 5.50%. We may change that rate, but we will never reduce it to
less than 3.5% annually. We will classify as "Preferred Loans" the portion of
your total Loan Account Value equal to the difference between your Policy's Cash
Value minus total Premiums paid (net of all prior withdrawals of Premium). If
you purchase your Policy in exchange for a policy with another insurance
company, we will accept up to 50% of the Cash Value as a rollover loan. We will
treat as a Preferred Loan the portion of the rollover loan equal to the cash
value of your old policy, minus the total premiums paid under your old policy,
plus any withdrawal of premiums under your old policy prior to the exchange.
A Policy Loan, whether or not repaid, will have a permanent effect on the
Cash Value because the investment results of each Subaccount will apply only to
the amounts remaining in those Subaccounts. The longer a loan is outstanding,
the greater the effect is likely to be. The effect could be favorable or
unfavorable. If the Subaccounts earn more than the annual interest rate for
amounts held in the Loan Account, your Cash Value will not increase as rapidly
as it would if you had not taken a Policy Loan. If the Subaccounts earn less
than that rate, then your Cash Value will be greater than it would have been if
you had not taken a Policy Loan. Also, if you do not repay a Policy Loan, your
Policy Debt will be subtracted from the Death Benefit and Surrender Value
otherwise payable.
AMOUNT PAYABLE ON SURRENDER OF THE POLICY
While your Policy is in force, you may fully surrender your Policy. Upon
surrender, we will pay you the Net Surrender Value determined as of the day we
receive your written request at our Home Office. Your Policy will terminate on
the day we receive your written request. We may require that you give us your
Policy document before we pay you the surrender proceeds. Before we pay a full
surrender, you must provide us with tax withholding information.
The Net Surrender Value equals the Cash Value less any applicable
Withdrawal Charge, less any outstanding Policy Debt. We also will deduct the $30
Records Maintenance Charge, if it would otherwise be due at the end of the
current Policy Year. We will determine the Net Surrender Value as of the end of
the Valuation Period during which we received your request for surrender. We
generally will pay you the surrender proceeds of the Policy within seven days of
our receiving your complete written request or on the effective surrender date
you have requested, whichever is later. The determination of the Withdrawal
Charge is described on page 31.
You may receive the surrender proceeds in a lump sum or under any of the
settlement options described in "Settlement Option Payments" on pages 24-26. The
tax consequences of surrendering the Policy are discussed in "Federal Tax
Considerations," beginning on page 34.
PARTIAL WITHDRAWALS
You may receive a portion of the Surrender Value of your Policy by making a
partial withdrawal from your Policy. Your request may be by telephone or in
writing. If you request a partial withdrawal by telephone, however, the amount
withdrawn may not exceed our limit, which currently is $10,000; larger requests
must be in writing. All partial withdrawals requested by telephone will be sent
only to the address of record of the Contract owner. Your request, whether
written or telephonic, will be effective on the date we receive it at our Home
Office, provided we receive it before 4:00 p.m. Eastern time. If we are not
provided with tax withholding information, we will withhold taxes from the
amount withdrawn at the rate required by law. We reserve the right to change the
terms of telephonic withdrawals, including our limit, at any time.
When you request a partial withdrawal, we will pay you the amount requested
and subtract the amount requested plus any applicable Withdrawal Charge from
your Cash Value. We may waive the Withdrawal Charge on some or all of your
partial withdrawal. The determination of the Withdrawal Charge is described on
page 31.
You may specify how much of your partial withdrawal you wish taken from
each Subaccount. The amount requested from a specific Subaccount may not exceed
the value of that option less any applicable Withdrawal Charge. If you do not
specify the option from which you wish to take your partial withdrawal, we will
take it pro rata from the Subaccounts and the DCA Fixed Account.
You may take an unlimited number of partial withdrawals each Policy Year.
The minimum withdrawal amount is $100 or the amount that remains in the
Subaccount if less. The minimum balance in the Subaccount
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<PAGE> 29
after the withdrawal is $500 unless the total Subaccount Value is withdrawn. If
a partial withdrawal would reduce your Policy's Net Surrender Value below
$5,000, we will treat your request as a request to surrender your Policy.
When you take a partial withdrawal, your Specified Amount will decrease in
proportion to the resulting reduction in Cash Value. We will notify you of the
new Specified Amount. We will not permit a partial withdrawal that would reduce
the Specified Amount below the minimum specified in your Policy.
Partial withdrawals generally will be subject to income tax and may be
subject to a ten percent federal penalty tax. The tax consequences of partial
withdrawals are discussed in "Federal Tax Considerations" beginning on page 34.
SYSTEMATIC WITHDRAWALS
You may enroll in our systematic withdrawal program by sending a completed
enrollment form to our Home Office at the address shown on the first page of
this Prospectus. You may choose between payout schedules of monthly, quarterly,
semiannually or annually. You may specify the amount of the withdrawal, the day
of the month for each scheduled payment, and the Subaccount(s) from which the
withdrawal will be taken. You may start, stop, increase, or decrease payment at
any time. The minimum withdrawal amount is $100.
We will treat systematic withdrawals in the same way as other partial
withdrawals in applying the Withdrawal Charge. In our discretion we may stop
paying systematic withdrawals if your Cash Value falls below our current
minimum. We reserve the right to modify or suspend the systematic withdrawal
program. In our discretion, any change may apply to existing systematic plans.
Write us at the address shown on the first page of this Prospectus or call us at
(800) 621-5001 for more information about our Systematic Withdrawal Program.
SETTLEMENT OPTION PAYMENTS
GENERAL. We will pay the Surrender Value or Death Benefit proceeds under
the Policy in a lump sum or under one of the settlement options that we then
offer. The option selected must result in a payment that is at least equal to
our minimum payment, according to our rules, at the time the settlement option
is chosen. If at any time the payments are less than the minimum payment, we
have the right to increase the period between payments to quarterly,
semi-annually, or annually so that the payment is at least equal to the minimum
payment, or to make payment in one lump sum.
The amount of the payments under a settlement option are based on:
- the settlement option table specified in the Contract;
- the selected settlement option; and
- the investment performance of the selected Subaccount(s) (if
variable payments are chosen).
Under each settlement option, you and/or the payee may choose fixed
payments or variable payments or a combination of the two, except that only
fixed payments are available under Option 1. If fixed payments are chosen, the
payee receives a fixed amount each month determined in accordance with the
settlement option you have chosen. If variable payments are chosen, the payee
receives the value of a fixed number of Annuity Units each month. An Annuity
Unit's value reflects the investment performance of the Subaccount(s) selected
by the payee. The amount of each payment varies accordingly. If you do not
provide instructions, we will initially apply your Separate Account Value to
variable payments and any Fixed Account Value to fixed payments. The payee may
change the Subaccounts or the relative weighting of the Subaccounts on which
variable payments are based, or increase the portion of each payment that is a
fixed payment, subject to certain limitations, as described below under
"Settlement Option Payments--Transfers". BEFORE CHOOSING VARIABLE PAYMENTS, YOU
SHOULD CONSIDER WHETHER THE ALLOCATION OF PROCEEDS AMONG THE SUB-ACCOUNTS FOR
YOUR PERIODIC PAYMENTS IS THE ALTERNATIVE BEST SUITED TO YOUR NEEDS.
You may request a settlement option by writing to us at our Home Office at
the address given on the first page of this Prospectus before the death of the
Insured. If you change the Beneficiary, the existing choice of settlement option
will become invalid and you may either notify us that you wish to continue the
pre-existing choice of settlement option or select a new one. We will issue a
supplementary contract reflecting the terms of the settlement option chosen. If
payment is made as a Death Benefit distribution, the effective date of the
supplementary agreement will be the date of death. Otherwise, you may choose the
effective date.
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<PAGE> 30
SETTLEMENT OPTIONS. The following settlement options are available under
the Policy:
OPTION 1--FIXED INSTALLMENT ANNUITY. We will make monthly payments for
a fixed number of installments. Payments must be made for at least 5 years,
but not more than 30 years.
OPTION 2--LIFE ANNUITY. We will make monthly payments while the payee
is alive. It is possible for the payee to receive only one payment if the
payee dies before the second payment is due.
OPTION 3--LIFE ANNUITY WITH INSTALLMENTS GUARANTEED. We will make
monthly payments for a guaranteed period and thereafter while the payee is
alive. The guaranteed period must be selected at the time the annuity
option is chosen. The guaranteed periods available are 5, 10, 15, and 20
years.
OPTION 4--JOINT AND SURVIVOR ANNUITY. We will pay the full monthly
income while both payees are alive. Upon the death of either payee, we will
continue to pay the surviving payee a percentage of the original monthly
payment. The percentage payable to the surviving payee must be selected at
the time the annuity option is chosen. The percentages available are 50%,
66 2/3%, 75%, and 100%. It is possible for the payees to receive only one
payment if they both die before the second payment is due.
OTHER OPTIONS. We may make other settlement annuity options available.
Payments are also available on a quarterly, semi-annual or annual basis.
When the payee dies under Options 1 and 3, we will pay the commuted value
of any unpaid installments in a lump sum to the estate of the payee, unless the
supplementary agreement provides otherwise. We will determine the commuted
amount based upon an interest rate of not less than 2.5%. You may not withdraw
Cash Value once we begin making payments to you under any settlement option
involving payments to the payee for life or any combination of payments for life
and a minimum guaranteed payment period, such as options 2, 3, and 4.
AMOUNT OF PAYMENT. The amount applied to a settlement option will equal the
Cash Value on the first day preceding the date when the first annuity payment is
due, less any applicable Withdrawal Charge and Records Maintenance Charge. The
remainder will be used to determine the fixed or variable payment in accordance
with the appropriate Settlement Option Table.
The amount of each fixed payment is determined by multiplying the amount
applied to the settlement option by the appropriate settlement option rate. We
will use a rate at least as high as the rate shown in the appropriate Settlement
Option Table. These tables show the monthly payment for each $1,000 of Cash
Value allocated to fixed payments. The amount of each subsequent fixed payment
does not change regardless of investment, mortality or expense experience.
The amount of the first variable payment also is determined from the
Settlement Option Tables, based on the Cash Value allocated to variable
payments. Subsequent variable payments are determined by multiplying the number
of Annuity Units in each Subaccount chosen by the payee times the Annuity Unit
Value of each such Subaccount at the Valuation Period before each variable
payment is due. The first variable payment is divided by the Annuity Unit Value
as of the Annuity Date to establish the number of Annuity Units representing
each variable payment. We determine the number of Annuity Units separately for
each Subaccount on which variable payments are based. This number does not
change, unless the payee makes a transfer as described in "Settlement Option
Payments--Transfers" below.
The guaranteed monthly payments shown in the Settlement Option Tables are
based on an interest rate of 2.50% per year and, where mortality is involved,
the "1983 Table a", an individual mortality table developed by the Society of
Actuaries, projected using Projection Scale G. Interest under a settlement
option begins to accrue on the effective date of the supplementary agreement. If
the effective date determined as described above would be the 29th, 30th or 31st
day of a month, the 28th day of that month will be deemed the Effective Date.
TRANSFERS. While variable payments are being made under a settlement
option, the payee may request, in writing, to change the Subaccounts or the
relative weighting of the Subaccounts on which variable payments are based, or
the relative proportions of variable and fixed payments. These changes may be
effected by transferring Annuity Unit Value from one Subaccount to another or to
fixed payments, or by making transfers from fixed payments to the Subaccounts.
This type of transfer is subject to the following limitations:
- The payee may make only one transfer during each twelve month period
beginning on the date of the first settlement payment and each anniversary
of that date.
- We must receive the payee's written request at least 30 days before
the effective date of the transfer.
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<PAGE> 31
- Each transfer must consist of at least $1,000 of Annuity Unit Value
or annuity reserve value. After the transfer, at least $1,000 of Annuity
Unit Value or annuity reserve value must remain in the account from which
the transfer was made, unless the entire amount is transferred.
- After the transfer, the payee's variable payments may not be based
on more than three Subaccounts.
We will execute transfers using values as of the end of the Valuation
Period preceding the effective date of the transfer. Transfers among the
Subaccounts and transfers from fixed to variable payments will be effected at
the Annuity Unit Value of the relevant Subaccounts. Transfers from variable to
fixed payments will be based in part on the present value of the remaining
payments under the chosen option, and will reflect the differences in the
interest rates used to calculate fixed and variable payments. The method for
calculating these transfers is described in more detail in the Policy. We may
suspend, change or terminate the transfer privilege at any time.
ANNUITY UNIT VALUE. Annuity Unit Value is determined independently for each
Subaccount. Annuity Unit Value for any Valuation Period is:
- Annuity Unit Value for the immediately preceding Valuation Period;
times
- the net investment factor for the current Valuation Period; times
- an interest factor of .99993235 per calendar day of the current
Valuation Period in order to offset the effect of the assumed rate of 2.5%
per year used in the Policy's settlement option tables.
The net investment factor for a Subaccount for any Valuation Period is:
(1) the sum of (a) the net asset value per share of the corresponding
Portfolio at the end of the current Valuation Period plus (b) the per share
amount of any dividend or capital gains distribution by that Portfolio, if
the "ex-dividend" date occurs in that Valuation Period; plus or minus (c) a
credit or charge for any taxes reserved for the current Valuation Period
which we determine to have resulted from the investment operations of the
Subaccount; divided by
(2) is the net asset value per share of the corresponding Portfolio at
the end of the last prior Valuation Period.
A 2.5% per annum rate of investment earnings is assumed by the Policy's
Settlement Option tables. Under the formula for determining Annuity Unit Value,
if the actual net investment earnings rate on the selected Subaccounts exceeds
2.5% per annum, variable payments increase accordingly. Conversely, if the
actual earnings rate is less than 2.5% per annum, variable payments decrease.
ANNUITY RESERVE VALUE. Annuity reserve value is used in calculating
transfers from variable payments to fixed payments. Annuity reserve value
equals:
(1) the number of annuity units transferred from a Subaccount; times
(2) the Annuity Unit Value for that Subaccount; times
(3) the present value of $1.00 per payment period using the attained
age of the payee(s) and any remaining unpaid guaranteed payments at the
time of the transfer.
NO LAPSE GUARANTEE AND GRACE PERIOD
Under our No Lapse Guarantee, we guarantee that your Policy will remain in
force regardless of changes in the Net Surrender Value, provided you have no
outstanding Policy Debt. If the Net Surrender Value of your Policy is less than
the Monthly Deduction for the next month, your Policy will enter the Grace
Period. The Grace Period lasts 61 days. If the Insured dies during the Grace
Period, the Death Benefit will be the amount determined as described in "Death
Benefit" on pages 21-22, less any due and unpaid Monthly Deduction or other
charge.
During the Grace Period, you may pay additional Premium or loan repayment
without evidence of insurability to keep your Policy in force. Your payment must
equal at least three Monthly Deductions. No payment is required, however. This
Grace Period will begin on the day we mail notice of the Grace Period to your
last known address.
If the No Lapse Guarantee is in effect under your Policy and you do not pay
sufficient additional Premium or loan repayment, your Policy will remain in
force, but the amount paid upon death of the Insured after the Grace Period will
be limited to the return of Premium paid (less any prior withdrawals of
Premium). You may restore the Specified Amount, however, by complying with the
reinstatement provisions. The No Lapse Guarantee applies
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<PAGE> 32
to your Contract unless: (a) you paid 90% of the Guideline Single Premium for
your Policy or (b) your Policy has outstanding Policy Debt.
If the No Lapse Guarantee does not apply to your Policy and the Net
Surrender Value of your Policy is less than the Monthly Deduction for the next
month, your Policy also will enter the Grace Period, as described above.
However, if you do not make the required payment, your coverage will terminate
at the end of the Grace Period. You may reinstate your coverage by complying
with the reinstatement provisions.
TERMINATION
The Policy will terminate and life insurance coverage will end when one of
the following events first occurs:
(a) you surrender your Policy;
(b) the Insured dies or, for Survivorship Policies, the Surviving
Insured dies;
(c) the Policy matures; or
(d) the Grace Period ends and there is Policy Debt outstanding.
MATURITY BENEFIT AND EXTENDED MATURITY
In certain states, if the Insured is still living and your Policy is in
force on the Maturity Date, we will pay you a Maturity Benefit. The Maturity
Benefit will equal the Net Surrender Value on the Maturity Date. The Maturity
Date is the Policy Anniversary after the Insured's 100th birthday.
In states where approved, the Extended Maturity Rider will be issued with
all Policies at no extra Premium. Under this Rider, you may choose from year to
year to extend the Maturity Date for one year intervals. During the extension
period, you may not take partial withdrawals or additional policy loans and the
Death Benefit is the Cash Value. In addition, during the extension period, we
will not charge the cost of insurance charge. We will, however, continue to
charge other charges under your Policy, including the mortality and expense risk
charge, even though there no longer will be a mortality risk under your Policy.
We will continue to impose this charge because this charge reflects our
expectations to the mortality risks and the amount of such charges expected to
be paid under all Policies, including Policies covered by Extended Maturity
Riders.
All other riders still active end at age 100. The tax treatment of the
Maturity Benefit and the Maturity Extension rider is discussed in "Treatment of
Maturity Benefits and Extension of Maturity Date" on page 37.
REINSTATEMENT
If your coverage has been reduced pursuant to our No Lapse Guarantee or has
lapsed due to insufficient Cash Value (see "No Lapse Guarantee and Grace Period"
on pages 26-27 above), you may reinstate coverage by complying with the
conditions described below. After reinstatement, your Policy will be in force
and the minimum Death Benefit will equal the Specified Amount in effect before
your coverage was reduced or lapsed. To reinstate your Policy, you must apply to
us within three years of the end of the most recent Grace Period and meet the
following conditions:
(1) Provide evidence of insurability satisfactory to us;
(2) Pay the unpaid Monthly Deductions due during the expired Grace
Period;
(3) Pay at least sufficient additional Premium to keep your Policy in
force for three months; and
(4) Pay or reinstate any Policy Debt that existed at the date of
lapse.
The effective date of reinstatement of a Policy will be the Deduction Day
that coincides with or next follows the date on which we approve your
application for reinstatement. You may not reinstate a Policy that has been
surrendered. Under Survivorship Policies, if one of the Lives Insured dies
during the lapse, upon payment of the reinstatement Premium the Policy will be
reissued as a single life permanent policy.
The suicide and incontestability provisions will apply from the effective
date of reinstatement.
CANCELLATION (FREE-LOOK PERIOD)
In many states, you may cancel your Policy by returning it to us within ten
days after you receive it. In some states, however, this free look period may be
longer, as provided by state law. If you return your Policy, the Policy
terminates and we will pay you your Cash Value or, in some states, an amount
equal to your Premium, (less any
27
<PAGE> 33
Policy Debt). We will pay the refund within seven days of receiving your
request. No Withdrawal Charge is imposed upon return of a Policy within the free
look period. This free look right may vary in certain states in order to comply
with the requirements of state insurance laws and regulations. Accordingly, you
should refer to your Policy for specific information about your circumstances.
POSTPONEMENT OF PAYMENTS
We may defer for up to fifteen days the payment of any amount attributable
to a Premium paid by check to allow the check a reasonable time to clear. We
ordinarily will pay any amount attributable to Separate Account Value within
seven days, except:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other
than customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as
determined by the SEC, so that disposal of the Separate Account's
investments or determination of the value of its net assets is not
reasonable practicable; or
(3) at any other time permitted by the SEC for your protection.
We may delay payment of partial or full withdrawals from the Fixed Account
for up to six months from the date we receive your written withdrawal request.
We may also defer payment of any Death Benefit in excess of the Specified Amount
for up to six months from the date requested if those benefits are based upon
policy values that do not depend on the investment performance of the Separate
Account.
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<PAGE> 34
CHARGES AND DEDUCTIONS
We assess charges and deductions under the Policies against the Subaccounts
and the Cash Value. Additional deductions and expenses are paid out of the
Portfolios' assets, as described in the Prospectuses of the Portfolios.
SEPARATE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. On each Valuation Date, we will deduct a
charge from each Subaccount at an annual rate of 0.90% of average daily net
assets for mortality and expense risks we assume.
The mortality risk assumed in relation to the Policy includes the risk that
the cost of insurance charges specified in the Policy will be insufficient to
meet claims and the risks under the No Lapse Guarantee. We also assume a risk
that, on the Deduction Day preceding the death of an Insured, the Death Benefit
will exceed the amount on which the cost of insurance charges were based. The
expense risk assumed is that expenses incurred in issuing and administering the
Policies will exceed the Administration Charges set in the Policy.
RESERVE FOR TAXES. We currently are not maintaining a provision for taxes
attributable to the operations of the Separate Account (as opposed to the
federal tax related to the receipt of Premiums under the Policies). In the
future, however, we may make such a charge. Charges for other taxes, if any,
attributable to the Separate Account or to this class of Policies may also be
made.
MONTHLY DEDUCTION
On the Effective Date and on each monthly Deduction Day we will take a
Monthly Deduction from your Cash Value. The Monthly Deduction equals the sum of
the following:
(1) The monthly cost of insurance charge for the Policy; plus
(2) The monthly charge for any riders; plus
(3) The Administration Charge; plus
(4) The Tax Charge.
On each Policy Anniversary, we also will deduct the Records Maintenance
Charge, if your Policy's Cash Value was less than $50,000 on the previous Policy
Anniversary.
COST OF INSURANCE CHARGE. The cost of insurance charge is intended to pay
for the cost of providing life insurance coverage for the Insured(s). The
current cost of insurance charge differs based on whether you paid 90% or 100%
of the Guideline Single Premium at issue. We guarantee that this charge will not
exceed the maximum cost of insurance charge determined on the basis of the rates
shown in the mortality table guaranteed in the Policy. If your initial Premium
exceeds $500,000, your cost of insurance charge may be lower.
The current monthly cost of insurance charge is the lesser of:
(a) the applicable current asset-based cost of insurance rate times
the Cash Value on the Deduction Day; or
(b) the applicable guaranteed cost of insurance rate multiplied by the
net amount at risk on the Deduction Day.
If your initial Premium is no greater than $500,000 and you paid 100% of
the Guideline Single Premium, our current asset-based cost of insurance rate for
the Single Life Policies for the Standard Rating Class (NT) is 0.55% annually of
Cash Value for Policy Years 1-10, and 0.25% annually of Cash Value thereafter.
Our current asset-based cost of insurance rate for Second to Die Policies, when
both Insureds are in the Standard Rating Class (NT), is 0.45% annually of Cash
Value for Policy Years 1-10, and 0.20% annually of Cash Value thereafter.
If your initial Premium is greater than $500,000 and you paid 100% of the
Guideline Single Premium, our current asset-based cost of insurance rate for the
Single Life Policies for the Standard Rating Class (NT) is 0.25% annually of
Cash Value for Policy Years 1-10, and 0.10% annually of Cash Value thereafter.
Our current asset-based cost of insurance rate for Second to Die Policies, when
both Insureds are in the Standard Rating Class (NT), is 0.20% annually of Cash
Value for Policy Years 1-10, and 0.10% annually of Cash Value thereafter.
If you paid 90% of the Guideline Single Premium, your current cost of
insurance rates will be higher. In addition, rates for other classes may differ
based on the type of Policy and the history of tobacco use of the
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<PAGE> 35
Insured(s). Your guaranteed cost of insurance rates are set forth in the
mortality tables in your Policy. The net amount at risk is (a)-(b), where:
(a) is the Death Benefit on the first day of the Policy Month; and
(b) the Cash Value on that day before the deduction of the Monthly
Deduction for the Cost of Insurance.
Because your Cash Value and the net amount for which we are at risk under
your Policy may vary monthly, your cost of insurance charge is likely to differ
each month. In general, under these formulas, when your current monthly cost of
insurance charge is determined using the asset-based rate, an increase in your
Cash Value increases your current monthly cost of insurance charge, up to the
guaranteed maximum cost of insurance charge determined as described above. Since
that maximum charge is based on the net amount at risk, it declines as your Cash
Value increases, unless an increase in Cash Value also would increase the Death
Benefit under your Policy. Thus, if the asset-based charge would be higher than
the guaranteed maximum charge, further increases in your Cash Value may reduce
your current cost of insurance charge.
The cost of insurance charge covers our anticipated mortality costs for
standard and substandard risks. We determine the current cost of insurance rates
based on our expectations as to our future mortality experience and other
factors. We may change our current asset based cost of insurance charge, but we
guarantee that we will never charge you a cost of insurance charge higher than
the amount determined using the maximum guaranteed cost of insurance rates shown
in the Policy. We base our cost of insurance rates on the sex, issue age, Policy
Year, rating class, and history of tobacco use of the Insured. However, we issue
unisex policies in Montana. Our cost of insurance rates are based on the 1980
Commissioners Standard Ordinary ("1980 CSO") Mortality Table based on the
Insured's sex, age last birthday, and history of tobacco use. Our cost of
insurance rates for unisex Policies will never exceed a maximum based on the
1980 CSO Table B assuming a blend of 80% male and 20% female lives.
TAX CHARGE. For the first ten Policy Years, on each Deduction Day, we
charge a Tax Charge equal to an annual rate of 0.40% of the average monthly Cash
Value. The Tax Charge covers a portion of our state premium tax expenses and
certain Federal income tax liability incurred as a result of the receipt of
Premium.
We expect to recover total premium tax expenses over the life of the
Policies from the aggregate Tax Charges and the unamortized state premium tax
charge portion of the Withdrawal Charge. However, the amount of premium taxes
differ from state to state and some states have no premium tax. Accordingly, the
amount of these charges paid under your Policy may be more or less than the
premium taxes that we actually pay with respect to your Policy.
ADMINISTRATION CHARGE. On each Deduction Day we will deduct the
Administration Charge from Cash Value. This charge will equal an annual rate of
0.35% of average monthly Cash Value for the first ten Policy Years and 0.25%
thereafter. This charge is intended to compensate us for certain administrative
expenses related to the maintenance of the Policies, accounting and
recordkeeping, and providing reports to Policy owners.
RECORDS MAINTENANCE CHARGE. We charge a Records Maintenance Charge of
$30.00 per year on each Policy Anniversary. If you surrender your Policy during
a Policy Year, we will deduct the full Records Maintenance Charge from your
surrender proceeds. The Records Maintenance Charge is intended to compensate us
for administrative expenses such as salaries, postage, telephone, office
equipment and periodic reports. We currently waive the Records Maintenance
Charge on a Policy, if the Cash Value is at least $50,000 on the previous Policy
Anniversary.
PORTFOLIO EXPENSES
You indirectly bear the charges and expenses of the Portfolios whose shares
are held by the Subaccounts to which you allocate your Cash Value. The Separate
Account purchases shares of the Portfolios at net asset value. Each Portfolio's
net asset value reflects investment advisory fees and administrative expenses
already deducted from the Portfolio's assets. For a summary of current estimates
of these charges and expenses, see pages 12-13 above. For more information
concerning the investment advisory fees and other charges against the
Portfolios, see the Prospectuses for the Portfolios, which are available upon
request.
We may receive compensation from the investment advisers or administrators
of the Portfolios. Such compensation will be consistent with the services we
provide or the cost savings resulting from the arrangement and therefore may
differ between Portfolios.
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WITHDRAWAL CHARGE
If you surrender your Policy during the first nine Policy Years, we may
subtract a Withdrawal Charge from the proceeds. The Withdrawal Charge will be
calculated at the rate shown below. If you surrender your Policy, the Withdrawal
Charge will equal a percentage of your initial Premium net of all previous
withdrawal amounts on which you paid a Withdrawal Charge. The Withdrawal Charge
consists of two components: a surrender charge and an unamortized state premium
tax charge.
The rate used to determine the Withdrawal Charge depends on the year the
withdrawal is made. The Withdrawal Charge declines to zero percent after the
ninth Policy Year. The Withdrawal Charge is assessed at the following rates:
<TABLE>
<CAPTION>
COMPLETE UNAMORTIZED
POLICY YEARS PREMIUM TAX TOTAL WITHDRAWAL
ELAPSED SINCE ISSUE SURRENDER CHARGE CHARGE CHARGE
------------------- ---------------- ----------- ----------------
<S> <C> <C> <C>
1 7.75% 2.25% 10.00%
2 7.75% 2.00% 9.75%
3 7.50% 1.75% 9.25%
4 6.50% 1.50% 8.00%
5 5.75% 1.25% 7.00%
6 5.00% 1.00% 6.00%
7 4.25% .75% 5.00%
8 3.50% .50% 4.00%
9 2.75% .25% 3.00%
9+ 0% 0.00% 0.00%
</TABLE>
We may also charge a Withdrawal Charge on partial withdrawals. The
Withdrawal Charge will apply to any partial withdrawal in a given Policy Year in
excess of the free withdrawal amount described below.
Additional Premiums do not increase the amount of Withdrawal Charge you may
be required to pay. Only your initial Premium is used in our formula for
calculating Withdrawal Charges.
The Withdrawal Charge is imposed to cover a portion of our actual premium
tax expenses and sales expenses, which include agents' sales commissions and
other sales and distribution expenses. The Unamortized Premium Tax Charge,
together with a portion of the monthly Tax Charge, is intended to recover our
state premium tax expenses. We also expect to recover total sales expenses of
the Policies over the life of the Policies. However, to the extent distribution
costs are not recovered by the Withdrawal Charge, we may make up any shortfall
from the assets of our General Account, which includes funds derived from the
Mortality and Expense Risk Charge and other fees and charges under the Policies.
FREE WITHDRAWAL AMOUNT AND WAIVER OF WITHDRAWAL CHARGE
The free withdrawal amount in a Policy Year equals the greater of:
(a) 100% of Policy earnings not previously withdrawn; or
(b) 10% of the Cash Value, less any prior free withdrawals since the
beginning of that Policy Year.
NURSING CARE WAIVER OF WITHDRAWAL CHARGE. We will waive the Withdrawal
Charge if the Insured is confined to a skilled health care facility for at least
30 consecutive days. We also will waive the Withdrawal Charge after you have
been released from the facility, if your request is made within 30 days of
release. This waiver is described in more detail in the Policy.
DISABILITY WAIVER. We will waive the Withdrawal Charge if the Insured
becomes disabled after the Policy is issued and before attaining age 65
according to the following Social Security Administration definition:
Inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months.
This waiver is described in more detail in the Policy.
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<PAGE> 37
TRANSFER FEE
The Policy permits us to charge a transfer fee of $25 per transfer,
excluding transfers under our Automatic Dollar Cost Averaging and Automatic
Asset Rebalancing Programs, on each transfer after the first twelve transfers in
each Policy Year. We currently do not charge a transfer fee on any transfer. We
reserve the right to begin to charge the transfer fee in the future.
REDUCTION OF CHARGES
We may reduce certain charges and credit additional amounts 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 our Policy owners, sales to employees or
clients of members of the Kemper group of companies, or employees and registered
representatives (and their families) of broker-dealers (or their affiliated
financial institutions) that have entered into selling group agreements with
Investors Brokerage Services, Inc., the distributor of the Policies. 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 unfairly discriminate against any
person, including the affected Policy owners and owners of all other policies
funded by the Separate Account.
GENERAL POLICY PROVISIONS
REPORTS TO OWNERS
We will maintain all records relating to the Separate Account and the
Subaccounts. At least annually we will send you a report which will include
information such as Premiums received, interest credited, 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. If you ask us, we will send you an additional report at any time. We
may charge you up to $25 for this additional report. We will tell you the
current charge before we send you the report.
In addition, we will send you the financial statements of the Portfolios
and other reports as specified in the Investment Company Act of 1940, as
amended. We also will mail you confirmation notices or other appropriate notices
of Policy transactions quarterly or more frequently within the time periods
specified by law. Please give us prompt written notice of any address change.
Please read your statements and confirmations carefully and verify their
accuracy and contact us promptly with any question.
LIMIT ON RIGHT TO CONTEST
In the absence of fraud, we may not contest the insurance coverage under
the Policy after the Policy has been in force for two years after the Issue Date
while the Insured is alive. The two year incontestability period may vary in
certain states to comply with the requirements of state insurance laws and
regulations.
If the Policy is reinstated, a new two year contestability period will
apply from the issue date of the reinstatement and will apply only to statements
made in the application for the reinstatement.
In issuing a Policy, we rely on your application. Your statements in that
application, in the absence of fraud, are considered representations and not
warranties. In the absence of fraud, we will not use any statement made in
connection with the Policy application to void the Policy or to deny a claim,
unless that statement is a part of the application or an amendment thereto.
SUICIDE
If the Insured under a Single Life Policy dies by suicide, while sane or
insane, within two years from the Issue Date, the Death Benefit proceeds will be
limited to the Premiums paid less any partial withdrawals and Policy Debt.
If the Insured dies by suicide, while sane or insane, within two years of
any reinstatement, our total liability with respect to such reinstatement will
be limited to the Premiums paid less any partial withdrawal and Policy Debt.
If the first death under a Survivorship Policy is by suicide, within two
years of the Issue Date or date of reinstatement, whether the Insured was sane
or insane, we will reissue the Policy. The new Policy on the survivor
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<PAGE> 38
will be a single life permanent Policy which is available at the time of
reissue. The suicide provision for the new Policy will be effective as of the
original Issue Date.
If the second death is by suicide, within two years from the Issue Date,
whether the Insured is sane or insane, we will pay only the Premiums paid less
any partial withdrawals and Policy Debt. If the second death occurs within two
years after the date of reinstatement, our total liability with respect to such
reinstatement will be limited to the Premiums paid less any partial withdrawals
and Policy Debt.
MISSTATEMENT AS TO AGE AND SEX
If the age or sex of the Insured is incorrectly stated in the application,
the Death Benefit and all Policy values will be adjusted based on what the
initial Premium would have purchased using the correct age and/or sex.
BENEFICIARY
You name the original Beneficiary(ies) and Contingent Beneficiary(ies) in
the application for the Policy. You may change the Beneficiary or Contingent
Beneficiary at any time while the Insured is alive, except irrevocable
Beneficiaries and irrevocable Contingent Beneficiaries may not be changed
without their consent.
You must request a change of Beneficiary in writing. We will provide a form
to be signed and filed with us. Your request for a change in Beneficiary or
Contingent Beneficiary will take effect as of the date you signed the form after
we acknowledge receipt in writing. Until we acknowledge receipt of your change
instructions, we are entitled to rely on your most recent instructions in our
files. Accordingly, we are not liable for making a payment to the person shown
in our files as the Beneficiary or treating that person in any other respect as
the Beneficiary, even if instructions that we subsequently receive from you seek
to change your Beneficiaries effective as of a date before we made the payment
or took the action in question.
If you name more than one Beneficiary, we will divide the Death Benefit
among your Beneficiaries according to your most recent written instructions. If
you have not given us written instructions, we will pay the Death Benefit in
equal shares to the Beneficiaries. If one of the Beneficiaries dies before You,
we will divide the Death Benefit among the surviving Beneficiaries. If no
Beneficiary is living, the Contingent Beneficiary will be the Beneficiary. The
interest of any revocable Beneficiary is subject to the interest of any
assignee. If no Beneficiary or Contingent Beneficiary is living, the Beneficiary
is the Owner or the Owner's estate.
ASSIGNMENT
While the Insured is alive, you may assign your Policy as collateral
security. You must notify us in writing if you assign the Policy. Until we
receive notice from You, we are not liable for any action we may take or
payments we may make that may be contrary to the terms of your assignment. We
are not responsible for the validity of an assignment. Your rights and the
rights of the Beneficiary may be affected by an assignment. An assignment may
result in income tax and a ten percent federal penalty tax. You should consult
your tax adviser before assigning your Policy.
CREDITOR'S CLAIMS
To the extent permitted by law, no benefits payable under this Policy will
be subject to the claims of your or the Beneficiary's creditors.
DIVIDENDS
We will not pay any dividend under the Policy.
NOTICE AND ELECTIONS
To be effective, all notices and elections under the Policy must be in
writing, signed by You, and received by us at our Home Office. Certain
exceptions may apply. Unless otherwise provided in the Policy, all notices,
requests and elections will be effective when received at our Home Office
complete with all necessary information.
MODIFICATION
We reserve the right to modify the Policy without your express consent, in
the circumstances described in this Prospectus or as necessary to conform to
applicable law or regulation or any ruling issued by a governmental
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<PAGE> 39
agency. The provisions of the Policy will be construed so as to comply with the
requirements of Section 7702 of the Tax Code.
SURVIVORSHIP POLICIES
We offer Policies on a single life and "last survivor" basis. The
Survivorship Policy operates almost identically to the Single Life Policy. The
primary difference is that the Survivorship Policy has two Insureds and the
Death Benefit is paid only upon the death of the last surviving Insured. Other
significant differences are:
(1) the cost of insurance charge differs because we base it on the
anticipated mortality of two Insureds and we do not pay the Death Benefit
until both Insureds have died;
(2) for a Survivorship Policy to qualify for simplified underwriting,
both Insureds must meet our standards;
(3) under a Survivorship Policy, provisions regarding
incontestability, suicide, and misstatements of age or sex apply to each
Insured; and
(4) the Accelerated Death Benefit is only available upon the Terminal
Illness of the surviving Insured, as this term is defined in the Policy.
FEDERAL TAX CONSIDERATIONS
NOTE: The following discussion is based upon our understanding of current
federal income tax law applicable to life insurance policies in general. We
cannot predict the probability that any changes in those laws will be made.
Also, we do not guarantee the tax status of the Policies. You bear the complete
risk that the Policies may not be treated as "life insurance policies" under
federal income tax laws.
In addition, this discussion does not include a detailed description of the
federal income tax consequences of the purchase of these Policies or any
discussion of special tax rules that may apply to certain purchase situations.
We also have not tried to consider any other possibly applicable state or other
tax laws, for example, the estate tax consequences of the Policies. You should
seek tax advice concerning the effect on your personal tax liability of the
transactions permitted under the Policy, as well as any other questions you may
have concerning the tax status of the Policy or the possibility of changes in
the tax law.
TAXATION OF KILICO AND THE SEPARATE ACCOUNT
KILICO is taxed as a life insurance company under Subchapter L of the Tax
Code. The operations of the Separate Account are taxed as part of the operations
of KILICO. Investment income and realized capital gains are not taxed to the
extent that they are applied under the Policies.
Accordingly, we do not anticipate that KILICO will incur any federal income
tax liability attributable to the operation of the Separate Account (as opposed
to the federal tax related to the receipt of Premiums under the Policies).
Therefore, we are not making any charge or provision for federal income taxes.
However, if the tax treatment of the Separate Account is changed, we may charge
the Separate Account for its share of the resulting federal income tax.
In several states we may incur state and local taxes on the operations of
the Separate Account. We currently are not making any charge or provision for
them against the Separate Account. We do, however, use part of the Policy
charges to offset these taxes. If these taxes should be increased, we may make a
charge or provision for them against the Subaccounts. If we do so, the
investment results of the Subaccounts will be reduced.
TAX STATUS OF THE POLICY
The Policy is structured to satisfy the definition of a life insurance
policy under the Tax Code. As a result, the Death Benefit ordinarily will be
fully excluded from the gross income of the Beneficiary. The Death Benefit will
be included in your gross estate for federal estate tax purposes if the proceeds
are payable to your estate. The Death Benefit will also be included in your
estate, if the Beneficiary is not your estate but you retained incidents of
ownership in the Policy. Examples of incidents of ownership include the right to
change Beneficiaries, to assign the Policy or revoke an assignment, and to
pledge the Policy or obtain a Policy Loan. If you own and are the Insured under
a Policy and if you transfer all incidents of ownership in the Policy more than
three years before your death, the Death Benefit will not be included in your
gross estate. State and local estate and inheritance tax consequences may also
apply.
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<PAGE> 40
In addition, certain transfers of the Policy or Death Benefit, either
during life or at death, to individuals (or trusts for the benefit of
individuals) two or more generations below that of the transferor may be subject
to the federal generation-skipping transfer tax.
In addition, you may use the Policy in various arrangements, including
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
adviser regarding the tax treatment of the proposed arrangement.
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Tax Code requires that
the underlying assets of variable life insurance policies be diversified. The
Tax Code provides that a variable life insurance policy will not be treated as a
life insurance policy for federal income tax purposes for any period and any
subsequent period for which the investments are not adequately diversified. If
the Policy were disqualified for this reason, you would lose the tax deferral
advantages of the Policy and would be subject to current federal income taxes on
all earnings allocable to the Policy.
The United States Treasury Department (the "Treasury Department") also has
issued regulations that establish diversification requirements for the
investment accounts underlying variable policies such as the Policies. These
regulations amplify the diversification requirements set forth in the Tax Code
and provide an alternative diversification test to the provision described
above.
These diversification standards are applied to each Subaccount by looking
to the investments of the Portfolio underlying the Subaccount. One of our
criteria in selecting the Portfolios is that their investment managers intend to
manage them in compliance with these diversification requirements.
OWNER CONTROL. In certain circumstances, variable life insurance owners
will be considered the Owners, for tax purposes, of separate account assets
underlying their Policies. In those circumstances, the Owners could be subject
to taxation on the income and gains from the separate account assets.
In published rulings, the Internal Revenue Service has stated that a
variable insurance Owner will be considered the owner of separate account
assets, if the Owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. When the
diversification regulations were issued, the Treasury Department announced that
in the future, it would provide guidance on the extent to which variable Owners
could direct their investments among Subaccounts without being treated as Owners
of the underlying assets of the Separate Account. As of the date of this
Prospectus, no such guidance has been issued. We cannot predict when or whether
the Treasury Department will issue that guidance or what position the Treasury
Department will take. In addition, although regulations are generally issued
with prospective effect, it is possible that regulations may be issued with
retroactive effect.
The ownership rights under the Policy are similar in many respects to those
described in IRS rulings in which the owners were not deemed to own the separate
account assets. In some respects, however, they differ. For example, under the
Policy you have many more investment options to choose from than were available
under the policies involved in the published rulings, and you may be able to
transfer Cash Value among the investment options more frequently than in the
published rulings. Because of these differences, it is possible that you could
be treated as the owner, for tax purposes, of the Portfolio shares underlying
your Policy and therefore subject to taxation on the income and gains on those
shares. Moreover, it is possible that the Treasury Department's position, when
announced, may adversely affect the tax treatment of existing Policies. We
therefore reserve the right to modify the Policy as necessary to attempt to
prevent you from being considered the owner for tax purposes of the underlying
assets. The remainder of this discussion assumes that the Policy will be treated
as a life insurance policy for federal tax purposes.
TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS
In general, the amount of the Death Benefit payable under a Policy is
excludable from gross income under the Tax Code. Certain transfers of the
Policy, however, may result in a portion of the Death Benefit being taxable.
If the Death Benefit is not received in a lump sum and is, instead, applied
under one of the settlement options, payments generally will be prorated between
amounts attributable to the Death Benefit, which will be excludable from the
Beneficiary's income, and amounts attributable to interest (occurring after the
insured's death), which will be includable in the beneficiary's income.
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<PAGE> 41
ACCELERATED DEATH BENEFIT. In general, the tax treatment of an Accelerated
Death Benefit is the same as the treatment of Death Benefits, as described
above.
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Tax Code, except as described below, any
increase in your Cash Value is generally not taxable to you unless you receive
or are deemed to receive amounts from the Policy before the Insured dies. If you
surrender your Policy, the Cash Value (less any Annual Records Maintenance
Charge paid upon surrender) will be includable in your income to the extent the
amount received exceeds the "investment in the policy." The "investment in the
policy" generally is the total Premiums and other consideration paid for the
Policy, less the aggregate amount received under the Policy previously to the
extent such amounts received were excludable from gross income. Whether partial
withdrawals (or other amounts deemed to be distributed) from the Policy
constitute income depends, in part, upon whether the Policy is considered a
"modified endowment contract" ("MEC") for federal income tax purposes.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. In general, this Policy will
constitute a MEC unless (1) it was received in exchange for another life
insurance policy which was not a MEC, (2) no Premiums or other consideration
(other than the exchanged policy) are paid into the Policy during the first 7
Policy Years, and (3) there is no withdrawal or reduction in the Death Benefit
during the first 7 Policy Years. In addition, even if the Policy initially is
not a MEC, it may, in certain circumstances, become a MEC if there is a later
increase in benefits or any other "material change" of the Policy within the
meaning of the tax law.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER
MECS. Because your Policy is a MEC, withdrawals from your Policy will be treated
first as withdrawals of income and then as a recovery of Premiums. Thus, you may
realize taxable income upon a withdrawal if the Cash Value exceeds the
investment in the Policy. You may also realize taxable income when you take a
Policy Loan, because any loan (including unpaid loan interest) under the Policy
will be treated as a withdrawal for tax purposes. In addition, if you assign or
pledge any portion of the value of your Policy (or agree to assign or pledge any
portion), the assigned or pledged portion of your Cash Value will be treated as
a withdrawal for tax purposes. Before assigning, pledging, or requesting a loan
under a Policy which is a MEC, you should consult a qualified tax adviser.
PENALTY TAX. Generally, withdrawals (or the amount of any deemed
withdrawals) from a MEC are subject to a federal penalty tax equal to ten
percent of the portion of the withdrawal that is includable in income, unless
the withdrawals are made: (1) after you reach age 59 1/2, (2) because you have
become disabled (as defined in the tax law), or (3) as substantially equal
periodic payments over your life or life expectancy (or the joint lives or life
expectancies of you and your beneficiary, as defined in the tax law). Certain
other exceptions to the ten percent federal penalty tax may apply.
Payments under our systematic withdrawal program possibly may not qualify
for the exception from federal penalty tax for "substantially equal periodic
payments" which is described above. Accordingly, this Policy may be
inappropriate for Owners who expect to take substantially equal periodic
payments prior to age 59 1/2. You should consult a qualified tax adviser before
entering into a systematic withdrawal plan.
AGGREGATION OF POLICIES. All life insurance policies which are MECs and
which are purchased by the same person from us or any of our affiliates within
the same calendar year will be aggregated and treated as one policy for purposes
of determining the amount of a withdrawal (including a deemed withdrawal) that
is includable in taxable income.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If your Policy is not a MEC, the
amount of any withdrawal from the Policy will be treated first as a non-taxable
recovery of premiums and then as income from the Policy. Thus, only the portion
of a withdrawal that exceeds the investment in the Policy immediately before the
withdrawal will be includable in taxable income.
TAX TREATMENT OF LOANS. If your Policy is not a MEC, a loan received under
the Policy generally will be treated as indebtedness for tax purposes, rather
than a withdrawal of Cash Value. As a result, you will not realize taxable
income on any part of the loan as long as the Policy remains in force. If you
surrender your Policy, however, any outstanding loan balance will be treated as
an amount received by you as part of the Surrender Value. Accordingly, you may
be subject to taxation on the loan amount at that time. Moreover, if any portion
of your Policy Loan is a preferred loan, a portion of your Policy Loan may be
includable in your taxable income.
36
<PAGE> 42
Generally, you may not deduct interest paid on loans under the Policy, even if
you use the loan proceeds in your trade or business.
SURVIVORSHIP POLICIES
Although we believe that the Policy, when issued as a Survivorship Policy,
meets the definition of life insurance policy under the Tax Code, the Tax Code
does not directly address how it applies to Survivorship Policies. In the
absence of final regulations or other guidance under the Tax Code regarding this
form of Policy, there is necessarily some uncertainty whether a Survivorship
Policy will meet the Tax Code's definition of a life insurance policy. If you
are considering purchasing a Survivorship Policy, you should consult a qualified
tax adviser.
If the Owner is the last surviving Insured, the Death Benefit proceeds will
generally be includable in the Owner's estate on his or her death for purposes
of the federal estate tax. If the Owner dies and was not the last surviving
Insured, the fair market value of the Policy may be included in the Owner's
estate. In general, the Death Benefit proceeds are not included in the last
surviving Insured's estate if he or she neither retained incidents of ownership
at death nor had given up ownership within three years before death.
TREATMENT OF MATURITY BENEFITS AND EXTENSION OF MATURITY DATE
If your Policy does not have an Extended Maturity Rider, at the Maturity
Date, we pay the Net Surrender Value to You. Generally, the excess of the Cash
Value (less any applicable Records Maintenance Charge) over your investment in
the Policy will be includable in your taxable income at that time. If your
Policy has an Extended Maturity Rider, we believe the Policy will continue to
qualify as life insurance under the Tax Code. However, there is some uncertainty
regarding this treatment. It is possible, therefore, that you would be viewed as
constructively receiving the Surrender Value in the year in which the Insured
attains age 100 and would realize taxable income at that time, even if the
Policy proceeds were not distributed at that time.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW
We believe that the maximum amount of Premiums we intend to permit for the
Policies will comply with the Tax Code definition of a life insurance policy. We
will monitor the amount of your Premiums, and, if your total Premiums during a
Policy Year exceed those permitted by the Tax Code, we will refund the excess
Premiums no later than 60 days after the end of the Policy Year and will pay
interest and other earnings (which will be includable in taxable income) as
required by law on the amount refunded. We reserve the right to increase the
Death Benefit (which may result in larger charges under a Policy) or to take any
other action deemed necessary to ensure the compliance of the Policy with the
federal tax definition of a life insurance contract.
FEDERAL INCOME TAX WITHHOLDING
We will withhold and remit to the federal government a part of the taxable
portion of withdrawals made under a Policy, unless the Owner notifies us in
writing at or before the time of the withdrawal that he or she chooses not to
have withholding. As Owner, you will be responsible for the payment of any taxes
and early distribution penalties that may be due on the amounts received under
the Policy, whether or not you choose withholding. You may also be required to
pay penalties under the estimated tax rules, if your withholding and estimated
tax payments are insufficient to satisfy your total tax liability.
TAX ADVICE
This summary is not a complete discussion of the tax treatment of the
Policy. You should seek tax advice from an attorney who specializes in tax
issues.
DESCRIPTION OF KILICO
AND THE SEPARATE ACCOUNT
KILICO
KILICO, 1 Kemper Drive, Long Grove, Illinois 60049, was organized in 1947
and is a stock life insurance company organized under the laws of the State of
Illinois. KILICO is a wholly-owned subsidiary of Kemper Corporation, a
nonoperating holding company. Kemper Corporation is a majority-owned (76.4%)
subsidiary of Zurich Holding Company of America ("ZHCA"), which is a
wholly-owned subsidiary of Zurich Insurance Company ("Zurich"). Zurich is a
wholly-owned subsidiary of Zurich Financial Services ("ZFS"). ZFS was
37
<PAGE> 43
formed in the September 1998 merger of the Zurich Group with the financial
services business of B.A.T. Industries. ZFS is owned by Zurich Allied A.G. and
Allied Zurich P.L.C., fifty-seven percent and forty-three percent, respectively.
KILICO offers life insurance and annuity products and is admitted to do business
in the District of Columbia and all states except New York.
KILICO also acts as a sponsor for KILICO Variable Annuity Separate Account,
KILICO Variable Separate Account--2 and Kemper Investors Life Insurance Company
Variable Annuity Account C. The officers and employees of KILICO are covered by
a fidelity bond in the amount of $20 million.
OFFICERS AND DIRECTORS OF KILICO
Our directors and officers are listed below, together with information as
to their dates of election and principal business occupations during the past
five or more years (if other than their present occupation). Where no dates are
given, the person has held that position for at least the past five years.
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
Gale K. Caruso (41) President and Chief Executive Officer of Federal Kemper Life
President and Chief Executive Officer Assurance Company (FKLA), Fidelity Life Association (FLA),
since June 1999. Director since July Zurich Life Insurance Company of America (ZLICA) and Zurich
1999. Direct, Incorporated (ZD) since June 1999. Director of FKLA,
FLA and ZLICA since July 1999. Chairman, President and Chief
Executive Officer of Scudder Canada Investor Services, Ltd.
from 1995 to June 1999. Managing Director of Scudder Kemper
Investments, Inc. from July 1986 to June 1999.
John B. Scott (55) Chairman of the Board of FKLA, FLA, ZLICA and ZD since June
Chairman of the Board since June 1999. Chief Executive Officer, President and Director of
1999. Director since 1992. FKLA and FLA from 1988 to June 1999. Chief Executive
Officer, President and Director of ZLICA and ZD from March
1996 to June 1999. Chairman of the Board and Director of
Investors Brokerage Services, Inc. (IBS) and Investors
Brokerage Services Insurance Agency, Inc. (IBSIA) since
1993. Chairman of the Board of FKLA and FLA from April 1988
to January 1996. Chairman of the Board of KILICO from
February 1992 to January 1996. Executive Vice President and
Director of Kemper Corporation (Kemper) since 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 (51) Executive Vice President of FKLA and FLA since 1995.
Executive Vice President since 1995. Executive Vice President of ZLICA and ZD since March 1996.
Director since May 1998. Director of FLA since December 1997. Director of FKLA and
ZLICA since May 1998. Director of ZD from March 1996 to
March 1997. Director of IBS and IBSIA since 1995. Senior
Vice President of KILICO, FKLA and FLA from 1993 to 1995.
Vice President of FKLA and FLA from 1988 to 1993.
Frederick L. Blackmon (47) Senior Vice President and Chief Financial Officer of FKLA
Senior Vice President and Chief since December 1995. Senior Vice President and Chief
Financial Officer since December Financial Officer of FLA since January 1996. Senior Vice
1995. President and Chief Financial Officer of ZLICA since March
1996. Senior Vice President and Chief Financial Officer of
ZD since March 1996. Director of FLA since May 1998.
Director of ZD from March 1996 to March 1997. Treasurer and
Chief Financial Officer of Kemper since January 1996. Chief
Financial Officer of Alexander Hamilton Life Insurance
Company from April 1989 to November 1995.
Russell M. Bostick (42) Senior Vice President and Chief Information Officer of FKLA,
Senior Vice President and Chief FLA, ZLICA and ZD since March 1999. Vice President and Chief
Information Officer since March 1999. Information Officer of FKLA, FLA, KILICO, ZLICA and ZD from
April 1998 to March 1999. Chief Technology Officer of
Corporate Software and Technology from June 1997 to April
1998. Vice President of CNA Insurance Companies from January
1995 to June 1997. Assistant Vice President of CNA Insurance
Companies from February 1994 to January 1995.
</TABLE>
38
<PAGE> 44
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
James C. Harkensee (41) Senior Vice President of FKLA and FLA since January 1996.
Senior Vice President since January Senior Vice President of ZLICA since 1995. Senior Vice
1996. President of ZD since 1995. Director of ZD from April 1993
to March 1997 and since March 1998. 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 (43) Senior Vice President of FKLA since December 1995. Chief
Senior Vice President since December Actuary of FKLA and KILICO from December 1995 to January
1995. Director since May 1998. 1999. Senior Vice President of FLA since January 1996. Chief
Actuary of FLA from January 1996 to January 1999. Senior
Vice President of ZLICA and ZD since March 1996. Chief
Actuary of ZLICA and ZD from March 1996 to January 1999.
Director of FLA since June 1997. Director of FKLA and ZLICA
since May 1998. Director of ZD from March 1996 to March
1997. Managing Principal (Partner) of Tillinghast-Towers
Perrin from January 1991 to December 1995.
Consultant/Principal (Partner) of Tillinghast-Towers Perrin
from November 1986 to January 1991.
Edward K. Loughridge (44) Senior Vice President and Corporate Development Officer of
Senior Vice President and Corporate FKLA and FLA since January 1996. Senior Vice President and
Development Officer since January Corporate Development Officer for ZLICA and ZD since March
1996. 1996. Senior Vice President of Human Resources of
Zurich-American Insurance Group from February 1992 to March
1996.
Debra P. Rezabek (43) Senior Vice President of FKLA and FLA since March 1996.
Senior Vice President since 1996. Corporate Secretary of FKLA and FLA since January 1996.
General Counsel since 1992. Corporate Director of FLA since May 1998. Vice President of KILICO,
Secretary since January 1996. FKLA and FLA since 1995. General Counsel and Director of
Government Affairs of FKLA and FLA since 1992 and of KILICO
since 1993. Senior Vice President, General Counsel and
Corporate Secretary of ZLICA since March 1996. Senior Vice
President, General Counsel and Corporate Secretary of ZD
since March 1996. Director of ZD from March 1996 to March
1997. Secretary of IBS and IBSIA since 1993. Director of IBS
and IBSIA from 1993 to 1996. Assistant General Counsel of
FKLA and FLA from 1988 to 1992. General Counsel and
Assistant Secretary of KILICO, FKLA and FLA from 1992 to
1996. Assistant Secretary of Kemper since January 1996.
Edward L. Robbins (59) Senior Vice President and Chief Actuary of FKLA, FLA, ZLICA
Senior Vice President and Chief and ZD since March 1999. Principal of KPMG Peat Marwick LLP
Actuary since March 1999. from May 1984 to January 1999.
Kenneth M. Sapp (53) Senior Vice President of FKLA, FLA and ZLICA since January
Senior Vice President since January 1998. Director of IBS since May 1998. Director of IBSIA
1998. since September 1998. Vice President--Aetna Life Brokerage
of Aetna Life & Annuity Company from February 1992 to
January 1998.
George Vlaisavljevich (56) Senior Vice President of FKLA, FLA and ZLICA since October
Senior Vice President since October 1996. Senior Vice President of ZD since March 1997. Director
1996. of IBS and IBSIA since October 1996. Executive Vice
President of The Copeland Companies from April 1983 to
September 1996.
</TABLE>
39
<PAGE> 45
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH KILICO
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
-------------------- -----------------------------------------------------
<S> <C>
William H. Bolinder (56) Chairman of the Board of FKLA, FLA and KILICO from January
Director since January 1996. 1996 to June 1999. Director of FKLA and FLA since January
1996. Chairman of the Board of ZLICA and ZD from March 1995
to June 1999. Director of ZLICA and ZD since March 1995.
Chairman of the Board and Director of Kemper since January
1996. Director of SKI since January 1996. Vice Chairman of
SKI from January 1996 to 1998. Member of the Group Executive
Board of Zurich Financial Services Group since 1998. Member
of the Corporate Executive Board of Zurich Insurance Group
from October 1994 to 1998. Chairman of Zurich American
Insurance Company since 1998. 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 and American Zurich Insurance Company
from 1986 to June 1995. President of Zurich Holding Company
of America since 1986. Manager of Zurich Insurance Company,
U.S. Branch from 1986 to 1998. Underwriter for Zurich
American Lloyds since 1986.
David A. Bowers (52) Director of FKLA and ZLICA since May 1997. Director of FLA
Director since May 1997. since June 1997. Executive Vice President, Corporate
Secretary and General Counsel of Zurich U.S. since August
1985. Vice President, General Counsel and Secretary of
Kemper since January 1996.
Gunther Gose (54) Director of FKLA, FLA and ZLICA since November 1998. Chief
Director since November 1998. Financial Officer and Member of the Group Executive Board of
Zurich Financial Services since October 1998. Member of the
Corporate Executive Board of Zurich Insurance Group from
April 1990 to October 1998.
</TABLE>
The business address of each of the foregoing officers and directors is 1
Kemper Drive, Long Grove, Illinois 60049.
SEPARATE ACCOUNT
KILICO Variable Separate Account was established on January 22, 1987, as a
separate investment account under the laws of Illinois. The Separate Account
receives and invests Premiums under the Policy. The Separate Account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940. The SEC does not supervise the management, investment practices or
policies of the Separate Account or KILICO.
Benefits provided under the Policies are our obligations. Although the
assets in the Separate Account are our property, they are held separately from
our other assets and are not chargeable with liabilities arising out of any
other business we may conduct. Income, capital gains and capital losses, whether
or not realized, from the assets allocated to the Separate Account are credited
to or charged against the Separate Account without regard to the income, capital
gains and capital losses arising out of any other business we may conduct.
Twenty-nine Subaccounts of the Separate Account are currently available.
Each Subaccount invests exclusively in shares of one of the corresponding
Portfolios. We may add or delete Subaccounts in the future.
The Separate Account purchases and redeems shares from the Portfolios at
net asset value. We redeem shares of the Portfolios as necessary to provide
benefits, to deduct Policy charges and to transfer assets from one Subaccount to
another as requested by Policy owners. All dividends and capital gains
distributions received by the Separate Account from a Portfolio are reinvested
in that Portfolio at net asset value and retained as assets of the corresponding
Subaccount.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
We hold the assets of the Separate Account. We keep those assets physically
segregated and held separate and apart from our General Account assets. We
maintain records of all purchases and redemptions of shares of the Portfolios.
40
<PAGE> 46
STATE REGULATION OF KILICO
We are subject to the laws of Illinois and regulated by the Illinois
Department of Insurance. Every year we file an annual statement with the
Department of Insurance covering our operations for the previous year and our
financial condition as of the end of the year. We are inspected periodically by
the Department of Insurance to verify our Policy liabilities and reserves. Our
books and records are subject to review by the Department of Insurance at all
times. We are also subject to regulation under the insurance laws of every
jurisdiction in which we operate.
YEAR 2000 MATTERS
Many existing computer programs were originally designed without
considering the impact of the year 2000 and currently use only two digits to
identify the year in the date field. This issue affects nearly all companies and
organizations and could cause computer applications and systems to fail or
create erroneous results for any transaction with a date of January 1, 2000, or
later.
Many companies must undertake major projects to address the year 2000
issue. Each company's costs and uncertainties will depend on a number of
factors, including its software and hardware, and the nature of the industry.
Companies must also coordinate with other entities with which they
electronically interact, including suppliers, customers, creditors and other
financial services institutions.
If a company does not successfully address its year 2000 issues, it could
face material adverse consequences in the form of lawsuits against the company,
lost business, erroneous results and substantial operating problems after
January 1, 2000.
We have taken substantial steps over the last several years to ensure that
our systems will be compliant for the year 2000. Such steps have included the
replacement of older systems with new systems which are already compliant. In
1996, we replaced our investment accounting system, and, in 1997, we replaced
our general ledger and accounts payable system. We have also ensured that new
systems developed to support new product introductions in 1997, 1998 and beyond
are already year 2000 compliant. Data processing expenses related solely to
bringing our systems in compliance with the year 2000 amounted to $1.3 million
in 1998. We anticipate that it will cost an additional $662,000 to bring all
remaining systems into compliance.
Our policy administration systems have been completely renovated to be year
2000 compliant, have been tested and have been placed back into production as of
June 30, 1999. All of our ancillary systems confirmed to be year 2000 compliant
were in production at June 30, 1999. Testing procedures have confirmed the
performance, functionality, and integration of converted or replaced platforms,
applications, databases, utilities, and interfaces in an operational
environment. Our testing and verification for year 2000 compliance has
encompassed the following:
- mainframe computing systems;
- mainframe hardware and systems software;
- PC/LAN computing systems;
- PC/LAN hardware and systems software;
- end-user computing systems;
- interfaces to and from third parties; and
- other miscellaneous electronic non-information systems.
We have also taken steps requiring all other entities with which we
electronically interact, including suppliers and other financial services
institutions, to attest to us in writing that their systems are year 2000
compliant.
If we do not successfully address our year 2000 issues, we could face
material adverse consequences from lawsuits, lost business, erroneous results
and substantial operating problems after January 1, 2000. Although we fully
expect to be year 2000 compliant by the close of 1999, we are currently
developing contingency plans to handle the most reasonably likely worst case
scenarios. These contingency plans are scheduled for completion in the third
quarter of 1999.
41
<PAGE> 47
DISTRIBUTION OF POLICIES
Investors Brokerage Services, Inc. ("IBS") serves as distributor of the
Policies. IBS is located at 1 Kemper Drive, Long Grove, Illinois 60010. IBS is
our wholly-owned subsidiary. It is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "1934 Act"), and is a member of the
National Association of Securities Dealers, Inc.
The Policies described in this Prospectus are sold by registered
representatives of broker-dealers or bank employees who are licensed insurance
agents appointed by the Company, either individually or through an incorporated
insurance agency. IBS enters into selling agreements with the unaffiliated
broker-dealers and banks whose personnel participate in the offer and sale of
the Policies. In some states, the Policies may be sold by representatives or
employees of banks which may be acting as broker-dealers without separate
registration under the 1934 Act, pursuant to legal and regulatory exceptions.
The maximum sales compensation payable by the Company is not more than the
equivalent of 7.5% percent of each Premium. Trail Commissions of up to 1.0% of
Cash Value may also be paid where a lower commission rate applies to Premiums.
In addition, we may pay or permit other promotional incentives, in cash, or
credit or other compensation. We also may pay asset-based expense allowances and
service fees.
The distribution agreement with IBS provides for indemnification of IBS by
KILICO and the Separate Account for liability arising out of allegedly untrue
statements in, or omissions of material fact from, the prospectus or the
Registration Statement. IBS agrees to indemnify KILICO and the Separate Account
against claims arising from the conduct of IBS or unaffiliated broker-dealers
that sell Policies.
The name and position of each officer and director of IBS as of May 1,
1999, are as follows:
<TABLE>
<S> <C>
John B. Scott............................................... Chairman and Director
Michael E. Scherrman........................................ President and Director
Otis R. Heldman, Jr......................................... Vice President
Michael A. Kelly............................................ Vice President
David S. Jorgensen.......................................... Vice President and Treasurer
Debra P. Rezabek............................................ Secretary
Frank J. Julian............................................. Assistant Secretary
Kenneth M. Sapp............................................. Director
Eliane C. Frye.............................................. Director
George Vlaisavljevich....................................... Director
</TABLE>
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account.
KILICO is engaged in routine law suits which, in our management's judgment, are
not of material importance to its total assets or material with respect to the
Separate Account.
LEGAL MATTERS
All matters of Illinois law pertaining to the Policy, including the
validity of the Policy and our right to issue the Policy under Illinois law,
have been passed upon by Frank Julian, Esq., our Associate General Counsel. The
law firm of Jorden Burt Boros Cicchetti Berenson & Johnson, 1025 Thomas
Jefferson St., Suite 400, East Lobby, Washington, D.C. 20007-5201, serve as
special counsel to KILICO with regard to the federal securities laws.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, Washington, D.C.,
under the Securities Act of 1933 as amended, with respect to the Policies
offered by this Prospectus. This Prospectus does not contain all the information
set forth in the registration statement and the exhibits filed as part of the
registration statement. You should refer to the registration statement and the
exhibits for further information concerning the Separate Account, KILICO, and
the Policies. The descriptions in this Prospectus of the Policies and other
legal instruments are summaries. You should refer to those instruments as filed
for their precise terms.
42
<PAGE> 48
EXPERTS
The consolidated balance sheets of KILICO as of December 31, 1998 and 1997
and the related consolidated statements of operations, comprehensive income,
stockholder's equity, and cash flows for the years ended December 31, 1998 and
1997 have been included herein and in the registration statement in reliance
upon the report of PricewaterhouseCoopers LLP, independent public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The consolidated statements of operations,
comprehensive income, stockholder's equity, and cash flows of KILICO and
subsidiaries for the period from January 4, 1996 to December 31, 1996 and the
financial statement schedules as of December 31, 1996 have been included herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The statements of assets and liabilities and policy owners' equity of the
Separate Account as of December 31, 1998 and the related statements of
operations for the year then ended and the statements of changes in policy
owners' equity for the year then ended and for the periods presented has been
included herein in reliance upon the report of PricewaterhouseCoopers LLP,
independent public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
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.
FINANCIAL STATEMENTS
The included financial statements of the Separate Account do not reflect
any assets attributable to the Policy, because we did not sell the Policy during
the period covered by those financial statements. Instead, those financial
statements solely reflect assets and operations attributable to sales of other
variable life insurance contracts issued by the Separate Account. Certain
Subaccounts covered by the financial statements are not available under the
Policies. In addition, those financial statements do not cover certain
Subaccounts of the Separate Account, because those Subaccounts were not created
until after the end of the periods covered. The included financial statements
for KILICO only bear on our ability to meet our obligations under the Policy.
They do not relate to the investment performance of the assets held in the
Separate Account.
CHANGE OF ACCOUNTANTS
On September 12, 1997, KILICO appointed PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), formerly Coopers & Lybrand, LLP, as independent
public accountants for the year ended December 31, 1997 to replace KPMG LLP
effective with such appointment. Our Board of Directors approved their selection
as the new independent accountants. Management had not consulted with
PricewaterhouseCoopers on any accounting, auditing or reporting matter, prior to
that time.
During the fiscal year ended December 31, 1996, there were no disagreements
with KPMG LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure or any reportable events.
KPMG LLP's report on the financial statements for 1996 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
There were no disagreements with PricewaterhouseCoopers on accounting or
financial disclosures for the years ended December 31, 1998 or 1997.
43
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Variable Separate Account:
In our opinion, the accompanying statement of assets and liabilities and
contract owners' equity and the related statement of operations and changes in
owner's equity present fairly, in all material respects, the financial position
of the subaccounts of KILICO Variable Separate Account, which includes the Money
Market Subaccount, Total Return Subaccount, High Yield Subaccount, Growth
Subaccount, Government Securities Subaccount, International Subaccount, Small
Cap Growth Subaccount (investment options within the Investors Fund Series),
Janus Small Cap Growth Subaccount, Neuberger & Berman Mid-Cap Growth Subaccount,
Jancap Growth Subaccount, Lord Abbett Growth & Income Subaccount, T. Rowe Price
International Equity Subaccount, T. Rowe Price Asset Allocation Subaccount,
PIMCO Limited Maturity Bond Subaccount, PIMCO Total Return Subaccount, INVESCO
Equity Income Subaccount (investment options within the American Skandia Trust),
Growth Opportunities Subaccount, Index 500 Subaccount, Equity Income Subaccount,
Contrafund Subaccount, High Income Subaccount (investment options within the
Fidelity VIP Funds), International Subaccount, Growth & Income Subaccount
(investment options within the Scudder Variable Life Investment Fund), thereof,
at December 31, 1998, and the changes in their equity for the year then ended
and for each of the period presented, except for the Growth Opportunities
Subaccount, Index 500 Subaccount, Equity Income Subaccount, Contrafund
Subaccount, High Income Subaccount, International Subaccount, Growth & Income
Subaccount as to which the period is June 15, 1998 (commencement of operations)
to December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Kemper
Investors Life Insurance Company's management, our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included direct confirmation of investments owned at December 31,
1998 by correspondence with transfer agents, provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 19, 1999
44
<PAGE> 50
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45
<PAGE> 51
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
---------------------------------------------------------------------------------------------
MONEY GOVERNMENT SMALL CAP
MARKET TOTAL RETURN HIGH YIELD GROWTH SECURITIES INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in underlying
portfolio funds, at current
value......................... $981 3,681 1,333 3,472 4,396 176 1,082
Dividends and other
receivables................... 3 -- -- 1 -- -- --
---- ----- ----- ----- ----- --- -----
Total assets.............. 984 3,681 1,333 3,473 4,396 176 1,082
LIABILITIES AND POLICY OWNERS'
EQUITY
Liabilities:
Mortality and expense risk
charges..................... 1 2 1 2 3 -- --
Other......................... 17 -- -- -- -- -- --
---- ----- ----- ----- ----- --- -----
Total liabilities......... 18 2 1 2 3 -- --
---- ----- ----- ----- ----- --- -----
Policy owners' equity........... $966 3,679 1,332 3,471 4,393 176 1,082
==== ===== ===== ===== ===== === =====
ANALYSIS OF POLICY OWNERS' EQUITY
Excess of proceeds from units
sold over payments for units
redeemed...................... $348 948 318 1,346 1,878 170 920
Accumulated net investment
income........................ 618 1,698 903 1,406 1,867 3 57
Accumulated net realized gain on
sales of investments.......... -- 816 66 319 578 -- 12
Unrealized appreciation of
investments................... -- 217 45 400 70 3 93
---- ----- ----- ----- ----- --- -----
Policy owners' equity........... $966 3,679 1,332 3,471 4,393 176 1,082
==== ===== ===== ===== ===== === =====
</TABLE>
See accompanying notes to financial statements.
46
<PAGE> 52
<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
----------------------------------------------------------------------------------------------------------------
LORD ABBETT T. ROWE PRICE T. ROWE PRICE PIMCO LIMITED
JANUS NEUBERGER & BERMAN JANCAP GROWTH & INTERNATIONAL ASSET MATURITY
SMALL CAP GROWTH MID-CAP GROWTH GROWTH INCOME EQUITY ALLOCATION BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------- ------------------ ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
426 725 2,653 632 333 247 23
-- 1 2 1 -- -- --
--- --- ----- --- --- --- --
426 726 2,655 633 333 247 23
-- -- 2 -- -- -- --
-- -- -- -- -- -- --
--- --- ----- --- --- --- --
-- -- 2 -- -- -- --
--- --- ----- --- --- --- --
426 726 2,653 633 333 247 23
=== === ===== === === === ==
398 625 1,851 584 312 222 22
6 35 26 8 1 1 1
5 7 38 4 2 3 --
17 59 738 37 18 21 --
--- --- ----- --- --- --- --
426 726 2,653 633 333 247 23
=== === ===== === === === ==
<CAPTION>
AMERICAN SKANDIA TRUST
---------------------------
PIMCO TOTAL INVESCO
RETURN EQUITY INCOME
SUBACCOUNT SUBACCOUNT
----------- -------------
<S> <C> <C>
68 398
-- 1
-- ---
68 399
-- --
-- --
-- ---
-- --
-- ---
68 399
== ===
65 369
2 5
-- 3
1 22
-- ---
68 399
== ===
</TABLE>
47
<PAGE> 53
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES AND POLICY OWNERS' EQUITY (CONTINUED)
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SCUDDER VARIABLE LIFE
FIDELITY VIP FUNDS INVESTMENT FUNDS
------------------------------------------------------------------- --------------------------
GROWTH INDEX EQUITY CONTRA- HIGH GROWTH &
OPPORTUNITIES 500 INCOME FUND INCOME INTERNATIONAL INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in underlying
portfolio funds, at current
value...................... $51 81 19 80 2 8 6
Dividends and other
receivables................ -- -- -- -- -- -- --
--- -- -- -- -- -- --
Total assets........... 51 81 19 80 2 8 6
--- -- -- -- -- -- --
LIABILITIES AND POLICY OWNERS'
EQUITY
Liabilities:
Mortality and expense risk
charges.................. -- -- -- -- -- -- --
Other...................... -- -- -- -- -- -- --
--- -- -- -- -- -- --
Total liabilities...... -- -- -- -- -- -- --
--- -- -- -- -- -- --
Policy owners' equity........ $51 81 19 80 2 8 6
=== == == == == == ==
ANALYSIS OF POLICY OWNERS'
EQUITY
Excess of proceeds from units
sold over payments for
units redeemed............. $47 76 19 71 2 8 6
Accumulated net investment
income..................... -- -- -- -- -- -- --
Accumulated net realized gain
on sales of investments.... -- -- -- -- -- -- --
Unrealized appreciation of
investments................ 4 5 -- 9 -- -- --
--- -- -- -- -- -- --
Policy owners' equity........ $51 81 19 80 2 8 6
=== == == == == == ==
</TABLE>
See accompanying notes to financial statements.
48
<PAGE> 54
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
-------------------------------------------------------------------------------------------
MONEY TOTAL HIGH GOVERNMENT SMALL CAP
MARKET RETURN YIELD GROWTH SECURITIES INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions..................... $72 505 84 458 273 4 59
Mortality and expense risk
charges........................... 6 16 13 27 41 1 4
--- ---- --- ---- ---- -- ---
Net investment income............. 66 489 71 431 232 3 55
--- ---- --- ---- ---- -- ---
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on sales
of investments.................. -- (67) (42) (288) 284 -- 12
Change in unrealized appreciation
(depreciation) of investments... -- (1) (10) 234 (253) 4 75
--- ---- --- ---- ---- -- ---
Net realized and unrealized gain
(loss) on investments............. -- (68) (52) (54) 31 4 87
--- ---- --- ---- ---- -- ---
Net increase in policy owners'
equity resulting from
operations........................ $66 421 19 377 263 7 142
=== ==== === ==== ==== == ===
</TABLE>
See accompanying notes to financial statements.
49
<PAGE> 55
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
-------------------------------------------------------------------------------------------------
JANUS NEUBERGER & BERMAN LORD ABBETT T. ROWE PRICE T. ROWE PRICE
SMALL CAP MID-CAP JANCAP GROWTH & INTERNATIONAL ASSET
GROWTH GROWTH GROWTH INCOME EQUITY ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividends and capital gains
distributions................ $ 8 39 37 10 4 2
Mortality and expense risk
charges...................... 2 3 11 2 2 1
--- -- --- -- -- --
Net investment income........ 6 36 26 8 2 1
--- -- --- -- -- --
Net realized and unrealized
gain on
investments:
Net realized gain on sales of
investments................ 5 7 38 4 2 3
Change in unrealized
appreciation
of investments............. 13 54 718 34 21 19
--- -- --- -- -- --
Net realized and unrealized
gain on
investments.................. 18 66 756 38 23 22
--- -- --- -- -- --
Net increase in policy owners'
equity
resulting from operations.... $24 97 782 46 25 23
=== == === == == ==
</TABLE>
(a) For the period June 15, 1998 (commencement of operations) to December 31,
1998.
See accompanying notes to financial statements.
50
<PAGE> 56
<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST FIDELITY VIP FUNDS
-------------------------------------------- -----------------------------------------------------------------------------
PIMCO LIMITED
MATURITY PIMCO TOTAL INVESCO EQUITY GROWTH INDEX EQUITY CONTRA HIGH
BOND RETURN INCOME OPPORTUNITIES 500 INCOME FUND INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A)
------------- ----------- -------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 7 -- -- -- -- --
-- -- 2 -- -- -- -- --
-- -- -- -- -- -- -- --
1 2 5 -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- 3 -- -- -- -- --
-- 1 20 4 5 -- 9 --
-- -- -- -- -- -- -- --
-- 1 23 4 5 -- 9 --
-- -- -- -- -- -- -- --
1 3 28 4 5 -- 9 --
== == == == == == == ==
<CAPTION>
SCUDDER VARIABLE LIFE
INVESTMENT FUNDS
-----------------------------
GROWTH &
INTERNATIONAL INCOME
SUBACCOUNT(A) SUBACCOUNT(A)
------------- -------------
<S> <C> <C>
-- --
-- --
-- --
-- --
-- --
-- --
-- --
-- --
-- --
-- --
-- --
== ==
</TABLE>
51
<PAGE> 57
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
-------------------------------------------------------------------------------------------
MONEY TOTAL HIGH GOVERNMENT SMALL CAP
MARKET RETURN YIELD GROWTH SECURITIES INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income............... $ 66 489 71 431 232 3 55
Net realized gain (loss) on sales of
investments....................... -- (67) (42) (288) 284 -- 12
Change in unrealized appreciation
(depreciation) of investments..... -- (1) (10) 234 (253) 4 75
------ ------ ----- ----- ----- --- -----
Net increase in policy owners'
equity resulting from
operations...................... 66 421 19 377 263 7 142
------ ------ ----- ----- ----- --- -----
Account unit transactions:
Proceeds from units sold............ 5,791 63 86 393 32 110 590
Net transfers (to) from affiliate
and subaccounts................... (2,163) 638 (502) 421 (399) 50 318
Payments for units redeemed......... (3,694) (479) (205) (461) (200) (39) (192)
------ ------ ----- ----- ----- --- -----
Net increase (decrease) in policy
owners' equity from account unit
transactions.................... (66) 222 (621) 353 (567) 121 716
------ ------ ----- ----- ----- --- -----
Total increase (decrease) in policy
owners' equity...................... -- 643 (602) 730 (304) 128 858
Policy owners' equity:
Beginning of period................. 966 3,036 1,934 2,741 4,697 48 224
------ ------ ----- ----- ----- --- -----
End of period....................... $ 966 3,679 1,332 3,471 4,393 176 1,082
====== ====== ===== ===== ===== === =====
</TABLE>
See accompanying notes to financial statements.
52
<PAGE> 58
<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
- ----------------------------------------------------------------------------------------------------------
JANUS NEUBERGER & BERMAN LORD ABBETT T. ROWE PRICE T. ROWE PRICE PIMCO LIMITED
SMALLCAP MID-CAP JANCAP GROWTH & INTERNATIONAL ASSET MATURITY
GROWTH GROWTH GROWTH INCOME EQUITY ALLOCATION BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ------------------ ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
6 36 26 8 2 1 1
5 7 38 4 2 3 --
13 54 718 34 21 19 --
--- ---- ----- ---- --- --- --
24 97 782 46 25 23 1
--- ---- ----- ---- --- --- --
256 404 1,148 373 215 133 11
95 159 615 247 77 91 7
(84) (135) (419) (145) (80) (58) (4)
--- ---- ----- ---- --- --- --
267 428 1,344 475 212 166 14
--- ---- ----- ---- --- --- --
291 525 2,126 521 237 189 15
135 201 527 112 96 58 8
--- ---- ----- ---- --- --- --
426 726 2,653 633 333 247 23
=== ==== ===== ==== === === ==
<CAPTION>
AMERICAN SKANDIA TRUST
- ---------- ------------------------
JANUS INVESCO
SMALLCAP PIMCO TOTAL EQUITY
GROWTH RETURN INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ----------- ----------
<S> <C> <C>
6 2 5
5 -- 3
13 1 20
--- --- ---
24 3 28
--- --- ---
256 36 240
95 24 139
(84) (12) (80)
--- --- ---
267 48 299
--- --- ---
291 51 327
135 17 72
--- --- ---
426 68 399
=== === ===
</TABLE>
53
<PAGE> 59
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY VIP FUNDS
-----------------------------------------------------------------------------
GROWTH INDEX EQUITY CONTRA- HIGH
OPPORTUNITIES 500 INCOME FUND INCOME
SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A) SUBACCOUNT(A)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income........... $-- -- -- -- --
Net realized gain on sales of
investments................... -- -- -- -- --
Change in unrealized
appreciation of investments... 4 5 -- 9 --
--- -- -- -- --
Net increase in policy owners'
equity resulting from
operations.................. 4 5 -- 9 --
--- -- -- -- --
Account unit transactions:
Proceeds from units sold........ 22 36 11 25 --
Net transfers from affiliate and
subaccounts................... 28 45 10 52 2
Payments for units redeemed..... (3) (5) (2) (6) --
--- -- -- -- --
Net increase in policy owners'
equity from account unit
transactions................ 47 76 19 71 2
--- -- -- -- --
Total increase in policy owners'
equity.......................... 51 81 19 80 2
Policy owners' equity:
Beginning of period............. -- -- -- -- --
--- -- -- -- --
End of period................... $51 81 19 80 2
=== == == == ==
<CAPTION>
SCUDDER VARIABLE LIFE
INVESTMENT FUNDS
-----------------------------
GROWTH &
INTERNATIONAL INCOME
SUBACCOUNT(A) SUBACCOUNT(A)
------------- -------------
<S> <C> <C>
Operations:
Net investment income........... -- --
Net realized gain on sales of
investments................... -- --
Change in unrealized
appreciation of investments... -- --
-- --
Net increase in policy owners'
equity resulting from
operations.................. -- --
-- --
Account unit transactions:
Proceeds from units sold........ 2 4
Net transfers from affiliate and
subaccounts................... 7 4
Payments for units redeemed..... (1) (2)
-- --
Net increase in policy owners'
equity from account unit
transactions................ 8 6
-- --
Total increase in policy owners'
equity.......................... 8 6
Policy owners' equity:
Beginning of period............. -- --
-- --
End of period................... 8 6
== ==
</TABLE>
(a) For the period June 15, 1998 (commencement of operations) to December 31,
1998
See accompanying notes to financial statements.
54
<PAGE> 60
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTORS FUND SERIES
-------------------------------------------------------------------------------------------
MONEY TOTAL HIGH GOVERNMENT SMALL CAP
MARKET RETURN YIELD GROWTH SECURITIES INTERNATIONAL GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income.............. $ 34 390 87 496 283 -- 2
Net realized gain (loss) on sales
of investments................... -- 426 96 (10) 19 -- --
Change in unrealized appreciation
(depreciation) of investments.... -- (281) (27) (21) 17 (1) 18
------- ----- ----- ----- ----- --- ----
Net increase (decrease) in policy
owners' equity resulting from
operations..................... 34 535 156 465 319 (1) 20
------- ----- ----- ----- ----- --- ----
Account unit transactions:
Proceeds from units sold........... 2,965 27 22 92 32 35 137
Net transfers (to) from affiliate
and subaccounts.................. (1,059) (400) 298 (38) 492 19 93
Payments for units redeemed........ (2,011) (217) (50) (138) (131) (5) (28)
------- ----- ----- ----- ----- --- ----
Net increase (decrease) in policy
owners' equity from account
unit transactions.............. (105) (590) 270 (84) 393 49 202
------- ----- ----- ----- ----- --- ----
Total increase (decrease) in policy
owners' equity..................... (71) (55) 426 381 712 48 222
Policy owners' equity:
Beginning of period................ 1,037 3,091 1,508 2,360 3,985 -- 2
------- ----- ----- ----- ----- --- ----
End of period...................... $ 966 3,036 1,934 2,741 4,697 48 224
======= ===== ===== ===== ===== === ====
</TABLE>
See accompanying notes to financial statements.
55
<PAGE> 61
KILICO VARIABLE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN POLICY OWNERS' EQUITY (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN SKANDIA TRUST
------------------------------------------------------------------------------------------
JANUS NEUBERGER & BERMAN LORD ABBETT T. ROWE PRICE T. ROWE PRICE
SMALLCAP MID-CAP JANCAP GROWTH & INTERNATIONAL ASSET
GROWTH GROWTH GROWTH INCOME EQUITY ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment loss.... $ -- (1) -- -- (1) --
Net realized gain on
sales of
investments.......... -- -- -- -- -- --
Change in unrealized
appreciation
(depreciation) of
investments.......... 4 5 20 3 (3) 2
---- --- --- --- --- ---
Net increase
(decrease) in
policy owners'
equity resulting
from operations.... 4 4 20 3 (4) 2
---- --- --- --- --- ---
Account unit
transactions:
Proceeds from units
sold................. 89 124 330 58 63 35
Net transfers from
affiliate and
subaccounts.......... 63 99 242 61 50 27
Payments for units
redeemed............. (21) (28) (69) (12) (13) (6)
---- --- --- --- --- ---
Net increase in
policy owners'
equity from account
unit
transactions....... 131 195 503 107 100 56
---- --- --- --- --- ---
Total increase in policy
owners' equity......... 135 199 523 110 96 58
Policy owners' equity:
Beginning of period.... -- 2 4 2 -- --
---- --- --- --- --- ---
End of period.......... $135 201 527 112 96 58
==== === === === === ===
<CAPTION>
AMERICAN SKANDIA TRUST
---------------------------------------
PIMCO LIMITED PIMCO INVESCO
MATURITY TOTAL EQUITY
BOND RETURN INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ---------- ----------
<S> <C> <C> <C>
Operations:
Net investment loss.... -- -- --
Net realized gain on
sales of
investments.......... -- -- --
Change in unrealized
appreciation
(depreciation) of
investments.......... -- -- 2
-- -- --
Net increase
(decrease) in
policy owners'
equity resulting
from operations.... -- -- 2
-- -- --
Account unit
transactions:
Proceeds from units
sold................. 4 11 49
Net transfers from
affiliate and
subaccounts.......... 5 8 28
Payments for units
redeemed............. (1) (2) (7)
-- -- --
Net increase in
policy owners'
equity from account
unit
transactions....... 8 17 70
-- -- --
Total increase in policy
owners' equity......... 8 17 72
Policy owners' equity:
Beginning of period.... -- -- --
-- -- --
End of period.......... 8 17 72
== == ==
</TABLE>
See accompanying notes to financial statements.
56
<PAGE> 62
KILICO VARIABLE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Kemper Investors Life Insurance Company Variable Separate Account (the
"Separate Account") is a unit investment trust registered under the Investment
Company Act of 1940, as amended, established by Kemper Investors Life Insurance
Company ("KILICO"). KILICO is a wholly-owned subsidiary of Zurich Financial
Services ("ZFS"). ZFS was formed with the September 7, 1998 merger of the Zurich
Group with the financial services business of B.A.T. Industries. ZFS is owned by
Zurich Allied AG and Allied Zurich p.l.c., fifty-seven percent and forty-three
percent, respectively. Zurich Allied AG, representing the financial interest of
the former Zurich Group, is listed on the Swiss Market Index (SMI) replacing
Zurich. Allied Zurich p.l.c., representing the financial interest of the
financial services business of B.A.T. Industries, is included in the FTSE-100
Share Index in London.
The Separate Account is used to fund policies ("Policy") for Select
variable universal life policies and Power V flexible premium variable universal
life policies. The Separate Account is divided into twenty-three subaccounts.
The Select policies have five subaccounts which are available to Policy Owners
and each subaccount invests exclusively in the shares of a corresponding
portfolio of the Investors Fund Series, an open-end diversified management
investment company. The Power V policies have twenty-three subaccounts which are
available to Policy Owners and each subaccount invests exclusively in the shares
of a corresponding portfolio of the Investors Fund Series, the American Skandia
Trust, the Fidelity VIP Funds and the Scudder Variable Life Investment Funds,
all of which are open-end diversified management investment companies.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and liabilities as
well as the disclosure of contingent amounts at the date of the financial
statements. As a result, actual results reported as income and expenses could
differ from the estimates reported in the accompanying financial statements.
SECURITY VALUATION
The investments are stated at current value which is based on the closing
bid price, net asset value, at December 31, 1998.
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 a first in,
first out (FIFO) 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. (Central 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.
57
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(2) SUMMARY OF INVESTMENTS
Investments, at cost, at December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
SHARES
OWNED COST
------ -------
<S> <C> <C>
INVESTORS FUND SERIES:
Money Market Subaccount................................... 981 $ 981
Total Return Subaccount................................... 1,347 3,464
High Yield Subaccount..................................... 1,088 1,288
Growth Subaccount......................................... 1,175 3,072
Government Securities Subaccount.......................... 3,639 4,326
International Subaccount.................................. 103 173
Small Cap Growth Subaccount............................... 549 989
AMERICAN SKANDIA TRUST:
Janus Small Cap Growth Subaccount......................... 24 409
Neuberger & Berman Mid-Cap Growth Subaccount.............. 42 666
Jancap Growth Subaccount.................................. 72 1,915
Lord Abbett Growth & Income Subaccount.................... 29 595
T. Rowe Price International Equity Subaccount............. 25 315
T. Rowe Price Asset Allocation Subaccount................. 14 226
PIMCO Limited Maturity Bond Subaccount.................... 2 23
PIMCO Total Return Subaccount............................. 6 67
INVESCO Equity Income Subaccount.......................... 23 376
FIDELITY VIP FUNDS:
Growth Opportunities Subaccount........................... 2 47
Index 500 Subaccount...................................... 1 76
Equity Income Subaccount.................................. 1 19
Contrafund Subaccount..................................... 3 71
High Income Subaccount.................................... 2 2
SCUDDER VARIABLE LIFE INVESTMENT FUNDS:
International Subaccount.................................. 1 8
Growth & Income Subaccount................................ 1 6
-------
TOTAL INVESTMENTS AT COST............................ $19,114
=======
</TABLE>
A description of the underlying investments are summarized below.
INVESTORS FUND SERIES
MONEY MARKET SUBACCOUNT: This subaccount seeks maximum current income to
the extent consistent with stability of principal from a portfolio of high
quality money market instruments. The Portfolio seeks to maintain a net asset
value of $1.00 per share but there can be no assurance that the Portfolio will
be able to do so.
TOTAL RETURN SUBACCOUNT: This subaccount seeks a high total return, a
combination of income and capital appreciation, consistent with reasonable risk.
HIGH YIELD SUBACCOUNT: This subaccount seeks to provide a high level of
current income.
GROWTH SUBACCOUNT: This subaccount seeks maximum appreciation of capital
through diversification of investment securities having potential for capital
appreciation.
58
<PAGE> 64
GOVERNMENT SECURITIES SUBACCOUNT: This subaccount seeks high current
return consistent with preservation of capital.
INTERNATIONAL SUBACCOUNT: This subaccount seeks a total return, a
combination of capital growth and income, principally through an internationally
diversified portfolio of equity securities.
SMALL CAP GROWTH SUBACCOUNT: This subaccount seeks maximum appreciation of
investors' capital.
AMERICAN SKANDIA TRUST
JANUS SMALL CAP GROWTH (FORMERLY FOUNDERS CAPITAL APPRECIATION) SUBACCOUNT:
This subaccount seeks capital appreciation through investment primarily in
common stocks of U.S. companies with market capitalizations of $1.5 billion or
less. These stocks normally will be traded in the over-the-counter market.
NEUBERGER & BERMAN MID-CAP GROWTH (FORMERLY BERGER CAPITAL GROWTH)
SUBACCOUNT: This subaccount seeks capital appreciation.
JANCAP GROWTH SUBACCOUNT: This subaccount seeks growth of capital in a
manner consistent with preservation of capital by emphasizing investments in
common stocks.
LORD ABBETT GROWTH & INCOME SUBACCOUNT: This subaccount seeks long-term
growth of capital and income while attempting to avoid excessive fluctuations in
market value by investing in common stocks of seasoned companies which are
expected to show above-average growth.
T. ROWE PRICE INTERNATIONAL EQUITY SUBACCOUNT: This subaccount seeks total
return on its assets from long-term growth of capital and income principally
through investment primarily in common stocks of established, non-U.S.
companies.
T. ROWE PRICE ASSET ALLOCATION SUBACCOUNT: This subaccount seeks a high
level of total return by investing primarily in a diversified group of fixed
income and equity securities.
PIMCO LIMITED MATURITY BOND SUBACCOUNT: This subaccount seeks to maximize
total return, consistent with preservation of capital and prudent investment
management by investing primarily in fixed income securities of various types.
PIMCO TOTAL RETURN SUBACCOUNT: This subaccount seeks to maximize total
return, consistent with preservation of capital by investing primarily in fixed
income securities of various types.
INVESCO EQUITY INCOME SUBACCOUNT: This subaccount seeks high current
income while following sound investment practices, with capital growth potential
as an additional but secondary consideration. The subaccount invests primarily
in dividend-paying, marketable common stocks of domestic and foreign industrial
issuers.
FIDELITY VIP FUNDS
GROWTH OPPORTUNITIES SUBACCOUNT: This subaccount seeks to provide capital
growth.
INDEX 500 SUBACCOUNT: This subaccount seeks investment results that
correspond to the total return of common stocks publicly traded in the United
States, as represented by the S&P 500.
EQUITY-INCOME SUBACCOUNT: This subaccount seeks reasonable income.
CONTRAFUND SUBACCOUNT: This subaccount seeks long-term capital
appreciation.
HIGH INCOME SUBACCOUNT: This subaccount seeks a high level of current
income while also considering growth of capital.
SCUDDER VARIABLE LIFE INVESTMENT FUNDS
INTERNATIONAL SUBACCOUNT: This subaccount seeks long-term growth of
capital principally from a diversified portfolio of foreign equity securities.
GROWTH & INCOME SUBACCOUNT: This subaccount seeks long-term growth of
capital, current income and growth of income from a portfolio consisting
primarily of common stocks and securities convertible into common stocks.
59
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) TRANSACTIONS WITH AFFILIATES
KILICO provides a death benefit payment upon the death of the Policy Owner
under the terms of the death benefit option selected by the Policy Owner as
further described in the Policy. KILICO assesses a monthly charge to the
subaccounts for the cost of providing this insurance protection to the Policy
Owner. These cost of insurance charges vary with the issue age, sex and rate
class of the Policy Owner, and are allocated among the subaccounts in the
proportion of each subaccount to the Separate Account value. Cost of insurance
charges totaled $111,539 and $1,454,886 for the Select and Power V variable
universal life products, respectively, for the year ended December 31, 1998.
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.
A state and local premium tax charge of 2.5% is deducted from each premium
payment under the Power V policy prior to allocation of the net premium. This
charge is to reimburse KILICO for the payment of state premium taxes. KILICO
expects to pay an average state premium tax rate of approximately 2.5% but the
actual premium tax attributable to a Policy may be more or less. Under Section
848 of the Internal Revenue Code (the "Code"), the receipt of premium income by
a life insurance company requires the deferral of a portion of the acquisition
cost over a maximum of a 120 month period. The effect of Section 848 for KILICO
is an acceleration of income recognition over a deferral of the associated
deductions for tax purposes; this is referred to as deferred acquisition cost
or, the "DAC tax". As compensation for this accelerated liability, a DAC tax
charge of 1.00% of each premium dollar is deducted from the premium by KILICO
before investment of a policy owner's funds into the Separate Account.
Policy loans are also provided for under the terms of the Policy. The
minimum amount of the loan is $500 and is limited to 90% of the Policy's
investment value, less applicable surrender charges. Interest is assessed
against a policy loan under the terms of the Policy. Policy loans are carried in
KILICO's general account.
Scudder Kemper Investments, Inc., an affiliated company, is the investment
manager of the Investors Fund Series portfolios and the Scudder Variable Life
Investment Funds.
American Skandia Investment Services, Incorporated is the investment
manager for the American Skandia Trust and Fidelity Investments is the
investment manager for the Fidelity VIP Funds. Neither of these entities are
affiliated with KILICO.
Investors Brokerage Services, Inc., a wholly-owned subsidiary of KILICO, is
the principal underwriter for the Separate Account.
(4) NET TRANSFERS (TO) FROM AFFILIATE OR SUBACCOUNTS
Net transfers (to) from affiliate or subaccounts include transfers of all
or part of the Policy Owner's interest to or from another eligible subaccount or
to the general account of KILICO.
(5) POLICY OWNERS' EQUITY
Policy Owners' equity at December 31, 1998, 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>
POWER V POLICIES
INVESTORS FUND SERIES:
Money Market Subaccount..................................... 578 $ 1.098 $ 636
Total Return Subaccount..................................... 27 3.811 103
High Yield Subaccount....................................... 106 1.421 151
Growth Subaccount........................................... 121 4.614 557
Government Securities Subaccount............................ 15 1.380 21
International Subaccount.................................... 95 1.846 176
Small Cap Growth Subaccount................................. 414 2.610 1,082
</TABLE>
60
<PAGE> 66
<TABLE>
<CAPTION>
NUMBER POLICY
OF UNIT OWNERS'
UNITS VALUE EQUITY
------ ----- -------
<S> <C> <C> <C>
AMERICAN SKANDIA TRUST:
Janus Small Cap Growth Subaccount........................... 24 $ 18.064 $ 426
Neuberger & Berman Mid-Cap Growth Subaccount................ 37 19.854 726
JanCap Growth Subaccount.................................... 67 39.864 2,653
Lord Abbett Growth & Income Subaccount...................... 27 23.455 633
T. Rowe Price International Equity Subaccount............... 24 13.673 333
T. Rowe Price Asset Allocation Subaccount................... 14 18.225 247
PIMCO Limited Maturity Bond Subaccount...................... 2 12.036 23
PIMCO Total Return Subaccount............................... 5 13.095 68
INVESCO Equity Income Subaccount............................ 21 19.165 399
FIDELITY VIP FUNDS:
Growth Opportunities Subaccount............................. 2 22.769 51
Index 500 Subaccount........................................ 1 140.563 81
Equity Income Subaccount.................................... 1 25.296 19
Contrafund Subaccount....................................... 3 24.321 80
High Income Subaccount...................................... 0 11.474 2
SCUDDER VARIABLE LIFE INVESTMENT FUNDS:
International Subaccount.................................... 1 14.439 8
Growth & Income Subaccount.................................. 1 11.275 6
------
TOTAL POWER V POLICY OWNERS' EQUITY.................... $8,481
======
</TABLE>
<TABLE>
<S> <C> <C> <C>
SELECT POLICIES
INVESTORS FUND SERIES:
Money Market Subaccount..................................... 193 $ 1.704 $ 330
Total Return Subaccount..................................... 1,260 2.839 3,576
High Yield Subaccount....................................... 481 2.459 1,181
Growth Subaccount........................................... 762 3.826 2,914
Government Securities Subaccount............................ 2,047 2.136 4,372
-------
TOTAL SELECT POLICY OWNERS' EQUITY..................... $12,373
=======
</TABLE>
61
<PAGE> 67
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1999 1998
------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(amortized cost: June 30, 1999, $3,366,661; December
31, 1998, $3,421,535).................................. $ 3,314,352 $ 3,482,820
Trading account securities at fair value (amortized cost:
June 30, 1999, $132,686; December 31, 1998, $99,095)... 129,623 101,781
Short-term investments.................................... 27,376 58,334
Joint venture mortgage loans.............................. 68,435 65,806
Third-party mortgage loans................................ 64,139 76,520
Other real estate-related investments..................... 24,774 22,049
Policy loans.............................................. 264,618 271,540
Equity securities......................................... 64,077 66,854
Other invested assets..................................... 24,512 23,645
----------- -----------
Total investments................................. 3,981,906 4,169,349
Cash........................................................ 22,671 13,486
Accrued investment income................................... 122,583 124,213
Goodwill.................................................... 210,279 216,651
Value of business acquired.................................. 124,132 118,850
Deferred insurance acquisition costs........................ 127,452 91,543
Federal income tax recoverable.............................. 32,075 --
Deferred income taxes....................................... 73,049 35,059
Reinsurance recoverable..................................... 326,552 344,837
Receivable on sales of securities........................... -- 3,500
Other assets and receivables................................ 18,674 23,029
Assets held in separate accounts............................ 8,083,141 7,099,204
----------- -----------
Total assets...................................... $13,122,514 $12,239,721
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Future policy benefits...................................... $ 3,823,646 $ 3,906,391
Benefits and funds payable.................................. 383,375 318,369
Other accounts payable and liabilities...................... 55,580 61,898
Liabilities related to separate accounts.................... 8,083,141 7,099,204
----------- -----------
Total liabilities................................. 12,345,742 11,385,862
----------- -----------
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.................................. 804,347 804,347
Accumulated other comprehensive income (loss)............... (47,806) 32,975
Retained earnings........................................... 17,731 14,037
----------- -----------
Total stockholder's equity........................ 776,772 853,859
----------- -----------
Total liabilities and stockholder's equity........ $13,122,514 $12,239,721
=========== ===========
</TABLE>
62
<PAGE> 68
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Net investment income.................................... $131,201 $139,018 $ 65,508 $ 68,467
Realized investment gains (losses)....................... (2,944) 17,527 (1,979) 15,673
Premium income........................................... 10,878 11,144 5,190 5,941
Separate account fees and charges........................ 36,706 34,380 14,060 16,388
Other income............................................. 5,969 5,960 3,385 3,534
-------- -------- -------- --------
Total revenue.................................. 181,810 208,029 86,164 110,003
-------- -------- -------- --------
BENEFITS AND EXPENSES
Interest credited to policyholders....................... 81,284 90,169 39,738 44,479
Claims and other policyholder benefits................... 9,048 25,700 5,875 13,460
Taxes, licenses and fees................................. 13,833 9,758 1,102 3,082
Commissions.............................................. 29,421 18,049 16,728 10,840
Operating expenses....................................... 22,661 22,253 11,895 12,157
Deferral of insurance acquisition costs.................. (33,100) (21,600) (18,775) (12,710)
Amortization of insurance acquisition costs.............. 3,608 1,644 795 727
Amortization of value of business acquired............... 8,269 11,548 3,309 7,121
Amortization of goodwill................................. 6,372 6,370 3,186 3,186
-------- -------- -------- --------
Total benefits and expenses.................... 141,396 163,891 63,853 82,342
-------- -------- -------- --------
Income before income tax expense......................... 40,414 44,138 22,311 27,661
Income tax expense (benefit)
Current................................................ 40,222 32,679 7,392 19,011
Deferred............................................... (23,502) (13,658) 1,820 (7,237)
-------- -------- -------- --------
Total income tax expense....................... 16,720 19,021 9,212 11,774
-------- -------- -------- --------
Net income..................................... $ 23,694 $ 25,117 $ 13,099 $ 15,887
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
63
<PAGE> 69
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME........................................... $ 23,694 $ 25,117 $ 13,099 $15,887
--------- -------- -------- -------
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Unrealized holding gains (losses) on investments
arising during period:
Unrealized holding gains (losses) on
investments................................... (114,094) 10,522 (73,736) 10,246
Adjustment to value of business acquired........ 12,953 (5,487) 8,702 (5,181)
Adjustment to deferred insurance acquisition
costs......................................... 6,708 (1,855) 4,569 (1,367)
--------- -------- -------- -------
Total unrealized holding gains (losses) on
investments arising during period........ (94,433) 3,180 (60,465) 3,698
--------- -------- -------- -------
Less reclassification adjustments for items
included in net income:
Adjustment for (gains) losses included in
realized investment gains (losses)............ 7,967 2,421 5,852 1,742
Adjustment for amortization of premium on fixed
maturities included in net investment
income........................................ (6,825) (8,851) (3,151) (4,175)
Adjustment for gains included in amortization of
value of business acquired.................... (598) (3,333) (287) (2,978)
Adjustment for (gains) losses included in
amortization of insurance acquisition costs... 292 (860) 314 (769)
--------- -------- -------- -------
Total reclassification adjustments for
items included in net income............. 836 (10,623) 2,728 (6,180)
--------- -------- -------- -------
Other comprehensive income (loss), before related
income tax expense (benefit)....................... (95,269) 13,803 (63,193) 9,878
Related income tax expense (benefit)................. (14,488) 4,831 (3,262) 3,457
--------- -------- -------- -------
Other comprehensive income (loss), net of
tax...................................... (80,781) 8,972 (59,931) 6,421
--------- -------- -------- -------
Comprehensive income (loss)................ $ (57,087) $ 34,089 $(46,832) $22,308
========= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
64
<PAGE> 70
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 23,694 $ 25,117
Reconcilement of net income to net cash provided(used):
Realized investment (gains) losses..................... 2,944 (17,527)
Net change in trading account securities............... (33,477) --
Interest credited and other charges.................... 79,879 88,303
Deferred insurance acquisition costs................... (29,492) (19,956)
Amortization of value of business acquired............. 8,269 11,548
Amortization of goodwill............................... 6,372 6,370
Amortization of discount and premium on investments......... 7,156 8,851
Deferred income taxes.................................. (23,503) (13,658)
Net change in current Federal income taxes............. (52,393) (97,823)
Benefits and premium taxes due related to separate
account bank-owned life insurance..................... 63,849 40,163
Other, net.................................................. (5,312) (21,795)
--------- ---------
Net cash flow provided by operating activities......... 47,986 9,593
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity...................... 210,552 258,237
Fixed maturities sold prior to maturity................ 695,091 505,188
Equity securities...................................... 1,645 460
Mortgage loans, policy loans and other invested
assets................................................ 47,079 54,780
Cost of investments purchased or loans originated:
Fixed maturities....................................... (860,285) (675,192)
Equity securities...................................... -- (48,585)
Mortgage loans, policy loans and other invested
assets................................................ (24,790) (26,951)
Short-term investments, net............................... 30,958 194,251
Net change in receivable and payable for securities
transactions........................................... 20,767 (677)
--------- ---------
Net cash provided by investing activities.............. 121,017 261,511
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits............................................... 159,011 72,626
Withdrawals............................................ (303,350) (356,177)
Dividends to parent....................................... (20,000) --
Other..................................................... 4,521 9,364
--------- ---------
Net cash used in financing activities.................. (159,818) (274,187)
--------- ---------
Net increase (decrease) in cash............................. 9,185 (3,083)
Cash at the beginning of period............................. 13,486 23,868
--------- ---------
Cash at the end of the period............................... $ 22,671 $ 20,785
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
65
<PAGE> 71
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Kemper Investors Life Insurance Company ("KILICO") is incorporated under the
insurance laws of the State of Illinois. KILICO is licensed in the District
of Columbia and all states, except New York. KILICO is a wholly-owned
subsidiary of Kemper Corporation ("Kemper"), a nonoperating holding company.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles.
2. In the opinion of management, all necessary adjustments consisting of normal
recurring accruals have been made for a fair presentation of the results of
KILICO for the periods included in these financial statements. These
financial statements should be read in conjunction with the financial
statements and related notes in the 1998 Annual Report on Form 10-K.
3. KILICO, along with its affiliates Federal Kemper Life Assurance Company,
Zurich Life Insurance Company of America, Fidelity Life Association, A Mutual
Legal Reserve Company and Zurich Direct, Inc. operate under the trade name
Zurich Kemper Life. Zurich Kemper Life is segregated by Strategic Business
Unit ("SBU"). The SBU concept has each SBU concentrate on a specific customer
market. The SBU is the focal point of Zurich Kemper Life, because it is at
the SBU level that Zurich Kemper Life can clearly identify customer segments
and then work to understand and satisfy the needs of each customer. The
contributions of Zurich Kemper Life's SBUs to consolidated revenues,
operating results and certain balance sheet data pertaining thereto, are
shown in the following tables on the basis of generally accepted accounting
principles.
Zurich Kemper Life is segregated into the Agency, Financial Institutions,
Retirement Solutions and Direct SBUs. The SBUs are not managed at the legal
entity level, but rather at the Zurich Kemper Life level. Zurich Kemper
Life's SBUs cross legal entity lines, as certain similar products are sold by
more than one legal entity.
66
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder of
Kemper Investors Life Insurance Company:
In our opinion, the accompanying consolidated balance sheets as of December
31, 1998 and 1997 and the related consolidated statements of operations,
comprehensive income, stockholder's equity and cash flows present fairly, in all
material respects, the financial position of Kemper Investors Life Insurance
Company and subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules listed in the accompanying index
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. The financial
statements of the Company for the period from January 4, 1996 to December 31,
1996 were audited by other independent accountants whose report, dated March 21,
1997, expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 12, 1999
67
<PAGE> 73
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder
Kemper Investors Life Insurance Company:
We have audited the accompanying consolidated statements of operations,
comprehensive income, stockholder's equity, and cash flows of Kemper Investors
Life Insurance Company and subsidiaries for the period from January 4, 1996 to
December 31, 1996. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedules as of
December 31, 1996 as listed in the accompanying index. These financial statement
schedules are incorporated by reference to a previously filed Form 10-K. These
consolidated financial statements and the financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedules based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the results of operations and the cash
flows of Kemper Investors Life Insurance Company and subsidiaries for the period
from January 4, 1996 to December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the aforementioned supplementary
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Chicago, Illinois
March 21, 1997
68
<PAGE> 74
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value
(amortized cost: December 31, 1998, $3,421,535; December
31, 1997, $3,644,075)..................................... $ 3,482,820 $ 3,668,643
Trading account securities at fair value (amortized cost:
December 31, 1998, $99,095)............................... 101,781 --
Short-term investments...................................... 58,334 236,057
Joint venture mortgage loans................................ 65,806 72,663
Third-party mortgage loans.................................. 76,520 102,974
Other real estate-related investments....................... 22,049 44,409
Policy loans................................................ 271,540 282,439
Equity securities........................................... 66,854 24,839
Other invested assets....................................... 23,645 20,820
----------- -----------
Total investments................................. 4,169,349 4,452,844
Cash........................................................ 13,486 23,868
Accrued investment income................................... 124,213 117,789
Goodwill.................................................... 216,651 229,393
Value of business acquired.................................. 118,850 138,482
Deferred insurance acquisition costs........................ 91,543 59,459
Deferred income taxes....................................... 35,059 39,993
Reinsurance recoverable..................................... 344,837 382,609
Receivable on sales of securities........................... 3,500 20,076
Other assets and receivables................................ 23,029 3,187
Assets held in separate accounts............................ 7,099,204 5,121,950
----------- -----------
Total assets...................................... $12,239,721 $10,589,650
=========== ===========
LIABILITIES
Future policy benefits...................................... $ 3,906,391 $ 4,239,480
Benefits and funds payable.................................. 318,369 150,524
Other accounts payable and liabilities...................... 61,898 212,133
Liabilities related to separate accounts.................... 7,099,204 5,121,950
----------- -----------
Total liabilities................................. 11,385,862 9,724,087
----------- -----------
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.................................. 804,347 806,538
Accumulated other comprehensive income...................... 32,975 12,637
Retained earnings........................................... 14,037 43,888
----------- -----------
Total stockholder's equity........................ 853,859 865,563
----------- -----------
Total liabilities and stockholder's equity........ $12,239,721 $10,589,650
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE> 75
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUE
Net investment income....................................... $273,512 $296,195 $299,688
Realized investment gains................................... 51,868 10,546 13,602
Premium income.............................................. 22,346 22,239 7,822
Separate account fees and charges........................... 61,982 85,413 25,309
Other income................................................ 10,031 11,087 9,786
-------- -------- --------
Total revenue..................................... 419,739 425,480 356,207
-------- -------- --------
BENEFITS AND EXPENSES
Interest credited to policyholders.......................... 176,906 199,782 223,094
Claims incurred and other policyholder benefits............. 28,029 28,372 14,255
Taxes, licenses and fees.................................... 30,292 52,608 2,173
Commissions................................................. 39,046 32,602 25,962
Operating expenses.......................................... 44,575 36,837 24,678
Deferral of insurance acquisition costs..................... (46,565) (38,177) (27,820)
Amortization of insurance acquisition costs................. 12,082 3,204 2,316
Amortization of value of business acquired.................. 17,677 24,948 21,530
Amortization of goodwill.................................... 12,744 15,295 10,195
-------- -------- --------
Total benefits and expenses....................... 314,786 355,471 296,383
-------- -------- --------
Income before income tax expense............................ 104,953 70,009 59,824
Income tax expense.......................................... 39,804 31,292 25,403
-------- -------- --------
Net income........................................ $ 65,149 $ 38,717 $ 34,421
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE> 76
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET INCOME.................................................. $ 65,149 $ 38,717 $ 34,421
-------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Unrealized holding gains (losses) on investments arising
during period:
Unrealized holdings gains (losses) on investments...... 25,372 60,802 (84,036)
Adjustment to value of business acquired............... (9,332) (28,562) 16,735
Adjustment to deferred insurance acquisition costs..... (2,862) (2,680) 1,307
-------- -------- --------
Total unrealized holding gains (losses) on
investments arising during period............... 13,178 29,560 (65,994)
-------- -------- --------
Less reclassification adjustments for items included in
net income:
Adjustment for (gains) losses included in realized
investment gains..................................... 6,794 (9,016) 3,963
Adjustment for amortization of premium on fixed
maturities included in net investment income......... (17,064) (17,866) (26,036)
Adjustment for (gains) losses included in amortization
of value of business acquired........................ (7,378) (2,353) (4,212)
Adjustment for (gains) losses included in amortization
of insurance acquisition costs....................... (463) (355) --
-------- -------- --------
Total reclassification adjustments for items
included in net income.......................... (18,111) (29,590) (26,285)
-------- -------- --------
Other comprehensive income (loss), before related income tax
expense (benefit)......................................... 31,289 59,150 (39,709)
Related income tax expense (benefit)........................ 10,952 (985) 7,789
-------- -------- --------
Other comprehensive income (loss), net of tax..... 20,337 60,135 (47,498)
-------- -------- --------
Comprehensive income (loss)....................... $ 85,486 $ 98,852 $(13,077)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
71
<PAGE> 77
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CAPITAL STOCK, beginning and end of period.................. $ 2,500 $ 2,500 $ 2,500
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL, beginning of period............. 806,538 761,538 743,104
Capital contributions from parent........................... 4,261 45,000 18,434
Adjustment to prior period capital contribution from
parent.................................................... (6,452) -- --
-------- -------- --------
End of period..................................... 804,347 806,538 761,538
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), beginning of
period.................................................... 12,637 (47,498) --
Other comprehensive income (loss), net of tax............... 20,338 60,135 (47,498)
-------- -------- --------
End of period..................................... 32,975 12,637 (47,498)
-------- -------- --------
RETAINED EARNINGS, beginning of period...................... 43,888 34,421 --
Net income.................................................. 65,149 38,717 34,421
Dividends to parent......................................... (95,000) (29,250) --
-------- -------- --------
End of period..................................... 14,037 43,888 34,421
-------- -------- --------
Total stockholder's equity........................ $853,859 $865,563 $750,961
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
72
<PAGE> 78
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 65,149 $ 38,717 $ 34,421
Reconcilement of net income to net cash provided:
Realized investment gains........................ (51,868) (10,546) (13,602)
Net change in trading account securities......... (6,727) -- --
Interest credited and other charges.............. 173,958 198,206 230,298
Deferred insurance acquisition costs............. (34,483) (34,973) (25,504)
Amortization of value of business acquired....... 17,677 24,948 21,530
Amortization of goodwill......................... 12,744 15,295 10,195
Amortization of discount and premium on
investments.................................... 17,353 17,866 25,743
Deferred income taxes............................ (12,469) (99,370) (897)
Net change in current federal income taxes....... (73,162) 97,386 108,806
Benefits and premium taxes due related to
separate account bank-owned life insurance..... 123,884 180,546 --
Other, net....................................... (41,477) 17,168 (22,283)
----------- --------- -----------
Net cash provided from operating
activities................................ 190,579 445,243 368,707
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity................ 491,699 229,208 264,383
Fixed maturities sold prior to maturity.......... 882,596 633,872 891,995
Equity securities................................ 107,598 -- --
Mortgage loans, policy loans and other invested
assets......................................... 180,316 131,866 168,727
Cost of investments purchased or loans originated:
Fixed maturities................................. (1,319,119) (606,028) (1,369,091)
Equity securities................................ (83,303) -- --
Mortgage loans, policy loans and other invested
assets......................................... (66,331) (76,350) (119,044)
Short-term investments, net......................... 177,723 (164,361) 300,819
Net change in receivable and payable for securities
transactions..................................... (677) 29,746 (31,667)
Net change in other assets.......................... -- 244 115
----------- --------- -----------
Net cash provided by investing activities... 370,502 178,197 106,237
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits......................................... 180,124 145,687 141,159
Withdrawals...................................... (649,400) (745,510) (700,084)
Capital contributions from parent................... 4,261 45,000 18,434
Dividends to parent................................. (95,000) (29,250) --
Other............................................... (11,448) (18,275) 42,512
----------- --------- -----------
Net cash used in financing activities....... (571,463) (602,348) (497,979)
----------- --------- -----------
Net increase (decrease) in cash........ (10,382) 21,092 (23,035)
CASH, beginning of period............................. 23,868 2,776 25,811
----------- --------- -----------
CASH, end of period................................... $ 13,486 $ 23,868 $ 2,776
=========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
73
<PAGE> 79
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"). Effective January 4, 1996, Zurich Insurance Company
("Zurich"), Insurance Partners, L.P. ("IP") and Insurance Partners Offshore
(Bermuda), L.P. (together with IP, "Insurance Partners") owned 80 percent and 20
percent, respectively, of Kemper and therefore the Company. On February 27,
1998, Zurich acquired Insurance Partner's remaining 20 percent interest for
cash. As a result of this transaction, Kemper and the Company became
wholly-owned subsidiaries of Zurich.
Effective September 7, 1998, the businesses of Zurich merged with the
financial services business of B.A.T. Industries forming Zurich Financial
Services ("ZFS"). ZFS is owned by Zurich Allied AG and Allied Zurich p.l.c.,
fifty-seven percent and forty-three percent, respectively. Zurich Allied AG,
representing the financial interest of the former Zurich Group, is listed on the
Swiss Market Index, replacing Zurich. Allied Zurich p.l.c., representing the
financial interest of B.A.T. Industries, is included in the FTSE-100 Share Index
in London.
The financial statements include the accounts of the Company on a
consolidated basis. All significant intercompany balances and transactions have
been eliminated. Certain reclassifications have been made to the 1997 and 1996
consolidated financial statements in order for them to conform to the 1998
presentation.
BASIS OF ACCOUNTING
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
consolidated financial statements of the Company as of and for the years ended
December 31, 1996, 1997 and 1998, have been prepared in conformity with
generally accepted accounting principles.
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.
GOODWILL
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,
1998, the Company believes that no such adjustment is necessary.
The Company began to amortize goodwill during 1996 on a straight-line basis
over twenty-five years. In December of 1997, the Company changed its
amortization period to twenty years in order to conform to Zurich's accounting
practices and policies. As a result of the change in amortization periods, the
Company recorded an increase in goodwill amortization expense of $5.1 million
during 1997.
74
<PAGE> 80
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, 2003 are as follows:
<TABLE>
<CAPTION>
PROJECTED
(IN THOUSANDS) BEGINNING ACCRETION OF ENDING
YEAR ENDED DECEMBER 31 BALANCE AMORTIZATION INTEREST BALANCE
- ---------------------------------------------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1996 (actual)....................................... $190,222 $(31,427) $9,897 $168,692
1997 (actual)....................................... 168,692 (34,906) 9,958 143,744
1998 (actual)....................................... 143,744 (26,807) 9,129 126,066
1999................................................ 126,066 (24,926) 7,741 108,881
2000................................................ 108,881 (22,649) 6,619 92,851
2001................................................ 92,851 (20,736) 5,577 77,692
2002................................................ 77,692 (17,096) 4,695 65,291
2003................................................ 65,291 (15,504) 3,948 53,735
</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 accumulated other comprehensive income, net of income
tax. As of December 31, 1998 and 1997, this adjustment decreased the value of
business acquired by $7.2 million and $5.3 million, respectively, and
accumulated other comprehensive income by approximately $4.7 million and $3.4
million, respectively.
LIFE INSURANCE REVENUE AND EXPENSES
Revenue for annuities, variable life insurance and interest-sensitive life
insurance products consists of investment income, and policy charges such as
mortality, expense and surrender charges and expense loads for premium taxes on
certain contracts. Expenses consist of benefits and interest credited to
contracts, policy maintenance costs and amortization of deferred insurance
acquisition costs.
Premiums for term life policies are reported as earned when due. Profits
for such policies are recognized over the duration of the insurance policies by
matching benefits and expenses to premium income.
DEFERRED INSURANCE ACQUISITION COSTS
The costs of acquiring new business, principally commission expense and
certain policy issuance and underwriting expenses, have been deferred to the
extent they are recoverable from estimated future gross profits on the related
contracts and policies. The deferred insurance acquisition costs for annuities,
separate account business and interest-sensitive life insurance products are
being amortized over the estimated contract life in relation to the present
value of estimated gross profits. Deferred insurance acquisition costs related
to such interest-sensitive products also reflect the estimated impact of
unrealized gains or losses on fixed maturities held as available for sale in the
investment portfolio, through a credit or charge to accumulated other
comprehensive income, 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.
75
<PAGE> 81
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 3.0 percent to 7.5 percent.
Future minimum guaranteed interest rates vary from 3.0 percent to 4.0 percent.
For contracts that have annuitized, interest rates used in determining the
present value of future payments range principally from 2.5 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 6.8
percent.
GUARANTY FUND ASSESSMENTS
The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during the years
1998 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.
INVESTED ASSETS AND RELATED INCOME
Investments in fixed maturities and equity securities are carried at fair
value. Short-term investments are carried at cost, which approximates fair
value.
The amortized cost of fixed maturities is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed and asset-backed securities, over the estimated life of the
security. Such amortization is included in net investment income. Amortization
of the discount or premium from mortgage-backed and asset-backed securities is
recognized using a level effective yield method which considers the estimated
timing and amount of prepayments of the underlying loans and is adjusted to
reflect differences which arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated. To the extent
that the estimated lives of such securities change as a result of changes in
prepayment rates, the adjustment is also included in net investment income. The
Company does not accrue interest income on fixed maturities deemed to be
impaired on an other-than-temporary basis, or on mortgage loans and other real
estate loans where the likelihood of collection of interest is doubtful.
Mortgage loans are carried at their unpaid balance, net of unamortized
discount and any applicable reserves or write-downs. Other real estate-related
investments, net of any applicable reserves and write-downs, include: (1) notes
receivable from real estate ventures; (2) investments in real estate ventures,
adjusted for the equity in the operating income or loss of such ventures, and
(3) real estate owned at December 31, 1997, carried at fair value. Real estate
reserves are established when declines in collateral values, estimated in light
of current economic conditions, indicate a likelihood of loss.
Investments in policy loans and other invested assets, consisting primarily
of venture capital investments and a leveraged lease, are carried primarily at
cost.
Realized gains or losses on sales of investments, determined on the basis
of identifiable cost on the disposition of the respective investment,
recognition of other-than-temporary declines in value and changes in real
estate-related reserves and write-downs are included in revenue. Net unrealized
gains or losses on revaluation of investments are credited or charged to
accumulated other comprehensive income. 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
76
<PAGE> 82
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
For the period January 1 through January 4, 1996, the Company's federal
income tax return was consolidated with Kemper and Kemper's other wholly-owned
life insurance subsidiary, Federal Kemper Life Assurance Company ("FKLA"). The
Boards of Directors of Kemper, KILICO and FKLA, adopted a written plan that
provided that federal income taxes would be paid to or recovered from Kemper on
the basis of each company's taxable income or loss as shown on its respective
federal income tax return. In the event of a federal income tax credit which is
greater than the amount recoverable from the other life insurance company or
from the Internal Revenue Service, the funds available would be apportioned
among the life companies entitled to a recovery on the basis of the relationship
of each company's tax credit to the total of all of the life insurance companies
in a deficit position. For the period January 5 through December 31, 1996, and
subsequent years, the Company has filed a separate federal income tax return.
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. The
Company paid federal income taxes of $126.0 million, $29.0 million and $28.1
million directly to the United States Treasury Department during 1998, 1997 and
1996 respectively.
(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 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, 1998
U.S. treasury securities and obligations of U.S.
government agencies and authorities................. $ 7,951 $ 7,879 $ 81 $ (9)
Obligations of states and political subdivisions,
special revenue and nonguaranteed................... 27,039 26,768 362 (91)
Debt securities issued by foreign governments......... 69,357 67,239 2,266 (148)
Corporate securities.................................. 1,908,850 1,866,372 46,664 (4,186)
Mortgage and asset-backed securities.................. 1,469,623 1,453,277 19,063 (2,717)
---------- ---------- ------- --------
Total fixed maturities......................... $3,482,820 $3,421,535 $68,436 $ (7,151)
========== ========== ======= ========
DECEMBER 31, 1997
U.S. treasury securities and obligations of U.S.
government agencies and authorities................. $ 6,258 $ 6,298 $ 4 $ (44)
Obligations of states and political subdivisions,
special revenue and nonguaranteed................... 29,330 29,308 160 (138)
Debt securities issued by foreign governments......... 92,563 92,722 188 (347)
Corporate securities.................................. 1,861,655 1,846,588 24,733 (9,666)
Mortgage and asset-backed securities.................. 1,678,837 1,669,159 10,035 (357)
---------- ---------- ------- --------
Total fixed maturities......................... $3,668,643 $3,644,075 $35,120 $(10,552)
========== ========== ======= ========
</TABLE>
77
<PAGE> 83
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
The carrying value and amortized cost of fixed maturity investments, by
contractual maturity at December 31, 1998, are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties and
because mortgage-backed and asset-backed securities provide for periodic
payments throughout their life.
<TABLE>
<CAPTION>
CARRYING AMORTIZED
VALUE COST
(in thousands) -------- ---------
<S> <C> <C>
One year or less............................................ $ 44,816 $ 44,745
Over one year through five years............................ 814,646 802,147
Over five years through ten years........................... 891,767 866,613
Over ten years.............................................. 261,968 254,753
Securities not due at a single maturity date, primarily
mortgage and asset-backed securities(1)................... 1,469,623 1,453,277
---------- ----------
Total fixed maturities............................... $3,482,820 $3,421,535
========== ==========
</TABLE>
- ---------------
(1) Weighted average maturity of 4.0 years.
Proceeds from sales of investments in fixed maturities prior to maturity
were $882.6 million, $633.9 million and $892.0 million during 1998, 1997 and
1996, respectively. Gross gains of $10.1 million, $3.1 million and $9.9 million
and gross losses of $8.0 million, $13.7 million and $16.2 million were realized
on sales and write-downs of fixed maturities in 1998, 1997 and 1996,
respectively.
At December 31, 1998, the Company had 12 separate asset-backed securities
included in fixed maturity investments from trusts formed to collateralize
assets underwritten by Green Tree Financial Corporation, which in aggregate
amounted to $97.7 million. No other individual investments exceeded ten percent
of stockholder's equity at December 31, 1998.
At December 31, 1998, securities carried at approximately $6.4 million were
on deposit with governmental agencies as required by law.
Upon default or indication of potential default by an issuer of fixed
maturity securities, the 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 $164.4 million real estate portfolio at December 31, 1998
consists of joint venture and third-party mortgage loans and other real
estate-related investments. At December 31, 1998 and 1997, total impaired real
estate-related loans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
(in millions) ----------- -----------
<S> <C> <C>
Impaired loans without reserves--gross...................... $83.9 $39.3
Impaired loans with reserves--gross......................... 21.5 2.2
----- -----
Total gross impaired loans........................... 105.4 41.5
Reserves related to impaired loans.......................... (18.5) (2.1)
----- -----
Net impaired loans................................... $86.9 $39.4
===== =====
</TABLE>
78
<PAGE> 84
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. The Company had an average balance of
$54.6 million and $45.2 million in impaired loans for 1998 and 1997,
respectively. Cash payments received on impaired loans are generally applied to
reduce the outstanding loan balance.
At December 31, 1998 and 1997, loans on nonaccrual status, before reserves
and write-downs, amounted to $37.4 million and $47.4 million, respectively. The
Company's nonaccrual loans are generally included in impaired loans.
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities.................. $232,707 $250,170 $250,683
Dividends on equity securities.............................. 2,143 2,123 646
Income from short-term investments.......................... 5,391 4,128 9,130
Income from mortgage loans.................................. 14,964 16,283 20,257
Income from policy loans.................................... 21,096 20,549 20,700
Income from other real estate-related investments........... 352 6,631 4,917
Income from other loans and investments..................... 2,223 2,045 2,480
-------- -------- --------
Total investment income.............................. 278,876 301,929 308,813
Investment expense.......................................... (5,364) (5,734) (9,125)
-------- -------- --------
Net investment income................................ $273,512 $296,195 $299,688
======== ======== ========
</TABLE>
Net realized investment gains (losses) for the years ended December 31,
1998, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
REALIZED GAINS (LOSSES)
-------------------------------------
1998 1997 1996
(in thousands) -------- -------- -------
<S> <C> <C> <C>
Real estate-related......................................... $ 41,362 $ 19,758 $17,462
Fixed maturities............................................ 2,158 (10,656) (6,344)
Trading account securities--gross gains on transfer......... 3,254 -- --
Trading account securities--gross losses on transfer........ (417) -- --
Trading account securities--holding losses.................. (151) -- --
Equity securities........................................... 5,496 914 --
Other....................................................... 166 530 2,484
-------- -------- -------
Realized investment gains before income tax expense....... 51,868 10,546 13,602
Income tax expense.......................................... (18,154) (3,691) (4,761)
-------- -------- -------
Net realized investment gains............................. $ 33,714 $ 6,855 $ 8,841
======== ======== =======
</TABLE>
79
<PAGE> 85
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
Unrealized gains (losses) are computed below as follows: fixed
maturities--the difference between fair value and amortized cost, adjusted for
other-than-temporary declines in value; equity and other securities--the
difference between fair value and cost. The change in net unrealized investment
gains (losses) by class of investment for the years ended December 31, 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED GAINS (LOSSES)
-----------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1996
(in thousands) ------------ ------------ -----------
<S> <C> <C> <C>
Fixed maturities............................................ $ 36,717 $ 87,787 $(63,219)
Equity and other securities................................. (1,074) (103) 1,256
Adjustment to deferred insurance acquisition costs.......... (2,399) (2,325) 1,307
Adjustment to value of business acquired.................... (1,954) (26,209) 20,947
-------- -------- --------
Unrealized gain (loss) before income tax expense
(benefit).............................................. 31,290 59,150 (39,709)
Income tax expense (benefit)................................ 10,952 (985) 7,789
-------- -------- --------
Net unrealized gain (loss) on investments............ $ 20,338 $ 60,135 $(47,498)
======== ======== ========
</TABLE>
(4) UNCONSOLIDATED INVESTEES
At December 31, 1998 and 1997 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, 1998 and 1997, the Company's net equity investment in
unconsolidated investees amounted to $1.2 million and $19.3 million,
respectively. The Company's share of net income related to such unconsolidated
investees amounted to $241 thousand, $835 thousand and $223 thousand in 1998,
1997 and 1996, respectively.
(5) CONCENTRATION OF CREDIT RISK
The Company generally strives to maintain a diversified invested asset
portfolio; however, certain concentrations of credit risk exist in mortgage and
asset-backed securities and real estate.
Approximately 28.0 percent of the Company's investment-grade fixed
maturities at December 31, 1998 were mortgage-backed securities, down from 35.1
percent at December 31, 1997, due to sales and paydowns during 1998. These
investments consist primarily of marketable mortgage pass-through securities
issued by the Government National Mortgage Association, the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation and other
investment-grade securities collateralized by mortgage pass-through securities
issued by these entities. The Company has not made any investments in
interest-only or other similarly volatile tranches of mortgage-backed
securities. The Company's mortgage-backed investments are generally AAA credit
quality.
Approximately 15.4 percent and 10.8 percent of the Company's
investment-grade fixed maturities at December 31, 1998 and 1997, respectively,
consisted of corporate asset-backed securities. The majority of the Company's
investments in asset-backed securities were backed by home equity loans (21.9%),
auto loans (8.2%), manufactured housing loans (14.8%), equipment loans (5.2%),
and commercial mortgage backed securities (22.1%).
The Company's real estate portfolio is distributed by geographic location
and property type. The geographic distribution of a majority of the real estate
portfolio as of December 31, 1998 was as follows: California (31.5%), Hawaii
(16.2%), Washington (9.9%) and Colorado (9.4%). The property type distribution
of a majority of the real estate portfolio as of December 31, 1998 was as
follows: hotels (39.9%), land (30.9%) and residential (15.5%).
80
<PAGE> 86
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT RISK (CONTINUED)
Undeveloped land represented approximately 30.9 percent of the Company's
real estate portfolio at December 31, 1998. 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. There can be no assurance that such permits will be obtained as
planned or at all, nor that such expenditures will occur as scheduled, nor that
Kemper's and the Company's plans with respect to such projects may not change
substantially.
Approximately half of the Company's real estate mortgage loans are on
properties or projects where the Company, Kemper, or their affiliates have taken
ownership positions in joint ventures with a small number of partners.
At December 31, 1998, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt"), a third-party real estate
developer, have ownership interests constituted approximately $64.5 million, or
39.3 percent, of the Company's real estate portfolio. The Nesbitt ventures
consist of nine hotel properties and two office buildings. At December 31, 1998,
the Company did not have any Nesbitt-related off-balance-sheet legal funding
commitments outstanding.
At December 31, 1998, loans to a master limited partnership (the "MLP")
between subsidiaries of Kemper and subsidiaries of Lumbermens Mutual Casualty
Company ("Lumbermens"), a former affiliate, constituted approximately $51.6
million, or 31.4 percent, of the Company's real estate portfolio. Kemper's
interest is 75 percent at December 31, 1998. At December 31, 1998, MLP-related
commitments accounted for approximately $6.1 million of the Company's
off-balance-sheet legal commitments.
The remaining significant real estate-related investments amounted to $27.3
million at December 31, 1998 and consisted of various zoned and unzoned
residential and commercial lots located in Hawaii. Due to certain negative
zoning restriction developments in January 1997 and a continuing economic slump
in Hawaii, the Company has placed these real estate-related investments on
nonaccrual status as of December 31, 1996. The Company is currently pursuing the
zoning of all remaining unzoned properties, as well as pursuing steps to sell
all remaining zoned properties. However, due to the state of Hawaii's economy,
which has lagged behind the economic expansion of most of the rest of the United
States, the Company anticipates that it could be several additional years until
the Company completely disposes of all of its investments in Hawaii.
At December 31, 1998, the Company no longer had any outstanding loans or
investments in projects with the Prime Group, Inc. or its affiliates, as all
such investments have been sold. However, the Company continues to have Prime
Group-related commitments, which accounted for $25.7 million of the Company's
off-balance-sheet legal commitments at December 31, 1998.
(6) INCOME TAXES
Income tax expense (benefit) was as follows for the years ended December
31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Current................................................... $ 52,274 $130,662 $ 26,300
Deferred.................................................. (12,470) (99,370) (897)
-------- -------- --------
Total........................................... $ 39,804 $ 31,292 $ 25,403
======== ======== ========
</TABLE>
81
<PAGE> 87
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
Additionally, the deferred income tax expense (benefit) related to items
included in other comprehensive income was as follows for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) ------- ------- ------
<S> <C> <C> <C>
Unrealized gains and losses on investments.................. $12,475 $ 9,002 $ --
Value of business acquired.................................. (684) (9,173) 7,331
Deferred insurance acquisition costs........................ (840) (814) 457
------- ------- ------
Total............................................. $10,952 $ (985) $7,789
======= ======= ======
</TABLE>
The actual income tax expense for 1998, 1997 and 1996 differed from the
"expected" tax expense for those years as displayed below. "Expected" tax
expense was computed by applying the U.S. federal corporate tax rate of 35
percent in 1998, 1997, and 1996 to income before income tax expense.
<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) ------- ------- -------
<S> <C> <C> <C>
Computed expected tax expense............................... $36,734 $24,503 $20,938
Difference between "expected" and actual tax expense:
State taxes............................................... (434) 1,801 913
Amortization of goodwill.................................. 4,460 5,353 3,568
Dividend received deduction............................... (540) -- --
Foreign tax credit........................................ (250) (278) --
Other, net................................................ (166) (87) (16)
------- ------- -------
Total actual tax expense.......................... $39,804 $31,292 $25,403
======= ======= =======
</TABLE>
Deferred tax assets and liabilities are generally determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company only records deferred tax
assets if future realization of the tax benefit is more likely than not, with a
valuation allowance recorded for the portion that is not likely to be realized.
The valuation allowance is subject to future adjustments based upon, among other
items, the Company's estimates of future operating earnings and capital gains.
The Company has established a valuation allowance to reduce the deferred
federal tax asset related to real estate and other investments to the amount
that, based upon available evidence, is, in management's judgment, more likely
than not, to be realized. Any reversals of the valuation allowance are
contingent upon the recognition of future capital gains in the Company's federal
income tax return or a change in circumstances which causes the recognition of
the benefits to become more likely than not. The change in the valuation
allowance is related solely to the change in the net deferred federal tax asset
or liability from unrealized gains or losses on investments.
82
<PAGE> 88
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 assets or liabilities were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1996
(in thousands) ----------- ------------ ------------
<S> <C> <C> <C>
Deferred federal tax assets:
Deferred insurance acquisition costs..................... $ 86,332 $ 75,522 $ 4,520
Unrealized losses on investments......................... -- -- 16,624
Life policy reserves..................................... 27,240 43,337 46,452
Unearned revenue......................................... 42,598 37,243 --
Real estate-related...................................... 13,944 13,400 20,642
Other investment-related................................. 5,770 3,298 5,409
Other.................................................... 4,923 4,371 3,639
-------- -------- --------
Total deferred federal tax assets..................... 180,807 177,171 97,286
Valuation allowance...................................... (15,201) (15,201) (31,825)
-------- -------- --------
Total deferred federal tax assets after valuation
allowance........................................... 165,606 161,970 65,461
-------- -------- --------
Deferred federal tax liabilities:
Value of business acquired............................... 41,598 48,469 66,373
Deferred insurance acquisition costs..................... 32,040 20,811 9,384
Depreciation and amortization............................ 19,111 20,201 15,473
Other investment-related................................. 14,337 18,774 28,855
Unrealized gains on investments.......................... 21,477 9,002 --
Other.................................................... 1,984 4,720 5,738
-------- -------- --------
Total deferred federal tax liabilities................ 130,547 121,977 125,823
-------- -------- --------
Net deferred federal tax assets (liabilities).............. $ 35,059 $ 39,993 $(60,362)
======== ======== ========
</TABLE>
The net deferred tax assets relate primarily to unearned revenue and the
tax on deferred insurance acquisition costs ("DAC Tax") associated with $1.5
billion and $2.7 billion of new and renewal sales in 1998 and 1997, respectively
from a non-registered individual and group variable bank-owned life insurance
contract ("BOLI"). Management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income over the
ten year amortization period of the unearned revenue and DAC Tax to realize such
deferred tax assets.
The tax returns through the year 1993 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 1994 through 1996 are
currently under examination by the IRS.
(7) RELATED-PARTY TRANSACTIONS
The Company received capital contributions from Kemper of $4.3 million,
$45.0 million and $18.4 million during 1998, 1997 and 1996, respectively. The
Company paid cash dividends of $95.0 million and $29.3 million to Kemper during
1998 and 1997, respectively. The Company did not pay any cash dividends to
Kemper during 1996.
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, 1998 and 1997, joint venture mortgage loans
totaled $65.8 million and $72.7 million, respectively, and during 1998, 1997 and
1996, the Company earned interest income on these joint venture loans of $6.8
million, $7.5 million and $9.5 million, respectively.
All of the Company's personnel are employees of Federal Kemper Life
Assurance Company ("FKLA"), an affiliated company. The Company is allocated
expenses for the utilization of FKLA employees and facilities, the investment
management services of Scudder Kemper Investments, Inc. ("SKI") an affiliated
company, and the information systems of Kemper Service Company ("KSvC"), an SKI
subsidiary, based on the Company's share of administrative, legal, marketing,
investment management, information systems and operation and support services.
During 1998, 1997 and 1996, expenses allocated to the Company from SKI and KSvC
amounted to $43 thousand,
83
<PAGE> 89
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) RELATED-PARTY TRANSACTIONS (CONTINUED)
$114 thousand and $1.7 million, respectively. The Company also paid to SKI
investment management fees of $3.1 million, $3.5 million and $3.6 million during
1998, 1997 and 1996, respectively. In addition, expenses allocated to the
Company from FKLA during 1998, 1997 and 1996 amounted to $35.5 million, $30.0
million and $10.5 million, respectively. The Company also paid to Kemper real
estate subsidiaries $1.5 million, $2.2 million and $1.8 million in 1998, 1997
and 1996, respectively, related to the management of the Company's real estate
portfolio.
(8) REINSURANCE
In the ordinary course of business, the Company enters into reinsurance
agreements to diversify risk and limit its overall financial exposure to certain
blocks of fixed-rate annuities and to individual death claims. The Company
generally cedes 100 percent of the related annuity liabilities under the terms
of the reinsurance agreements. Although these reinsurance agreements
contractually obligate the reinsurers to reimburse the Company, they do not
discharge the Company from its primary liabilities and obligations to
policyholders. As such, these amounts paid or deemed to have been paid are
recorded on the Company's consolidated balance sheet as reinsurance recoverables
and ceded future policy benefits.
As of December 31, 1998 and 1997, the reinsurance recoverable related to
fixed-rate annuity liabilities ceded to an affiliate amounted to $344.8 million
and $382.6 million, respectively.
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 ("GAAP"), of
approximately $18.4 million, was deemed to be a capital contribution from Kemper
and was recorded as additional paid-in-capital during 1996. As of the date of
this transaction, no deferred tax impact was recorded on the difference between
the statutory and GAAP reserves. This deferred tax impact of $6.5 million was
recorded in 1998 as a reduction to the original capital contribution. Premiums
assumed during 1998 under the terms of the treaty amounted to $21.6 million and
the face amount which remained outstanding at December 31, 1998 amounted to
$11.7 billion.
Effective January 1, 1997, the Company ceded 90 percent of all new term
life insurance premiums to outside reinsurers. Term life reserves ceded to
outside reinsurers on the Company's direct business amounted to approximately
$293 thousand and $139 thousand as of December 31, 1998 and 1997, respectively.
During December 1997, the Company entered into a funds withheld reinsurance
agreement with a Zurich affiliated company, ZC Life Reinsurance Limited ("ZC
Life"), formerly EPICENTRE Reinsurance (Bermuda) Limited. Under the terms of
this agreement, the Company ceded, on a yearly renewable term basis, ninety
percent of the net amount at risk (death benefit payable to the insured less the
insured's separate account cash surrender value) related to the new BOLI product
developed in 1997, which is held in the Company's separate accounts. During
1997, the Company issued $59.3 billion (face amount) of new BOLI business and
ceded $51.1 billion (face amount) to ZC Life under the terms of the treaty.
During 1997, the Company also ceded $24.3 million of separate account fees (cost
of insurance charges) to ZC Life. The Company has also withheld approximately
$23.4 million of such funds due to ZC Life under the terms of the reinsurance
agreement as a component of benefits and funds payable in the accompanying
consolidated balance sheet as of December 31, 1997.
During 1998, the Company modified the reinsurance agreement to increase the
reinsurance from ninety percent to one hundred percent. During 1998, the Company
issued $6.9 billion (face amount) of new BOLI business and ceded $11.1 billion
(face amount) to ZC Life under the terms of the modified treaty. During 1998,
the Company also ceded $175.5 million of separate account fees (cost of
insurance charges) to ZC Life. The Company has also withheld approximately
$170.9 million of such funds due to ZC Life under the terms of the reinsurance
agreement as a component of benefits and funds payable in the accompanying
consolidated balance sheet as of December 31, 1998.
KILICO has a large and growing funds withheld account ("FWA") supporting
reserve credits on reinsurance ceded on the BOLI product. Amendments to the
reinsurance contracts during 1998 changed the methodology used to determine
increases to the FWA. A substantial portion of the FWA is now marked-to-market
based upon the Total Return of the Governmental Bond Division of the KILICO
Variable Series I Separate Account.
84
<PAGE> 90
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) REINSURANCE (CONTINUED)
During 1998, the Company recorded a $2.5 million increase to the FWA related to
this mark-to-market. To properly match revenue and expenses, the Company has
placed assets supporting the FWA in a segmented portion of its General Account.
This portfolio is classified as "trading" under Statement of Financial
Accounting Standards No. 115 ("FAS 115"). FAS 115 mandates that assets held in a
trading account be valued at fair value, with changes in fair value flowing
through the income statement as realized capital gains and losses. During 1998,
the Company recorded a realized capital gain of $2.8 million upon transfer of
these assets from "available for sale" to the trading portfolio as required by
FAS 115. In addition, the Company recorded realized capital losses of $151
thousand related to the changes in fair value of this portfolio during 1998. The
fair value of this portfolio was $101.8 million at December 31, 1998, and the
amortized cost was $99.1 million. The Company periodically purchases assets into
this segmented portfolio to support changes in the FWA.
(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 $2.0 million and $1.9 million at December 31, 1998 and 1997,
respectively.
The discount rate used in determining the allocated postretirement benefit
obligation was 7.0 percent and 7.25 percent for 1998 and 1997, respectively. The
assumed health care trend rate used was based on projected experience for 1998,
8.0 percent for 1999, gradually declining to 6.4 percent by the year 2003 and
gradually declining 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, 1998 and 1997 by $312 thousand and $242 thousand,
respectively.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various legal actions for which it establishes
liabilities where appropriate. In the opinion of the Company's management, based
upon the advice of legal counsel, the resolution of such litigation is not
expected to have a material adverse effect on the consolidated financial
statements.
Although neither the Company nor 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.
(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK
At December 31, 1998, the Company had future legal loan commitments and
stand-by financing agreements totaling $64.4 million to support the financing
needs of various real estate investments. To the extent these
85
<PAGE> 91
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) FINANCIAL INSTRUMENTS--OFF BALANCE-SHEET (CONTINUED)
arrangements are called upon, amounts loaned would be collateralized 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. These commitments are included in the
Company's analysis of real estate-related reserves and write-downs. The fair
values of loan commitments and standby financing agreements are estimated in
conjunction with and using the same methodology as the fair value estimates of
mortgage loans and other real estate-related investments.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at specific points in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. A significant portion of the Company's financial instruments are
carried at fair value. Fair value estimates for financial instruments not
carried at fair value are generally determined using discounted cash flow models
and assumptions that are based on judgments regarding current and future
economic conditions and the risk characteristics of the investments. Although
fair value estimates are calculated using assumptions that management believes
are appropriate, changes in assumptions could significantly affect the estimates
and such estimates should be used with care.
Fair value estimates are determined for existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and certain liabilities that are not
considered financial instruments. Accordingly, the aggregate fair value
estimates presented do not represent the underlying value of the Company. For
example, the Company's subsidiaries are not considered financial instruments,
and their value has not been incorporated into the fair value estimates. In
addition, tax ramifications related to the realization of unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
FIXED MATURITIES AND EQUITY SECURITIES: Fair values were determined by
using market quotations, or independent pricing services that use prices
provided by market makers or estimates of fair values obtained from yield data
relating to instruments or securities with similar characteristics, or fair
value as determined in good faith by the Company's portfolio manager, SKI.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate fair values.
MORTGAGE LOANS AND OTHER REAL ESTATE-RELATED INVESTMENTS: Fair values were
estimated based upon the investments observable market price, net of estimated
costs to sell. The estimates of fair value should be used with care given the
inherent difficulty in 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 sheets for these instruments approximate fair values. The
fair values of policy loans were estimated by discounting the expected future
cash flows using an interest rate charged on policy loans for similar policies
currently being issued.
LIFE POLICY BENEFITS: Fair values of the life policy benefits regarding
investment contracts (primarily deferred annuities) and universal life contracts
were estimated by discounting gross benefit payments, net of contractual
premiums, using the average crediting rate currently being offered in the
marketplace for similar contracts with maturities consistent with those
remaining for the contracts being valued. The Company had projected its future
average crediting rate in 1998 and 1997 to be 4.75 percent and 5.25 percent,
respectively, while the assumed average market crediting rate was 5.0 percent
and 6.0 percent in 1998 and 1997, respectively.
86
<PAGE> 92
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities.............................. $3,482,820 $3,482,820 $3,668,643 $3,668,643
Trading account securities.................... 101,781 101,781 -- --
Cash and short-term investments............... 71,820 71,820 259,925 259,925
Mortgage loans and other real estate-related
assets..................................... 164,375 164,375 220,046 220,046
Policy loans.................................. 271,540 271,540 282,439 282,439
Equity securities............................. 66,854 66,854 24,839 24,839
Other invested assets......................... 23,645 27,620 20,820 24,404
Financial instruments recorded as liabilities:
Life policy benefits, excluding term life
reserves................................... 3,551,050 3,657,510 3,846,023 4,050,852
Funds withheld account........................ 170,920 170,920 23,420 23,420
</TABLE>
(13) STOCKHOLDER'S EQUITY--RETAINED EARNINGS
The maximum amount of dividends which can be paid by insurance companies
domiciled in the State of Illinois to shareholders without prior approval of
regulatory authorities is restricted. The maximum amount of dividends which can
be paid by the Company without prior approval in 1999 is $64.9 million. The
Company paid cash dividends of $95.0 million and $29.3 million to Kemper during
1998 and 1997, respectively. The Company paid no cash dividends in 1996.
The Company's net income and capital and surplus as determined in
accordance with statutory accounting principles were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Net income.................................................. $ 64,871 $ 58,372 $ 37,287
======== ======== ========
Statutory capital and surplus............................... $455,213 $476,924 $411,837
======== ======== ========
</TABLE>
87
<PAGE> 93
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) UNAUDITED INTERIM FINANCIAL INFORMATION
The following table sets forth the Company's unaudited quarterly financial
information:
(in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1998 OPERATING SUMMARY
Net investment income.............................. $70,551 $68,467 $ 66,892 $ 67,602
Realized investment gains.......................... 1,854 15,673 8,951 25,390
Premium income..................................... 5,203 5,941 5,278 5,924
Separate account fees and other income............. 20,418 19,922 17,631 14,042
------- ------- -------- --------
Total revenue.............................. 98,026 110,003 98,752 112,958
------- ------- -------- --------
Interest credited and benefits to policyholders.... 57,930 57,939 54,251 34,815
Commissions, taxes, licenses and fees.............. 13,885 13,922 12,282 29,251
Operating expenses................................. 10,094 12,157 10,528 11,794
Net deferral of insurance acquisition costs........ (7,973) (11,983) (9,669) (4,858)
Amortization of value of business acquired......... 4,427 7,121 6,359 (230)
Amortization of goodwill........................... 3,186 3,186 3,186 3,186
------- ------- -------- --------
Total benefits and expenses................ 81,549 82,342 76,937 73,958
------- ------- -------- --------
Income before income tax expense................... 16,477 27,661 21,815 39,000
Income tax expense................................. 7,247 11,774 8,828 11,955
------- ------- -------- --------
Net income................................. $ 9,230 $15,887 $ 12,987 $ 27,045
======= ======= ======== ========
1997 OPERATING SUMMARY
Net investment income.............................. $74,249 $74,050 $ 72,950 $ 74,946
Realized investment gains (losses)................. 889 8,161 (3,032) 4,528
Premium income..................................... 5,008 4,121 3,938 9,172
Separate account fees and other income............. 8,909 12,961 12,215 62,415(1)
------- ------- -------- --------
Total revenue.............................. 89,055 99,293 86,071 151,061
------- ------- -------- --------
Interest credited and benefits to policyholders.... 57,859 56,643 57,965 55,687
Commissions, taxes, licenses and fees.............. 8,023 9,475 8,389 59,323(1)
Operating expenses................................. 7,175 8,780 10,014 10,868
Net deferral of insurance acquisition costs........ (7,216) (6,877) (7,471) (13,409)
Amortization of value of business acquired......... 4,821 6,991 6,743 6,393
Amortization of goodwill........................... 2,547 2,552 2,549 7,647(2)
------- ------- -------- --------
Total benefits and expenses................ 73,209 77,564 78,189 126,509
------- ------- -------- --------
Income before income tax expense................... 15,846 21,729 7,882 24,552
Income tax expense................................. 5,678 8,723 3,778 13,113
------- ------- -------- --------
Net income................................. $10,168 $13,006 $ 4,104 $ 11,439
======= ======= ======== ========
</TABLE>
- ---------------
Notes:
(1) Reflects premium tax expense loads received and premium taxes incurred of
$49.1 million related to new BOLI sales of $2.6 billion in the fourth
quarter of 1997.
(2) Reflects the effect of the change in amortization of goodwill from 25 to 20
years.
(15) OPERATING SEGMENTS AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
how to report information about operating segments. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company adopted SFAS No. 131 as of December 31, 1998
and the impact of implementation did not affect the Company's consolidated
financial position, results of operations or cash flows. In the initial year of
adoption, SFAS No. 131 requires comparative information for earlier years to be
restated, unless impracticable to do so.
88
<PAGE> 94
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) OPERATING SEGMENTS AND RELATED INFORMATION (CONTINUED)
In connection with the acquisition by Zurich, the Company, FKLA, ZLICA, and
Fidelity Life Association ("FLA"), a Mutual Legal Reserve Company, owned by its
policyholders, began to operate under the trade name Zurich Kemper Life. For
purposes of this operating segment disclosure, Zurich Kemper Life will also
include the operations of Zurich Direct, Inc., an affiliated direct marketing
life insurance agency and excludes FLA, as it is owned by its policyholders.
Zurich Kemper Life is segregated by Strategic Business Unit ("SBU"). The
SBU concept employed by ZFS has each SBU concentrate on a specific customer
market. The SBU is the focal point of Zurich Kemper Life, because it is at the
SBU level that Zurich Kemper Life can clearly identify customer segments and
then work to understand and satisfy the needs of each customer. The
contributions of Zurich Kemper Life's SBU's to consolidated revenues, operating
results and certain balance sheet data pertaining thereto, are shown in the
following tables on the basis of generally accepted accounting principles.
Zurich Kemper Life's SBU's were formed in 1996, subsequent to the acquisition by
Zurich, however, financial information was not produced by SBU until 1997.
Therefore, Zurich Kemper Life has not provided segment information for 1996, as
it would be impracticable to do so.
Zurich Kemper Life is segregated into the Agency, Financial, Group
Retirement and Direct SBU's. The SBU's are not managed at the legal entity
level, but rather at the Zurich Kemper Life level. Zurich Kemper Life's SBU's
cross legal entity lines, as certain similar products are sold by more than one
legal entity. The vast majority of the Company's business is derived from the
Financial and Group Retirement SBU's.
Each SBU's revenue is derived from geographically dispersed areas as Zurich
Kemper Life is licensed in the District of Columbia and all states except New
York. During 1998 and 1997, Zurich Kemper Life did not derive net revenue from
one customer that exceeded 10 percent of the total revenue of Zurich Kemper
Life.
The principal products and markets of Zurich Kemper Life's SBU's are as
follows:
AGENCY: The Agency SBU develops low cost term and universal life insurance,
as well as fixed annuities, to market through independent agencies and national
marketing organizations.
FINANCIAL: The Financial SBU focuses on a wide range of products that
provide for the accumulation, distribution and transfer of wealth and primarily
includes variable and fixed annuities, variable universal life and bank-owned
life insurance. These products are distributed to consumers through financial
intermediaries such as banks, brokerage firms and independent financial
planners.
GROUP RETIREMENT: The Group Retirement SBU has a sharp focus on its target
customer. This SBU markets variable annuities to K-12 schoolteachers,
administrators, and healthcare workers, along with college professors and
certain employees of selected non-profit organizations. This target market is
eligible for what the IRS designates as retirement-oriented savings or
investment plans that qualify for special tax treatment.
DIRECT: The Direct SBU is a direct marketer of basic, low-cost term life
insurance through various marketing media.
89
<PAGE> 95
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information for ZKL's SBU's are as follows:
As of and for the period ending December 31, 1998:
(in thousands)
<TABLE>
<CAPTION>
GROUP
AGENCY FINANCIAL RETIREMENT DIRECT TOTAL
INCOME STATEMENT ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Premium income........................ $ 160,067 $ 56 $ -- $ 5,583 $ 165,706
Net investment income................. 141,171 180,721 100,695 271 422,858
Realized investment gains............. 20,335 33,691 15,659 30 69,715
Fees and other income................. 80,831 40,421 31,074 23,581 175,907
---------- ---------- ---------- -------- -----------
Total revenue.................... 402,404 254,889 147,428 29,465 834,186
---------- ---------- ---------- -------- -----------
BENEFITS AND EXPENSES
Policyholder benefits................. 243,793 117,742 73,844 2,110 437,489
Intangible asset amortization......... 58,390 15,669 15,703 -- 89,762
Net deferral of insurance acquisition
costs.............................. (55,569) (9,444) (22,964) (22,765) (110,742)
Commissions and taxes, licenses and
fees............................... 29,539 43,919 22,227 11,707 107,392
Operating expenses.................... 61,659 24,924 20,279 35,593 142,455
---------- ---------- ---------- -------- -----------
Total benefits and expenses...... 337,812 192,810 109,089 26,645 666,356
---------- ---------- ---------- -------- -----------
Income before income tax expense........ 64,592 62,079 38,339 2,820 167,830
Income tax expense...................... 26,774 24,340 14,794 1,001 66,909
---------- ---------- ---------- -------- -----------
Net income....................... $ 37,818 $ 37,739 $ 23,545 $ 1,819 $ 100,921
========== ========== ========== ======== ===========
BALANCE SHEET
Total assets.......................... $3,194,530 $8,232,927 $4,172,828 $ 46,254 $15,646,539
========== ========== ========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
NET
REVENUE INCOME ASSETS
----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue, net income and assets, respectively, from
above:...................................................... $ 834,186 $100,921 $15,646,539
----------- -------- -----------
Less:
Revenue, net income and assets of FKLA.................... 336,841 35,953 2,986,381
Revenue, net loss and assets of ZLICA..................... 54,058 (1,066) 416,115
Revenue, net income and assets Zurich Direct.............. 23,548 885 4,322
----------- -------- -----------
Totals per the Company's consolidated financial
statements............................................. $ 419,739 $ 65,149 $12,239,721
=========== ======== ===========
</TABLE>
90
<PAGE> 96
KEMPER INVESTORS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the period ending December 31, 1997:
(in thousands)
<TABLE>
<CAPTION>
GROUP
AGENCY FINANCIAL RETIREMENT DIRECT TOTAL
INCOME STATEMENT ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Premium income.................... $ 167,439 $ -- $ -- $ 4,249 $ 171,688
Net investment income............. 155,885 212,767 91,664 455 460,771
Realized investment gains......... 2,503 7,744 2,692 50 12,989
Fees and other income............. 78,668 73,823 23,663 8,007 184,161
---------- ---------- ---------- -------- -----------
Total revenue................ 404,495 294,334 118,019 12,761 829,609
---------- ---------- ---------- -------- -----------
BENEFITS AND EXPENSES
Policyholder benefits............. 247,878 153,327 60,061 2,234 463,500
Intangible asset amortization..... 58,534 25,593 15,589 -- 99,716
Net deferral of insurance
acquisition costs.............. (50,328) (18,222) (13,033) (5,242) (86,825)
Commissions and taxes, licenses
and fees....................... 39,477 66,552 16,668 3,518 126,215
Operating expenses................ 55,859 20,282 14,320 19,472 109,933
---------- ---------- ---------- -------- -----------
Total benefits and
expenses.................. 361,420 247,532 93,605 19,982 712,539
---------- ---------- ---------- -------- -----------
Income (loss) before income tax
expense (benefit)................. 53,075 46,802 24,414 (7,221) 117,070
Income tax expense (benefit)........ 25,554 21,144 10,545 (2,528) 54,715
---------- ---------- ---------- -------- -----------
Net income (loss)............ $ 27,521 $ 25,658 $ 13,869 $ (4,693) $ 62,355
========== ========== ========== ======== ===========
BALANCE SHEET
Total assets...................... $2,877,854 $7,416,791 $3,759,173 $ 41,669 $14,095,487
========== ========== ========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
NET
REVENUE INCOME ASSETS
----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue, net income and assets, respectively, from
above:...................................................... $ 829,609 $ 62,355 $14,095,487
Less:
Revenue, net income and assets of FKLA.................... 338,854 24,740 3,105,396
Revenue, net income and assets of ZLICA................... 57,233 2,193 398,786
Revenue, net loss and assets of Zurich Direct............. 8,042 (3,295) 1,655
----------- -------- -----------
Totals per the Company's consolidated financial
statements........................................ $ 425,480 $ 38,717 $10,589,650
=========== ======== ===========
</TABLE>
91
<PAGE> 97
PART II--OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, as amended, 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.
REPRESENTATION AS TO FEES AND CHARGES
KILICO hereby represents that the fees and charges deducted under the
Modified Single Premium Variable Universal Life Insurance Policies hereby
registered by this Registration Statement in the aggregate are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by KILICO.
REPRESENTATION PURSUANT TO RULE 6E-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940, as amended (the "1940 Act").
UNDERTAKING AS TO INDEMNIFICATION
Pursuant to the Distribution Agreement filed as Exhibit 1-A(3)(a) to this
Registration Statement, KILICO and the Separate Account will agree to indemnify
Investors Brokerage Services, Inc. ("IBS") against any claims, liabilities and
expenses which IBS may incur under the Securities Act of 1933, common law or
otherwise, arising out of or based upon any alleged untrue statements of
material fact contained in any registration statement or prospectus of the
Separate Account, or any omission to state a material fact therein, the omission
of which makes any statement contained therein misleading. IBS will agree to
indemnify KILICO and the Separate Account against any and all claims, demands,
liabilities and expenses which KILICO or the Separate Account may incur, arising
out of or based upon any act or deed of IBS or of any registered representatives
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, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-1
<PAGE> 98
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The Facing sheet.
Reconciliation and tie between items in N-8B-2 and Prospectus.
Prospectus consisting of 91 pages.
The undertaking to file reports.
Undertaking as to indemnification 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. Frank J. Julian, Esq. (included in Opinion filed as Exhibit
3(a)).
B. PricewaterhouseCoopers LLP, independent accountants (to be filed
as Exhibit 6(a)).
C. KPMG LLP, Independent Auditors (to be filed as Exhibit 6(b)).
D. Steven D. Powell, FSA (included in Opinion to be filed as Exhibit
3(b)).
The following exhibits:
<TABLE>
<S> <C>
(1) 1-A(1) KILICO Resolution establishing the Separate Account
(2) 1-A(3)(a) Distribution Agreement between KILICO and Investors Brokerage
Services, Inc. (IBS)
(3) 1-A(3)(b) Specimen Selling Group Agreement of IBS
1-A(3)(c) Schedules of commissions
(3) 1-A(3)(d) General Agent Agreement
1-A(5)(a) Form of Individual Policy
1-A(5)(b) Form of Survivorship Policy
1-A(5)(c) Accelerated Death Benefit Rider
1-A(5)(d) Extended Maturity Rider
1-A(5)(e) Nursing Care Waiver of Withdrawal Charge Rider
(1) 1-A(6)(a) KILICO Articles of Incorporation
(3) 1-A(6)(b) By-Laws of KILICO
(4) 1-A(8)(a) Participation Agreement between KILICO and Scudder Variable Life
Investment Fund
(4) 1-A(8)(b) Participating Contract and Policy Agreement between KILICO and Scudder
Kemper Investments, Inc.
(4) 1-A(8)(c) Indemnification Agreement between KILICO and Scudder Kemper
Investments, Inc.
(7) 1-A(8)(f) Participation Agreement By and Among KILICO and Warburg, Pincus Trust
and Warburg Pincus Asset Management Inc. (f/k/a Warburg, Pincus
Counsellors, Inc.) and Counsellors Securities, Inc.
(8) 1-A(8)(g) Service Agreement between Warburg Pincus Asset Management Inc. (f/k/a
Warburg, Pincus Counsellors, Inc.) and Federal Kemper Life Assurance
Company and KILICO
(7) 1-A(8)(h) Fund Participation Agreement among KILICO, Investors Fund Series
(formerly known as Kemper Investors Fund), Zurich Kemper Investments,
Inc. and Kemper Distributors, Inc.
1-A(10) Application for Policy
(2) 2 Specimen Notice of Withdrawal Right
3(a) Opinion and consent of legal officer of KILICO as to legality of
policies being registered
</TABLE>
II-2
<PAGE> 99
<TABLE>
<S> <C>
3(b) Opinion and consent of actuarial officer of KILICO regarding
illustrations and actuarial matters
6(a) Consents of PricewaterhouseCoopers LLP, independent accountants
6(b) Consent of KPMG LLP, independent auditors
8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii)
9 Illustrations
</TABLE>
- -------------------------
(1) Incorporated by reference to the Registration Statement of the Registrant on
Form S-6 filed on or about December 26, 1995 (File No. 33-65399).
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form S-6 filed on or about June
5, 1996 (File No. 33-65399).
(3) Incorporated by reference to Amendment No. 2 to the Registration Statement
of KILICO on Form S-1 (File No. 333-02491) filed on or about April 23, 1997.
(4) Incorporated by reference to Amendment No. 5 to the Registration Statement
of KILICO on Form S-1 filed on or about April 20, 1999 (File No. 333-22389).
(5) [omitted]
(6) [omitted]
(7) Incorporated by reference to Amendment No. 3 to the Registration Statement
of KILICO on Form S-1 filed on or about April 8, 1998 (File No. 333-22389).
(8) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement of FKLA Variable Separate Account on Form S-6 filed
on or about April 30, 1997 (File No. 33-79808).
II-3
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
KILICO Variable Separate Account, has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Long Grove and State of Illinois on the 20th day
of September, 1999.
KILICO VARIABLE SEPARATE ACCOUNT
(Registrant)
By: Kemper Investors Life Insurance
Company
(Depositor)
By: /s/ GALE K. CARUSO
------------------------------------
Gale K. Caruso, President and
Chief Executive Officer
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 20th day of September, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ GALE K. CARUSO President, Chief Executive Officer and Director
- -------------------------------------------------------- (Principal Executive Officer)
Gale K. Caruso
/s/ JOHN B. SCOTT Chairman of the Board and Director
- --------------------------------------------------------
John B. Scott
/s/ FREDERICK L. BLACKMON Senior Vice President and Chief Financial
- -------------------------------------------------------- Officer (Principal Financial Officer and
Frederick L. Blackmon Principal Accounting Officer)
/s/ W.H. BOLINDER Director
- --------------------------------------------------------
William H. Bolinder
/s/ DAVID A. BOWERS Director
- --------------------------------------------------------
David A. Bowers
/s/ ELIANE C. FRYE Director
- --------------------------------------------------------
Eliane C. Frye
/s/ GUNTHER GOSE Director
- --------------------------------------------------------
Gunther Gose
/s/ JAMES E. HOHMANN Director
- --------------------------------------------------------
James E. Hohmann
</TABLE>
II-4
<PAGE> 101
EXHIBIT LIST
<TABLE>
<C> <S>
1-A(3)(c) Schedules of commissions
1-A(5)(a) Form of Individual Policy
1-A(5)(b) Form of Survivorship Policy
1-A(5)(c) Accelerated Death Benefit Rider
1-A(5)(d) Extended Maturity Rider
1-A(5)(e) Nursing Care Waiver of Withdrawal Charge Rider
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
illustrations and actuarial matters
6(a) Consents of PricewaterhouseCoopers LLP, independent
accountants
6(b) Consent of KPMG LLP, independent auditors
8 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii)
9 Illustrations
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1-A(3)(c)
Schedule of Commissions and Allowances [ZURICH KEMPER LOGO]
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/554-5426
Effective Date: September 29, 1999
This Schedule of Commission and Allowances ("Schedule") is part of the
agreement to which it is attached.
Commissions will be paid on premiums in accordance with the terms of the
General Agent's Agreement and the Schedule.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
KEMPER DESTINATIONS LIFE Up-Front Trail Trail
(not available in all states) Premium Compensation Compensation
POLICY FORM SERIES L-8387 AND L-8388 Compensation Year 2-7 Year 8+
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMISSION CODE 1
Issue Age 0-85 7.25% None None
Issue Age 86-90 3.625% None None
COMMISSION CODE 2
Issue Age 0-85 5.00% 0.50% 0.50%
Issue Age 86-90 2.50% 0.25% 0.25%
COMMISSION CODE 3
Issue Age 0-85 1.50% 1.00% 1.00%
Issue Age 86-90 0.75% 0.50% 0.50%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
I. BASIS FOR COMPENSATION
A. Premium Compensation will be paid at the percentage shown above upon receipt
of initial premium payments for certificates/contracts issued under this
Schedule.
B. Commissions will be paid as stated above provided that the General Agent's
Agreement is in full force and in effect.
C. Commissions for certificates/contracts issued outside the Company's published
guidelines will be negotiated by the Company.
D. Trail Compensation will be paid on a calendar quarterly basis to equal the
annual percentage shown above. The average monthly balance of cash value less
loan account values during a calendar quarter will be used as the basis for
valuation of assets. Trail compensation will be paid on account values that
are based on premiums which have been in the contract for at least twelve
months.
E. Trail compensation is not payable on any contract that has been surrendered,
or under which a death benefit has been paid.
F. 100% of commissions will be charged back on any certificate/contract that is
rescinded by the Company or which is terminated using the free-look
provision. Commission will be charged back by credit against commissions to
be paid in the future and/or by requiring cash repayment by the General
Agent.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
II. NOTWITHSTANDING ANY OTHER PROVISION
A. The commissions specified in this Schedule will not be paid, and the right to
receive commissions and the amount of commissions 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 certificates/contracts which are issued
using cash values of previously issued KILICO (or any of its affiliates)
certificates/contracts or are converted or exchanged from previously
issued KILICO (or any of its affiliates) certificates/contracts, either
under a policy provision or otherwise.
B. The Company reserves the right to change the General Agent upon written
request of the owner of the certificate/contracts and redirect future
commissions to the new General Agent.
C. Upon termination of the General Agent's Agreement for any reason, no further
commissions will be paid to the General Agent on certificates/contracts
issued under this Schedule.
- --------------------------------------------------------------------------------
L-8489a (8/99) IM (8/99)
<PAGE> 2
SCHEDULE OF COMMISSION AND ALLOWANCES
[ZURICH KEMPER LOGO]
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/554-5426
Effective Date: September 29, 1999
This Schedule of Commission and Allowances ("Schedule") is part of the
agreement to which it is attached.
Commissions will be paid on premiums in accordance with the terms of the
General Agent's Agreement and the Schedule.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
KEMPER DESTINATIONS LIFE Up-Front Trail Trail
(not available in all states) Premium Compensation Compensation
Policy Form Series L-8387 and L-8388 Compensation Years 2-7 Years 8+
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commission Code 1
Issue Age 0-85 7.00% None None
Issue Age 86-90 3.50% None None
Commission Code 2
Issue Age 0-85 5.00% 0.50% 0.50%
Issue Age 86-90 2.50% 0.25% 0.25%
Commission Code 3
Issue Age 0-85 1.50% 1.00% 1.00%
Issue Age 86-90 0.75% 0.50% 0.50%
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
I. BASIS FOR COMPENSATION
A. Premium Compensation will be paid at the percentage shown above upon
receipt of initial premium payments for certificates/contracts issued under
this Schedule.
B. Commissions will be paid as stated above provided that the General Agent's
Agreement is in full force and in effect.
C. Commissions for certificates/contracts issued outside the Company's
published guidelines will be negotiated by the Company.
D. Trail Compensation will be paid on a calendar quarterly basis to equal the
annual percentage shown above. The average monthly balance of cash value
less loan account values during a calendar quarter will be used as the
basis for valuation of assets. Trail compensation will be paid on account
values that are based on premiums which have been in the contract for at
least twelve months.
E. Trail compensation is not payable on any contract that has been
surrendered, or under which a death benefit has been paid.
F. 100% of commissions will be charged back on any certificate/contract that
rescinded by the Company or which is terminated using the free-look
provision. Commission will be charged back by credit against commissions to
be paid in the future and/or by requiring cash repayment by the General
Agent.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
II. NOTWITHSTANDING ANY OTHER PROVISION
A. The commissions specified in this Schedule will not be paid, and the right
to receive commissions and the amount of commissions 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 certificates/contracts which are issued
using cash values of previously issued KILICO (or any of its affiliates)
certificates/contracts or are converted or exchanged from previously
issued KILICO (or any of its affiliates) certificates/contracts, either
under a policy provision or otherwise.
B. The Company reserves the right to change the General Agent upon written
request of the owner of the certificate/contracts and redirect future
commissions to the new General Agent.
C. Upon termination of the General Agent's Agreement for any reason, no
further commissions will be paid to the General Agent on
certificates/contracts issued under this Schedule.
- --------------------------------------------------------------------------------
L-8489b (8/99) IM (8/99)
<PAGE> 3
SCHEDULE OF COMMISSIONS AND ALLOWANCES
[ZURICH KEMPER LOGO]
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/554-5426
Effective Date: September 29, 1999
This Schedule of Commission and Allowances ("Schedule") is part of the agreement
to which it is attached.
Commissions will be paid on premiums in accordance with the terms of the
General Agent's Agreement and the Schedule.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
KEMPER DESTINATIONS LIFE Up-Front Trail Trail
(not available in all states) Premium Compensation Compensation
POLICY FORM SERIES L-8387 AND L-8388 Compensation Years 2-7 Years 8+
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMISSION CODE 1
Issue Age 0-85 6.75% None None
Issue Age 86-90 3.375% None None
COMMISSION CODE 2
Issue Age 0-85 5.00% 0.50% 0.50%
Issue Age 86-90 2.50% 0.25% 0.25%
COMMISSION CODE 3
Issue Age 0-85 1.25% 1.00% 1.00%
Issue Age 85-90 0.625% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
I. BASIS FOR COMPENSATION
A. Premium Compensation will be paid at the percentage shown above upon
receipt of initial premium payments for certificates/contracts issued under
this Schedule.
B. Commissions will be paid as stated above provided that the General Agent's
Agreement is in full force and in effect.
C. Commissions for certificates/contracts issued outside the Company's
published guidelines will be negotiated by the Company.
D. Trail Compensation will be paid on a calendar quarterly basis to equal
the annual percentage shown above. The average monthly balance of cash
value less account values during a calendar quarter will be used as the
basis for valuation of assets. Trail compensation will be paid on account
values that are based on premiums which have been in the contract for at
least twelve months.
E. Trail compensation is not payable on any contract that has been
surrendered, or under which a death benefit has been paid.
F. 100% of commissions will be charged back on any certificate/contract that
is rescinded by the Company or which is terminated using the free-look
provision. Commission will be charged back by credit against commissions
to be paid in the future and/or by requiring cash repayment by the General
Agent.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
II. NOTWITHSTANDING ANY OTHER PROVISION
A. The commissions specified in this Schedule will not be paid, and the right
to receive commissions and the amount of commissions 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 certificates/contracts which are
issued using cash values of previously issued KILICO (or any of its
affiliates) certificates/contracts or are converted or exchanged from
previously issued KILICO (or any of its affiliates) certificates/
contracts, either under a policy provision or otherwise.
B. The Company reserves the right to change the General Agent upon written
request of the owner of the certificate/contracts and redirect future
commission to the new General Agent.
C. Upon termination of the General Agent's Agreement for any reason, no
further commissions will be paid to the General Agent on certificates/
contracts issued under this Schedule.
- --------------------------------------------------------------------------------
L-8489c (8/99) IM(8/99)
<PAGE> 4
SCHEDULE OF COMMISSIONS AND ALLOWANCES
[ZURICH KEMPER LOGO]
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/554-5426
Effective Date: September 29, 1999
This Schedule of Commission and Allowances ("Schedule") is part of the
agreement to which it is attached.
Commissions will be paid on premiums in accordance with the terms of the
General Agent's Agreement and the Schedule.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
KEMPER DESTINATIONS LIFE PLUS Up-Front Trail Trail
(not available in all states) Premium Compensation Compensation
POLICY FORM SERIES L-8387 AND L-8388 Compensation Years 2-7 Years 8+
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMISSION CODE 1
Issue Age 0-85 4.75 % None None
Issue Age 86-90 2.375% None None
COMMISSION CODE 2
Issue Age 0-85 1.00 % 1.00% 1.00%
Issue Age 86-90 0.50 % 0.50% 0.50%
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
I. BASIS FOR COMPENSATION
A. Premium Compensation will be paid at the percentage shown above upon
receipt of initial premium payments for certificates/contracts issued under
this Schedule.
B. Commissions will be paid as stated above provided that the General Agent's
Agreement is in full force and in effect.
C. Commissions for certificates/contracts issued outside the Company's
published guidelines will be negotiated by the Company.
D. Trail Compensation will be paid on a calendar quarterly basis to equal the
annual percentage shown above. The average monthly balance of cash value
less loan account values during a calendar quarter will be used as the
basis for valuation of assets. Trail compensation will be paid on account
values that are based on premiums which have been in the contract for at
least twelve months.
E. Trail compensation is not payable on any contract that has been
surrendered, or under which a death benefit has been paid.
F. 100% of commissions will be charged back on any certificates/contract that
is rescinded by the Company or which is terminated using the free-look
provision. Commission will be charged back by credit against commissions
to be paid in the future and/or requiring cash repayment by the General
Agent.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
II. NOTWITHSTANDING ANY OTHER PROVISION
A. The commissions specified in this Schedule will not be paid, and the right
to receive commissions and the amount of commissions 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 certificates/contracts which are
issued using cash values of previously issued KILICO (or any of its
affiliates) certificates/contracts or are converted or exchanged from
previously issued KILICO (or any of its affiliates) certificates/
contracts, either under a policy provision or otherwise.
B. The Company reserves the right to change the General Agent upon written
request of the owner of the certificate/contracts and redirect future
commissions to the new General Agent.
C. Upon termination of the General Agent's Agreement for any reason, no
further commissions will be paid to the General Agent on certificates/
contracts issued under this Schedule.
- --------------------------------------------------------------------------------
L-8491a (8/99) IM (8/99)
<PAGE> 5
Schedule of Commissions and Allowances [ZURICH KEMPER LOGO]
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/554-5426
Effective Date: September 29, 1999
This Schedule of Commission and Allowances ("Schedule") is part of the
to which it is attached.
Commissions will be paid on premiums in accordance with the terms of the
General Agent's Agreement and the Schedule.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
KEMPER DESTINATIONS LIFE PLUS Up-Front Trail Trail
(not available in all states) Premium Compensation Compensation
POLICY FORM SERIES L-8387 AND L-8388 Compensation Year 2-7 Year 8+
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMISSION CODE 1
Issue Age 0-85 5.00% None None
Issue Age 86-90 2.50% None None
COMMISSION CODE 2
Issue Age 0-85 1.00% 1.00% 1.00%
Issue Age 86-90 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
I. BASIS FOR COMPENSATION
A. Premium Compensation will be paid at the percentage shown above upon receipt
of initial premium payments for certificates/contracts issued under this
Schedule.
B. Commissions will be paid as stated above provided that the General Agent's
Agreements is in full force and in effect.
C. Commissions for certificates/contracts issued outside the Company's published
guidelines will be negotiated by the Company.
D. Trail Compensation will be paid on a calendar quarterly basis to equal the
annual percentage shown above. The average monthly balance of cash value less
loan account value during a calendar quarter will be used as the basis for
valuation of assets. Trail compensation will be paid on account values that
are based on premiums which have been in the contract for at least twelve
months.
E. Trail compensation is not payable on any contract that has been surrendered,
or under which a death benefit has been paid.
F. 100% of commissions will be charged back on any certificate/contract that is
rescinded by the Company or which is terminated using the free-look
provision. Commission will be charged back by credit against commissions to
be paid in the future and/or by requiring cash repayment by the General
Agent.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
II. NOTWITHSTANDING ANY OTHER PROVISION
A. The commissions specified in this Schedule will not be paid, and the right to
receive commissions and the amount of commissions 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 certificates/contracts which are issued
using cash values of previously issued KILICO (or any of its affiliates)
certificates/contracts or are converted or exchanged from previously
issued KIUCO (or any of its affiliates) certificates/contracts, either
under a policy provision or otherwise.
B. The Company reserves the right to change the General Agent upon written
request of the owner of the certificate/contracts and redirect future
commissions to the new General Agent.
C. Upon termination of the General Agent's Agreement for any reason, no further
commissions will be paid to the General Agent on certificates/contracts
issued under this Schedule.
- --------------------------------------------------------------------------------
L-8491b (8/99) IM(8/99)
<PAGE> 6
SCHEDULE OF COMMISSIONS AND ALLOWANCES [ZURICH KEMPER LOGO]
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, IL 60049-0001 - 800/554-5426
Effective Date: September 29, 1999
This Schedule of Commission and Allowances ("Schedule") is part of the
agreement to which it is attached.
Commissions will be paid on premiums in accordance with the terms of the
General Agent's Agreement and the Schedule.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
KEMPER DESTINATIONS LIFE PLUS Up-Front Trail Trail
(not available in all states) Premium Compensation Compensation
POLICY FORM SERIES L-8387 AND L-8388 Compensation Years 2-7 Years 8+
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMISSION CODE 1
Issue Age 0-85 5.25% None None
Issue Age 86-90 2.625% None None
COMMISSION CODE 2
Issue Age 0-85 1.00% 1.00% 1.00%
Issue Age 86-90 0.50% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
I. BASIS FOR COMPENSATION
A. Premium Compensation will be paid at the percentage shown above upon
receipt of initial premium payments for certificates/contracts issued under
this Schedule.
B. Commissions will be paid as stated above provided that the General Agent's
Agreement is in full force and in effect.
C. Commissions for certificates/contracts issued outside the Company's
published guidelines will be negotiated by the Company.
D. Trail Compensation will be paid on a calendar quarterly basis to equal the
annual percentage shown above. The average monthly balance of cash value
less loan account values during a calendar quarter will be used as the
basis for valuation if assets. Trail compensation will be paid on account
values that are based on premiums which have been in the contract for at
least twelve months.
E. Trail compensation is not payable on any contract that has been
surrendered, or under which a death benefit has been paid.
F. 100% of commissions will be charged back on any certificate/contract that
is rescinded by the Company or which is terminated using the free-look
provision. Commission will be charged back by credit against commissions
to be paid in the future and/or by requiring cash repayment by the General
Agent.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
II. NOTWITHSTANDING ANY OTHER PROVISION
A. The commissions specified in this Schedule will not be paid, and the right
to receive commissions and the amount of commissions 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 provisions or otherwise, and on certificates/contracts which
are issued using cash values of previously issued KILICO (or any of
its affiliates) certificates/contracts or are converted or exchanged
from previously issued KILICO (or any of its affiliates)
certificates/contracts, either under a policy provision or otherwise.
B. The Company reserves the right to change the General Agent upon written
request of the owner of the certificate/contracts and redirect future
commissions to the new General Agent.
C. Upon termination of the General Agent's Agreement for any reason, no
further commissions will be paid to the General Agent on
certificates/contracts issued under this Schedule.
- --------------------------------------------------------------------------------
L-8491c (8/99) IM (8/99)
<PAGE> 1
EXHIBIT 1-A(5)(a)
KEMPER INVESTORS LIFE INSURANCE COMPANY
A STOCK LIFE INSURANCE COMPANY
1 KEMPER DRIVE
LONG GROVE, ILLINOIS 60049-0001
[ZURICH KEMPER LOGO]
INSURED: JOHN DOE ISSUE AGE: 35
EFFECTIVE DATE: JAN 01 1999 POLICY NO: 0000000
SINGLE PREMIUM: $10,000 INITIAL SPECIFIED
AMOUNT: $100,000
RIGHT TO CANCEL - At any time within 10 days of receiving this policy, you may
return it to us or to the agent through whom it was purchased. Immediately upon
our receipt, this policy will be voided as if it had never been in force. Within
ten days we will pay an amount equal to premiums paid for this policy less any
Debt.
On the Maturity Date, if the insured is living and this policy is in force, we
will pay the Net Surrender Value to you. If the insured dies prior to the
Maturity Date and this policy is in force, we will pay to the beneficiary the
death benefit in force at the time of the insured's death. Payment made to you
or to the beneficiary will be made subject to the terms of this policy.
This policy is issued in consideration of the attached application and payment
of the single premium. The provisions on this cover and the pages that follow
are part of this policy.
Signed for Kemper Investors Life Insurance Company at its home office in Long
Grove, Illinois.
Secretary President
INDIVIDUAL MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
NON-PARTICIPATING
TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED
ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE
DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH
BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND
TERMINATION PROVISIONS.
This is a legal contract between the owner and Kemper Investors Life Insurance
Company.
READ THIS POLICY CAREFULLY.
POLICY FORM NO. L-8387
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE NO.
<S> <C>
SETTLEMENT/ANNUITY OPTION TABLE Follows Page 16
APPLICATION Follows Policy Specifications
POLICY SPECIFICATIONS Follows Table of Contents
ENDORSEMENTS, if any Follows Settlement Option Table
DEFINITIONS 1-2
GENERAL PROVISIONS 3-4
The Policy 3
Modification of Policy 3
Contestability 3
Misstatement of Age and/or Sex 3
Suicide 3
Effective Date of Coverage 3
Termination 3
Assignment 3
Due Proof of Death 3
Reserves, Cash Values and Benefits 4
Tax Treatment 4
Non-Participating 4
Reports 4
OWNERSHIP PROVISIONS 4-5
Owners of Policy 4
Change of Ownership 4
Beneficiary Designation and Change of Beneficiary 4-5
Death of Beneficiary 5
DEATH BENEFIT PROVISIONS 5
Payment of Death Benefits 5
Amount Payable Upon Death 5
Deferment of Death Benefits 5
PREMIUM PROVISIONS 5-7
Initial Premium 5
Additional Premium 6
Place of Payment 6
Premium Allocation 6
Grace Period 6
Reinstatement 6-7
VARIABLE ACCOUNT PROVISIONS 7-9
Separate Account 7
Liabilities of Separate Account 7
Separate Account Value 7
Subaccounts 7
Subaccount Value 7-8
Fund 8
Rights Reserved By The Company 8
Accumulation Unit Value 8
Investment Experience Factor 9
NON FORFEITURE PROVISIONS 9-10
Cash Value 9
Monthly Deduction 9
Cost of Insurance 9
Cost of Insurance Rate 10
Riders 10
Mortality and Expense Charge 10
Insufficient Net Surrender Value Status 10
TRANSFER, WITHDRAWAL AND LOAN PROVISIONS 10-12
Transfers 10
Withdrawals 11
Effect of a Withdrawal 11
Withdrawal Charges 11
Policy Loans 11
</TABLE>
L-8387
<PAGE> 3
<TABLE>
<S> <C>
Policy Loan Interest 11-12
Policy Loan Repayment 12
Effect of Policy Loans 12
Transfer, Withdrawal and Loan Provisions 12
Deferment of Withdrawal Transfer or Loan 12
SETTLEMENT OPTIONS 12-14
Election of Settlement Options 13
Fixed Installment Annuity 13
Life Annuity 13
Life Annuity with Installments Guaranteed 13
Joint and Survivor Annuity 14
OTHER OPTIONS 14
Variable Payment Options 14
Annuity Unit Value 14-15
Fixed Payout Option 15
Transfers During Payout Period 15-16
Supplementary Agreement 16
Date of First Payment 16
Evidence of Age, Sex and Survival 16
Misstatement of Age or Sex 16
Basis of Annuity Option's 16
Creditors 16
</TABLE>
L-8387
<PAGE> 4
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER 0000000
INITIAL SPECIFIED AMOUNT $100,000 DATE OF ISSUE JAN 01 1999
COVERAGE INFORMATION
<TABLE>
<CAPTION>
RATE INITIAL
CLASS SPECIFIED MONTHLY
BENEFIT DESCRIPTION PERCENT AMOUNT MATURITY DATE RATE
<S> <C> <C> <C> <C>
MODIFIED SINGLE PREMIUM
VARIABLE LIFE* 100 $100,000 [JAN 01 2064] SEE PAGE D
</TABLE>
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN IF
PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO SUCH DATE. EVEN IF
COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY BE NO SURRENDER VALUE TO BE
PAID ON THAT DATE.
PREMIUM INFORMATION
SINGLE PREMIUM [ $10,000 ]
INSURED RATE CLASS STANDARD TOBACCO/NON-TOBACCO
8387 Page A
<PAGE> 5
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER [000000]
DEDUCTION DAY DAY 01 OF EACH MONTH
DEDUCTION PERIOD [65 YEARS, 00 MONTHS]
MINIMUM SPECIFIED AMOUNT AFTER WITHDRAWAL [$10,000]
MINIMUM WITHDRAWAL AMOUNT [$100.00]
MINIMUM NET SURRENDER VALUE AFTER WITHDRAWAL [$5,000]
MINIMUM LOAN AMOUNT [$1,000.00]
POLICY LOAN INTEREST CHARGED [ 5.50% ]
GUARANTEED POLICY LOAN INTEREST CREDITED [ 3.50% ]
MINIMUM PREMIUM [$10,000.00]
IRC SECTION 7702 TEST GUIDELINE PREMIUM
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95+ 100
</TABLE>
*ATTAINED AGE IS THE AGE OF LAST BIRTHDAY AS OF THE BEGINNING OF THE POLICY
YEAR.
8387 Page B
<PAGE> 6
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER [000000]
SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION
KEMPER AGGRESSIVE GROWTH PORTFOLIO 100%
KEMPER TECHNOLOGY GROWTH PORTFOLIO
KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO
KEMPER SMALL CAP GROWTH PORTFOLIO
KEMPER SMALL CAP VALUE PORTFOLIO
KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO
KEMPER INTERNATIONAL PORTFOLIO
KEMPER INTERNATIONAL GROWTH & INCOME PORTFOLIO
KEMPER GLOBAL BLUE CHIP PORTFOLIO
KEMPER GROWTH PORTFOLIO
KEMPER CONTRARIAN VALUE PORTFOLIO
KEMPER BLUE CHIP PORTFOLIO
KEMPER VALUE+GROWTH PORTFOLIO
KEMPER INDEX 500 PORTFOLIO
KEMPER HORIZON 20+ PORTFOLIO
KEMPER TOTAL RETURN PORTFOLIO
KEMPER HORIZON 10+ PORTFOLIO
KEMPER HIGH YIELD PORTFOLIO
KEMPER HORIZON 5 PORTFOLIO
KEMPER GLOBAL INCOME PORTFOLIO
KEMPER INVESTMENT GRADE BOND PORTFOLIO
KEMPER GOVERNMENT SECURITIES PORTFOLIO
KEMPER MONEY MARKET PORTFOLIO
SCUDDER VLIF GLOBAL DISCOVERY PORTFOLIO
SCUDDER VLIF GROWTH AND INCOME PORTFOLIO
SCUDDER VLIF INTERNATIONAL PORTFOLIO
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO
WARBURG EMERGING MARKETS PORTFOLIO
WARBURG POST-VENTURE CAPITAL PORTFOLIO
ASSET BASED CHARGES ARE ASSESSED FOR THE ABOVE DIVISIONS. FOR A COMPLETE
DISCUSSION OF ASSET BASED CHARGES, PLEASE REFER TO SCHEDULE 1.
8387 Page C
<PAGE> 7
POLICY SPECIFICATIONS
INSURED JOHN DOE ISSUE AGE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER [000000]
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED NON- ATTAINED NON-
AGE TOBACCO TOBACCO AGE TOBACCO TOBACCO
- ---------------- -------------- -- --------------- ----- -------------- ---------------- - ----------------
<S> <C> <C> <C> <C> <C>
0 0.219480 0.219480 50 0.428690 0.837880
1 0.085880 0.085880 51 0.468090 0.916270
2 0.082540 0.082540 52 0.513380 1.004870
3 0.080880 0.080880 53 0.565410 1.105400
4 0.077540 0.077540 54 0.623350 1.215380
5 0.073370 0.073370 55 0.688070 1.333150
6 0.069200 0.069200 56 0.758730 1.457890
7 0.065030 0.065030 57 0.833670 1.589640
8 0.062530 0.062530 58 0.917110 1.728430
9 0.061690 0.061690 59 1.010780 1.877720
10 0.062530 0.062530 60 1.115550 2.044410
11 0.067530 0.067530 61 1.232310 2.232910
12 0.076700 0.076700 62 1.367070 2.445950
13 0.089220 0.089220 63 1.519910 2.684600
14 0.103400 0.103400 64 1.690090 2.946500
15 0.113420 0.146810 65 1.876860 3.224930
16 0.123430 0.163510 66 2.079500 3.517450
17 0.130940 0.175200 67 2.297270 3.821590
18 0.135950 0.184390 68 2.534600 4.141890
19 0.139290 0.190240 69 2.798580 4.490890
20 0.140130 0.193580 70 3.098170 4.877870
21 0.138460 0.193580 71 3.441600 5.314990
22 0.135950 0.190240 72 3.839990 5.812080
23 0.132610 0.186890 73 4.293280 6.366660
24 0.129280 0.181880 74 4.794460 6.979050
25 0.125100 0.176030 75 5.333740 7.638620
26 0.122600 0.172690 76 5.907380 8.318710
27 0.120930 0.171020 77 6.511600 9.007620
28 0.120090 0.171020 78 7.150730 9.710250
29 0.120090 0.173530 79 7.845900 10.451730
30 0.120930 0.177710 80 8.620930 11.258160
31 0.123430 0.183550 81 9.498890 12.154910
32 0.126770 0.191070 82 10.501350 13.160810
33 0.131780 0.201100 83 11.628210 14.262960
34 0.137620 0.212790 84 12.862100 15.427670
35 0.144300 0.227000 85 14.178860 16.617240
36 0.151820 0.243720 86 15.565070 17.803170
37 0.161840 0.264620 87 17.002260 19.039280
38 0.172690 0.288040 88 18.486430 20.348230
39 0.184390 0.314810 89 20.041320 21.671680
40 0.198590 0.345780 90 21.693700 23.030110
41 0.213630 0.379270 91 23.488560 24.468300
42 0.229510 0.416120 92 25.504290 26.169550
43 0.247060 0.456350 93 27.961930 28.406850
44 0.266290 0.500790 94 31.383850 31.563380
45 0.288040 0.547780 95 36.798270 36.798270
46 0.311460 0.596470 96 46.588990 46.588990
47 0.336570 0.649400 97 67.043870 67.043870
48 0.364190 0.706570 98 83.333330 83.333330
49 0.394340 0.768830 99 83.333330 83.333330
</TABLE>
*THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE RATES SHOWN
IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS PERCENT. THIS
PERCENT IS SHOWN ON PAGE 1 OF THE POLICY SPECIFICATIONS. THE RATES ACTUALLY
CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST OF INSURANCE RATE SECTION.
8387 Page D
<PAGE> 8
GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
--------------------------------------------------------------
MALE NON-TOBACCO
--------------------------------------------------------------
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE AGE
<S> <C> <C> <C>
------------------------------ -----------------------------
0 0.219480 50 0.428690
------------------------------ -----------------------------
1 0.085880 51 0.468090
------------------------------ -----------------------------
2 0.082540 52 0.513380
------------------------------ -----------------------------
3 0.080880 53 0.565410
------------------------------ -----------------------------
4 0.077540 54 0.623350
------------------------------ -----------------------------
5 0.073370 55 0.688070
------------------------------ -----------------------------
6 0.069200 56 0.758730
------------------------------ -----------------------------
7 0.065030 57 0.833670
------------------------------ -----------------------------
8 0.062530 58 0.917110
------------------------------ -----------------------------
9 0.061690 59 1.010780
------------------------------ -----------------------------
10 0.062530 60 1.115550
------------------------------ -----------------------------
11 0.067530 61 1.232310
------------------------------ -----------------------------
12 0.076700 62 1.367070
------------------------------ -----------------------------
13 0.089220 63 1.519910
------------------------------ -----------------------------
14 0.103400 64 1.690090
------------------------------ -----------------------------
15 0.113420 65 1.876860
------------------------------ -----------------------------
16 0.123430 66 2.079500
------------------------------ -----------------------------
17 0.130940 67 2.297270
------------------------------ -----------------------------
18 0.135950 68 2.534600
------------------------------ -----------------------------
19 0.139290 69 2.798580
------------------------------ -----------------------------
20 0.140130 70 3.098170
------------------------------ -----------------------------
21 0.138460 71 3.441600
------------------------------ -----------------------------
22 0.135950 72 3.839990
------------------------------ -----------------------------
23 0.132610 73 4.293280
------------------------------ -----------------------------
24 0.129280 74 4.794460
------------------------------ -----------------------------
25 0.125100 75 5.333740
------------------------------ -----------------------------
26 0.122600 76 5.907380
------------------------------ -----------------------------
27 0.120930 77 6.511600
------------------------------ -----------------------------
28 0.120090 78 7.150730
------------------------------ -----------------------------
29 0.120090 79 7.845900
------------------------------ -----------------------------
30 0.120930 80 8.620930
------------------------------ -----------------------------
31 0.123430 81 9.498890
------------------------------ -----------------------------
32 0.126770 82 10.501350
------------------------------ -----------------------------
33 0.131780 83 11.628210
------------------------------ -----------------------------
34 0.137620 84 12.862100
------------------------------ -----------------------------
35 0.144300 85 14.178860
------------------------------ -----------------------------
36 0.151820 86 15.565070
------------------------------ -----------------------------
37 0.161840 87 17.002260
------------------------------ -----------------------------
38 0.172690 88 18.486430
------------------------------ -----------------------------
39 0.184390 89 20.041320
------------------------------ -----------------------------
40 0.198590 90 21.693700
------------------------------ -----------------------------
41 0.213630 91 23.488560
------------------------------ -----------------------------
42 0.229510 92 25.504290
------------------------------ -----------------------------
43 0.247060 93 27.961930
------------------------------ -----------------------------
44 0.266290 94 31.383850
------------------------------ -----------------------------
45 0.288040 95 36.798270
------------------------------ -----------------------------
46 0.311460 96 46.588990
------------------------------ -----------------------------
47 0.336570 97 67.043870
------------------------------ -----------------------------
48 0.364190 98 83.333330
------------------------------ -----------------------------
49 0.394340 99 83.333330
------------------------------ -----------------------------
</TABLE>
8387/GUAR Page E
<PAGE> 9
GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
--------------------------------------------------------------
MALE TOBACCO
--------------------------------------------------------------
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE AGE
------------------------------ -----------------------------
<S> <C> <C> <C>
0 0.219480 50 0.837880
------------------------------ -----------------------------
1 0.085880 51 0.916270
------------------------------ -----------------------------
2 0.082540 52 1.004870
------------------------------ -----------------------------
3 0.080880 53 1.105400
------------------------------ -----------------------------
4 0.077540 54 1.215380
------------------------------ -----------------------------
5 0.073370 55 1.333150
------------------------------ -----------------------------
6 0.069200 56 1.457890
------------------------------ -----------------------------
7 0.065030 57 1.589640
------------------------------ -----------------------------
8 0.062530 58 1.728430
------------------------------ -----------------------------
9 0.061690 59 1.877720
------------------------------ -----------------------------
10 0.062530 60 2.044410
------------------------------ -----------------------------
11 0.067530 61 2.232910
------------------------------ -----------------------------
12 0.076700 62 2.445950
------------------------------ -----------------------------
13 0.089220 63 2.684600
------------------------------ -----------------------------
14 0.103400 64 2.946500
------------------------------ -----------------------------
15 0.146810 65 3.224930
------------------------------ -----------------------------
16 0.163510 66 3.517450
------------------------------ -----------------------------
17 0.175200 67 3.821590
------------------------------ -----------------------------
18 0.184390 68 4.141890
------------------------------ -----------------------------
19 0.190240 69 4.490890
------------------------------ -----------------------------
20 0.193580 70 4.877870
------------------------------ -----------------------------
21 0.193580 71 5.314990
------------------------------ -----------------------------
22 0.190240 72 5.812080
------------------------------ -----------------------------
23 0.186890 73 6.366660
------------------------------ -----------------------------
24 0.181880 74 6.979050
------------------------------ -----------------------------
25 0.176030 75 7.638620
------------------------------ -----------------------------
26 0.172690 76 8.318710
------------------------------ -----------------------------
27 0.171020 77 9.007620
------------------------------ -----------------------------
28 0.171020 78 9.710250
------------------------------ -----------------------------
29 0.173530 79 10.451730
------------------------------ -----------------------------
30 0.177710 80 11.258160
------------------------------ -----------------------------
31 0.183550 81 12.154910
------------------------------ -----------------------------
32 0.191070 82 13.160810
------------------------------ -----------------------------
33 0.201100 83 14.262960
------------------------------ -----------------------------
34 0.212790 84 15.247670
------------------------------ -----------------------------
35 0.227000 85 16.617240
------------------------------ -----------------------------
36 0.243720 86 17.803170
------------------------------ -----------------------------
37 0.264620 87 19.039280
------------------------------ -----------------------------
38 0.288040 88 20.348230
------------------------------ -----------------------------
39 0.314810 89 21.671680
------------------------------ -----------------------------
40 0.345780 90 23.030110
------------------------------ -----------------------------
41 0.379270 91 24.468300
------------------------------ -----------------------------
42 0.416120 92 26.169550
------------------------------ -----------------------------
43 0.456350 93 28.406850
------------------------------ -----------------------------
44 0.500790 94 31.563380
------------------------------ -----------------------------
45 0.547780 95 36.798270
------------------------------ -----------------------------
46 0.596470 96 46.588990
------------------------------ -----------------------------
47 0.649400 97 67.043870
------------------------------ -----------------------------
48 0.706570 98 83.333330
------------------------------ -----------------------------
49 0.768830 99 83.333330
------------------------------ -----------------------------
</TABLE>
8387/GUAR Page F
<PAGE> 10
GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
--------------------------------------------------------------
FEMALE NON-TOBACCO
--------------------------------------------------------------
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE AGE
------------------------------ -----------------------------
<S> <C> <C> <C>
0 0.156830 50 0.362520
------------------------------ -----------------------------
1 0.070030 51 0.390150
------------------------------ -----------------------------
2 0.066700 52 0.421990
------------------------------ -----------------------------
3 0.065030 53 0.457190
------------------------------ -----------------------------
4 0.064190 54 0.493240
------------------------------ -----------------------------
5 0.062530 55 0.531830
------------------------------ -----------------------------
6 0.060860 56 0.570440
------------------------------ -----------------------------
7 0.059190 57 0.608230
------------------------------ -----------------------------
8 0.058360 58 0.646040
------------------------------ -----------------------------
9 0.057520 59 0.688910
------------------------------ -----------------------------
10 0.056690 60 0.739370
------------------------------ -----------------------------
11 0.058360 61 0.801660
------------------------------ -----------------------------
12 0.060860 62 0.879170
------------------------------ -----------------------------
13 0.064190 63 0.974480
------------------------------ -----------------------------
14 0.068360 64 1.081730
------------------------------ -----------------------------
15 0.071700 65 1.197600
------------------------------ -----------------------------
16 0.075040 66 1.317890
------------------------------ -----------------------------
17 0.077540 67 1.440910
------------------------------ -----------------------------
18 0.080040 68 1.568370
------------------------------ -----------------------------
19 0.082540 69 1.710530
------------------------------ -----------------------------
20 0.084210 70 1.877720
------------------------------ -----------------------------
21 0.085880 71 2.082070
------------------------------ -----------------------------
22 0.086720 72 2.333340
------------------------------ -----------------------------
23 0.088380 73 2.635430
------------------------------ -----------------------------
24 0.090050 74 2.984600
------------------------------ -----------------------------
25 0.091720 75 3.376280
------------------------------ -----------------------------
26 0.094220 76 3.802330
------------------------------ -----------------------------
27 0.095890 77 4.261570
------------------------------ -----------------------------
28 0.098400 78 4.761660
------------------------------ -----------------------------
29 0.101730 79 5.319450
------------------------------ -----------------------------
30 0.104240 80 5.958680
------------------------------ -----------------------------
31 0.107580 81 6.700420
------------------------------ -----------------------------
32 0.110910 82 7.564140
------------------------------ -----------------------------
33 0.115090 83 8.550150
------------------------------ -----------------------------
34 0.120090 84 9.651690
------------------------------ -----------------------------
35 0.125940 85 10.861090
------------------------------ -----------------------------
36 0.134280 86 12.174410
------------------------------ -----------------------------
37 0.144300 87 13.594640
------------------------------ -----------------------------
38 0.155160 88 15.128280
------------------------------ -----------------------------
39 0.166850 89 16.793990
------------------------------ -----------------------------
40 0.181050 90 18.613420
------------------------------ -----------------------------
41 0.196080 91 20.640050
------------------------------ -----------------------------
42 0.211120 92 22.968510
------------------------------ -----------------------------
43 0.226170 93 25.797340
------------------------------ -----------------------------
44 0.241210 94 29.586210
------------------------------ -----------------------------
45 0.257930 95 35.366190
------------------------------ -----------------------------
46 0.275490 96 45.525080
------------------------------ -----------------------------
47 0.294730 97 66.318680
------------------------------ -----------------------------
48 0.314810 98 83.333330
------------------------------ -----------------------------
49 0.337410 99 83.333330
------------------------------ -----------------------------
</TABLE>
8387/GUAR Page G
<PAGE> 11
GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
--------------------------------------------------------------
FEMALE TOBACCO
--------------------------------------------------------------
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE AGE
------------------------------ -----------------------------
<S> <C> <C> <C>
0 0.156830 50 0.566250
------------------------------ -----------------------------
1 0.070030 51 0.607390
------------------------------ -----------------------------
2 0.066700 52 0.654440
------------------------------ -----------------------------
3 0.065030 53 0.706570
------------------------------ -----------------------------
4 0.064190 54 0.759570
------------------------------ -----------------------------
5 0.062530 55 0.814290
------------------------------ -----------------------------
6 0.060860 56 0.868210
------------------------------ -----------------------------
7 0.059190 57 0.918800
------------------------------ -----------------------------
8 0.058360 58 0.968570
------------------------------ -----------------------------
9 0.057520 59 1.021750
------------------------------ -----------------------------
10 0.056690 60 1.085110
------------------------------ -----------------------------
11 0.058360 61 1.164600
------------------------------ -----------------------------
12 0.060860 62 1.267040
------------------------------ -----------------------------
13 0.064190 63 1.391670
------------------------------ -----------------------------
14 0.068360 64 1.530960
------------------------------ -----------------------------
15 0.080040 65 1.678160
------------------------------ -----------------------------
16 0.084210 66 1.828210
------------------------------ -----------------------------
17 0.088380 67 1.973420
------------------------------ -----------------------------
18 0.092560 68 2.120610
------------------------------ -----------------------------
19 0.095060 69 2.280960
------------------------------ -----------------------------
20 0.097560 70 2.470900
------------------------------ -----------------------------
21 0.099230 71 2.712220
------------------------------ -----------------------------
22 0.101730 72 3.008860
------------------------------ -----------------------------
23 0.104240 73 3.363220
------------------------------ -----------------------------
24 0.106740 74 3.769070
------------------------------ -----------------------------
25 0.109240 75 4.214910
------------------------------ -----------------------------
26 0.113420 76 4.691660
------------------------------ -----------------------------
27 0.116760 77 5.192770
------------------------------ -----------------------------
28 0.120930 78 5.725870
------------------------------ -----------------------------
29 0.125940 79 6.310570
------------------------------ -----------------------------
30 0.131780 80 6.970840
------------------------------ -----------------------------
31 0.136790 81 7.726990
------------------------------ -----------------------------
32 0.142630 82 8.595770
------------------------------ -----------------------------
33 0.150150 83 9.611100
------------------------------ -----------------------------
34 0.158500 84 10.726950
------------------------------ -----------------------------
35 0.167680 85 11.929990
------------------------------ -----------------------------
36 0.181880 86 13.214160
------------------------------ -----------------------------
37 0.198590 87 14.570110
------------------------------ -----------------------------
38 0.217810 88 16.008410
------------------------------ -----------------------------
39 0.238700 89 17.532150
------------------------------ -----------------------------
40 0.263790 90 19.256820
------------------------------ -----------------------------
41 0.290550 91 21.156900
------------------------------ -----------------------------
42 0.317320 92 23.319700
------------------------------ -----------------------------
43 0.344100 93 25.937870
------------------------------ -----------------------------
44 0.370890 94 29.586210
------------------------------ -----------------------------
45 0.399370 95 35.366190
------------------------------ -----------------------------
46 0.428690 96 45.525080
------------------------------ -----------------------------
47 0.458870 97 66.318680
------------------------------ -----------------------------
48 0.491570 98 83.333330
------------------------------ -----------------------------
49 0.527640 99 83.333330
------------------------------ -----------------------------
</TABLE>
8387/GUAR Page H
<PAGE> 12
SCHEDULE 1
CHARGES AND DEDUCTIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SCHEDULE OF ASSET BASED CHARGES
- --------------------------------------------------------------------------------
<S> <C>
Mortality and Expense Charge .90%
Administration Charge .35% annually for Policy Years 1-10
.25% annually for Policy Years 11 and later
Tax Charge .40% annually for Policy Years 1-10
- --------------------------------------------------------------------------------
</TABLE>
THE ASSET BASED CHARGES WILL BE ASSESSED DAILY ON THE SEPARATE ACCOUNT
VALUE.
The Annual Record Maintenance Charge of $30 is deducted from your Cash Value at
the end of the Policy Year and upon policy termination.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SCHEDULE OF PREMIUM WITHDRAWAL CHARGES
- ---------------------------------------------------------------------------------------------------------
POLICY YEARS SURRENDER PREMIUM TAX TOTAL WITHDRAWAL
ELAPSED SINCE ISSUE CHARGE CHARGE CHARGE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 7.75% 2.25% 10.00%
2 7.75% 2.00% 9.75%
3 7.50% 1.75% 9.25%
4 6.50% 1.50% 8.00%
5 5.75% 1.25% 7.00%
6 5.00% 1.00% 6.00%
7 4.25% .75% 5.00%
8 3.50% .50% 4.00%
9 2.75% .25% 3.00%
over 9 0% 0% 0%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
THE WITHDRAWAL CHARGE PERCENTAGES ARE APPLIED AGAINST THE INITIAL PREMIUM
AMOUNT. A FREE PARTIAL WITHDRAWAL OF THE GREATER OF 10% OF CASH VALUE OR CASH
VALUE LESS PREMIUM PAID IS AVAILABLE EACH YEAR. PREMIUM PAID FOR THIS PURPOSE IS
THE PREMIUM SUBJECT TO A WITHDRAWAL CHARGE MINUS WITHDRAWALS PREVIOUSLY ASSESSED
A WITHDRAWAL CHARGE.
8387 Page I
<PAGE> 13
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to
calculate the value of each Subaccount.
ACCUMULATION UNIT VALUE - The value of a Subaccount
determined for a Valuation Period according to the formula
stated in this policy.
ADMINISTRATION CHARGE - A charge deducted from the Cash
Value for a portion of Our administrative costs.
CASH VALUE - The sum of the Separate Account Value plus the
Fixed Account Value plus the Loan Account Value.
DEBT - The principal of any outstanding loan plus any loan
interest due or accrued.
DEDUCTION DAY - The Deduction Day is stated in the policy
specifications. It is the same day in each month as the
Effective Date. It is the day from which policy months are
determined.
EFFECTIVE DATE - The Effective Date is shown on the front
of Your policy. It is the date coverage becomes effective.
If the Effective Date would have been the 29th, 30th or
31st of the month, the Effective Date will be the 28th day
of that month.
FIXED ACCOUNT - The portion of the Cash Value allocated to
our General Account, including amounts allocated to the DCA
Fixed Account, to be transferred to the Subaccounts under
the automatic Dollar Cost Averaging program.
FIXED ACCOUNT VALUE - The value of the Fixed Account.
FUND - An investment company or separate series thereof, in
which the Subaccounts of the Separate Account invest.
GENERAL ACCOUNT - Our assets other than those allocated to
the Separate Account or any other Separate Account.
GUIDELINE SINGLE PREMIUM - The Guideline Single Premium as
defined in Section 7702 of the Internal Revenue Code.
ISSUE AGE - The attained age as of the insured's last
birthday on the Effective Date.
ISSUE DATE - The issue date stated in the policy
specifications. It is the date all requirements for
coverage and Premium have been received, and the policy is
approved.
LOAN ACCOUNT - The account established for amounts
transferred from the Subaccounts and held in our General
Account as security for outstanding Policy Debt.
LOAN ACCOUNT VALUE - The value of the Loan Account.
Page 1
L-8387
<PAGE> 14
L-8387
Page 2
MATURITY DATE - The Maturity Date is stated in the policy
specifications. It is the policy anniversary nearest the
insured's 100th birthday.
MORTALITY AND EXPENSE CHARGE - A charge deducted in the
calculation of the accumulation unit value. It is for Our
assumption of mortality risks and expense guarantees.
NET SURRENDER VALUE - The Surrender Value minus any Debt.
OWNER - See "You, Your, Yours" below.
POLICY YEAR - Each twelve-month period beginning on the
Effective Date and each policy anniversary.
PREFERRED LOAN - The portion of any loan as to which the
Loan Account is credited a higher rate of interest. The
maximum amount available as a Preferred Loan is the
Separate Account Value plus the Fixed Account Value minus
Premium paid plus any prior withdrawal of premium.
PREMIUM - The dollar amount We receive in U.S. currency to
buy the benefits this policy provides.
RECORDS MAINTENANCE CHARGE - A charge assessed against Your
policy as specified in the policy specifications.
RECEIVED - Received by Kemper Investors Life Insurance
Company at its home office in Long Grove, Illinois.
SEPARATE ACCOUNT - A unit investment trust registered with
the Securities and Exchange Commission under the Investment
Company Act of 1940 known as the KILICO Variable Separate
Account.
SEPARATE ACCOUNT VALUE - The sum of the Subaccount Values
of this policy on the Valuation Date.
SUBACCOUNTS - The Separate Account has several Subaccounts.
The available Subaccounts are stated in the policy
specifications.
SUBACCOUNT VALUE - The value of each Subaccount calculated
separately according to the formula stated in this policy.
SURRENDER VALUE - The Surrender Value of this policy is the
Cash Value minus any applicable withdrawal charge.
TAX CHARGE - A charge deducted from the Cash Value to pay
applicable state and local Premium taxes and federal taxes
imposed under Section 848 of the Internal Revenue Code of
1986, as amended (the "Code").
TRADE DATE - The Trade Date is ten (10) days plus the
number of days in your right to cancel period after the
Issue Date. It is the date that your initial premium plus
any interest will be allocated to the Subaccounts according
to your instructions. The right to cancel period is shown
on the front of Your policy.
VALUATION DATE - Each business day that applicable law
requires that We value the assets of the Separate Account.
Currently this is each day that the New York Stock Exchange
is open for trading.
VALUATION PERIOD - The period that starts at the close of a
Valuation Date and ends at the close of the next succeeding
Valuation Date.
WE, OUR, US - Kemper Investors Life Insurance Company, Long
Grove, Illinois.
<PAGE> 15
L-8387
Page 3
YOU, YOUR, YOURS - The party(s) named as owner in the
application unless later changed as provided in this
policy. The owner, prior to the distribution of any death
benefit, has the exclusive right to exercise every option
and right conferred by this policy.
GENERAL PROVISIONS
THE POLICY The policy, the attached application and any
supplemental application(s) constitute the entire contract
between the parties. All statements made in the application
and supplemental application(s) are deemed representations
and not warranties. No misstatement will void this policy
or be used as a defense of a claim unless it is contained
in the application or any supplemental application.
MODIFICATION OF Only Our president, secretary and assistant secretaries
POLICY have the power to approve a change or waive any
provisions of this policy. Any such modifications must be
in writing. No agent or person other than the officers
named has the authority to change or waive the provisions
of this policy.
CONTESTABILITY We cannot contest this policy after it has been in force
for two years from the Issue Date.
If the policy is reinstated, a new two year contestability
period will apply from the Issue Date of the reinstatement
and will apply only to statements made in the application
for the reinstatement.
MISSTATEMENT If the age and/or sex of the Insured was misstated,
OF AGE the death benefit and all policy values will be
AND/OR SEX adjusted based on what the initial Premium would have
purchased using the correct age and/or sex.
SUICIDE If the Insured dies by suicide, while sane or insane,
within two years from the Issue Date, the death benefit
proceeds will be limited to the Premiums paid less any
withdrawals and Debt.
If the Insured dies by suicide, while sane or insane,
within two years of any reinstatement, Our total liability
will be limited to Premiums paid less any withdrawals and
Debt.
EFFECTIVE DATE The Effective Date of coverage under this policy is
OF COVERAGE the Effective Date. If the Effective Date would
have been the 29th, 30th, or 31st of the month, the
Effective Date will be the 28th day of that month.
Incontestability and suicide periods are measured from the
Effective Date. We will deduct the first monthly deduction
on the Effective Date.
TERMINATION All coverage under this policy terminates when any one of
the following occurs:
1. You request that coverage terminates;
2. The insured dies;
3. This policy matures, or
4. The grace period ends and there is Debt outstanding
or you paid 90% of the Guideline Single Premium.
ASSIGNMENT No assignment of this policy is binding unless We receive
written notice of the assignment. We assume no
responsibility for the validity or sufficiency of any
assignment. Once notice of the assignment is recorded, the
rights of the owner and beneficiary are subject to the
assignment. Any claim is subject to proof of interest of
the assignee.
DUE PROOF OF We must receive written proof of death within sixty
DEATH days of the death of the insured, or as soon thereafter as
is reasonably possible, when a death benefit is payable.
The proof may be a certified death certificate or any other
proof satisfactory to Us.
<PAGE> 16
L-8387
Page 4
RESERVES,CASH All reserves are equal to or greater than those
VALUES AND required by statute. Any available Cash Value
DEATH BENEFITS and death benefit are not less than the minimum
benefits required by the statutes of the state in which
this policy is delivered.
BASIS OF A detailed statement of the method of computations
COMPUTATIONS of cash values under this policy has been filed with the
insurance department of the state in which this policy is
delivered. The 1980 Commissioner's Standard Ordinary Smoker
or Nonsmoker Mortality Tables, Age 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 ("Code").
We may return Premiums which would disqualify the policy
from tax treatment as a life insurance policy. This policy
may be endorsed to reflect any change in the Code and its
regulations and rulings. You will receive a copy of any
such endorsement. Currently, no charges are made against
the Separate Account for federal, state or other taxes that
may be attributed to the Separate Account. We may in the
future, however, impose charges for federal income taxes
attributed to the Separate Account. Charges for other
taxes, if any, attributed to this policy may also be made.
NON-PARTICIPATING This policy does not pay dividends. It will not share in
Our surplus or earnings.
REPORTS At least once each Policy Year We will send You a statement
showing Premiums received, interest credited, 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.
OWNERSHIP PROVISIONS
OWNERS OF POLICY The insured is the original policy owner unless
otherwise provided in the application. You have the right
to cancel or amend this policy if We agree. You may
exercise every option and right conferred by this policy
including the right of assignment. The joint owners must
agree to any change if more than one owner is named.
CHANGE OF You may change the owner by written request at
OWNERSHIP any time during the lifetime of the Insured. You must
furnish information sufficient to clearly identify the new
owner to Us. The change is subject to any existing
assignment of this policy. When We record the effective
date of the change, it will be the date the notice was
signed except for action taken by Us prior to receiving the
request. Any change is subject to the payment of any
proceeds. We may require You to return this policy to Us
for endorsement of a change.
BENEFICIARY The application for this policy shows the original
DESIGNATION AND beneficiary. You may change the beneficiary if You send Us
CHANGE OF a written change form. Changes are subject to the
BENEFICIARY following:
1. The change must be filed while the insured is
alive;
2. This policy must be in force at the time You file a
change;
3. Such change must not be prohibited by the terms of
an existing assignment, beneficiary designation or
other restriction;
4. Such change will take effect when We receive it;
5. After We receive the change, it will take effect on
the date the change form was signed. However,
action taken by Us before the change form was
received will remain in effect; and
6. The request for change must provide information
sufficient to identify the new beneficiary.
We may require You to return this policy for endorsement of
a change.
<PAGE> 17
L-8387
Page 5
DEATH OF The interest of a beneficiary who dies before the insured
BENEFICIARY will pass to the other beneficiaries, if any, share and
share alike, unless otherwise provided in the beneficiary
designation. If no beneficiary survives, or if no
beneficiary is named, the distribution will be made
to the insured's estate.
If a beneficiary dies within ten days of the date of the
insured's death, the death benefit will be paid as if the
insured had survived the beneficiary.
DEATH BENEFIT PROVISIONS
PAYMENT OF DEATH We will pay a death benefit to the beneficiary
BENEFITS when We receive due proof of death, if the insured
dies while this policy is inforce. The return of this
policy is required before a payment is made. We will pay
the death benefit in a lump sum.
Instead of a lump sum payment the beneficiary may elect to
have the death benefit distributed under a settlement
option. The beneficiary must make this choice within sixty
days of the time We receive due proof of death.
AMOUNT PAYABLE We compute the death benefit at the end of the
UPON DEATH Valuation Period following Our receipt of due proof of
death and the return of this policy.
As long as there is positive Net Surrender Value, or during
the Grace Period, the death benefit is the greater of:
1. the specified amount on the date of the insured's
death, and
2. the Cash Value on the date of the insured's death
multiplied by the applicable death benefit factor
at the time of death.
The death benefit proceeds equal a. minus b. minus c.,
where:
a. is the death benefit
b. is any monthly deductions due during the grace
period
c. is any Debt.
The initial specified amount and the table of death benefit
factors are shown in the policy specifications. The
specified amount is the initial specified amount, unless
reduced by a withdrawal.
If there is no positive Net Surrender Value, no Debt
outstanding, you paid 100% of the Guideline Single Premium
as your Initial Premium, and your policy is not in the
Grace Period, the death benefit will be your total Premium
paid, less any withdrawals.
DEFERMENT OF The payment of death benefits in excess of the
DEATH BENEFITS specified amount may be deferred: (a) for up to 6
months from the date requested if these benefits are based
upon policy values which do not depend on the investment
performance of the Separate Account or (b) otherwise, for
any period during which the New York Stock Exchange is
closed for trading (except for normal holiday closings) or
when the Securities and Exchange Commission has determined
that a state of emergency exists which may make such
payment impractical.
PREMIUM PROVISIONS
INITIAL PREMIUM The owner may choose a minimum initial Premium of
90% or 100% of the Guideline Single Premium (based on the
initial specified amount).
<PAGE> 18
L-8387
Page 6
ADDITIONAL Payment of additional Premium of at least $1,000 will be
PREMIUM permitted under the following circumstances:
1. An additional Premium payment is required to
maintain or reinstate coverage, as described in the
GRACE PERIOD and REINSTATEMENT provisions.
2. The Premium payment would not cause the policy to
fail to meet the definition of life insurance under
Section 7702 of the Internal Revenue Code ("Code").
We reserve the right to require satisfactory evidence of
insurability before accepting any additional Premium that
increases the death benefit. Premium which does not meet
the tax qualification guidelines for life insurance under
the Code will not be applied to the policy.
If there is current Debt on the policy, additional moneys
will be considered repayment of Debt first, unless You
state otherwise.
PLACE OF PAYMENT All Premiums under this policy must be paid to Us at Our
home office or such other location as We may select. We
will notify You and any other interested parties in writing
of such other locations. Premiums received by an agent will
be allocated only after We receive them.
PREMIUM ALLOCATION The initial Premium will be allocated to the Kemper Money
Market Subaccount upon issue. The Subaccount value of the
Kemper Money Market Subaccount will be allocated to the
Subaccounts, according to the Premium allocation shown in
the policy specifications, on the Trade Date. You may
temporarily allocate a portion of Your initial Premium to
any single Subaccount or to our Fixed Account to be
transferred to the Subaccounts under our automatic dollar
cost averaging program. Only initial Premiums may be
allocated to the Fixed Account, and only for the purpose of
subsequent transfers to the Subaccounts under our automatic
dollar cost averaging program. If the Issue Date is the
same as the Trade Date, the Premium will be immediately
allocated to the Subaccounts.
GRACE PERIOD If the Net Surrender Value immediately
proceeding a Deduction Day is less than the monthly
deduction for that month, a grace period of 61 days will be
allowed for the payment, without evidence of insurability,
of Premium payment or loan repayment equal to at least
three monthly deductions.
This grace period will begin on the day We mail notice of
the required payment to Your last known address.
If there is no current Debt on the policy, you paid 100% of
the Guideline Single Premium as your Initial Premium, and
payment is not received within the grace period, coverage
under this policy will remain inforce, but the amount paid
upon death of the insured after the grace period will be
limited to the return of Your total Premiums paid less any
prior partial withdrawals. The specified amount coverage
can be restored according to the REINSTATEMENT provision
below.
If there is any Debt on the policy, you paid 90% of the
Guideline Single Premium as your Initial Premium, and
payment is not received within the grace period, coverage
under this policy will terminate at the end of the grace
period in accordance with the NONFORFEITURE provisions.
If death of the Insured occurs within the grace period, any
amount payable will be reduced by any unpaid monthly
deductions.
REINSTATEMENT If coverage has been reduced because of insufficient Net
Surrender Value status as defined on Page 10 below, and has
not been surrendered for its Net Surrender Value, it may be
reinstated to the Specified Amount at any time within 3
years after entering that status. The policy may also be
reinstated within 3 years of policy lapse if it has not
been surrendered for its Net Surrender Value. Either type
of reinstatement is subject to:
<PAGE> 19
L-8387
Page 7
1. receipt of evidence of insurability satisfactory to
Us;
2. payment of enough Premium to pay the unpaid monthly
deductions due during the last expired grace
period;
3. payment of a minimum Premium sufficient to keep
this policy in force for three months; and
4. payment of any Debt against this policy which
existed at the date of termination of coverage.
The effective date of reinstatement of a policy will be the
Deduction Day that coincides with or next follows the date
the application for reinstatement is approved by Us.
The SUICIDE and CONTESTABILITY provisions will apply from
the effective date of reinstatement.
VARIABLE ACCOUNT PROVISIONS
SEPARATE ACCOUNT The variable benefits under this policy are provided
through the KILICO Variable Separate Account. This is
called the Separate Account. The Separate Account is
registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of
1940. It is a separate investment account maintained by Us
into which a portion of Our assets has been allocated for
this policy and may be allocated for certain other
policies.
LIABILITIES OF The assets equal to the reserves and other liabilities
SEPARATE ACCOUNT of the Separate Account will ACCOUNT not be charged with
liabilities arising out of any other business We may
conduct. If the assets of the Separate Account exceed the
liabilities under the policies supported by the Separate
Account, then the excess may be used to cover the
liabilities of Our General Account. We will value the
assets of the Separate Account on each Valuation Date.
SEPARATE ACCOUNT On any Valuation Day, the Separate Account Value is the sum
VALUE of its Subaccount Values.
SUBACCOUNTS The Separate Account consists of several Subaccounts as
shown in the policy specifications. We may, from time to
time, combine or remove Subaccounts in the Separate Account
and establish additional Subaccounts of the Separate
Account.
In such event, We may permit You to select other
Subaccounts under this policy. However, the right to select
any other Subaccount is limited by the terms and conditions
We may impose on such transactions.
SUBACCOUNT VALUE On any Valuation Date, the Subaccount Value in a Subaccount
equals:
1. the Subaccount Value on the previous Valuation Date
multiplied by the investment experience factor for
the end of the current Valuation Period; plus
2. any net Premiums received and allocated to the
Subaccount during the current Valuation Period;
plus
<PAGE> 20
L-8387
Page 8
4. the pro-rata portion of any monthly deduction
charged to the Subaccount when the Valuation Period
includes a Deduction Day; minus
5. any amounts transferred or withdrawn from the
Subaccount during the current Valuation Period;
minus
6. any amounts loaned from the Subaccount during the
current Valuation Period.
FUND Each Subaccount of the Separate Account will buy shares of
an investment company registered under the Investment
Company Act of 1940 as an open-end diversified management
investment company or shares of a separate series thereof.
Each such investment company or series represents a
separate investment portfolio which corresponds to one of
the Subaccounts of the Separate Account.
If We establish additional Subaccounts, each new Subaccount
will invest in shares of an additional series or investment
company. We may also substitute other investment companies.
RIGHTS RESERVED We reserve the right, subject to compliance with the
BY THE COMPANY current law or as it may be changed in the future:
1. To operate the Separate Account in any form
permitted under the Investment Company Act of 1940
or in any other form permitted by law;
2. To take any action necessary to comply with or
obtain and continue any exemptions from the
Investment Company Act of 1940 or to comply with
any other applicable law;
3. To transfer any assets in any Subaccount to another
Subaccount or to one or more Separate Accounts, or
the General Account, or to add, combine or remove
Subaccounts in the Separate Account.
4. To delete the shares of any of the portfolios of
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 We assess charges, but not to
increase the aggregate amount above that currently
charged to the Separate Account and the Fund in
connection with the policies.
When required by law, We will obtain Your approval of such
changes and the approval of any regulatory authority.
ACCUMULATION Each Subaccount has an accumulation unit value. When
UNIT VALUE 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.
The accumulation unit value for each subsequent Valuation
Period is the investment experience factor for that period
multiplied by the accumulation unit value for the
immediately preceding Period. Each Valuation Period has a
single accumulation unit value that is applied to each day
in the period. The number of accumulation units will not
change as a result of investment experience.
<PAGE> 21
L-8387
Page 9
INVESTMENT Each Subaccount has its own investment experience factor.
EXPERIENCE The investment experience of a Subaccount is calculated
FACTOR by applying the investment experience factor to the value
in each Subaccount during the Valuation Period.
The investment experience factor of a Subaccount for a
Valuation Period is determined by dividing 1. by 2. and
subtracting 3. from the result, where:
1. is the net result of:
a. the net asset value per share of the investment
held in the Subaccount determined at the end of
the current Valuation Period; plus
b. the per share amount of any dividend or capital
gain distributions made by the investments held
in the Subaccount, if the "ex-dividend" date
occurs during the current Valuation Period;
plus or minus
c. a charge or credit for any taxes reserved for
the current Valuation Period which We determine
resulted from the investment operations of the
Subaccount;
2. is the net asset value per share of the investment
held in the Subaccount, determined at the end of
the last Valuation Period;
3. is the factor representing the Mortality and
Expense Charge, stated in the policy
specifications, for the number of days in the
Valuation Period.
NONFORFEITURE PROVISIONS
CASH VALUE The Cash Value of this policy is equal to the sum of
the Separate Account Value, plus the Loan Account Value,
plus the Fixed Account Value.
MONTHLY DEDUCTION On each Deduction Day, a monthly deduction will be made
equal to the sum of the following:
1. the monthly cost of insurance charge for this
policy; plus
2. the monthly charge for any riders; plus
3. the monthly Administration Charge; plus
4. the monthly Tax Charge.
The monthly deduction will be deducted from the Subaccounts
and Fixed Account in proportion to the value that each
Subaccount and Fixed Account bears to the Separate Account
Value plus the Fixed Account Value.
COST OF INSURANCE We calculate the cost of insurance on each Deduction Day.
The maximum cost of insurance charge equals a. times the
result of b. minus c. where:
a. is the maximum cost of insurance rate per $1,000
for the initial specified amount;
b. is the death benefit; and
c. is the cash value.
<PAGE> 22
L-8387
Page 10
COST OF INSURANCE The cost of insurance rate is based on the insured's sex,
issue age, coverage year, RATE and rate class. The cost of
insurance is also based on whether 90% or 100% of the
Guideline Single Premium has been paid at issue.
Any change in the cost of insurance rate will be on a
uniform basis for all insureds of the same: 1. sex; 2.
attained age at start of coverage; 3. coverage year; and 4.
rate class. However, the cost of insurance rates will not
exceed those shown in the Table of Guaranteed Maximum
Monthly Cost of Insurance Rates per $1,000 multiplied by
any rate class percent over 100.
These rates are found in the policy specifications. These
rates are based on the Commissioners 1980 Standard Ordinary
Smoker and Nonsmoker Mortality Tables, Age Last Birthday.
RIDERS The monthly charges for any riders are shown in the policy
specifications.
MORTALITY AND The Mortality and Risk Charge, Administration Charge,
EXPENSE RISK Tax Charge, and Annual Records Maintenance Charge are
CHARGE, ADMIN- shown in the policy specifications.
ISTRATION CHARGE,
TAXCHARGE, AND
ANNUAL RECORDS
MAINTENANCE CHARGE
INSUFFICIENT NET This policy will enter the insufficient net surrender value
SURRENDER VALUE status as provided in the GRACE PERIOD provision if the
STATUS Net Surrender Value immediately preceding a deduction is:
1. insufficient to cover the monthly deduction, and
2. no Premium payment or loan payment sufficient to
cover at least three monthly deductions is received
before the end of the grace period.
Any monthly deduction after entering insufficient net
surrender value status will not be considered a
reinstatement of this policy.
TRANSFER, WITHDRAWAL
AND LOAN PROVISIONS
TRANSFERS You may direct the transfer of all or part of one
Subaccount's value to another Subaccount.
Transfers will be subject to the following conditions:
1. The minimum amount which may be transferred is $100
or, if smaller, the remaining value in a
Subaccount;
2. No partial transfer will be made if the remaining
value of any Subaccount will be less than $500
unless the transfer will eliminate Your interest in
such Subaccount;
3. We reserve the right to charge $25 for each
transfer in excess of 12 in a Policy Year.
Any transfer request must clearly specify:
1. the amount which is to be transferred; and
2. the names of the Subaccounts which are affected.
<PAGE> 23
L-8387
Page 11
We will only honor a telephone transfer request if a
properly executed telephone transfer authorization is on
file with Us. Such request for a transfer must comply with
the conditions of the authorization.
We reserve the right at any time and without notice to any
party, to terminate, suspend, or modify these transfer
rights.
WITHDRAWALS You may withdraw all or part of the Cash Value that remains
after We subtract any withdrawal charge. We must receive a
written request that indicates the amount of the withdrawal
from each Subaccount or Fixed Account. You must return the
policy to Us if You elect a total withdrawal.
Withdrawals are subject to the following conditions:
1. Each withdrawal must be at least the minimum
withdrawal amount stated in the policy
specifications or the value that remains in the
Subaccount or Fixed Account if smaller;
2. A minimum of $500 must remain in the Subaccount or
Fixed Account after You make a withdrawal unless
the Subaccount or Fixed Account is eliminated by
such withdrawal;
3. A minimum amount of net surrender value as stated
in the policy specifications must remain in the
Policy after You make a withdrawal.
4. The maximum You may withdraw from any Subaccount or
Fixed Account is the value of the Subaccount or
Fixed Account less the amount of any withdrawal
charge.
5. Any withdrawal amount You request will be increased
by the withdrawal charge.
EFFECT OF The Cash Value will be reduced by the amount of the
WITHDRAWAL withdrawal. The specified amount will be reduced
proportional to the reduction in Cash Value due to the
partial withdrawal. We will not permit a withdrawal if it
will decrease the specified amount to less than the Minimum
Specified Amount stated in the Policy Specifications.
WITHDRAWAL CHARGES Withdrawal charges are shown in the policy specifications.
Any amount withdrawn which is not subject to a withdrawal
charge will be considered a "free partial withdrawal," as
referenced in the policy specifications.
POLICY LOANS Policy loans may be made any time. We will lend up to a
maximum loan amount of 90% of the policy's Cash Value less
any applicable withdrawal charges. The amount of any new
loan may not exceed the maximum loan amount less Debt on
the date the loan is granted. The Preferred Loan portion of
a loan will be determined on the date the loan is made, and
will not be subsequently redetermined. The minimum amount
of a loan is $1,000.
On the date the loan is made, an amount equal to the loan
will be transferred from the Subaccounts to the Loan
Account held in the General Account until the loan is
repaid. Unless directed otherwise, the loaned amount will
be deducted from the Subaccount in proportion to the values
that each Subaccount bears to the Separate Account Value.
Should the Debt equal or exceed the Surrender Value, this
policy will be subject to the GRACE PERIOD provisions.
Cash values derived from Premium received by Us in the form
of a check or draft will not be available for loans until
30 days after deposit of such check or draft.
POLICY LOAN The loan interest rate stated in the policy specifications,
INTEREST and will be compounded daily. Interest not paid will be
charged on a daily basis and will be added to the Debt on
this policy and bear interest at the same rate.
<PAGE> 24
L-8387
Page 12
During the existence of a loan, the Loan Account Value will
earn interest at the guaranteed rate stated in the policy
specifications. We may credit a higher rate on the portion
of the Loan Account Value attributable to a Preferred Loan.
Interest will be earned on a daily basis and will be added
to the Loan Account.
If an Internal Revenue Code Section 1035(a) exchange takes
place that has an outstanding loan at the time of transfer,
the difference between the Cash Value and the total of all
Premiums paid under the exchanged policy is considered a
Preferred Loan.
POLICY LOAN A Debt may be repaid in full or in part at any time while
REPAYMENT this policy is in force.
As Debt is paid, the Loan Account Value equal to the amount
of repayment which exceeds the difference between interest
due and interest earned will be allocated to the
Subaccounts according to the then current Premium
allocation instructions. Loan repayments will be considered
repayment of Preferred Loans last.
EFFECTS OF The Debt on this policy, along with the withdrawal charge
POLICY LOANS will reduce the amount of Cash Value payable upon
surrender. The Debt on this policy will also reduce the
amount of Cash Value available for withdrawal. The death
benefit payable to the beneficiary upon the death of the
Insured will also be reduced by the amount of Debt.
TRANSFER, We will redeem the necessary number of accumulation units
WITHDRAWAL to achieve the dollar amount requested plus any applicable
AND LOAN charges when the withdrawal, transfer or loan is made from
PROCEDURES a Subaccount. We will reduce the number of accumulation
units credited in each Subaccount by the number of
accumulation units redeemed. The reduction in the number of
accumulation units is determined based on the accumulation
unit value at the end of the Valuation Period when We
receive the request, provided the request contains all
required information. We will pay the amount within seven
calendar days after the date We receive the request, except
as provided below.
DEFERMENT OF If the withdrawal, transfer or loan is to be made from a
WITHDRAWAL Subaccount, We may suspend the right of withdrawal or
TRANSFER OR transfer or delay payment more than seven calendar days:
LOAN
1. during any period when the New York Stock Exchange
is closed other than customary weekend and holiday
closings;
2. when trading in the markets normally utilized is
restricted, or an emergency exists as determined by
the Securities and Exchange Commission, so that
disposal of investments or determination of the
accumulation unit value is not practical; or
3. for such other periods as the Securities and
Exchange Commission by order may permit for
protection of owners.
SETTLEMENT OPTIONS
The Owner, or beneficiary at the death of the insured, if
no election by the Owner is in effect, may elect to have
all of the Net Surrender Value or Death Benefit of this
policy paid in a lump sum or have the amount applied to one
of the settlement options noted below.
The beneficiary may elect to have the death benefit
distributed as stated in Option 1 for a period not to
exceed the beneficiary's life expectancy; or Options 2, or
3 based upon the life expectancy of the beneficiary as
prescribed by federal regulations. The beneficiary must
make this choice within sixty days of the time we receive
due proof of death. An option can not be changed after the
first of such payments is made.
Payments must be made to a natural person, referred to
below as "payee." If the beneficiary is not a natural
person, the beneficiary must elect that the entire death
benefit be distributed within five years of your death.
Distribution of the death benefit must start within one
year after your death. It may start later if prescribed by
federal regulations.
<PAGE> 25
If the total death benefit proceeds are applied under one
of the settlement options, this contract must be
surrendered to us.
Payments for all options are derived from the applicable
tables. Current annuity rates will be used if they produce
greater payments than those shown in the policy. The age in
the tables is the age of the payee on the last birthday
before the first payment is due.
The option selected must result in a periodic payment
equivalent to at least $20 per month when annuity payments
begin. If the annuity option selected or otherwise applied
should result in a periodic payment less than the minimum
required on the date payments are scheduled to begin, we
reserve the right to make a lump sum payment in
satisfaction of our obligation to the payee under the
policy.
ELECTION OF Election of a settlement option may be made by written
SETTLEMENT OPTION notice to Us.
This election may be made:
1. by You during the lifetime of the insured;
2. by the beneficiary if no election made by You is in
effect at the time of the death of the insured; or
3. by the beneficiary if You reserve the right 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
will be revoked by a subsequent change of beneficiary or an
assignment of this policy unless provided otherwise.
OPTION 1
FIXED We will make monthly payments for a fixed number of
INSTALLMENT installments. Payments must be made for at least 5 years,
ANNUITY but not more than 30 years. Upon the payee's death, if the
beneficiary is a natural person, we will automatically
continue payments for the remainder of the certain period
to the beneficiary. If the beneficiary is either an estate
or trust we will pay the discounted value of the remaining
payments in the specified period based on the discount rate
stated in the supplemental contract.
OPTION 2
LIFE ANNUITY We will make monthly payments while the payee is alive.
OPTION 3
LIFE ANNUITY We will make monthly payments for a guaranteed period
WITH INSTAL- and thereafter while the payee is alive. The guaranteed
LMENTS GUARANTEED period must be selected at the time the annuity
option is chosen. The guaranteed periods available are 5,
10, 15 and 20 years. If, at the death of the payee,
payments have been made for less than five, ten, fifteen or
twenty years as elected, and the beneficiary is a natural
person, we will automatically continue payments for the
remainder of the elected period to the beneficiary. If the
beneficiary is either an estate or trust, we will pay the
discounted value of the remaining payments in the specified
period based on the discount rate stated in the
supplemental contract.
Page 13
L-8387
<PAGE> 26
L-8387
Page 14
OPTION 4
JOINT AND SURVIVOR We will pay the full monthly income while both payees are
ANNUITY alive. Upon the death of either payee, we will continue to
pay the surviving payee a percentage of the original
monthly payment. The percentage payable to the surviving
payee must be selected at the time the annuity option is
chosen. The percentages available are 50%, 66 2/3%, 75% and
100%.
OTHER OPTIONS We may make other settlement options available. Payments
are also available on a quarterly, semi-annual or annual
basis.
VARIABLE PAYOUT If a variable payout option is selected, the monthly
OPTIONS annuity payment will reflect OPTIONS the investment
performance of the Subaccounts in accordance with the
allocation of the lump sum distribution allocated to those
Subaccounts.
Allocations will not be changed thereafter, except as
provided in the TRANSFERS DURING THE PAYOUT PERIOD
provision.
The first monthly annuity payment is based on the
guaranteed annuity option shown in the Annuity Option
Table. You may elect any option available.
The dollar amount of the subsequent payments may increase
or decrease depending on the investment experience of each
Subaccount. The number of annuity units per payment will
remain fixed for each Subaccount.
The number of annuity units for each Subaccount is
calculated by dividing a. by b. where:
a. is the portion of the initial monthly payment that
can be attributed to that Subaccount; and
b. is the annuity unit value for that Subaccount at
the end of the Valuation Period. The Valuation
Period includes the date on which the payment is
made.
Monthly payments, after the first payment, are calculated
by summing up, for each Subaccount, the product of a. times
b. where:
a. is the number of annuity units per payment in each
Subaccount; and
b. is the annuity unit value for that Subaccount at
the end of the Valuation Period. The Valuation
Period includes the date on which the payment is
made.
After the first payment, we guarantee that the dollar
amount of each annuity payment will not be affected
adversely by actual expenses or changes in mortality
experience from the expense and mortality assumptions on
which we based the first payment.
ANNUITY UNIT The value of an annuity unit for each Subaccount at the end
VALUE of any subsequent Valuation Period is determined by
multiplying the result of a. times b. by c.
a. is the annuity unit value for the immediately
preceding Valuation Period; and
b. is the net investment factor for the Valuation
Period for which the annuity unit value is being
calculated; and
c. is the interest factor of .99993235 per calendar
day of such subsequent Valuation Period to offset
the effect of the assumed rate of 2.50% per year
used in the Annuity Option Table.
<PAGE> 27
The net investment factor for each Subaccount for any
Valuation Period is determined by dividing a. by b. where:
a. is the value of an annuity unit of the applicable
Subaccount as of the end of the current Valuation
Period plus or minus the per share credit or charge
for taxes reserved; and
b. is the value of an annuity unit of the applicable
Subaccount as of the end of the immediately
preceding Valuation Period, plus or minus the per
share credit or charge for taxes reserved.
FIXED PAYOUT If a fixed payout option is chosen, your payment will be
OPTION fixed in an amount throughout the payout period. We
determine the amount of your fixed payment by multiplying
the amount applied to the option by a rate determined by Us
which is not less than the rate specified in the Settlement
Option Tables below. The amount of the payment will not
change throughout the payout period.
TRANSFERS DURING During the payout period, the payee may choose to change
THE PAYOUT PERIOD the Subaccounts or the relative weighting of the
Subaccounts on which variable payments are based, or the
relative proportions of fixed and variable payments. A
transfer may be made subject to the following:
1. The payee must send us a written notice in a form
satisfactory to us;
2. One transfer is permitted each twelve month period
from the date of the first annuity payment. We must
receive notice of any such transfer at least thirty
days prior to the effective date of the transfer;
3. A payee may not base variable payments on more than
three Subaccounts after any transfer;
4. At least $1,000 of annuity unit value or annuity
reserve value must be transferred from a Subaccount
or from the General Account; and
5. At least $1,000 of annuity unit value or annuity
reserve value must remain in the account from which
the transfer was made.
When a transfer is made between Subaccounts, the number of
annuity units per payment attributable to a Subaccount to
which a transfer is made is equal to a. multiplied by b.
divided by c., where:
a. is the number of annuity units per payment in the
Subaccount from which transfer is being made;
b. is the annuity unit value for the Subaccount from
which the transfer is being made; and
c. is the annuity unit value for the Subaccount to
which transfer is being made.
When a transfer is made from the General Account to a
Subaccount, the number of annuity units per payment
attributable to a Subaccount to which transfer is made is
equal to a. divided by b., where:
a. is the General Account annuity amount per payment
being transferred; and
b. is the annuity unit value for the Subaccount to
which the transfer is being made.
Page 15
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<PAGE> 28
L-8387
Page 16
The amount of money allocated to the General Account in
case of a transfer from a Subaccount equals the annuity
reserve for the payee's interest in such Subaccount. The
annuity reserve is the product of a. multiplied by b.
multiplied by c. where:
a. is the number of annuity units representing the
payee's interest in such Subaccount per annuity
payment;
b. is the annuity unit value for such Subaccount; and
c. is the present value of $1.00 per payment period
using the attained age(s) of the payee(s) and any
remaining guaranteed payments that may be due at
the time of the transfer.
Money allocated to the General Account upon such transfer
will be applied under the same annuity payout option as
originally elected. Guaranteed period payments will be
adjusted to reflect the number of guaranteed payments
already made. If all guaranteed payments have already been
made, no further payments will be guaranteed.
All amounts and annuity unit values are determined as of
the end of the Valuation Period preceding the effective
date of the transfer.
We reserve the right at any time and without notice to any
party to terminate, suspend or modify these transfer
privileges.
SUPPLEMENTARY A supplementary agreement will be issued to reflect
AGREEMENT payments that will be made under a settlement option. If
payment is made as a death benefit distribution, the
effective date will be the date of death. Otherwise, the
effective date will be the date chosen by the Owner.
DATE OF FIRST Interest will start to accrue on the effective date of the
PAYMENT Supplementary Agreement. If the normal effective date is
the 29th, 30th, or 31st of the month, the effective date
will be the 28th day of the that month.
EVIDENCE OF AGE, We may require satisfactory evidence of the age, sex and
SEX AND SURVIVAL the continued survival of any person on whose life the
income is based.
MISSTATEMENT OF If the age or sex of the payee has been misstated, the
AGE OR SEX amount payable under the annuity option selected will be
such as the lump sum applied would have purchased at the
correct age or sex. Interest not to exceed 6% compounded
each year will be charged to any overpayment or credited to
any underpayment against future payments We may make under
the supplementary agreement for the option selected.
BASIS OF ANNUITY The guaranteed payments are based on an interest rate of
OPTIONS 2.50% per year and, where mortality is involved, the "1983
Table a" individual annuity mortality table developed by
the Society of Actuaries, projected using Projection Scale
G. We may also make available variable annuity payment
options based on assumed investment rates other than 2.50%.
CREDITORS The proceeds of this policy and any payment under an
annuity option will be exempt from the claim of creditors
and from legal process to the extent permitted by law.
<PAGE> 29
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<TABLE>
<CAPTION>
Number Number Number Number
of years Monthly of years Monthly of years Monthly of years Monthly
selected Payment selected Payment selected Payment selected Payment
- -------------- ----------- -- ------------ --------------- -------------- -------------- - --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.69 12 8.01 19 5.48 26 4.33
6 14.92 13 7.48 20 5.27 27 4.22
7 12.94 14 7.03 21 5.08 28 4.11
8 11.46 15 6.64 22 4.90 29 4.02
9 10.31 16 6.29 23 4.74 30 3.92
10 9.39 17 5.99 24 4.59
11 8.64 18 5.72 25 4.46
</TABLE>
OPTION TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED:
<TABLE>
<CAPTION>
Age of MONTHLY PAYMENTS GUARANTEED Age of MONTHLY PAYMENTS GUARANTEED
Male Female
Payee NONE 60 120 180 240 Payee NONE 60 120 180 240
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 4.17 4.16 4.13 4.06 3.96 55 3.87 3.86 3.84 3.81 3.75
56 4.27 4.25 4.21 4.14 4.03 56 3.95 3.94 3.92 3.88 3.82
57 4.36 4.35 4.30 4.22 4.09 57 4.03 4.02 4.00 3.95 3.88
58 4.46 4.45 4.40 4.30 4.16 58 4.11 4.11 4.08 4.03 3.95
59 4.57 4.55 4.50 4.39 4.22 59 4.21 4.20 4.17 4.11 4.01
60 4.69 4.67 4.60 4.48 4.29 60 4.30 4.29 4.26 4.19 4.08
61 4.81 4.79 4.71 4.57 4.36 61 4.41 4.40 4.35 4.28 4.15
62 4.94 4.92 4.83 4.66 4.43 62 4.52 4.50 4.46 4.37 4.23
63 5.09 5.05 4.95 4.76 4.49 63 4.64 4.62 4.56 4.46 4.30
64 5.24 5.20 5.08 4.86 4.56 64 4.76 4.74 4.68 4.56 4.37
65 5.40 5.35 5.21 4.96 4.62 65 4.90 4.87 4.80 4.66 4.45
66 5.57 5.52 5.35 5.06 4.69 66 5.04 5.01 4.93 4.77 4.52
67 5.75 5.69 5.49 5.17 4.75 67 5.19 5.16 5.06 4.87 4.59
68 5.95 5.87 5.64 5.27 4.81 68 5.36 5.32 5.20 4.98 4.66
69 6.15 6.07 5.80 5.37 4.86 69 5.53 5.49 5.35 5.10 4.73
70 6.38 6.27 5.96 5.48 4.91 70 5.72 5.68 5.51 5.21 4.80
71 6.61 6.49 6.12 5.58 4.96 71 5.93 5.87 5.67 5.33 4.86
72 6.86 6.72 6.29 5.68 5.00 72 6.15 6.08 5.85 5.44 4.92
73 7.13 6.96 6.47 5.77 5.04 73 6.39 6.31 6.03 5.56 4.97
74 7.42 7.21 6.64 5.86 5.08 74 6.65 6.55 6.21 5.67 5.02
75 7.72 7.48 6.82 5.95 5.11 75 6.93 6.81 6.41 5.78 5.06
76 8.05 7.76 7.00 6.03 5.14 76 7.24 7.08 6.60 5.88 5.10
77 8.40 8.06 7.18 6.11 5.17 77 7.57 7.38 6.80 5.98 5.13
78 8.77 8.37 7.35 6.18 5.19 78 7.92 7.69 7.01 6.07 5.16
79 9.18 8.69 7.53 6.25 5.20 79 8.31 8.02 7.21 6.15 5.18
80 9.60 9.03 7.70 6.31 5.22 80 8.72 8.37 7.41 6.23 5.20
81 10.06 9.38 7.86 6.36 5.23 81 9.17 8.74 7.61 6.30 5.22
82 10.55 9.74 8.02 6.41 5.24 82 9.66 9.13 7.80 6.35 5.23
83 11.07 10.12 8.17 6.45 5.25 83 10.20 9.54 7.98 6.41 5.24
84 11.63 10.50 8.32 6.49 5.26 84 10.77 9.96 8.15 6.45 5.25
85 12.22 10.89 8.45 6.52 5.26 85 11.39 10.40 8.31 6.49 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<TABLE>
<CAPTION>
Age of Age of Female Payee
Male
Payee 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C>
55 3.49 3.66 3.81 3.93 4.02 4.08 4.12
60 3.61 3.83 4.05 4.24 4.40 4.52 4.59
65 3.69 3.97 4.28 4.57 4.84 5.05 5.20
70 3.76 4.09 4.47 4.89 5.31 5.67 5.95
75 3.80 4.17 4.63 5.16 5.75 6.34 6.83
80 3.83 4.23 4.73 5.37 6.14 6.99 7.80
85 3.84 4.26 4.80 5.51 6.44 7.55 8.75
</TABLE>
Rates for ages not shown here will be provided upon request.
L-1551
<PAGE> 30
INDIVIDUAL MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
NON-PARTICIPATING
TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED
ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE
DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH
BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND
TERMINATION PROVISIONS.
This is a legal contract between the owner and Kemper Investors Life Insurance
Company.
READ YOUR POLICY CAREFULLY.
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, Illinois 60049-0001
L-8387
<PAGE> 31
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<TABLE>
<CAPTION>
Number Number Number Number
of years Monthly of years Monthly of years Monthly of years Monthly
selected Payment selected Payment selected Payment selected Payment
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.69 12 8.01 19 5.48 26 4.33
6 14.92 13 7.48 20 5.27 27 4.22
7 12.94 14 7.03 21 5.08 28 4.11
8 11.46 15 6.64 22 4.90 29 4.02
9 10.31 16 6.29 23 4.74 30 3.92
10 9.39 17 5.99 24 4.59
11 8.64 18 5.72 25 4.46
</TABLE>
OPTIONS TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED
<TABLE>
<CAPTION>
MONTHLY PAYMENTS GUARANTEED
AGE NONE 60 120 180 240
<S> <C> <C> <C> <C> <C>
55 4.02 4.01 3.99 3.94 3.86
56 4.11 4.10 4.07 4.01 3.92
57 4.20 4.19 4.15 4.09 3.99
58 4.29 4.28 4.24 4.17 4.05
59 4.39 4.38 4.33 4.25 4.12
60 4.50 4.48 4.43 4.34 4.19
61 4.61 4.59 4.53 4.43 4.26
62 4.73 4.71 4.64 4.52 4.33
63 4.86 4.84 4.76 4.61 4.40
64 5.00 4.97 4.88 4.71 4.47
65 5.15 5.11 5.01 4.81 4.54
66 5.30 5.26 5.14 4.92 4.61
67 5.47 5.43 5.28 5.02 4.68
68 5.65 5.60 5.43 5.13 4.74
69 5.84 5.78 5.58 5.24 4.80
70 6.05 5.97 5.74 5.35 4.86
71 6.27 6.18 5.90 5.46 4.91
72 6.50 6.40 6.07 5.56 4.96
73 6.76 6.63 6.25 5.67 5.01
74 7.03 6.88 6.43 5.77 5.05
75 7.32 7.14 6.62 5.87 5.09
76 7.64 7.42 6.80 5.96 5.12
77 7.98 7.72 6.99 6.05 5.15
78 8.34 8.03 7.18 6.13 5.17
79 8.73 8.36 7.37 6.20 5.19
80 9.16 8.70 7.56 6.27 5.21
81 9.61 9.06 7.74 6.33 5.23
82 10.10 9.44 7.91 6.38 5.24
83 10.63 9.83 8.08 6.43 5.25
84 11.19 10.23 8.24 6.47 5.25
85 11.80 10.64 8.38 6.50 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<TABLE>
<CAPTION>
Age of Age of Secondary Payee
Primary
Payee 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C>
55 3.51 3.64 3.76 3.85 3.92 3.96 3.99
60 3.64 3.84 4.02 4.18 4.29 4.38 4.43
65 3.76 4.02 4.29 4.54 4.75 4.90 5.00
70 3.85 4.18 4.54 4.91 5.25 5.53 5.74
75 3.92 4.29 4.75 5.25 5.77 6.26 6.64
80 3.96 4.38 4.90 5.53 6.26 7.00 7.69
85 3.99 4.43 5.00 5.74 6.64 7.69 8.76
</TABLE>
Rates for ages not shown here will be provided upon request.
L-1552
<PAGE> 32
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049-0001
[ZURICH KEMPER LOGO]
ENDORSEMENT
This Endorsement forms a part of the attached contract. The effective date of
this Endorsement is the effective date of this contract.
All references throughout this contract to the sex of a person used in the
calculation of benefits are deleted from this contract.
Except as modified herein, all terms and conditions of the contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ Debra P. Rezabek /s/ John B. Scott
Secretary President
Form L-9006 (9/88)
<PAGE> 1
EXHIBIT 1-A(5)(b)
KEMPER INVESTORS LIFE INSURANCE COMPANY
A STOCK LIFE INSURANCE COMPANY
1 KEMPER DRIVE
LONG GROVE, ILLINOIS 60049-0001 [ZURICH KEMPER LOGO]
LIVES INSURED: JOHN DOE ISSUE AGE: 35
JANE DOE 35
EFFECTIVE DATE: JAN 01 1999 POLICY NO: 0000000
SINGLE PREMIUM: $ 10,000 INITIAL SPECIFIED
AMOUNT: $ 100,000
RIGHT TO CANCEL - At any time within 10 days of receiving this policy, you may
return it to us or to the agent through whom it was purchased. Immediately upon
our receipt, this policy will be voided as if it had never been in force. Within
ten days we will pay an amount equal to premiums paid for this policy less any
Debt.
On the Maturity Date, if either of the Lives Insured is living and this policy
is in force, we will pay the Net Surrender Value to you. If both Lives Insured
die prior to the Maturity Date and this policy is in force, we will pay to the
beneficiary the death benefit in force at the time of the Surviving Insured's
death. Payment made to you or to the beneficiary will be made subject to the
terms of this policy.
This policy is issued in consideration of the attached application and payment
of the single premium. The provisions on this cover and the pages that follow
are part of this policy.
Signed for Kemper Investors Life Insurance Company at its home office in Long
Grove, Illinois.
Secretary President
SURVIVORSHIP, MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
PAYABLE ON THE SECOND DEATH
NON-PARTICIPATING
TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED
ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE
DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH
BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND
TERMINATION PROVISIONS.
This is a legal contract between the owner and Kemper Investors Life Insurance
Company.
READ THIS POLICY CAREFULLY.
Policy Form No. L-8388
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE NO.
<S> <C>
SETTLEMENT/ANNUITY OPTION TABLE Follows Page 16
APPLICATION Follows Policy Specifications
POLICY SPECIFICATIONS Follows Table of Contents
ENDORSEMENTS, if any Follows Settlement Option Table
DEFINITIONS 1-2
GENERAL PROVISIONS 3-4
The Policy 3
Modification of Policy 3
Contestability 3
Misstatement of Age and/or Sex 3
Suicide 3
Effective Date of Coverage 3
Termination 3
Assignment 3
Due Proof of Death 3
Reserves, Cash Values and Benefits 4
Tax Treatment 4
Non-Participating 4
Reports 4
OWNERSHIP PROVISIONS 4-5
Owners of Policy 4
Change of Ownership 4
Beneficiary Designation and Change of Beneficiary 4-5
Death of Beneficiary 5
DEATH BENEFIT PROVISIONS 5
Payment of Death Benefits 5
Amount Payable Upon Death 5
Deferment of Death Benefits 5
PREMIUM PROVISIONS 5-7
Initial Premium 5
Additional Premium 6
Place of Payment 6
Premium Allocation 6
Grace Period 6
Reinstatement 6-7
VARIABLE ACCOUNT PROVISIONS 7-9
Separate Account 7
Liabilities of Separate Account 7
Separate Account Value 7
Subaccounts 7
Subaccount Value 7-8
Fund 8
Rights Reserved By The Company 8
Accumulation Unit Value 8
Investment Experience Factor 9
NON FORFEITURE PROVISIONS 9-10
Cash Value 9
Monthly Deduction 9
Cost of Insurance 9
Cost of Insurance Rate 10
Riders 10
Mortality and Expense Charge 10
Insufficient Net Surrender Value Status 10
TRANSFER, WITHDRAWAL AND LOAN PROVISIONS 10-12
Transfers 10
Withdrawals 11
Effect of a Withdrawal 11
Withdrawal Charges 11
Policy Loans 11
Policy Loan Interest 11-12
</TABLE>
L-8388
<PAGE> 3
<TABLE>
<S> <C>
Policy Loan Repayment 12
Effect of Policy Loans 12
Transfer, Withdrawal and Loan Provisions 12
Deferment of Withdrawal Transfer or Loan 12
SETTLEMENT OPTIONS 12-14
Election of Settlement Options 13
Fixed Installment Annuity 13
Life Annuity 13
Life Annuity with Installments Guaranteed 13
Joint and Survivor Annuity 14
OTHER OPTIONS 14
Variable Payment Options 14
Annuity Unit Value 14-15
Fixed Payout Option 15
Transfers During Payout Period 15-16
Supplementary Agreement 16
Date of First Payment 16
Evidence of Age, Sex and Survival 16
Misstatement of Age or Sex 16
Basis of Annuity Option's 16
Creditors 16
</TABLE>
L-8388
<PAGE> 4
POLICY SPECIFICATIONS
LIVES INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER 0000000
INITIAL SPECIFIED AMOUNT $100,000 DATE OF ISSUE JAN 01 1999
COVERAGE INFORMATION
RATE INITIAL
CLASS SPECIFIED MONTHLY
BENEFIT DESCRIPTION PERCENT AMOUNT MATURITY DATE RATE
MODIFIED SINGLE PREMIUM
VARIABLE LIFE* 100 $100,000 [JAN 01 2064] SEE PAGE D
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE
SHOWN IF PREMIUMS PAID ARE INSUFFICIENT TO CONTINUE THE COVERAGE TO
SUCH DATE. EVEN IF COVERAGE CONTINUES TO THE MATURITY DATE, THERE MAY
BE NO SURRENDER VALUE TO BE PAID ON THAT DATE.
PREMIUM INFORMATION
SINGLE PREMIUM [ $10,000 ]
INSURED RATE CLASS STANDARD TOBACCO/NON-TOBACCO
PAGE A
8388
<PAGE> 5
POLICY SPECIFICATIONS
LIVES INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER [000000]
DEDUCTION DAY DAY 01 OF EACH MONTH
DEDUCTION PERIOD [65 YEARS, 00 MONTHS]
MINIMUM SPECIFIED AMOUNT AFTER
WITHDRAWAL [$10,000]
MINIMUM WITHDRAWAL AMOUNT [$100.00]
MINIMUM NET SURRENDER VALUE AFTER
WITHDRAWAL [$5,000]
MINIMUM LOAN AMOUNT [$1,000.00]
POLICY LOAN INTEREST CHARGED [ 5.50% ]
GUARANTEED POLICY LOAN INTEREST [ 3.50% ]
CREDITED
MINIMUM PREMIUM [$10,000.00]
IRC SECTION 7702 TEST GUIDELINE PREMIUM
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95+ 100
</TABLE>
*ATTAINED AGE IS THE AGE ON LAST BIRTHDAY AS OF THE
BEGINNING OF THE POLICY YEAR.
PAGE B
8388
<PAGE> 6
POLICY SPECIFICATIONS
LIVES INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER [000000]
SEPARATE ACCOUNT INITIAL PREMIUM ALLOCATION
KEMPER AGGRESSIVE GROWTH PORTFOLIO 100%
KEMPER TECHNOLOGY GROWTH PORTFOLIO
KEMPER-DREMAN FINANCIAL SERVICES PORTFOLIO
KEMPER SMALL CAP GROWTH PORTFOLIO
KEMPER SMALL CAP VALUE PORTFOLIO
KEMPER-DREMAN HIGH RETURN EQUITY PORTFOLIO
KEMPER INTERNATIONAL PORTFOLIO
KEMPER INTERNATIONAL GROWTH & INCOME PORTFOLIO
KEMPER GLOBAL BLUE CHIP PORTFOLIO
KEMPER GROWTH PORTFOLIO
KEMPER CONTRARIAN VALUE PORTFOLIO
KEMPER BLUE CHIP PORTFOLIO
KEMPER VALUE+GROWTH PORTFOLIO
KEMPER INDEX 500 PORTFOLIO
KEMPER HORIZON 20+ PORTFOLIO
KEMPER TOTAL RETURN PORTFOLIO
KEMPER HORIZON 10+ PORTFOLIO
KEMPER HIGH YIELD PORTFOLIO
KEMPER HORIZON 5 PORTFOLIO
KEMPER GLOBAL INCOME PORTFOLIO
KEMPER INVESTMENT GRADE BOND PORTFOLIO
KEMPER GOVERNMENT SECURITIES PORTFOLIO
KEMPER MONEY MARKET PORTFOLIO
SCUDDER VLIF GLOBAL DISCOVERY PORTFOLIO
SCUDDER VLIF GROWTH AND INCOME PORTFOLIO
SCUDDER VLIF INTERNATIONAL PORTFOLIO
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO
WARBURG EMERGING MARKETS PORTFOLIO
WARBURG POST-VENTURE CAPITAL PORTFOLIO
ASSET BASED CHARGES ARE ASSESSED FOR THE ABOVE DIVISIONS. FOR A
COMPLETE DISCUSSION OF ASSET BASED CHARGES, PLEASE REFER TO SCHEDULE 1.
PAGE C
8388
<PAGE> 7
POLICY SPECIFICATIONS
LIVES INSURED JOHN DOE ISSUE AGE 35
JANE DOE 35
EFFECTIVE DATE JAN 01 1999 POLICY NUMBER [000000]
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES* PER $1,000
<TABLE>
<CAPTION>
ATTAINED NON- ATTAINED NON-
AGE TOBACCO TOBACCO AGE TOBACCO TOBACCO
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0 0.219480 0.219480 50 0.428690 0.837880
1 0.085880 0.085880 51 0.468090 0.916270
2 0.082540 0.082540 52 0.513380 1.004870
3 0.080880 0.080880 53 0.565410 1.105400
4 0.077540 0.077540 54 0.623350 1.215380
5 0.073370 0.073370 55 0.688070 1.333150
6 0.069200 0.069200 56 0.758730 1.457890
7 0.065030 0.065030 57 0.833670 1.589640
8 0.062530 0.062530 58 0.917110 1.728430
9 0.061690 0.061690 59 1.010780 1.877720
10 0.062530 0.062530 60 1.115550 2.044410
11 0.067530 0.067530 61 1.232310 2.232910
12 0.076700 0.076700 62 1.367070 2.445950
13 0.089220 0.089220 63 1.519910 2.684600
14 0.103400 0.103400 64 1.690090 2.946500
15 0.113420 0.146810 65 1.876860 3.224930
16 0.123430 0.163510 66 2.079500 3.517450
17 0.130940 0.175200 67 2.297270 3.821590
18 0.135950 0.184390 68 2.534600 4.141890
19 0.139290 0.190240 69 2.798580 4.490890
20 0.140130 0.193580 70 3.098170 4.877870
21 0.138460 0.193580 71 3.441600 5.314990
22 0.135950 0.190240 72 3.839990 5.812080
23 0.132610 0.186890 73 4.293280 6.366660
24 0.129280 0.181880 74 4.794460 6.979050
25 0.125100 0.176030 75 5.333740 7.638620
26 0.122600 0.172690 76 5.907380 8.318710
27 0.120930 0.171020 77 6.511600 9.007620
28 0.120090 0.171020 78 7.150730 9.710250
29 0.120090 0.173530 79 7.845900 10.451730
30 0.120930 0.177710 80 8.620930 11.258160
31 0.123430 0.183550 81 9.498890 12.154910
32 0.126770 0.191070 82 10.501350 13.160810
33 0.131780 0.201100 83 11.628210 14.262960
34 0.137620 0.212790 84 12.862100 15.427670
35 0.144300 0.227000 85 14.178860 16.617240
36 0.151820 0.243720 86 15.565070 17.803170
37 0.161840 0.264620 87 17.002260 19.039280
38 0.172690 0.288040 88 18.486430 20.348230
39 0.184390 0.314810 89 20.041320 21.671680
40 0.198590 0.345780 90 21.693700 23.030110
41 0.213630 0.379270 91 23.488560 24.468300
42 0.229510 0.416120 92 25.504290 26.169550
43 0.247060 0.456350 93 27.961930 28.406850
44 0.266290 0.500790 94 31.383850 31.563380
45 0.288040 0.547780 95 36.798270 36.798270
46 0.311460 0.596470 96 46.588990 46.588990
47 0.336570 0.649400 97 67.043870 67.043870
48 0.364190 0.706570 98 83.333330 83.333330
49 0.394340 0.768830 99 83.333330 83.333330
</TABLE>
*THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHALL BE THE
RATES SHOWN IN THE TABLE ABOVE MULTIPLIED BY THE APPROPRIATE RATE CLASS
PERCENT. THIS PERCENT IS SHOWN ON PAGE 1 OF THE POLICY SPECIFICATIONS.
THE RATES ACTUALLY CHARGED MAY BE REDUCED IN ACCORDANCE WITH THE COST
OF INSURANCE RATE SECTION.
PAGE D
8388
<PAGE> 8
<TABLE>
<CAPTION>
------------------------------------------------------------
MALE NON-TOBACCO
------------------------------------------------------------
ATTAINED ATTAINED
AGE AGE
------------------------------ -----------------------------
<S> <C> <C> <C>
0 0.219480 50 0.428690
------------------------------ -----------------------------
1 0.085880 51 0.468090
------------------------------ -----------------------------
2 0.082540 52 0.513380
------------------------------ -----------------------------
3 0.080880 53 0.565410
------------------------------ -----------------------------
4 0.077540 54 0.623350
------------------------------ -----------------------------
5 0.073370 55 0.688070
------------------------------ -----------------------------
6 0.069200 56 0.758730
------------------------------ -----------------------------
7 0.065030 57 0.833670
------------------------------ -----------------------------
8 0.062530 58 0.917110
------------------------------ -----------------------------
9 0.061690 59 1.010780
------------------------------ -----------------------------
10 0.062530 60 1.115550
------------------------------ -----------------------------
11 0.067530 61 1.232310
------------------------------ -----------------------------
12 0.076700 62 1.367070
------------------------------ -----------------------------
13 0.089220 63 1.519910
------------------------------ -----------------------------
14 0.103400 64 1.690090
------------------------------ -----------------------------
15 0.113420 65 1.876860
------------------------------ -----------------------------
16 0.123430 66 2.079500
------------------------------ -----------------------------
17 0.130940 67 2.297270
------------------------------ -----------------------------
18 0.135950 68 2.534600
------------------------------ -----------------------------
19 0.139290 69 2.798580
------------------------------ -----------------------------
20 0.140130 70 3.098170
------------------------------ -----------------------------
21 0.138460 71 3.441600
------------------------------ -----------------------------
22 0.135950 72 3.839990
------------------------------ -----------------------------
23 0.132610 73 4.293280
------------------------------ -----------------------------
24 0.129280 74 4.794460
------------------------------ -----------------------------
25 0.125100 75 5.333740
------------------------------ -----------------------------
26 0.122600 76 5.907380
------------------------------ -----------------------------
27 0.120930 77 6.511600
------------------------------ -----------------------------
28 0.120090 78 7.150730
------------------------------ -----------------------------
29 0.120090 79 7.845900
------------------------------ -----------------------------
30 0.120930 80 8.620930
------------------------------ -----------------------------
31 0.123430 81 9.498890
------------------------------ -----------------------------
32 0.126770 82 10.501350
------------------------------ -----------------------------
33 0.131780 83 11.628210
------------------------------ -----------------------------
34 0.137620 84 12.862100
------------------------------ -----------------------------
35 0.144300 85 14.178860
------------------------------ -----------------------------
36 0.151820 86 15.565070
------------------------------ -----------------------------
37 0.161840 87 17.002260
------------------------------ -----------------------------
38 0.172690 88 18.486430
------------------------------ -----------------------------
39 0.184390 89 20.041320
------------------------------ -----------------------------
40 0.198590 90 21.693700
------------------------------ -----------------------------
41 0.213630 91 23.488560
------------------------------ -----------------------------
42 0.229510 92 25.504290
------------------------------ -----------------------------
43 0.247060 93 27.961930
------------------------------ -----------------------------
44 0.266290 94 31.383850
------------------------------ -----------------------------
45 0.288040 95 36.798270
------------------------------ -----------------------------
46 0.311460 96 46.588990
------------------------------ -----------------------------
47 0.336570 97 67.043870
------------------------------ -----------------------------
48 0.364190 98 83.333330
------------------------------ -----------------------------
49 0.394340 99 83.333330
------------------------------ -----------------------------
</TABLE>
Page E
8388/GUAR
<PAGE> 9
<TABLE>
<CAPTION>
------------------------------------------------------------
MALE TOBACCO
------------------------------------------------------------
ATTAINED ATTAINED
AGE AGE
------------------------------ -----------------------------
<S> <C> <C> <C>
0 0.219480 50 0.837880
------------------------------ -----------------------------
1 0.085880 51 0.916270
------------------------------ -----------------------------
2 0.082540 52 1.004870
------------------------------ -----------------------------
3 0.080880 53 1.105400
------------------------------ -----------------------------
4 0.077540 54 1.215380
------------------------------ -----------------------------
5 0.073370 55 1.333150
------------------------------ -----------------------------
6 0.069200 56 1.457890
------------------------------ -----------------------------
7 0.065030 57 1.589640
------------------------------ -----------------------------
8 0.062530 58 1.728430
------------------------------ -----------------------------
9 0.061690 59 1.877720
------------------------------ -----------------------------
10 0.062530 60 2.044410
------------------------------ -----------------------------
11 0.067530 61 2.232910
------------------------------ -----------------------------
12 0.076700 62 2.445950
------------------------------ -----------------------------
13 0.089220 63 2.684600
------------------------------ -----------------------------
14 0.103400 64 2.946500
------------------------------ -----------------------------
15 0.146810 65 3.224930
------------------------------ -----------------------------
16 0.163510 66 3.517450
------------------------------ -----------------------------
17 0.175200 67 3.821590
------------------------------ -----------------------------
18 0.184390 68 4.141890
------------------------------ -----------------------------
19 0.190240 69 4.490890
------------------------------ -----------------------------
20 0.193580 70 4.877870
------------------------------ -----------------------------
21 0.193580 71 5.314990
------------------------------ -----------------------------
22 0.190240 72 5.812080
------------------------------ -----------------------------
23 0.186890 73 6.366660
------------------------------ -----------------------------
24 0.181880 74 6.979050
------------------------------ -----------------------------
25 0.176030 75 7.638620
------------------------------ -----------------------------
26 0.172690 76 8.318710
------------------------------ -----------------------------
27 0.171020 77 9.007620
------------------------------ -----------------------------
28 0.171020 78 9.710250
------------------------------ -----------------------------
29 0.173530 79 10.451730
------------------------------ -----------------------------
30 0.177710 80 11.258160
------------------------------ -----------------------------
31 0.183550 81 12.154910
------------------------------ -----------------------------
32 0.191070 82 13.160810
------------------------------ -----------------------------
33 0.201100 83 14.262960
------------------------------ -----------------------------
34 0.212790 84 15.247670
------------------------------ -----------------------------
35 0.227000 85 16.617240
------------------------------ -----------------------------
36 0.243720 86 17.803170
------------------------------ -----------------------------
37 0.264620 87 19.039280
------------------------------ -----------------------------
38 0.288040 88 20.348230
------------------------------ -----------------------------
39 0.314810 89 21.671680
------------------------------ -----------------------------
40 0.345780 90 23.030110
------------------------------ -----------------------------
41 0.379270 91 24.468300
------------------------------ -----------------------------
42 0.416120 92 26.169550
------------------------------ -----------------------------
43 0.456350 93 28.406850
------------------------------ -----------------------------
44 0.500790 94 31.563380
------------------------------ -----------------------------
45 0.547780 95 36.798270
------------------------------ -----------------------------
46 0.596470 96 46.588990
------------------------------ -----------------------------
47 0.649400 97 67.043870
------------------------------ -----------------------------
48 0.706570 98 83.333330
------------------------------ -----------------------------
49 0.768830 99 83.333330
------------------------------ -----------------------------
</TABLE>
Page F
8388/GUAR
<PAGE> 10
<TABLE>
<CAPTION>
------------------------------------------------------------
FEMALE NON-TOBACCO
------------------------------------------------------------
ATTAINED ATTAINED
AGE AGE
------------------------------ -----------------------------
<S> <C> <C> <C>
0 0.156830 50 0.362520
------------------------------ -----------------------------
1 0.070030 51 0.390150
------------------------------ -----------------------------
2 0.066700 52 0.421990
------------------------------ -----------------------------
3 0.065030 53 0.457190
------------------------------ -----------------------------
4 0.064190 54 0.493240
------------------------------ -----------------------------
5 0.062530 55 0.531830
------------------------------ -----------------------------
6 0.060860 56 0.570440
------------------------------ -----------------------------
7 0.059190 57 0.608230
------------------------------ -----------------------------
8 0.058360 58 0.646040
------------------------------ -----------------------------
9 0.057520 59 0.688910
------------------------------ -----------------------------
10 0.056690 60 0.739370
------------------------------ -----------------------------
11 0.058360 61 0.801660
------------------------------ -----------------------------
12 0.060860 62 0.879170
------------------------------ -----------------------------
13 0.064190 63 0.974480
------------------------------ -----------------------------
14 0.068360 64 1.081730
------------------------------ -----------------------------
15 0.071700 65 1.197600
------------------------------ -----------------------------
16 0.075040 66 1.317890
------------------------------ -----------------------------
17 0.077540 67 1.440910
------------------------------ -----------------------------
18 0.080040 68 1.568370
------------------------------ -----------------------------
19 0.082540 69 1.710530
------------------------------ -----------------------------
20 0.084210 70 1.877720
------------------------------ -----------------------------
21 0.085880 71 2.082070
------------------------------ -----------------------------
22 0.086720 72 2.333340
------------------------------ -----------------------------
23 0.088380 73 2.635430
------------------------------ -----------------------------
24 0.090050 74 2.984600
------------------------------ -----------------------------
25 0.091720 75 3.376280
------------------------------ -----------------------------
26 0.094220 76 3.802330
------------------------------ -----------------------------
27 0.095890 77 4.261570
------------------------------ -----------------------------
28 0.098400 78 4.761660
------------------------------ -----------------------------
29 0.101730 79 5.319450
------------------------------ -----------------------------
30 0.104240 80 5.958680
------------------------------ -----------------------------
31 0.107580 81 6.700420
------------------------------ -----------------------------
32 0.110910 82 7.564140
------------------------------ -----------------------------
33 0.115090 83 8.550150
------------------------------ -----------------------------
34 0.120090 84 9.651690
------------------------------ -----------------------------
35 0.125940 85 10.861090
------------------------------ -----------------------------
36 0.134280 86 12.174410
------------------------------ -----------------------------
37 0.144300 87 13.594640
------------------------------ -----------------------------
38 0.155160 88 15.128280
------------------------------ -----------------------------
39 0.166850 89 16.793990
------------------------------ -----------------------------
40 0.181050 90 18.613420
------------------------------ -----------------------------
41 0.196080 91 20.640050
------------------------------ -----------------------------
42 0.211120 92 22.968510
------------------------------ -----------------------------
43 0.226170 93 25.797340
------------------------------ -----------------------------
44 0.241210 94 29.586210
------------------------------ -----------------------------
45 0.257930 95 35.366190
------------------------------ -----------------------------
46 0.275490 96 45.525080
------------------------------ -----------------------------
47 0.294730 97 66.318680
------------------------------ -----------------------------
48 0.314810 98 83.333330
------------------------------ -----------------------------
49 0.337410 99 83.333330
------------------------------ -----------------------------
</TABLE>
Page G
8388/GUAR
<PAGE> 11
<TABLE>
<CAPTION>
------------------------------------------------------------
FEMALE TOBACCO
------------------------------------------------------------
ATTAINED ATTAINED
AGE AGE
------------------------------ -----------------------------
<S> <C> <C> <C>
0 0.156830 50 0.566250
------------------------------ -----------------------------
1 0.070030 51 0.607390
------------------------------ -----------------------------
2 0.066700 52 0.654440
------------------------------ -----------------------------
3 0.065030 53 0.706570
------------------------------ -----------------------------
4 0.064190 54 0.759570
------------------------------ -----------------------------
5 0.062530 55 0.814290
------------------------------ -----------------------------
6 0.060860 56 0.868210
------------------------------ -----------------------------
7 0.059190 57 0.918800
------------------------------ -----------------------------
8 0.058360 58 0.968570
------------------------------ -----------------------------
9 0.057520 59 1.021750
------------------------------ -----------------------------
10 0.056690 60 1.085110
------------------------------ -----------------------------
11 0.058360 61 1.164600
------------------------------ -----------------------------
12 0.060860 62 1.267040
------------------------------ -----------------------------
13 0.064190 63 1.391670
------------------------------ -----------------------------
14 0.068360 64 1.530960
------------------------------ -----------------------------
15 0.080040 65 1.678160
------------------------------ -----------------------------
16 0.084210 66 1.828210
------------------------------ -----------------------------
17 0.088380 67 1.973420
------------------------------ -----------------------------
18 0.092560 68 2.120610
------------------------------ -----------------------------
19 0.095060 69 2.280960
------------------------------ -----------------------------
20 0.097560 70 2.470900
------------------------------ -----------------------------
21 0.099230 71 2.712220
------------------------------ -----------------------------
22 0.101730 72 3.008860
------------------------------ -----------------------------
23 0.104240 73 3.363220
------------------------------ -----------------------------
24 0.106740 74 3.769070
------------------------------ -----------------------------
25 0.109240 75 4.214910
------------------------------ -----------------------------
26 0.113420 76 4.691660
------------------------------ -----------------------------
27 0.116760 77 5.192770
------------------------------ -----------------------------
28 0.120930 78 5.725870
------------------------------ -----------------------------
29 0.125940 79 6.310570
------------------------------ -----------------------------
30 0.131780 80 6.970840
------------------------------ -----------------------------
31 0.136790 81 7.726990
------------------------------ -----------------------------
32 0.142630 82 8.595770
------------------------------ -----------------------------
33 0.150150 83 9.611100
------------------------------ -----------------------------
34 0.158500 84 10.726950
------------------------------ -----------------------------
35 0.167680 85 11.929990
------------------------------ -----------------------------
36 0.181880 86 13.214160
------------------------------ -----------------------------
37 0.198590 87 14.570110
------------------------------ -----------------------------
38 0.217810 88 16.008410
------------------------------ -----------------------------
39 0.238700 89 17.532150
------------------------------ -----------------------------
40 0.263790 90 19.256820
------------------------------ -----------------------------
41 0.290550 91 21.156900
------------------------------ -----------------------------
42 0.317320 92 23.319700
------------------------------ -----------------------------
43 0.344100 93 25.937870
------------------------------ -----------------------------
44 0.370890 94 29.586210
------------------------------ -----------------------------
45 0.399370 95 35.366190
------------------------------ -----------------------------
46 0.428690 96 45.525080
------------------------------ -----------------------------
47 0.458870 97 66.318680
------------------------------ -----------------------------
48 0.491570 98 83.333330
------------------------------ -----------------------------
49 0.527640 99 83.333330
------------------------------ -----------------------------
</TABLE>
Page H
8388\GUAR
<PAGE> 12
SCHEDULE 1
CHARGES AND DEDUCTIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SCHEDULE OF ASSET BASED CHARGES
- --------------------------------------------------------------------------------
<S> <C>
Mortality and Expense Charge .90%
Administration Charge .35% annually for Policy Years 1-10
.25% annually for Policy Years 11 and later
Tax Charge .40% annually for Policy Years 1-10
</TABLE>
THE ASSET BASED CHARGES WILL BE ASSESSED DAILY ON THE SEPARATE ACCOUNT
VALUE.
The Annual Record Maintenance Charge of $30 is deducted from your Cash Value at
the end of the Policy Year and upon policy termination.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SCHEDULE OF PREMIUM WITHDRAWAL CHARGES
- ----------------------------------------------------------------------------------------------------------
POLICY YEARS SURRENDER PREMIUM TAX TOTAL WITHDRAWAL
ELAPSED SINCE ISSUE CHARGE CHARGE CHARGE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 7.75% 2.25% 10.00%
2 7.75% 2.00% 9.75%
3 7.50% 1.75% 9.25%
4 6.50% 1.50% 8.00%
5 5.75% 1.25% 7.00%
6 5.00% 1.00% 6.00%
7 4.25% .75% 5.00%
8 3.50% .50% 4.00%
9 2.75% .25% 3.00%
over 9 0% 0% 0%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
THE WITHDRAWAL CHARGE PERCENTAGES ARE APPLIED AGAINST THE INITIAL PREMIUM
AMOUNT. A FREE PARTIAL WITHDRAWAL OF THE GREATER OF 10% OF CASH VALUE OR CASH
VALUE LESS PREMIUM PAID IS AVAILABLE EACH YEAR. PREMIUM PAID FOR THIS PURPOSE IS
THE PREMIUM SUBJECT TO A WITHDRAWAL CHARGE MINUS WITHDRAWALS PREVIOUSLY ASSESSED
A WITHDRAWAL CHARGE.
Page I
8388
<PAGE> 13
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of
measure used to calculate the value of each
Subaccount.
ACCUMULATION UNIT VALUE - The value of a
Subaccount determined for a Valuation Period
according to the formula stated in this policy.
ADMINISTRATION CHARGE - A charge deducted from
the Cash Value for a portion of Our
administrative costs.
CASH VALUE - The sum of the Separate Account
Value plus the Fixed Account Value plus the Loan
Account Value.
DEBT - The principal of any outstanding loan
plus any loan interest due or accrued.
DEDUCTION DAY - The Deduction Day is stated in
the policy specifications. It is the same day in
each month as the Effective Date. It is the day
from which policy months are determined.
EFFECTIVE DATE - The Effective Date is shown on
the front of Your policy. It is the date
coverage becomes effective. If the Effective
Date would have been the 29th, 30th or 31st of
the month, the Effective Date will be the 28th
day of that month.
FIXED ACCOUNT - The portion of the Cash Value
allocated to our General Account, including
amounts allocated to the DCA Fixed Account, to
be transferred to the Subaccounts under the
automatic Dollar Cost Averaging program.
FIXED ACCOUNT VALUE - The value of the Fixed
Account.
FUND - An investment company or separate series
thereof, in which the Subaccounts of the
Separate Account invest.
GENERAL ACCOUNT - Our assets other than those
allocated to the Separate Account or any other
Separate Account.
GUIDELINE SINGLE PREMIUM - The Guideline Single
Premium as defined in Section 7702 of the
Internal Revenue Code.
ISSUE AGE - The attained age as of the Life
Insured's last birthday on the Effective Date.
ISSUE DATE - The issue date stated in the policy
specifications. It is the date all requirements
for coverage and Premium have been received, and
the policy is approved.
LIVES INSURED - The persons whose lives are
insured under the policy as set forth in the
policy specifications.
LOAN ACCOUNT - The account established for
amounts transferred from the Subaccounts and
held in our General Account as security for
outstanding Policy Debt.
LOAN ACCOUNT VALUE - The value of the Loan
Account.
Page 1
L-8388
<PAGE> 14
L-8388
Page 2
MATURITY DATE - The Maturity Date is stated in
the policy specifications. It is the policy
anniversary nearest the insured's 100th
birthday.
MORTALITY AND EXPENSE CHARGE - A charge deducted
in the calculation of the accumulation unit
value. It is for Our assumption of mortality
risks and expense guarantees.
NET SURRENDER VALUE - The Surrender Value minus
any Debt.
OWNER - See "You, Your, Yours" below.
POLICY YEAR - Each twelve-month period beginning
on the Effective Date and each policy
anniversary.
PREFERRED LOAN - The portion of any loan as to
which the Loan Account is credited a higher rate
of interest. The maximum amount available as a
Preferred Loan is the Separate Account Value
plus the Fixed Account Value minus Premium paid
plus any prior withdrawal of premium.
PREMIUM - The dollar amount We receive in U.S.
currency to buy the benefits this policy
provides.
RECORDS MAINTENANCE CHARGE - A charge assessed
against Your policy as specified in the policy
specifications.
RECEIVED - Received by Kemper Investors Life
Insurance Company at its home office in Long
Grove, Illinois.
SEPARATE ACCOUNT - A unit investment trust
registered with the Securities and Exchange
Commission under the Investment Company Act of
1940 known as the KILICO Variable Separate
Account.
SEPARATE ACCOUNT VALUE - The sum of the
Subaccount Values of this policy on the
Valuation Date.
SUBACCOUNTS - The Separate Account has several
Subaccounts. The available Subaccounts are
stated in the policy specifications.
SUBACCOUNT VALUE - The value of each Subaccount
calculated separately according to the formula
stated in this policy.
SURRENDER VALUE - The Surrender Value of this
policy is the Cash Value minus any applicable
withdrawal charge.
SURVIVING INSURED - The second Life Insured to
die.
TAX CHARGE - A charge deducted from the Cash
Value to pay applicable state and local Premium
taxes and federal taxes imposed under Section
848 of the Internal Revenue Code of 1986, as
amended (the "Code").
TRADE DATE - The Trade Date is ten (10) days
plus the number of days in your right to cancel
period after the Issue Date. It is the date that
your initial premium plus any interest will be
allocated to the Subaccounts according to your
instructions. The right to cancel period is
shown on the front of Your policy.
VALUATION DATE - Each business day that
applicable law requires that We value the assets
of the Separate Account. Currently this is each
day that the New York Stock Exchange is open for
trading.
VALUATION PERIOD - The period that starts at the
close of a Valuation Date and ends at the close
of the next succeeding Valuation Date.
<PAGE> 15
WE, OUR, US - Kemper Investors Life Insurance
Company, Long Grove, Illinois.
YOU, YOUR, YOURS - The party(s) named as owner
in the application unless later changed as
provided in this policy. The owner, prior to the
distribution of any death benefit, has the
exclusive right to exercise every option and
right conferred by this policy.
GENERAL PROVISIONS
THE POLICY The policy, the attached application and any
supplemental application(s) constitute the
entire contract between the parties. All
statements made in the application and
supplemental application(s) are deemed
representations and not warranties. No
misstatement will void this policy or be used as
a defense of a claim unless it is contained in
the application or any supplemental application.
MODIFICATION OF Only Our president, secretary and assistant
POLICY secretaries have the power to approve a change
or waive any provisions of this policy. Any such
modifications must be in writing. No agent or
person other than the officers named has the
authority to change or waive the provisions of
this policy.
CONTESTABILITY We cannot contest this policy after it has been
in force for two years from the Issue Date.
If the policy is reinstated, a new two year
contestability period will apply from the Issue
Date of the reinstatement and will apply only to
statements made in the application for the
reinstatement.
MISSTATEMENT OF AGE If the age and/or sex of the Life Insured was
AND/OR SEX misstated, the death benefit and all policy
values will be adjusted based on what the
initial Premium would have purchased using the
correct age and/or sex.
SUICIDE If the first death is by suicide, within two
years of the Issue Date or date of
reinstatement, whether the Life Insured was sane
or insane, We will reissue this policy. The new
policy on the Surviving Insured will be a single
life permanent policy which is available at time
of re-issue. The suicide provision for the new
policy will be effective as of the original
issue date.
If the second death is by suicide, within two
years from the Issue Date, whether the Surviving
Insured is sane or insane, We will pay only the
Premiums paid less any withdrawal and Debt. If
the second death occurs by suicide within two
years after the date of reinstatement, Our total
liability will be limited to Premiums paid less
any withdrawals and Debt.
EFFECTIVE DATE The Effective Date of coverage under this policy
OF COVERAGE is the Effective Date. If the Effective Date
would have been the 29th, 30th, or 31st of the
month, the Effective Date will be the 28th day
of that month. Incontestability and suicide
periods are measured from the Effective Date. We
will deduct the first monthly deduction on the
Effective Date.
TERMINATION All coverage under this policy terminates when
any one of the following occurs:
1. You request that coverage terminates;
2. The Surviving Insured dies;
3. This policy matures, or
4. The grace period ends and there is Debt
outstanding or you paid 90% of the
Guideline Single Premium.
ASSIGNMENT No assignment of this policy is binding unless
We receive written notice of the assignment. We
assume no responsibility for the validity or
sufficiency of any assignment. Once notice of
the assignment is recorded, the rights of the
owner and beneficiary are subject to the
assignment. Any claim is subject to proof of
interest of the assignee.
DUE PROOF OF DEATH The death benefit is payable when the Surviving
Insured dies. We must receive written proof of
both deaths within sixty days of the death of
each of the Lives Insured, or as soon thereafter
as is reasonably possible. The proof may be a
certified death certificate or any other proof
satisfactory to Us.
Page 3
L-8388
<PAGE> 16
L-8388
Page 4
RESERVES, CASH VALUES All reserves are equal to or greater than those
AND DEATH BENEFITS required by statute. Any available Cash Value
and death benefit are not less than the minimum
benefits required by the statutes of the state
in which this policy is delivered.
BASIS OF COMPUTATIONS A detailed statement of the method of computations
of cash values under this policy has been filed
with the insurance department of the state in
which this policy is delivered. The 1980
Commissioner's Standard Ordinary Smoker or
Nonsmoker Mortality Tables, Age 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
("Code"). We may return Premiums which would
disqualify the policy from tax treatment as a life
insurance policy. This policy may be endorsed to
reflect any change in the Code and its regulations
and rulings. You will receive a copy of any such
endorsement. Currently, no charges are made
against the Separate Account for federal, state or
other taxes that may be attributed to the Separate
Account. We may in the future, however, impose
charges for federal income taxes attributed to the
Separate Account. Charges for other taxes, if any,
attributed to this policy may also be made.
NON-PARTICIPATING This policy does not pay dividends. It will
share in Our surplus or earnings.
REPORTS At least once each Policy Year We will send
You a statement showing Premiums received,
interest credited, 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.
OWNERSHIP PROVISIONS
OWNERS OF POLICY The insured is the original policy owner unless
otherwise provided in the application. You have
the right to cancel or amend this policy if We
agree. You may exercise every option and right
conferred by this policy including the right of
assignment. The joint owners must agree to any
change if more than one owner is named.
CHANGE OF OWNERSHIP You may change the owner by written request at any
time during the lifetime of the Surviving Insured.
You must furnish information sufficient to clearly
identify the new owner to Us. The change is
subject to any existing assignment of this policy.
When We record the effective date of the change,
it will be the date the notice was signed except
for action taken by Us prior to receiving the
request. Any change is subject to the payment of
any proceeds. We may require You to return this
policy to Us for endorsement of a change.
BENEFICIARY The application for this policy shows the original
DESIGNATION AND beneficiary. You may change the beneficiary if You
CHANGE OF BENEFICIARY send Us a written change form. Changes are subject
to the following:
1. The change must be filed while the Surviving
Insured is alive;
2. This policy must be in force at the time You
file a change;
3. Such change must not be prohibited by the
terms of an existing assignment, beneficiary
designation or other restriction;
4. Such change will take effect when We receive
it;
5. After We receive the change, it will take
effect on the date the change form was
signed. However, action taken by Us before
the change form was received will remain in
effect; and
6. The request for change must provide
information sufficient to identify the new
beneficiary.
We may require You to return this policy for
endorsement of a change.
<PAGE> 17
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, or if no beneficiary is
named, the distribution will be made to the
insured's estate.
If a beneficiary dies within ten days of the date
of the Surviving Insured's death, the death
benefit will be paid as if the Surviving Insured
had survived the beneficiary.
DEATH BENEFIT PROVISIONS
PAYMENT OF DEATH We will pay a death benefit to the beneficiary
BENEFITS when We receive due proof of death, if the
Surviving Insured dies while this policy is
inforce. The return of this policy is required
before a payment is made. We will pay the death
benefit in a lump sum.
Instead of a lump sum payment the beneficiary may
elect to have the death benefit distributed under
a settlement option. The beneficiary must make
this choice within sixty days of the time We
receive due proof of death.
AMOUNT PAYABLE We compute the death benefit at the end of the
UPON DEATH Valuation Period following Our receipt of due
proof of death of the Surviving Insured and the
return of this policy.
As long there is positive Net Surrender Value or
during the Grace Period, the death benefit is the
greater of:
1. the specified amount on the date of the
Surviving Insured's death, and
2. the Cash Value on the date of the Surviving
Insured's death multiplied by the applicable
death benefit factor at the time of death.
The death benefit proceeds equal a. minus b. minus
c., where:
a. is the death benefit
b. is any monthly deductions due during the
grace period
c. is any Debt.
The initial specified amount and the table of
death benefit factors are shown in the policy
specifications. The specified amount is the
initial specified amount, unless reduced by a
withdrawal.
If there is no positive Net Surrender Value, no
Debt outstanding, you paid 100% of the Guideline
Single Premium as your Initial Premium, and your
policy is not in the Grace Period, the death
benefit will be your total Premium paid, less any
withdrawals.
DEFERMENT OF DEATH The payment of death benefits in excess of the
BENEFITS specified amount may be deferred: (a) for up to
6 months from the date requested if these benefits
are based upon policy values which do not depend
on the investment performance of the Separate
Account or (b) otherwise, for any period during
which the New York Stock Exchange is closed for
trading (except for normal holiday closings) or
when the Securities and Exchange Commission has
determined that a state of emergency exists which
may make such payment impractical.
PREMIUM PROVISIONS
INITIAL PREMIUM The owner may choose a minimum initial Premium of
90% or 100% of the Guideline Single Premium (based
on the initial specified amount).
Page 5
L-8388
<PAGE> 18
L-8388 Page 6
ADDITIONAL PREMIUM Payment of additional Premium of at least $1,000
will be permitted under the following
circumstances:
1. An additional Premium payment is required to
maintain or reinstate coverage, as described
in the GRACE PERIOD and REINSTATEMENT
provisions.
2. The Premium payment would not cause the
policy to fail to meet the definition of life
insurance under Section 7702 of the Internal
Revenue Code ("Code").
We reserve the right to require satisfactory
evidence of insurability before accepting any
additional Premium that increases the death
benefit. Premium which does not meet the tax
qualification guidelines for life insurance under
the Code will not be applied to the policy.
If there is current Debt on the policy, additional
moneys will be considered additional premium,
unless You state otherwise.
PLACE OF PAYMENT All Premiums under this policy must be paid to Us
at Our home office or such other location as We
may select. We will notify You and any other
interested parties in writing of such other
locations. Premiums received by an agent will be
allocated only after We receive them.
PREMIUM ALLOCATION The initial Premium will be allocated to the
Kemper Money Market Subaccount. upon issue. The
Subaccount value of the Kemper Money Market
Subaccount will be allocated to the Subaccounts,
according to the Premium allocation shown in the
policy specifications, on the Trade Date. You may
temporarily allocate a portion of Your initial
Premium to any single Subaccount or to our Fixed
Account to be transferred to the Subaccounts under
our automatic dollar cost averaging program. Only
initial Premiums may be allocated to the Fixed
Account, and only for the purpose of subsequent
transfers to the Subaccounts under our automatic
dollar cost averaging program. If the Issue Date
is the same as the Trade Date, the Premium will be
immediately allocated to the Subaccounts.
GRACE PERIOD If the Net Surrender Value immediately proceeding
a Deduction Day is less than the monthly deduction
for that month, a grace period of 61 days will be
allowed for the payment, without evidence of
insurability, of Premium payment or loan repayment
equal to at least three monthly deductions.
This grace period will begin on the day We mail
notice of the required payment to Your last known
address.
If there is no current Debt on the policy, you
paid 100% of the Guideline Single Premium as your
Initial Premium, and payment is not received
within the grace period, coverage under this
policy will remain inforce, but the amount paid
upon death of the insured after the grace period
will be limited to the return of Your total
Premiums paid less any prior partial withdrawals.
The specified amount coverage can be restored
according to the REINSTATEMENT provision below.
If there is any Debt on the policy, you paid 90%
of the Guideline Single Premium as your Initial
Premium, and payment is not received within the
grace period, coverage under this policy will
terminate at the end of the grace period in
accordance with the NONFORFEITURE provisions.
If death of the Surviving Insured occurs within
the grace period, any amount payable will be
reduced by any unpaid monthly deductions.
REINSTATEMENT If coverage has been reduced because of
insufficient Net Surrender Value status as defined
on Page 10 below, and has not been surrendered for
its Net Surrender Value, it may be reinstated to
the Specified Amount at any time within 3 years
after entering that status. The policy may also be
reinstated within 3 years of policy lapse if it
has not been surrendered for its Net Surrender
Value. If one of the Lives Insured dies during the
lapse, the policy will be re-issued as a single
life permanent policy. Either type of
reinstatement is subject to:
<PAGE> 19
1. receipt of evidence of insurability
satisfactory to Us;
2. payment of enough Premium to pay the unpaid
monthly deductions due during the last
expired grace period;
3. payment of a minimum Premium sufficient to
keep this policy in force for three months;
and
4. payment of any Debt against this policy which
existed at the date of termination of
coverage.
The effective date of reinstatement of a policy
will be the Deduction Day that coincides with or
next follows the date the application for
reinstatement is approved by Us.
The SUICIDE and CONTESTABILITY provisions will
apply from the effective date of reinstatement.
VARIABLE ACCOUNT PROVISIONS
SEPARATE ACCOUNT The variable benefits under this policy are
provided through the KILICO Variable Separate
Account. This is called the Separate Account. The
Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust
under the Investment Company Act of 1940. It is a
separate investment account maintained by Us into
which a portion of Our assets has been allocated
for this policy and may be allocated for certain
other policies.
LIABILITIES OF SEPARATE The assets equal to the reserves and other
ACCOUNT liabilities of the Separate Account will not be
charged with liabilities arising out of any other
business We may conduct. If the assets of the
Separate Account exceed the liabilities under the
policies supported by the Separate Account, then
the excess may be used to cover the liabilities of
Our General Account. We will value the assets of
the Separate Account on each Valuation Date.
SEPARATE ACCOUNT On any Valuation Date, the Separate Account Value
VALUE is the sum of its Subaccount Values.
SUBACCOUNTS The Separate Account consists of several
Subaccounts as shown in the policy specifications.
We may, from time to time, combine or remove
Subaccounts in the Separate Account and establish
additional Subaccounts of the Separate Account.
In such event, We may permit You to select other
Subaccounts under this policy. However, the right
to select any other Subaccount is limited by the
terms and conditions We may impose such
transactions.
SUBACCOUNT VALUE On any Valuation Date, the Subaccount value in a
Subaccount equals:
1. the Subaccount value on the previous
Valuation Date multiplied by the investment
experience factor for the end of the current
Valuation Period; plus
2. any net Premiums received and allocated to
the Subaccount during the current Valuation
Period; plus
3. any amounts transferred to the Subaccount
during the current Valuation Period; minus
Page 7
L-8388
<PAGE> 20
L-8388
Page 8
4. the pro-rata portion of any monthly deduction
charged to the Subaccount when the Valuation
Period includes a Deduction Day; minus
5. any amounts transferred or withdrawn from the
Subaccount during the current Valuation
Period; minus
6. any amounts loaned from the Subaccount during
the current Valuation Period.
FUND Each Subaccount of the Separate Account will buy
shares of an investment company registered under
the Investment Company Act of 1940 as an open-end
diversified management investment company or
shares of a separate series thereof. Each such
investment company or series represents a separate
investment portfolio which corresponds to one of
the Subaccounts of the Separate Account.
If We establish additional Subaccounts, each new
Subaccount will invest in shares of an additional
series or investment company. We may also
substitute other investment companies.
RIGHTS RESERVED BY We reserve the right, subject to compliance with
THE COMPANY the current law or as it may be changed in the
future:
1. To operate the Separate Account in any form
permitted under the Investment Company Act of
1940 or in any other form permitted by law;
2. To take any action necessary to comply with
or obtain and continue any exemptions from
the Investment Company Act of 1940 or to
comply with any other applicable law;
3. To transfer any assets in any Subaccount to
another Subaccount or to one or more Separate
Accounts, or the General Account, or to add,
combine or remove Subaccounts in the Separate
Account.
4. To delete the shares of any of the portfolios
of 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 We assess charges, but not
to increase the aggregate amount above that
currently charged to the Separate Account and
the Fund in connection with the policies.
When required by law, We will obtain Your approval
of such changes and the approval of any regulatory
authority.
ACCUMULATION UNIT Each Subaccount has an accumulation unit value.
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.
The accumulation unit value for each subsequent
Valuation Period is the investment experience
factor for that period multiplied by the
accumulation unit value for the immediately
preceding Period. Each Valuation Period has a
single accumulation unit value that is applied to
each day in the period. The number of accumulation
units will not change as a result of investment
experience.
<PAGE> 21
INVESTMENT EXPERIENCE Each Subaccount has its own investment experience
factor. The investment experience of a Subaccount
is calculated by applying the investment
experience factor to the value in each Subaccount
during the Valuation Period.
The investment experience factor of a Subaccount
for a Valuation Period is determined by dividing
1. by 2. and subtracting 3. from the result,
where:
1. is the net result of:
a. the net asset value per share of the
investment held in the Subaccount
determined at the end of the current
Valuation Period; plus
b. the per share amount of any dividend or
capital gain distributions made by the
investments held in the Subaccount, if
the "ex-dividend" date occurs during the
current Valuation Period; plus or minus
c. a charge or credit for any taxes
reserved for the current Valuation
Period which We determine resulted from
the investment operations of the
Subaccount;
2. is the net asset value per share of the
investment held in the Subaccount, determined
at the end of the last Valuation Period;
3. is the factor representing the Mortality and
Expense Charge, stated in the policy
specifications, for the number of days in the
Valuation Period.
NONFORFEITURE PROVISIONS
CASH VALUE The Cash Value of this policy is equal
to the sum of the Separate Account Value, plus
the Loan Account Value, plus the Fixed Account
Value.
MONTHLY DEDUCTION On each Deduction Day, a monthly deduction will be
made equal to the sum of the following:
1. the monthly cost of insurance charge for this
policy; plus
2. the monthly charge for any riders; plus
3. the monthly Administration Charge; plus
4. the monthly Tax Charge.
The monthly deduction will be deducted from the
Subaccounts and Fixed Account in proportion to the
value that each Subaccount and Fixed Account bears
to the Separate Account Value plus the Fixed
Account Value.
COST OF INSURANCE We calculate the cost of insurance on each
Deduction Day.
The maximum cost of insurance charge equals a.
times the result of b. minus c. where:
a. is the maximum cost of insurance rate per
$1,000 for the initial specified amount;
b. is the death benefit; and
c. is the cash value.
L-8388 Page 9
<PAGE> 22
L-8388
Page 10
COST OF INSURANCE The cost of insurance rate is based on the
RATE insured's sex, issue age, coverage year, and
rate class. The cost of insurance is also based
on whether 90% or 100% of the Guideline Single
Premium has been paid at issue.
Any change in the cost of insurance rate will be
on a uniform basis for all insureds of the
same: 1. sex; 2. attained age at start of
coverage; 3. coverage year; and 4. rate
class. However, the cost of insurance rates
will not exceed those shown in the Table of
Guaranteed Maximum Monthly Cost of Insurance
Rates per $1,000 multiplied by any rate class
percent over 100.
These rates are found in the policy
specifications. These rates are based on the
Commissioners 1980 Standard Ordinary Smoker and
Nonsmoker Mortality Tables, Age Last Birthday.
RIDERS The monthly charges for any riders are
shown in the policy specifications.
MORTALITY AND EXPENSE The Mortality and Risk Charge, Administration
RISK CHARGE, ADMINISTRATIVE Charge, Tax Charge, and Annual Records Maintenance
CHARGE, TAX CHARGE, AND Charge are shown in the policy specifications.
ANNUAL RECORDS MAINTENANCE
CHARGE
INSUFFICIENT NET This policy will enter the insufficient net
SURRENDER VALUE surrender value status as provided in the GRACE
STATUS PERIOD provision if the Net Surrender Value
immediately preceding a deduction is:
1. insufficient to cover the monthly deduction,
and
2. no Premium payment or loan payment sufficient
to cover at least three monthly deductions is
received before the end of the grace period.
Any monthly deduction after entering insufficient
net surrender value status will not be considered
a reinstatement of this policy.
TRANSFER, WITHDRAWAL
AND LOAN PROVISIONS
TRANSFERS You may direct the transfer of all or part of one
Subaccount's value to another Subaccount.
Transfers will be subject to the following
conditions:
1. The minimum amount which may be transferred
is $100 or, if smaller, the remaining value
in a Subaccount;
2. No partial transfer will be made if the
remaining value of any Subaccount will be
less than $500 unless the transfer will
eliminate Your interest in such account;
3. We reserve the right to charge $25 for
each transfer in excess of 12 in a Policy
Year.
Any transfer request must clearly specify:
1. the amount which is to be transferred; and
2. the names of the Subaccounts which are
affected.
<PAGE> 23
We will only honor a telephone transfer request if
a properly executed telephone transfer
authorization is on file with Us. Such request for
a transfer must comply with the conditions of the
authorization.
We reserve the right at any time and without
notice to any party, to terminate, suspend, or
modify these transfer rights.
WITHDRAWALS You may withdraw all or part of the Cash Value
that remains after We subtract any withdrawal
charge. We must receive a written request that
indicates the amount of the withdrawal from each
Subaccount or Fixed Account. You must return the
policy to Us if You elect a total withdrawal.
Withdrawals are subject to the following
conditions:
1. Each withdrawal must be at least the minimum
withdrawal amount stated in the policy
specifications or the value that remains in
the Subaccount or Fixed Account if smaller;
2. A minimum of $500 must remain in the
Subaccount or Fixed Account after You make a
withdrawal unless the Subaccount or Fixed
Account is eliminated by such withdrawal;
3. A minimum amount of net surrender value as
stated in the policy specifications must
remain in the Policy after You make a
withdrawal.
4. The maximum You may withdraw from any
Subaccount or Fixed Account is the value of
the Subaccount or Fixed Account less the
amount of any withdrawal charge.
5. Any withdrawal amount You request will be
increased by the withdrawal charge.
EFFECT OF A The Cash Value will be reduced by the amount
WITHDRAWAL of the withdrawal. The specified amount will
be reduced proportional to the reduction in
Cash Value due to the partial withdrawal. We
will not permit a withdrawal if it will
decrease the specified amount to less than
the Minimum Specified Amount stated in the
Policy Specifications.
WITHDRAWAL CHARGES Withdrawal charges are shown in the policy
specifications.
Any amount withdrawn which is not subject to a
withdrawal charge will be considered a "free
partial withdrawal," as referenced in the policy
specifications.
POLICY LOANS Policy loans may be made any time. We will lend
up to a maximum loan amount of 90% of the policy's
Cash Value less any applicable withdrawal charges.
The amount of any new loan may not exceed the
maximum loan amount less Debt on the date the loan
is granted. The Preferred Loan portion of a loan
will be determined on the date the loan is made,
and will not be subsequently redetermined. The
minimum amount of a loan is $1,000.
On the date the loan is made, an amount equal to
the loan will be transferred from the Subaccounts
to the Loan Account held in the General Account
until the loan is repaid. Unless directed
otherwise, the loaned amount will be deducted from
the Subaccount in proportion to the values that
each Subaccount bears to the Separate Account
Value. Should the Debt equal or exceed the
Surrender Value, this policy will be subject to
the GRACE PERIOD provisions.
Cash values derived from Premium received by Us in
the form of a check or draft will not be available
for loans until 30 days after deposit of such
check or draft.
POLICY LOAN INTEREST The loan interest rate stated in the policy
specifications, and will be compounded daily.
Interest not paid will be charged on a daily basis
and will be added to the Debt on this policy and
bear interest at the same rate.
L-8388 Page 11
<PAGE> 24
L-8388
Page 12
During the existence of a loan, the Loan Account
Value will earn interest at the guaranteed rate
stated in the policy specifications. We may credit
a higher rate on the portion of the Loan Account
Value attributable to a Preferred Loan. Interest
will be earned on a daily basis and will be added
to the Loan Account.
If an Internal Revenue Code Section 1035(a)
exchange takes place that has an outstanding loan
at the time of transfer, the difference between
the Cash Value and the total of all Premiums paid
under the exchanged policy is considered a
Preferred Loan.
POLICY LOAN REPAYMENT A Debt may be repaid in full or in part at any
time while this policy is in force.
As Debt is paid, the Loan Account Value equal to
the amount of repayment which exceeds the
difference between interest due and interest
earned will be allocated to the Subaccounts
according to the then current Premium allocation
instructions. Loan repayments will be considered
repayment of Preferred Loans last.
EFFECTS OF POLICY The Debt on this policy, along with the withdrawal
LOANS charge will reduce the amount of Cash Value
payable upon surrender. The Debt on this policy
will also reduce the amount of Cash Value
available for withdrawal. The death benefit
payable to the beneficiary upon the death of the
Surviving Insured will also be reduced by the
amount of Debt.
TRANSFER, WITHDRAWAL We will redeem the necessary number of
AND LOAN PROCEDURES accumulation units to achieve the dollar amount
requested plus any applicable charges when the
withdrawal, transfer or loan is made from a
Subaccount. We will reduce the number of
accumulation units credited in each Subaccount by
the number of accumulation units redeemed. The
reduction in the number of accumulation units is
determined based on the accumulation unit value at
the end of the Valuation Period when We receive
the request, provided the request contains all
required information. We will pay the amount
within seven calendar days after the date We
receive the request, except as provided below.
DEFERMENT OF WITH- If the withdrawal, transfer or loan is to be made
DRAWAL TRANSFER OR from a Subaccount, We may suspend the right of
LOAN withdrawal or transfer or delay payment more than
seven calendar days:
1. during any period when the New York Stock
Exchange is closed other than customary
weekend and holiday closings;
2. when trading in the markets normally utilized
is restricted, or an emergency exists as
determined by the Securities and Exchange
Commission, so that disposal of investments
or determination of the accumulation unit
value is not practical; or
3. for such other periods as the Securities and
Exchange Commission by order may permit for
protection of owners.
SETTLEMENT OPTIONS
The Owner, or beneficiary at the death of the
Surviving Insured, if no election by the Owner is
in effect, may elect to have all of the Net
Surrender Value or Death Benefit of this policy
paid in a lump sum or have the amount applied to
one of the settlement options noted below.
The beneficiary may elect to have the death
benefit distributed as stated in Option 1 for a
period not to exceed the beneficiary's life
expectancy; or Options 2, or 3 based upon the life
expectancy of the beneficiary as prescribed by
federal regulations. The beneficiary must make
this choice within sixty days of the time we
receive due proof of death. An option can not be
changed after the first of such payments is made.
Payments must be made to a natural person,
referred to below as "payee." If the beneficiary
is not a natural person, the beneficiary must
elect that the entire death benefit be distributed
within five years of your death. Distribution of
the death benefit must start within one year after
your death. It may start later if prescribed by
federal regulations.
<PAGE> 25
If the total death benefit proceeds are applied
under one of the settlement options, this contract
must be surrendered to us.
Payments for all options are derived from the
applicable tables. Current annuity rates will be
used if they produce greater payments than those
shown in the policy. The age in the tables is the
age payee on the last birthday before the first
payment is due.
The option selected must result in a periodic
payment equivalent to at least $20 per month when
annuity payments begin. If the annuity option
selected or otherwise applied should result in a
periodic payment less than the minimum required on
the date payments are scheduled to begin, we
reserve the right to make a lump sum payment in
satisfaction of our obligation to the payee under
the policy.
ELECTION OF SETTLEMENT Election of a settlement option may be made by
OPTIONS written notice to Us.
This election may be made:
1. by You during the lifetime of the insured;
2. by the beneficiary if no election made by You
is in effect at the time of the death of the
insured; or
3. by the beneficiary if You reserve the right
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 will be revoked by a subsequent change of
beneficiary or an assignment of this policy unless
provided otherwise.
OPTION 1
FIXED INSTALLMENT We will make monthly payments for a fixed number
ANNUITY of installments. Payments must be made for at
least 5 years, but not more than 30 years. Upon
the payee's death, if the beneficiary is a natural
person, we will automatically continue payments
for the remainder of the certain period to the
beneficiary. If the beneficiary is either an
estate or trust we will pay the discounted value
of the remaining payments in the specified period
based on the discount rate stated in the
supplemental contract.
OPTION 2
LIFE ANNUITY We will make monthly payments while the payee is
alive.
OPTION 3
LIFE ANNUITY WITH INSTAL- We will make monthly payments for a guaranteed
LMENTS GUARANTEED period and thereafter while the payee is alive.
The guaranteed period must be selected at the time
the annuity option is chosen. The guaranteed
periods available are 5, 10, 15 and 20 years. If,
at the death of the payee, payments have been made
for less than five, ten, fifteen or twenty years
as elected, and the beneficiary is a natural
person, we will automatically continue payments
for the remainder of the elected period to the
beneficiary. If the beneficiary is either an
estate or trust, we will pay the discounted value
of the remaining payments in the specified period
based on the discount rate stated in the
supplemental contract.
L-8388 Page 13
<PAGE> 26
L-8388
Page 14
OPTION 4
JOINT AND SURVIVOR We will pay the full monthly income while both
ANNUITY payees are alive. Upon the death of either payee,
we will continue to pay the surviving payee a
percentage of the original monthly payment. The
percentage payable to the surviving payee must be
selected at the time the annuity option is chosen.
The percentages available are 50%, 66 2/3%, 75%
and 100%.
OTHER OPTIONS
We may make other settlement options available.
Payments are also available on a quarterly,
semi-annual or annual basis.
VARIABLE PAYOUT If a variable payout option is selected, the
OPTIONS monthly annuity payment will reflect the
investment performance of the Subaccounts in
accordance with the allocation of the lump sum
distribution allocated to those Subaccounts.
Allocations will not be changed thereafter, except
as provided in the TRANSFERS DURING THE PAYOUT
PERIOD provision.
The first monthly annuity payment is based on the
guaranteed annuity option shown in the Annuity
Option Table. You may elect any option available.
The dollar amount of the subsequent payments may
increase or decrease depending on the investment
experience of each Subaccount. The number of
annuity units per payment will remain fixed for
each Subaccount.
The number of annuity units for each Subaccount is
calculated by dividing a. by b. where:
a. is the portion of the initial monthly payment
that can be attributed to that Subaccount;
and
b. is the annuity unit value for that Subaccount
at the end of the Valuation Period. The
Valuation Period includes the date on which
the payment is made.
Monthly payments, after the first payment, are
calculated by summing up, for each Subaccount, the
product of a. times b. where:
a. is the number of annuity units per payment in
each Subaccount; and
b. is the annuity unit value for that Subaccount
at the end of the Valuation Period. The
Valuation Period includes the date on which
the payment is made.
After the first payment, we guarantee that the
dollar amount of each annuity payment will not be
affected adversely by actual expenses or changes
in mortality experience from the expense and
mortality assumptions on which we based the first
payment.
ANNUITY UNIT VALUE The value of an annuity unit for each Subaccount
at the end of any subsequent Valuation Period is
determined by multiplying the result of a. times
b. by c.
a. is the annuity unit value for the immediately
preceding Valuation Period; and
b. is the net investment factor for the
Valuation Period for which the annuity unit
value is being calculated; and
c. is the interest factor of .99993235 per
calendar day of such subsequent Valuation
Period to offset the effect of the assumed
rate of 2.50% per year used in the Annuity
Option Table.
<PAGE> 27
The net investment factor for each Subaccount for
any Valuation Period is determined by dividing a.
by b. where:
a. is the value of an annuity unit of the
applicable Subaccount as of the end of the
current Valuation Period plus or minus the
per share credit or charge for taxes
reserved; and
b. is the value of an annuity unit of the
applicable Subaccount as of the end of the
immediately preceding Valuation Period, plus
or minus the per share credit or charge for
taxes reserved.
FIXED PAYOUT OPTION If a fixed payout option is chosen, your payment
will be fixed in an amount throughout the payout
period. We determine the amount of your fixed
payment by multiplying the amount applied to the
option by a rate determined by Us which is not
less than the rate specified in the Settlement
Option Tables below. The amount of the payment
will not change throughout the payout period.
TRANSFERS DURING During the payout period, the payee may choose to
THE PAYOUT PERIOD change the Subaccounts or the relative weighting
of the Subaccounts on which variable payments are
based, or the relative proportions of fixed and
variable payments. A transfer may be made subject
to the following:
1. The payee must send us a written notice in a
form satisfactory to us;
2. One transfer is permitted each twelve month
period from the date of the first annuity
payment. We must receive notice of any such
transfer at least thirty days prior to the
effective date of the transfer;
3. A payee may not base variable payments on
more than three Subaccounts after any
transfer;
4. At least $1,000 of annuity unit value or
annuity reserve value must be transferred
from a Subaccount or from the General
Account; and
5. At least $1,000 of annuity unit value or
annuity reserve value must remain in the
account from which the transfer was made.
When a transfer is made between Subaccounts, the
number of annuity units per payment attributable
to a Subaccount to which a transfer is made is
equal to a. multiplied by b. divided by c., where:
a. is the number of annuity units per payment in
the Subaccount from which transfer is being
made;
b. is the annuity unit value for the Subaccount
from which the transfer is being made; and
c. is the annuity unit value for the Subaccount
to which transfer is being made.
When a transfer is made from the General Account
to a Subaccount, the number of annuity units per
payment attributable to a Subaccount to which
transfer is made is equal to a. divided by b.,
where:
a. is the General Account annuity amount per
payment being transferred; and
b. is the annuity unit value for the Subaccount
to which the transfer is being made.
Page 15
L-8388
<PAGE> 28
L-8388
Page 16
The amount of money allocated to the General
Account in case of a transfer from a Subaccount
equals the annuity reserve for the payee's
interest in such Subaccount. The annuity reserve
is the product of a. multiplied by b. multiplied
by c. where:
a. is the number of annuity units representing
the payee's interest in such Subaccount per
annuity payment;
b. is the annuity unit value for such
Subaccount; and
c. is the present value of $1.00 per payment
period using the attained age(s) of the
payee(s) and any remaining guaranteed
payments that may be due at the time of the
transfer.
Money allocated to the General Account upon such
transfer will be applied under the same annuity
payout option as originally elected. Guaranteed
period payments will be adjusted to reflect the
number of guaranteed payments already made. If all
guaranteed payments have already been made, no
further payments will be guaranteed.
All amounts and annuity unit values are determined
as of the end of the Valuation Period preceding
the effective date of the transfer.
We reserve the right at any time and without
notice to any party to terminate, suspend or
modify these transfer privileges.
SUPPLEMENTARY A supplementary agreement will be issued to
AGREEMENT reflect payments that will be made under a
settlement option. If payment is made as a death
benefit distribution, the effective date will be
the date of death. Otherwise, the effective date
will be the date chosen by the Owner.
DATE OF FIRST PAYMENT Interest will start to accrue on the effective
date of the Supplementary Agreement. If the normal
effective date is the 29th, 30th, or 31st of the
month, the effective date will be the 28th day of
the that month.
EVIDENCE OF AGE, SEX We may require satisfactory evidence of the age,
AND SURVIVAL sex and the continued survival of any person on
whose life the income is based.
MISSTATEMENT OF AGE If the age or sex of the payee has been misstated,
OR SEX the amount payable under the annuity option
selected will be such as the lump sum applied
would have purchased at the correct age or sex.
Interest not to exceed 6% compounded each year
will be charged to any overpayment or credited to
any underpayment against future payments We may
make under the supplementary agreement for the
option selected.
BASIS OF ANNUITY The guaranteed payments are based on an interest
OPTIONS rate of 2.50% per year and, where mortality is
involved, the "1983 Table a" individual annuity
mortality table developed by the Society of
Actuaries, projected using Projection Scale G. We
may also make available variable annuity payment
options based on assumed investment rates other
than 2.50%.
CREDITORS The proceeds of this policy and any payment under
an annuity option will be exempt from the claim of
creditors and from legal process to the extent
permitted by law.
<PAGE> 29
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<TABLE>
<CAPTION>
Number Number Number Number
of years Monthly of years Monthly of years Monthly of years Monthly
selected Payment selected Payment selected Payment selected Payment
- -------------- ----------- -- ------------ --------------- -------------- -------------- - --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.69 12 8.01 19 5.48 26 4.33
6 14.92 13 7.48 20 5.27 27 4.22
7 12.94 14 7.03 21 5.08 28 4.11
8 11.46 15 6.64 22 4.90 29 4.02
9 10.31 16 6.29 23 4.74 30 3.92
10 9.39 17 5.99 24 4.59
11 8.64 18 5.72 25 4.46
</TABLE>
OPTION TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED:
<TABLE>
<CAPTION>
Age of MONTHLY PAYMENTS GUARANTEED Age of MONTHLY PAYMENTS GUARANTEED
Male Female
Payee NONE 60 120 180 240 Payee NONE 60 120 180 240
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 4.17 4.16 4.13 4.06 3.96 55 3.87 3.86 3.84 3.81 3.75
56 4.27 4.25 4.21 4.14 4.03 56 3.95 3.94 3.92 3.88 3.82
57 4.36 4.35 4.30 4.22 4.09 57 4.03 4.02 4.00 3.95 3.88
58 4.46 4.45 4.40 4.30 4.16 58 4.11 4.11 4.08 4.03 3.95
59 4.57 4.55 4.50 4.39 4.22 59 4.21 4.20 4.17 4.11 4.01
60 4.69 4.67 4.60 4.48 4.29 60 4.30 4.29 4.26 4.19 4.08
61 4.81 4.79 4.71 4.57 4.36 61 4.41 4.40 4.35 4.28 4.15
62 4.94 4.92 4.83 4.66 4.43 62 4.52 4.50 4.46 4.37 4.23
63 5.09 5.05 4.95 4.76 4.49 63 4.64 4.62 4.56 4.46 4.30
64 5.24 5.20 5.08 4.86 4.56 64 4.76 4.74 4.68 4.56 4.37
65 5.40 5.35 5.21 4.96 4.62 65 4.90 4.87 4.80 4.66 4.45
66 5.57 5.52 5.35 5.06 4.69 66 5.04 5.01 4.93 4.77 4.52
67 5.75 5.69 5.49 5.17 4.75 67 5.19 5.16 5.06 4.87 4.59
68 5.95 5.87 5.64 5.27 4.81 68 5.36 5.32 5.20 4.98 4.66
69 6.15 6.07 5.80 5.37 4.86 69 5.53 5.49 5.35 5.10 4.73
70 6.38 6.27 5.96 5.48 4.91 70 5.72 5.68 5.51 5.21 4.80
71 6.61 6.49 6.12 5.58 4.96 71 5.93 5.87 5.67 5.33 4.86
72 6.86 6.72 6.29 5.68 5.00 72 6.15 6.08 5.85 5.44 4.92
73 7.13 6.96 6.47 5.77 5.04 73 6.39 6.31 6.03 5.56 4.97
74 7.42 7.21 6.64 5.86 5.08 74 6.65 6.55 6.21 5.67 5.02
75 7.72 7.48 6.82 5.95 5.11 75 6.93 6.81 6.41 5.78 5.06
76 8.05 7.76 7.00 6.03 5.14 76 7.24 7.08 6.60 5.88 5.10
77 8.40 8.06 7.18 6.11 5.17 77 7.57 7.38 6.80 5.98 5.13
78 8.77 8.37 7.35 6.18 5.19 78 7.92 7.69 7.01 6.07 5.16
79 9.18 8.69 7.53 6.25 5.20 79 8.31 8.02 7.21 6.15 5.18
80 9.60 9.03 7.70 6.31 5.22 80 8.72 8.37 7.41 6.23 5.20
81 10.06 9.38 7.86 6.36 5.23 81 9.17 8.74 7.61 6.30 5.22
82 10.55 9.74 8.02 6.41 5.24 82 9.66 9.13 7.80 6.35 5.23
83 11.07 10.12 8.17 6.45 5.25 83 10.20 9.54 7.98 6.41 5.24
84 11.63 10.50 8.32 6.49 5.26 84 10.77 9.96 8.15 6.45 5.25
85 12.22 10.89 8.45 6.52 5.26 85 11.39 10.40 8.31 6.49 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<TABLE>
<CAPTION>
Age of Age of Female Payee
Male
Payee 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C>
55 3.49 3.66 3.81 3.93 4.02 4.08 4.12
60 3.61 3.83 4.05 4.24 4.40 4.52 4.59
65 3.69 3.97 4.28 4.57 4.84 5.05 5.20
70 3.76 4.09 4.47 4.89 5.31 5.67 5.95
75 3.80 4.17 4.63 5.16 5.75 6.34 6.83
80 3.83 4.23 4.73 5.37 6.14 6.99 7.80
85 3.84 4.26 4.80 5.51 6.44 7.55 8.75
</TABLE>
Rates for ages not shown here will be provided upon request.
L-1551
<PAGE> 30
SURVIVORSHIP, MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
PAYABLE ON THE SECOND DEATH
NON-PARTICIPATING
TO THE EXTENT ALLOCATIONS ARE MADE TO THE SUBACCOUNTS, THE CASH VALUE IS BASED
ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND MAY INCREASE OR DECREASE
DAILY. THIS AMOUNT IS NOT GUARANTEED. THE AMOUNTS, OR DURATION OF THE DEATH
BENEFIT MAY VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT AND
TERMINATION PROVISIONS.
This is a legal contract between the owner and Kemper Investors Life Insurance
Company.
READ YOUR POLICY CAREFULLY.
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, Illinois 60049-0001
L-8388
<PAGE> 31
ANNUITY OPTION TABLE
AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF VALUE APPLIED
OPTION ONE - FIXED INSTALLMENT ANNUITY
<TABLE>
<CAPTION>
Number Number Number Number
of years Monthly of years Monthly of years Monthly of years Monthly
selected Payment selected Payment selected Payment selected Payment
<S> <C> <C> <C> <C> <C> <C> <C>
5 17.69 12 8.01 19 5.48 26 4.33
6 14.92 13 7.48 20 5.27 27 4.22
7 12.94 14 7.03 21 5.08 28 4.11
8 11.46 15 6.64 22 4.90 29 4.02
9 10.31 16 6.29 23 4.74 30 3.92
10 9.39 17 5.99 24 4.59
11 8.64 18 5.72 25 4.46
</TABLE>
OPTIONS TWO AND THREE - LIFE ANNUITY WITH INSTALLMENTS GUARANTEED
<TABLE>
<CAPTION>
MONTHLY PAYMENTS GUARANTEED
AGE NONE 60 120 180 240
<S> <C> <C> <C> <C> <C>
55 4.02 4.01 3.99 3.94 3.86
56 4.11 4.10 4.07 4.01 3.92
57 4.20 4.19 4.15 4.09 3.99
58 4.29 4.28 4.24 4.17 4.05
59 4.39 4.38 4.33 4.25 4.12
60 4.50 4.48 4.43 4.34 4.19
61 4.61 4.59 4.53 4.43 4.26
62 4.73 4.71 4.64 4.52 4.33
63 4.86 4.84 4.76 4.61 4.40
64 5.00 4.97 4.88 4.71 4.47
65 5.15 5.11 5.01 4.81 4.54
66 5.30 5.26 5.14 4.92 4.61
67 5.47 5.43 5.28 5.02 4.68
68 5.65 5.60 5.43 5.13 4.74
69 5.84 5.78 5.58 5.24 4.80
70 6.05 5.97 5.74 5.35 4.86
71 6.27 6.18 5.90 5.46 4.91
72 6.50 6.40 6.07 5.56 4.96
73 6.76 6.63 6.25 5.67 5.01
74 7.03 6.88 6.43 5.77 5.05
75 7.32 7.14 6.62 5.87 5.09
76 7.64 7.42 6.80 5.96 5.12
77 7.98 7.72 6.99 6.05 5.15
78 8.34 8.03 7.18 6.13 5.17
79 8.73 8.36 7.37 6.20 5.19
80 9.16 8.70 7.56 6.27 5.21
81 9.61 9.06 7.74 6.33 5.23
82 10.10 9.44 7.91 6.38 5.24
83 10.63 9.83 8.08 6.43 5.25
84 11.19 10.23 8.24 6.47 5.25
85 11.80 10.64 8.38 6.50 5.26
</TABLE>
OPTION FOUR - JOINT AND 100% SURVIVOR ANNUITY
<TABLE>
<CAPTION>
Age of Age of Secondary Payee
Primary
Payee 55 60 65 70 75 80 85
<S> <C> <C> <C> <C> <C> <C> <C>
55 3.51 3.64 3.76 3.85 3.92 3.96 3.99
60 3.64 3.84 4.02 4.18 4.29 4.38 4.43
65 3.76 4.02 4.29 4.54 4.75 4.90 5.00
70 3.85 4.18 4.54 4.91 5.25 5.53 5.74
75 3.92 4.29 4.75 5.25 5.77 6.26 6.64
80 3.96 4.38 4.90 5.53 6.26 7.00 7.69
85 3.99 4.43 5.00 5.74 6.64 7.69 8.76
</TABLE>
Rates for ages not shown here will be provided upon request.
L-1552
<PAGE> 32
[ZURICH KEMPER LOGO]
ENDORSEMENT
This Endorsement forms a part of the attached contract. The effective date of
this Endorsement is the effective date of this contract.
All references throughout this contract to the sex of a person used in the
calculation of benefits are deleted from this contract.
Except as modified herein, all terms and conditions of the contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ Debra P. Rezabek /s/ John B. Scott
Secretary President
Form L-9006 (9/88)
<PAGE> 1
EXHIBIT 1-A(5)(c)
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 Kemper Drive, Long Grove, IL 60049-0001
ACCELERATED DEATH BENEFIT RIDER
IMPORTANT BENEFITS AS SPECIFIED UNDER THE POLICY WILL BE REDUCED
IF YOU RECEIVE AN ACCELERATED DEATH BENEFIT PAYMENT.
THE BENEFIT PAYMENT UNDER THIS RIDER MAY BE TAXABLE OR
MAY AFFECT ELIGIBILITY FOR BENEFITS UNDER STATE OR
FEDERAL LAW. YOU SHOULD CONTACT YOUR PERSONAL TAX
ADVISOR FOR SPECIFIC ADVICE. NEITHER THE COMPANY NOR ITS
AGENTS CAN PROVIDE TAX ADVICE.
EFFECTIVE This Rider is a part of the Policy as of the Issue Date
DATE of the Policy.
DEFINITIONS ACCELERATED DEATH BENEFIT - This is the amount of death
benefit that you elect to accelerate when the insured is
determined to be Terminally Ill. We will pay you the
Accelerated Death Benefit less certain specified
adjustments.
TERMINALLY ILL - This is when the insured has a life
expectancy of 12 months or less due to an illness or
physical condition. We will require proof, satisfactory
to us, that the insured is Terminally Ill. This proof
will include, but is not limited to, certification by a
Physician.
PHYSICIAN - This must be a Physician licensed and
practicing, within, the scope of his/her license, within
the United States. The Physician must not be: you; the
insured; or, related to either party by blood or
marriage.
ACCELERATED You may elect to have a portion of the death benefit
DEATH BENEFIT accelerated when the insured is found to be Terminally
Ill, subject to the terms and conditions of this Rider.
The maximum Accelerated Death Benefit you may elect
under this Policy is the lesser of:
1. 25% of the death benefit; or
2. $250,0000.
The total Accelerated Death Benefit available under all
policies issued by us or our affiliates on the life of
the insured will not exceed $250,000. The minimum death
benefit you may elect to accelerate is $10,000. You may
not request more than one Accelerated Death Benefit
under this Rider.
ADJUSTMENTS We will pay you the Accelerated Death Benefit less the
following adjustments in one lump sum:
1. There is an administration fee of $150.000 for
processing an Accelerated Death Benefit.
2. If there is any outstanding policy loan, the
Accelerated Death Benefit will be used to repay the
policy loan and any accrued interest thereon.
LIEN We will treat the Accelerated Death Benefit as a lien
against your Policy. As a lien, we will charge you
Interest on the Accelerated Death Benefit. The maximum
annual Interest rate we may charge you is the greater
of:
1. The Interest rate charged on policy loans, as
stated in the Policy; or
2. the current 90 day U.S. Treasury Bill rate in
effect on the date that the Accelerated Death Benefit is
paid.
The maximum interest rate we will charge on the portion
of the lien which is equal to the Surrender Value of
this policy at the time the Accelerated Death Benefit is
requested will be no greater than the rate we charge on
policy loans.
S-9218 Page 1
<PAGE> 2
S-9218 PAGE 2
EFFECTS ON The Accelerated Death Benefit will first be used to
POLICY repay any outstanding policy loans and any unpaid
accrued interest thereon. The Accelerated Death Benefit
plus any accrued interest thereon will be treated as a
lien against your Policy. Your access to the Net
Surrender Value of your Policy through policy loans,
full surrenders, or partial surrenders, if any, will be
limited to the excess of the Net Surrender value over
the lien. The death benefit payable under this Policy
will also be reduced by the amount of the lien. Any
benefits payable under other Riders attached to this
Policy will not be affected by any benefit payable under
this Rider. Premiums, without reduction, will still be
payable on this Policy, including any Rider premiums.
CONDITIONS Payment of an Accelerated Death Benefit is subject to
the conditions that follow:
1. This Rider is subject to the terms of the
Contestability provision under this Policy.
2. The insured must not be Terminally Ill due to any
attempt of suicide while the suicide provision under
this policy is in effect.
3. You may reinstate this Rider subject to the same
terms which apply to the Policy.
4. You must send us a written request to elect the
Accelerated Death Benefit. The written request must be
in a form satisfactory to us.
5. Any irrevocable beneficiaries or assignees must
send us a written consent to the Accelerated Death
Benefit. The written consent must be in a form
satisfactory to us.
6. You must provide us with proof satisfactory to us
that the insured is Terminally Ill. This proof must
include a certification by a Physician, who is not: you;
the insured; or, related to either party by blood or
marriage. We reserve the right to obtain a second
medical opinion at our expense. If there is a conflict
of opinion, we reserve the right to make the final
determination.
7. This Rider provides for the accelerated payment of
the death benefit and is not intended to allow third
parties to cause you to involuntarily invade your Policy
proceeds ultimately payable to your beneficiary.
Therefore, any election forced by creditors or
government agencies will be honored only to the extent
required by law.
RELATIONSHIP TO THE This Rider is part of the Policy to which it is
POLICY attached. The terms and conditions of the Policy apply
of this Rider. Where the terms and conditions of the
Policy and this Rider are in conflict, the terms and
conditions of this Rider will prevail.
TERMINATION This Rider will terminate on the earliest of:
1. the date we pay you an Accelerated Death Benefit;
2. the date you ask us to do so in writing and send
us the Policy; or
3. the date this Policy lapses because a premium due
is not paid within the required grace period.
Signed for the Kemper Investors Life Insurance Company
at its home office in Long Grove, Illinois.
/s/ Debra P. Rezabek /s/ John B. Scott
Secretary President
<PAGE> 1
Exhibit 1-A(5)(d)
KEMPER INVESTORS LIFE INSURANCE COMPANY
A Stock Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049-0001 [ZURICH KEMPER LOGO]
EXTENDED MATURITY OPTION RIDER
This Rider is a part of the policy to which it is attached. It is subject to all
of the policy's provisions which are not inconsistent with this Rider. If
inconsistencies occur, the provisions of this Rider will apply.
BENEFIT
On the Maturity Date while this policy is in force, you may extend the Maturity
Date for one year. You may continue to extend the Maturity Date for one year
intervals. While this policy is continued under this provision, we will extend
the deduction period for one year and waive any cost of insurance charges
against the policy. All attached benefit riders, other than this Rider, will
terminate. No additional policy loans or partial withdrawals will be allowed.
Upon the death of the Life Insured while this Policy is in force, the Death
Benefit will be payable. The Death Benefit under this option is the Cash Value.
If the Maturity Date is not extended the policy will mature.
EFFECTIVE DATE
This Rider becomes effective on the Policy Date, as shown on the Policy
Specifications Page.
TERMINATION
This Rider will terminate on the day coverage under this policy terminates.
REINSTATEMENT
This Rider may be reinstated if:
1. The policy itself is being reinstated; and
2. The Rider terminated due to the termination of the policy according
to the terms of the policy's Grace Period provision.
Signed for the Kemper Investors Life Insurance Company at its home office in
Long Grove, Illinois.
/s/ Debra P. Rezabek /s/ John B. Scott
Secretary President
L-8164
<PAGE> 1
EXHIBIT 1-A(5)(e)
KEMPER INVESTORS LIFE INSURANCE COMPANY
1 KEMPER DRIVE, T-1
LONG GROVE, ILLINOIS 60049
847-550-5500
[KEMPER INVESTORS LIFE INSURANCE LOGO]
ENDORSEMENT
This Endorsement forms a part of the contract to which it is attached. The
effective date of this Endorsement is the Contract Date stated in the Schedule.
Withdrawal charges will not be assessed when a total or partial withdrawal is
requested in a form satisfactory to the Company:
(1) after an Owner has been confined in a Hospital or Skilled Health Care
Facility for at least thirty consecutive days and the Owner remains confined in
the Hospital or Skilled Health Care Facility when the request is made; or
(2) within thirty days following an Owner's discharge from a Hospital or Skilled
Health Care Facility after a confinement of at least thirty days.
Confinement must begin after the effective date of this Endorsement.
Withdrawal charges will not be waived when confinement is due to substance
abuse, mental or personality disorders without a demonstrable organic disease. A
degenerative brain disease such as Alzheimer's Disease is considered an organic
disease.
For purposes of this provision:
"Hospital" means a place which is licensed by the State as a Hospital and is
operating within the scope of its license.
"Skilled Health Care Facility" means a place which:
(a) is licensed by the state;
(b) provides skilled nursing care under the supervision of a physician;
(c) has twenty-four hour a day nursing services by or under the supervision of a
registered nurse (RN); and
(d) keeps a daily medical record of each patient.
Except as modified herein, all terms and conditions of this Contract remain
unchanged.
IN WITNESS WHEREOF, Kemper Investors Life Insurance Company has caused this
Endorsement to be signed by its President and Secretary.
/s/ Debra P. Rezabek /s/ John B. Scott
Secretary President
Form L-7042 (5/91)
<PAGE> 1
EX 1-A(10)
OVERNIGHT MAIL: DESTINATIONS(SM)LIFE
KEMPER DESTINATIONS LIFE
c/o Fleet Bank -- Box 30955
99 Founders Plaza, 3rd Floor
East Hartford, CT 06108
Kemper Investors Life Insurance Company
REGULAR MAIL: KEMPER DESTINATIONS LIFE Long Grove, IL
c/o Fleet Bank, P.O. Box 30955, Hartford, CT 06150-0955
APPLICATION FOR MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE
- -------------------------------------------------------------------------------
Section A Proposed Insured Information
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
/ / Owner / / Joint Owner
--------------------------------------------------- -------------------------------
First Name Middle Last Social Security Number
/ / Male / / Female
Address: --------------------------------------------------- ---------------------
Street Date of Birth
--------------------------------------------------- ------------------------ ---------------------
City State ZIP Place of Birth (State) Occupation
--------------------------------------------------
Driver's License Number
</TABLE>
- -------------------------------------------------------------------------------
Section B Proposed Joint Insured Information
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
/ / Owner / / Joint Owner
--------------------------------------------------- -------------------------------------------------
First Name Middle Last Social Security Number
/ / Male / / Female
Address: --------------------------------------------------- ---------------------
Street Date of Birth
--------------------------------------------------- ------------------------ ---------------------
City State ZIP Place of Birth (State) Occupation
--------------------------------------------------
Driver's License Number
</TABLE>
- -------------------------------------------------------------------------------
Section C Owner Information
- -------------------------------------------------------------------------------
[Complete only if different from Proposed Insured(s)]
<TABLE>
<S><C>
--------------------------------------------------- --------------------------------------------------
First Name Middle Last Social Security Number
Address: --------------------------------------------------- --------------------------------------------------
Street Relationship To Insured
--------------------------------------------------- ------------------- --------------------------
City State ZIP Trust Date Trust Tax I.D. Number
</TABLE>
- -------------------------------------------------------------------------------
Section D Beneficiary Information
- -------------------------------------------------------------------------------
PRIMARY BENEFICIARY:
<TABLE>
<S><C>
--------------------------------------------------- --------------------------------------------------
First Name Middle Last Social Security Number
--------------------------------------------------- ------------------- --------------------------
Relationship To Proposed Insured % Of Death Benefit Trust Date
--------------------------------------------------- --------------------------------------------------
First Name Middle Last Social Security Number
--------------------------------------------------- ------------------- --------------------------
Relationship To Proposed Insured % Of Death Benefit Trust Date
CONTINGENT BENEFICIARY:
--------------------------------------------------- ---------------------------------------------------
First Name Middle Last Social Security Number
--------------------------------------------------- -------------------- --------------------------
Relationship To Proposed Insured % Of Death Benefit Trust Date
</TABLE>
[If there are additional beneficiaries, please note in Section Q, Special
Instructions]
1
L-8389 (7/99)
<PAGE> 2
- -------------------------------------------------------------------------------
Section E Plan of Insurance
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE $ $
- ----------------------------------------------- ------------------------ --------------------------
Plan Of Insurance Initial Premium Initial Specified Amount
(Death benefit)
- ------------------------------------------------------------------------- / / Yes / / No
Are you purchasing this insurance to replace any life insurance in force?
If yes, list company name. In addition, please provide a completed 1035
exchange form (if applicable), required state replacement form and the
replacing company's policy or lost policy statement.
Is this a 1035 Exchange? / / Yes / / No $
---------------------------------------
Estimated Transfer Amount (net of Loan)
Will a loan be carried over? / / Yes / / No $
---------------------------------------
Estimated Loan Amount
</TABLE>
- -------------------------------------------------------------------------------
Section F Plan of Insurance
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
$ / /
- --------------------------------------------------------------------------------------------------------------------
Company Name (Proposed Insured) Amount Issue Date Purpose
$ / /
- --------------------------------------------------------------------------------------------------------------------
Company Name (Proposed Joint Insured) Amount Issue Date Purpose
</TABLE>
- -------------------------------------------------------------------------------
Section G Telephone Transfer
- -------------------------------------------------------------------------------
I authorize and direct KILICO to accept telephone instructions from any owner,
active representative and the individual listed below to effect transfers and/or
future payment allocation changes. I agree to hold harmless and indemnify KILICO
and its affiliates and their collective directors, employees and representatives
against any claim arising from such action.
<TABLE>
<S><C>
/ / I do not accept this telephone transfer privilege. / /
----------------------------------------------
Name Date Of Birth
</TABLE>
- -------------------------------------------------------------------------------
Section H Premium Allocation
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
[KEMPER SUBACCOUNTS] [SCUDDER VLIF SUBACCOUNTS]
[ % Aggressive Growth (027)] [ % Global Discovery (001)]
[ % Technology Growth (029)] [ % Growth and Income (002)]
[ % Dreman Financial Services (031)] [ % International (003)]
[ % Small Cap Growth (017)] [ % Capital Growth (004)]
[ % Small Cap Value (019)]
[ % Dreman High Return Equity (030)]
[ % International (016)]
[ % International Growth & Income (028)]
[ % Global Blue Chip (032)]
[ % Growth (014)] [WARBURG PINCUS TRUST SUBACCOUNTS]
[ % Contrarian Value (020)] [ % Emerging Markets (051)]
[ % Blue Chip (025)] [ % Post-Venture Capital (052)]
[ % Value+Growth (024)]
[ % Horizon 20+ (023)] [ % Other]
[ % Total Return (012)] [ % Other]
[ % Horizon 10+ (022)] [ % Other]
[ % High Yield (013)] [ % Other]
[ % Horizon 5 (021)] [ % Other]
[ % Global Income (026)] [ % Other]
[ % Investment Grade Bond (018)] [ % Other]
[ % Government Securities (015)] [ % Other]
[ % Money Market (011)]
[ALL ALLOCATIONS ABOVE MUST TOTAL 100%, USING WHOLE PERCENTAGES]
</TABLE>
2
L-8389 (7/99)
<PAGE> 3
- -------------------------------------------------------------------------------
Section I Dollar Cost Averaging (DCA)
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
Please Transfer $ From
--------------------- -------------------------------------
($100 minimum) (enter one subaccount name or number)
Date To Begin / /
---------------------- (please enter date)
FREQUENCY Every: / / 1 Month / / 3 Months / / 6 Months / / 12 Months
Transfer Assets To:
ACCOUNT NAME OR NUMBER % OR $ AMOUNT ACCOUNT NAME OR NUMBER % OR $ AMOUNT
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- - Dollar Cost Averaging and Automatic Account Rebalancing can not be chosen
simultaneously
- - Unless otherwise specified, DCA will occur each period on the same day as
the effective date
- - There is a $100 minimum per account
- - Total allocations must equal 100%
- -------------------------------------------------------------------------------
Section J Automatic Account Rebalancing (AAR)
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
/ / I elect Automatic Account Rebalancing among the subaccounts listed in
Section H.
FREQUENCY Every: / / 1 Month / / 3 Months / / 6 Months / / 12 Months
Date To Begin / /
------------------ (please enter date)
</TABLE>
- - Dollar Cost Averaging and Automatic Account Rebalancing can not be chosen
simultaneously
- - Unless otherwise specified, rebalancing will occur each period on the date
the policy is issued to match the allocation selected in section H of this
Application
- -------------------------------------------------------------------------------
Section K Automatic Account Rebalancing (AAR)
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
Please Withdraw $ Date To Begin / /
-------------------------- -------------------- (please enter date)
($100 minimum)
FREQUENCY Every: / / 1 Month / / 3 Months / / 6 Months / / 12 Months
Please: / / Do not withhold federal income taxes
/ / Withhold at 10% or %
------------
Withdraw Assets From:
ACCOUNT NAME OR NUMBER % OR $ AMOUNT ACCOUNT NAME OR NUMBER % OR $ AMOUNT
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
/ / I wish to use Electronic Funds Transfer (Direct Deposit). I authorize
KILICO to correct any overpayments or erroneous credits made to my
account. Please attach a voided check or voided deposit slip.
- - Withdrawals before age 59(1)/2 may be subject to a 10% IRS penalty. Please
consult your tax advisor
- - The death benefit will be reduced proportionately for any withdrawals
3
L-8389 (7/99)
<PAGE> 4
- -------------------------------------------------------------------------------
Section L Tobacco Use
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
Proposed Proposed
Insured Joint Insured
Yes No Yes No
Have you used tobacco in any form in the last 36 months? If yes, give date last / / / / / / / /
used.
Date: / / / /
------------ ------------
</TABLE>
- -------------------------------------------------------------------------------
Section M Simplified Underwriting
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
If any of these questions are answered "YES," then: (1) We cannot accept the
premium with the Application; and (2) The process will continue on a fully
underwritten basis, starting with a Telelife(SM) interview.
Proposed Proposed
Insured Joint Insured
Yes No Yes No
1. Have you ever had or been treated for cancer, heart disease, insulin / / / / / / / /
dependent diabetes, heart attack, chest pain, stroke, brain aneurysm,
muscular disorder or respiratory disorder?
2. Have you ever had or been treated for a mental disorder, nervous disorder, / / / / / / / /
depression, Alzheimer's disease, kidney failure, liver disorder, high blood
pressure, been advised to have treatment for drug or alcohol abuse or in
the past 10 years been convicted of reckless driving or driving under the
influence of alcohol or drugs?
3. Have you ever been diagnosed as having Acquired Immune Deficiency Syndrome / / / / / / / /
(AIDS), AIDS Related Complex or other immune deficiency disorders?
4. Have you ever been declined or rated for life insurance? / / / / / / / /
</TABLE>
- -------------------------------------------------------------------------------
Section N Suitability
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
Owner Joint Owner
Yes No Yes No
1. Do you believe that this policy will meet your insurance needs and financial / / / / / / / /
objectives?
2. Do you understand that the amount and duration of the death benefit may vary / / / / / / / /
depending on the investment performance of the variable subaccounts of the
separate account?
3. Do you understand that the policy values may increase or decrease depending / / / / / / / /
on the investment experience of the variable subaccounts of the separate
account?
4. Did you receive the current prospectus for the life policy applied for? / / / / / / / /
</TABLE>
- -------------------------------------------------------------------------------
Section O Question for Owner
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
If we are unable to issue a life insurance policy, do you wish to receive / / Yes / / No
information about an annuity?
</TABLE>
- -------------------------------------------------------------------------------
Section P Question for Owner
- -------------------------------------------------------------------------------
If necessary, a representative may contact you for an interview to help
determine your eligibility for this coverage.
Proposed Insured:
<TABLE>
<S><C>
( ) ( )
-------------------------------- --------------------------------
Home Phone Number Business Phone Number
The most convenient place to call: The most convenient time to call:
/ / Home / / Business / / Morning / / Afternoon / / Evening
Time zone: / / Atlantic / / Eastern / / Central / / Mountain / / Pacific
</TABLE>
L-8389 (7/99)
4
<PAGE> 5
- -------------------------------------------------------------------------------
Section Q Special Instructions
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Section R Agreement, Authorization and Signatures
- -------------------------------------------------------------------------------
AGREEMENT
I (We) have read all the questions and answers in the Application, including
all required sections. 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(s) that occurs after completing
this Application, but before the Policy is delivered to me (us) and the first
premium is paid.
I (We) agree:
1. This Application, including all of its parts, will be the basis for and form
part of the Policy;
2. No one, including the agent or representative, has the authority to alter
the Company's rules or requirements, this Application, the Temporary
Insurance Agreement or the Policy;
3.The first premium will not be deemed paid unless any check, draft or other
instrument of payment (given as premium) is paid in accordance with its
terms; and
4.The insurance applied for never takes effect (except as provided in the
Temporary Insurance Agreement, if given) unless, during the lifetime of the
Proposed Insured: (a) the Policy has been issued, delivered to and accepted
by me (us); (b) the required first premium has been paid; (c) any amendments
issued with the Policy have been completed and signed; all while health and
habits of the Proposed Insured(s) remain as stated in this Application.
Amendments to plan, amounts, classification or benefits will be made only with
my (our) consent.
- --------------------------------------------------------------------------------
I (We) have received the notification about the Federal Fair Credit Reporting
Act and the Medical Information Bureau (found on page 7). I (We) acknowledge
receiving a copy of the Temporary Insurance Agreement (applicable only if a
premium was submitted with the Application) and understand and agree to the
terms and conditions therein (found on page 8). I (We) hereby authorize: any
licensed physician or medical practitioner; any hospital, clinic or other
medical or medically related facility; any insurance company; the Medical
Information Bureau; and any other organization, institution or person that has
any records or knowledge of me or my health, to give to Kemper Investors Life
Insurance Company, or their reinsurers, or the Medical Information Bureau, any
such information. This authorization is valid for two and one-half years from
the date this form is signed. An exact copy of this authorization is as valid
as the original.
Signed At, On
-------------------------- -----------------------------------
City State Month Day Year
<TABLE>
<S><C>
X X
---------------------------------------------- ---------------------------------------------------
Signature Of Proposed Insured (if over age 15) Signature Of Proposed Joint Insured (if applicable)
---------------------------------------------- ---------------------------------------------------
Print Name Of Proposed Insured Print Name Of Proposed Joint Insured
X X
---------------------------------------------- ---------------------------------------------------
Signature Of Owner (if other than Insured) Signature Of Licensed Registered Representative
</TABLE>
5
L-8389 (7/99)
Overnight mail to: Kemper Destinations Life, c/o Fleet Bank -- Box 30955,
99 Founders Plaza, 3rd Floor, East Hartford, CT 06108
Make check payable to: Kemper Investors Life Insurance Company
<PAGE> 6
- --------------------------------------------------------------------------------
Section S Representative's Certification
- --------------------------------------------------------------------------------
Broker/Dealer Name:
------------------------------------------------------------
<TABLE>
<S><C>
Print:
------------------------------------- ----------------------------------- ----------------------
Registered Representative Name Representative State License Number Social Security Number
Print:
------------------------------------- ----------------------------------- -----------------------
Joint Registered Representative Name Representative State License Number Social Security Number
------------------------------------- -----------------------------------
Representative Telephone # Representative Fax #
--------------
Comm. Code --------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I CERTIFY AS THE REGISTERED REPRESENTATIVE:
1. To the best of my knowledge, the insurance applied for / / will / / will not
(CHECK ONE) replace any life insurance or annuity on the life of any
Proposed Insured;
2. To the best of my knowledge, there is nothing that may adversely affect the
insurability of any person proposed for insurance except as stated in this
Application;
3. That I asked each question separately; the answers were recorded as given;
and they are complete and accurate to the best of my knowledge and belief;
4. That I am an NASD Registered Representative;
5. I have given the Proposed Insured(s) the appropriate Disclosure documents;
6. I have complied with the state and federal laws on disclosure, cost
comparison and replacement;
7. I have reviewed the purchase of this insurance policy as to suitability
with the Owner;
8. I have fully explained the terms and conditions of the Temporary Insurance
Agreement to the Owner and have given it to him/her.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
X
----------------------------------------------- --------------------
Signature(s) Of Registered Representative Month/Day/Year
6
L-8389 (7/99)
<PAGE> 7
DETACH AND LEAVE WITH THE PROPOSED INSURED
DISCLOSURE NOTICE TO PROPOSED INSURED(S) FOR INSURANCE
This brief description of our underwriting process is designed to help you to
understand how an Application for insurance is handled, the types and sources of
information we may collect about you, the circumstances under which we may
disclose that information to others and your right to learn the nature and
substance of that information upon written request. The purpose of the
underwriting process is to make sure you qualify for insurance under Kemper
Investors Life Insurance Company's ("KILICO") rules, and assuming you do,
establish the proper premium charge for that insurance. This process -- the
evaluation of risks -- assures that the cost of insurance is distributed
equitably among all policyowners, and that each individual pays his or her fair
share. To determine your insurability, we must consider such factors as your
medical history, physical condition, occupation and hazardous avocations. We get
this information from various sources.
Sources of Information
Application and Medical Records -- Your Application, including the medical
history, is the primary source of information in the evaluation process. In
addition, we may ask you to take a physical examination or other special test
such as an electrocardiogram. We may also ask for a report from your doctor or
hospital, another insurance company or the Medical Information Bureau, Inc. When
we do so, we will use the Authorization to Obtain Information Section of the
Application that you signed.
MIB, Inc. (Medical Information Bureau, Inc.) -- A non-profit corporation which
operates an information exchange on behalf of member life insurance companies.
As a member company, we will ask the MIB if it has a record concerning you. If
you previously applied to a member company for insurance, the MIB may have
information about you in its file. The purpose of the MIB is to protect member
companies and their policyowners from those who would conceal significant facts
relevant to their insurability. The information which is obtained from the MIB
may be used only as an alert to the possible need for further independent
investigation. It cannot be used as a basis in making a final underwriting
decision.
Information regarding your insurability will be treated as confidential. KILICO,
its subsidiaries or its reinsurer(s) may, however, make a brief report to the
MIB. If you later apply to another MIB member company for life or health
insurance coverage, or a claim for benefits is submitted to such a company, the
MIB, upon request, will supply the company with the information it may have
about you in its file. KILICO, its subsidiaries or its reinsurer(s) may also
release information in its file to other life insurance companies to whom you
may apply for life or health insurance, or to whom a claim for benefits may be
submitted.
At your request, the MIB will arrange disclosure of any information it may have
about you in its file. If you question the accuracy of information on file, you
may contact the MIB and seek a correction in accordance with the procedures set
forth in the Federal Fair Credit Reporting Act. The address of the information
office of MIB, Inc. is Post Office Box 105, Essex Station, Boston, Massachusetts
02112, telephone number (617) 426-3660.
Investigative Consumer Report -- As part of our underwriting procedure, we may
request an investigative consumer report from a consumer reporting agency.
A consumer report confirms and supplements the information on your Application
pertaining to employment and residence verification, tobacco use, marital
status, occupation, hazardous avocations and general health. This report may
also cover information concerning your general reputation, personal
characteristics and mode of living, (except as may be related directly or
indirectly to your sexual orientation) including drug and alcohol use, motor
vehicle driving record and any criminal activity. This information may be
obtained through personal interviews with you, your family, friends, neighbors
and business associates. If a report is required and you wish to be personally
interviewed, please let us know and we will notify the consumer reporting
agency.
The information contained in the report may be retained by the consumer
reporting agency and subsequently disclosed to other companies to the extent
permitted by the Federal Fair Credit Reporting Act.
Investigative consumer reports are held in strict confidence and used only to
evaluate your Application on a fair and equitable basis. You have a right to
inspect and obtain a copy of the report from the consumer reporting agency.
Disclosures to Others
Personal information obtained about you during the underwriting process is
confidential and will not be disclosed to other persons or organizations without
your written authorization except to the extent necessary for the conduct of our
business. Examples of situations where we may share information about you are as
follows: 1. The agent may retain a copy of your Application; 2. If reinsurance
is required, the reinsurance company would have access to our Application file;
3. We may release information to another life insurance company to whom you have
applied for life or health insurance or to whom you have submitted a claim for
benefits, if you have authorized it to obtain such information; 4. As stated
earlier, we may report information to the Medical Information Bureau, Inc.; 5.
We will disclose information to government regulatory officials, law enforcement
authorities and others where required by law.
Disclosures to You
In general, you have a right to learn the nature and substance of any personal
information about you in our file upon written request. Whenever an adverse
underwriting decision is made, we will notify you of the reason(s) for the
decision and the source of the information upon which our action is based.
Medical record information, however, will normally be given only to a licensed
physician of your choice. Please refer to the section on MIB, Inc., for that
organization's disclosure procedure. Should you feel that any information we
have is inaccurate or incomplete, please write to: KILICO, 1 Kemper Drive, Long
Grove, Illinois 60049-0001. Your comments will be carefully considered and
corrections made where justified. We hope this Notice will help you to
understand how we obtain and use personal information in the underwriting
process and the ways you can learn about this information. We are concerned with
insuring privacy as well as lives, and the collection, use and disclosure of
personal information is limited to those specified in this Notice.
7
L-8389 (7/99)
<PAGE> 8
Kemper Investors Life Insurance Company
Long Grove, Illinois
DETACH AND LEAVE WITH THE PROPOSED INSURED
TEMPORARY INSURANCE AGREEMENT
Re: Temporary Insurance Agreement (TIA)
TIA Number:
Date:
Proposed Insured:
Proposed Joint Insured:
Thank you for selecting Kemper Investors Life Insurance Company (KILICO) for
your insurance needs. We are pleased to provide those applying for insurance
with temporary insurance coverage under the terms and limitations stated below
in exchange for the advance premium of $
-----------------.
Thank you for choosing KILICO.
Kemper Investors Life Insurance Company
(the Company)
TEMPORARY INSURANCE AGREEMENT
(TIA)
THIS TIA PROVIDES A LIMITED AMOUNT of insurance coverage for a LIMITED PERIOD of
time for any person (under the age of 71) to be covered under the life insurance
Application, subject to the terms below:
LIMITED AMOUNT --$500,000 MAXIMUM
If any person to be covered dies while this TIA is in effect, the Company will
pay to the named beneficiary the LESSER OF: (a) the initial specified amount of
insurance applied for in the Application for that person to be covered; or (b)
$500,000. This amount includes any life insurance applied for or in force with
the Company. The amount of insurance is subject to the LIMITATIONS below. (Note:
NO initial specified amount is payable under this TIA for any survivorship
coverage unless both proposed insureds have died.)
WHEN TEMPORARY INSURANCE BEGINS
Temporary insurance under this TIA begins when the following conditions are met,
all during the lifetime of the proposed insured:
1) The life insurance Application is completed and signed;
2) All questions in Section M of the life insurance Application were answered
no; and
3) The full premium is submitted to the Company.
WHEN TEMPORARY INSURANCE STOPS --60 DAY MAXIMUM
Temporary insurance under this TIA ENDS on the earliest of any one of the
following:
1) 60 days from the date the life insurance Application is signed;
2) The date a policy goes into effect;
3) The date the Company provides notice of termination of coverage, or
4) The date the Company provides notice that the proposed insured is not
acceptable at the rate class applied for.
LIMITATIONS
1) If benefits are payable under this TIA due to a death, then no benefit
relating to that death will be payable under any policy that is subsequently
issued;
2) Material or fraudulent misrepresentations in the Application invalidate this
TIA and the Company's only liability is to refund the premium paid in
exchange for this TIA;
3) If a person to be covered dies by suicide, while sane or insane, the
Company's only liability is to refund the premium paid in exchange for this
TIA;
4) There is no coverage under this TIA if the check, draft or charge given as
payment is not honored by the bank; and
5) No one, including the agent, is authorized to waive or modify any of
the provisions of this TIA.
FRAUD NOTICE
Any person who knowingly and with intent to defraud any insurance company or
other person files an Application for insurance or statement of claim containing
any materially false information, or conceals for the the purpose of misleading
information concerning any fact material thereto, commits a fraudulent insurance
act, which is a crime and subjects such person to criminal and civil penalties.
8
L-8389 (7/99)
<PAGE> 1
EXHIBIT 3(a)
September 20, 1999
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, Illinois 60049
Dear Sirs:
This opinion is furnished in connection with the filing of an S-6 Registration
Statement ("Registration Statement") by Kemper Investors Life Insurance Company
("KILICO") for the KILICO Variable Separate Account ("Variable Separate
Account"). The Registration Statement covers an indefinite number of units of
interest in the Variable Separate Account. Premiums to be received under single
life and survivorship modified single premium variable universal life insurance
policies ("Policies") offered by KILICO may be allocated by KILICO to the
Variable Separate Account in accordance with the owners' direction with reserves
established by KILICO to support such Policies.
The Policies are designed to provide life insurance protection and are to be
offered in a manner described in the Prospectus which is included in the
Registration Statement.
The Policies will be sold only in jurisdictions authorizing such sales.
I have examined all applicable corporate records of KILICO and such other
documentation and laws as I consider appropriate as a basis of this opinion. On
the basis of such examination, it is my opinion that:
1. KILICO is a corporation duly organized and validly existing under
the laws of the State of Illinois.
2. The Variable Separate Account is an account established and
maintained by KILICO pursuant to the laws of the State of Illinois,
under which income, gains and losses, whether or not realized, from
assets allocated to the Variable Separate Account are, in accordance
with the Policies, credited to or charged against the Variable Separate
Account without regard to other income, gains or losses of KILICO.
3. Assets allocated to the Variable Separate Account will be owned by
KILICO. The policies provide that the portion of the assets of the
Variable Separate Account equal to the reserves and other Policy
liabilities with respect to the Variable
<PAGE> 2
Kemper Investors Life Insurance Company
September 20, 1999
Page Two
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/ Frank J. Julian
Frank J. Julian
Vice President and
Associate General Counsel
<PAGE> 1
EXHIBIT 3(b)
OPINION AND CONSENT OF ACTUARIAL OFFICER
This opinion is supplied with the filing of Pre-Effective Amendment No.
1 to the Registration Statement on Form S-6, File No. 333-79615, by the KILICO
Variable Separate Account (the "Separate Account") and Kemper Investors Life
Insurance Company ("KILICO") covering an indefinite number of interests in the
Separate Account under KILICO's Single Life and Survivorship Modified Single
Premium Variable Universal Life Insurance Policies (the "Policies"). Premiums
received under the 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 provisions of the Policies and the description
in the Prospectus and it is my opinion that the illustrations of death benefits,
surrender values, cash values, and accumulated premiums included in Exhibit 9
to the Registration Statement, based on the assumptions in the illustrations,
are consistent with the provisions of the Policies. The rate structure of the
Policies have not been designed to make the relationship between planned
premiums and benefits, as shown in the illustrations, appear more favorable in
the case of individual Policies, to prospective non-tobacco males age 40, or, in
the case of survivorship Policies, to prospective non-tobacco males and females
ages 45 and 40, respectively, than to non-tobacco males and females at other
ages. The non-tobacco risk class generally has a more favorable rate structure
than tobacco risk classes. Female rate classes generally have a more favorable
rate structure than male rate classes.
The current and guaranteed monthly mortality rates used in the
illustrations have not been designed so to make the relationship between current
and guaranteed rates more favorable for the ages and sexes illustrated than for
a non-tobacco male or female at other ages. The non-tobacco risk classes
generally have lower monthly mortality rates than the tobacco 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 Pre-Effective
Amendment No. 1 to the Registration Statement and to the reference to me under
the heading "Experts" in the Prospectus.
/s/ Steven D. Powell
--------------------------------------------
Steven D. Powell, FSA
<PAGE> 1
EXHIBIT 6(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Modified Single Premium Variable Universal Life
Insurance Policies (Single Life and Survivorship) - KILICO Variable Separate
Account.
We consent to the inclusion in this registration statement on Form S-6 (File No.
333-79615) of our report dated February 19, 1999, on our audit of the financial
statements of KILICO Variable Separate Account and to the reference to our firm
under the caption "Experts."
PricewaterhouseCoopers LLP
Chicago, Illinois
September 14, 1999
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of
Kemper Investors Life Insurance Company and
Contract Owners of KILICO Modified Single Premium Variable Universal Life
Insurance Policies (Single Life and Survivorship) - KILICO Variable Separate
Account
We consent to the inclusion in this registration statement on Form S-6 (File No.
333-79615) of our report dated March 12, 1999, on our audit of the consolidated
financial statements of Kemper Investors Life Insurance Company and to the
reference to our firm under the caption "Experts."
PricewaterhouseCoopers LLP
Chicago, Illinois
September 14, 1999
<PAGE> 1
EXHIBIT 6(b)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Kemper Investors Life Insurance Company
We consent to the use of our report included herein on the consolidated
financial statements and financial statement schedules of Kemper Investors Life
Insurance Company and to the reference to our firm under the heading "Experts"
in the prospectus.
KPMG LLP
Chicago, Illinois
September 14, 1999
<PAGE> 1
EXHIBIT 8
PROCEDURES MEMORANDUM
(Dated September 15, 1999)
Pursuant to Rule 6e-3(T)(b)(12)(iii)
under the Investment Company Act of 1940
KILICO Variable Separate Account of
Kemper Investors Life Insurance Company
I. INTRODUCTION
Set forth below is the information called for under Rule 6e-3(T)(b)(12)(iii)
under the Investment Company Act of 1940 ("1940 Act"). That rule provides an
exemption for separate accounts, their investment advisers, principal
underwriters and sponsoring insurance company from Sections 22(d), 22(e), and
27(c)(1) of the 1940 Act, and Rule 22c-1 promulgated thereunder, for issuance,
transfer and redemption procedures under flexible premium variable life
insurance policies to the extent necessary to comply with Rule 6e-3(T), state
insurance or administrative law, or established administrative procedures of the
life insurance company. In order to qualify for the exemption, procedures must
be reasonable, fair and not discriminatory and they must be disclosed in the
registration statement filed by the separate account.
The KILICO Variable Separate Account (the "Separate Account") is registered
under the 1940 Act. Within the Separate Account are Subaccounts, which are, as
of the date of this filing, the Kemper Aggressive Growth, Kemper Technology
Growth, Kemper-Dreman Financial Services, Kemper Small Cap Growth, Kemper Small
Cap Value, Kemper-Dreman High Return Equity, Kemper International, Kemper
International Growth & Income, Kemper Global Blue Chip, Kemper Growth, Kemper
Contrarian Value, Kemper Blue Chip, Kemper Value+Growth, Kemper Index 500,
Kemper Horizon 20+, Kemper Total Return, Kemper Horizon 10+, Kemper High Yield,
Kemper Horizon 5, Kemper Global Income, Kemper Investment Grade Bond, Kemper
Government Securities, Kemper Money Market, Scudder VLIF Global Discovery,
Scudder VLIF Growth and Income, Scudder VLIF International, Scudder VLIF Capital
Growth, Janus Aspen Growth, Janus Aspen Growth and Income, Warburg Emerging
Markets and Warburg Post-Venture Capital (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 Variable Series, the Scudder Variable Life
Investment Fund (Class A Shares), the Janus Aspen Series or the Warburg Pincus
Trust (the "Funds"), mutual funds registered under the 1940 Act. The investment
experience of the Subaccounts of the Account depends on the market performance
of the corresponding Fund portfolios.
Kemper Investors Life Insurance Company ("KILICO") sells two forms of a modified
single premium variable universal life insurance policy offered through the
Separate Account: a single life modified single premium variable universal life
insurance policy covering the life of one
1
<PAGE> 2
insured ("Single Life Policy") and a survivorship life modified single premium
variable universal life insurance policy covering the lives of two insureds
("Survivorship Policy"). 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 "Individual Policy"
or "Survivorship Policy".
KILICO believes its procedures meet the requirements of Rule 6e-3(T)(b)(12)(iii)
and states the following:
A. Because of the insurance nature of KILICO's Policies and due to
the requirements of state insurance and administrative laws, the
procedures necessarily differ in significant respects from
procedures for mutual funds and contractual plans for which the
1940 Act was designed.
B. Many of the procedures used by KILICO have been adopted from
established procedures for modified single premium universal life
insurance policies sold by KILICO and its affiliated insurance
companies.
C. In structuring its procedures to comply with Rule 6e-3(T), state
insurance laws and its established administrative procedures,
KILICO has attempted to comply with the intent of the 1940 Act, to
the extent deemed feasible.
D. In general, state insurance laws require that KILICO's procedures
be reasonable, fair and not discriminatory.
E. Because of the nature of the insurance product, it is often
difficult to determine precisely when KILICO's procedures deviate
from those required under Section 22(d), 22(e) or 27(c)(1) of the
1940 Act or Rule 22c-1 thereunder. Accordingly, set out below is a
summary of the principal policy provisions and procedures which
may be deemed to constitute, either directly or indirectly, such a
deviation. The summary, while comprehensive, does not attempt to
address each and every procedure of variation which might occur
and does include certain procedural steps which might be deemed as
deviations from the above-cited sections rules.
II. ISSUANCE
This section outlines those provisions and administrative procedures which might
be deemed to constitute, either directly or indirectly, a "purchase"
transaction. Because of the insurance nature of the Policy, the procedures
involved necessarily differ in certain significant respects from the purchase
procedures for mutual funds and contractual plans. The chief differences revolve
around the structure of the cost of insurance and the insurance underwriting
(i.e., evaluation of risk) process. There are also certain Policy provisions,
such as reinstatement, which do not result in the issuance of a Policy but which
require certain payments by the Policyowner and involve a transfer of assets
supporting the Policy reserve into the Separate Account.
2
<PAGE> 3
A. Insurance Charges and Underwriting Standards
Cost of insurance charges for the Policies will not be the same for all
policyholders. The chief reason is that the principle of pooling and
distribution of mortality risks is based on the assumption that each Policyowner
pays a cost of insurance charge commensurate with the insured person's mortality
risk. This mortality risk is actuarially determined based upon factors such as
age, tobacco use 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 Account Value, on a current basis, subject to a
limit equal to the applicable maximum cost of insurance rate times the Net
Amount at Risk. The Policies will be offered and sold pursuant to the cost of
insurance schedules and underwriting standards and in accordance with state
insurance laws. Such laws prohibit discrimination among insureds, but recognize
that premiums must be based on factors such as age, sex, health and occupation.
A table showing the maximum cost of insurance rates, as a function of the Net
Amount at Risk, will be delivered as part of the policy.
B. Application and Initial Premium Processing
1. DEATH BENEFIT
The Death Benefit for the Policies is based on the specified
amount selected and the table of death benefit percentages
applicable at the time of death. A Policy will be issued if the
following conditions are met:
a. A premium payment of at least $10,000 is paid.
b. A completed application is submitted.
c. Required underwriting information, satisfactory to KILICO,
is provided.
2. POLICY ISSUE
Before KILICO will issue a Policy, it must receive a completed
application and a full initial premium at its Home Office. A
Policy ordinarily will be issued only for Insureds Age 0 through
90 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
Effective Date.
3
<PAGE> 4
3. PREMIUMS
Premiums are to be paid to KILICO at its Home Office. Checks
ordinarily must be made payable to KILICO.
Initial Premium - The minimum initial premium that KILICO will
accept under a Policy is $10,000.00. KILICO reserves the right to
increase or decrease this amount for a class of Policies issued
after some future date.
If the Policy owner pays all or a portion of the Initial Premium
prior to the Issue Date, on the day following the date of receipt,
the Initial Premium will be allocated to our General Account where
it will accumulate interest at our normal rate. This premium will
remain in the General Account until the Issue Date, when it and
the interest will be transferred as described below. If the
Initial Premium is received on the Issue Date, it will be
allocated on the Issue Date as described below.
In states in which KILICO is required to return the Initial
Premium if the Policy owner exercises the free look right, on the
Issue Date we will allocate the Initial Premium (plus any
interest) to the Money Market Subaccount. Thereafter, on the Trade
Date, the Policy's Account Value will be allocated to the
Subaccounts and the DCA Fixed Account in accordance with
elections by the Owner in the application for the Policy. In these
states, the Trade Date is generally the date 20 days after the
Issue Date, or longer depending on the Free-Look provision of the
state of issue.
In the remaining states, on the Issue Date KILICO will allocate
the Initial Premium directly to the Subaccounts and/or the DCA
Fixed Account as elected by the Policy owner, because the Trade
Date is the same as the Issue Date.
The Effective Date is the date used to determine Policy Years and
Monthly Deduction Dates. The Effective Date generally will be the
date following receipt of the application, except that if such
date is the 29th, 30th, or 31st of a month, the Effective Date
will be the 28th of that month. Acceptance is subject to KILICO's
underwriting rules, and KILICO reserves the right to reject an
application for any reason.
The Effective Date is the date when KILICO accepts the risk of
providing insurance coverage to the Insured. Monthly deductions
begin as of the Effective Date.
The cost of insurance for the full amount of coverage applied for
is applied as of the Effective Date. This is consistent with
established administrative procedures of KILICO and is permitted
and consistent with common insurance company administrative
practice and insurance laws.
The initial Specified Amount is derived from the Initial Premium.
The minimum initial Specified Amount is determined by applying a
death benefit factor, which varies by age, sex and tobacco status,
to the initial premium amount, taken to be the Guideline Single
Premium. The death benefit factor is the reciprocal (i.e.,1/x) of
the Guideline Single Premium. The actual initial Specified Amount
will be slightly higher than this factor, based on a separate set
of factors that vary from 1.00 to 1.28.
4
<PAGE> 5
We will accept 90% or 100% of the Guideline Single Premium (GSP)
for a certain Specified Amount. Those paying 90% of the GSP do not
qualify for the No Lapse Guarantee, and are charged a higher
current Cost of Insurance rate.
Additional Premiums - The Policy Owner is not required to pay any
additional premiums after the initial premium. Subject to the
premium guidelines established under Federal tax law, additional
premiums may be contributed while this Policy is in force,
including when necessary to prevent lapse. Upon request, KILICO
will tell the Owner whether an additional premium payment can be
made and the maximum amount. These premium payments will not
increase the maximum possible Withdrawal Charge. Except to prevent
lapse, such an additional premium payment must be at least
$1,000.00. Evidence of insurability may be required if an
additional premium payment would result in an increase in the
Death Benefit.
4. ALLOCATION OF PREMIUMS AND SEPARATE ACCOUNT VALUE
Allocation of Premiums - The Owner directs allocation of premiums
to Subaccounts of the Separate Account and the DCA Fixed Account.
The Owner must indicate the initial allocation in the policy
application. On the Trade Date, the Investment Value in the
General Account or the Policy's Separate Account Value in the
Money Market Subaccount if applicable, will be allocated to the
Subaccounts of the Separate Account and the DCA Fixed Account in
accordance with the Owner's allocation instructions in the
application. Additional premiums received will continue to be
allocated in accordance with the Owner's instructions in the
application unless contrary written instructions are received.
Once a change in allocation is made, all future premiums will be
allocated in accordance with the new allocation, unless contrary
written instructions are received.
C. Delivery Period - Policies Issued - Other Than As Applied For
1. KILICO will take steps to protect itself against anti-selection by
the prospective Owner resulting from a deterioration in the health
of the proposed Insured including requiring Policies to be
delivered promptly. Generally, the period will not exceed 60 days
from the date the Policy is issued.
2. Failure to Complete Delivery - KILICO will review the file to
verify that delivery requirements were not satisfied.
a. If KILICO determines that delivery was satisfied, the
Policy will be placed in force as of the Effective Date.
b. If delivery was not satisfied, the Policy will be terminated
as of the Effective Date and any premium refunded to the
Owner, subject to the refund rules mentioned herein.
Notification will be sent to the Owner
5
<PAGE> 6
advising him or her that delivery was never completed and
that no insurance has been in effect.
D. Delivery Requirements
1. An agent/agency must submit all outstanding delivery requirements
to the KILICO Home Office prior to the end of the delivery period.
2. The KILICO Home Office cannot accept partial requirements;
however, if an agency does inadvertently submit only part of the
requirements necessary to complete delivery, KILICO will record
any documents as received, and return the Policy to the agency
with a memo advising them of the remaining requirements.
3. Any money submitted with incomplete delivery requirements will
be returned to proposed owner with correspondence specifying the
remaining requirements.
4. If a Policy is reported as delivered after the delivery period
has expired, the Policy will be placed in force, subject to
underwriting approval.
5. If a Policy is returned to the agency due to incomplete
requirements, a delivery extension may be obtained on the agency's
behalf.
E. Policy Lapse/Reduction in Coverage
Lapse will occur when the Surrender Value of a Policy is insufficient to cover
the monthly deductions, there is debt outstanding, and a grace period expires
without a sufficient payment being made.
If there is no debt outstanding, the No Lapse Guarantee will enable coverage on
the Policy to continue. If the Surrender Value of a Policy is insufficient to
cover the monthly deductions, a grace period expires without a sufficient
payment being made, and there is no debt outstanding, the Policy will not lapse
but the Death Benefit will be reduced to the sum of premiums paid less prior
withdrawals of premium.
The duration of coverage depends upon the Surrender Value being sufficient to
cover the monthly deductions.
A grace period of 61 days will be given to the Owner. It begins when notice is
sent that the Surrender Value of the Policy is insufficient to cover the monthly
deductions. Failure to make a premium payment or loan repayment during the grace
period sufficient to keep the Policy in force for three months will cause the
Policy to:
1. lapse and terminate without value if there is debt outstanding, or
6
<PAGE> 7
2. be reduced in coverage amount to premiums paid less prior
withdrawals of premium if there is no debt outstanding.
If payment is received within the grace period, the premium or loan repayment
will be allocated to the Subaccounts and the DCA Fixed Account in accordance
with the most current allocation instructions, unless otherwise requested.
Amounts over and above the amounts necessary to prevent lapse may be paid as
additional premiums, however, to the extent otherwise permitted.
KILICO will not accept any payment that would cause the total premium payment to
exceed the maximum payment permitted by the Code. However, the Owner may
voluntarily repay a portion of Debt to avoid lapse.
If premium payments have not exceeded the maximum payment permitted by the Code,
the Owner may choose to make a larger payment than the minimum required payment
to avoid the recurrence of the potential lapse of coverage. The Owner may also
combine premium payments with Debt repayments.
The death benefit payable during the grace period will be the Death Benefit in
effect immediately prior to the grace period, less any Debt and any unpaid
monthly deductions.
F. Reinstatement
If coverage has been reduced or a Policy lapses because of insufficient
Surrender Value to cover the monthly deductions, and it has not been surrendered
for its Surrender Value, it may be reinstated at any time within three years
after the date of coverage reduction or lapse. Reinstatement is subject to:
1. receipt of evidence of insurability satisfactory to KILICO;
2. payment of a minimum premium sufficient to cover monthly
deductions for the grace period and to keep the policy in force
three months; and
3. payment or reinstatement of any Debt against the policy which
existed at the date of termination of coverage.
The effective date of reinstatement of a Policy will be the monthly Deduction
Day 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.
G. Contestability
1. This policy is contestable for two years during the lifetime of
the Insured, measured from the Issue Date, for material
misrepresentations made in the initial application for the policy.
Policy changes and reinstatements may be
7
<PAGE> 8
contested for two years after the issue date of change or
reinstatement. No statement will be used to contest a Policy
unless it is contained in an application. The two year limitation
does not apply in the event of fraud.
III. TRANSFER PROCEDURES
A. Separate Account Value may be transferred among the Subaccounts of
the Separate Account. The DCA Fixed Account, can only be used for
Dollar Cost Averaging, and only the initial premium may be
allocated to the DCA Fixed Account. All transfers made during a
business day will be treated as one request. DCA Fixed Account
Value may be transferred to one or more Subaccounts, and the
entire allocation to the DCA Fixed Account must be transferred to
the Subaccounts within twelve months of issue.
1. Transfer requests must be in writing in a form acceptable to
KILICO, or by telephone authorization under forms authorized
by KILICO.
2. The minimum partial transfer amount is $100 or the remaining
value in the Subaccount or DCA Fixed Account, if the value of
the Owner's remaining interest in a Subaccount or the DCA
Fixed Account, from which amounts are to be transferred,
would be less than $500 after such transfer.
3. Transfers will be based on the Accumulation Unit Values next
determined following receipt of valid complete transfer
instructions by KILICO.
4. The transfer provision may be suspended, modified or
terminated at any time by KILICO.
5. Written acknowledgment of transfers between Subaccounts will
be provided at two points in time:
a. A confirmation notice will be sent to the Owner within
seven days of receipt of the request.
b. The annual statement will also reflect transfers.
6. KILICO reserves the right to charge $25 for each transfer in
excess of 12 in a Policy Year.
B. Policy Loans
1. At any time 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 Withdrawal 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
8
<PAGE> 9
loan is $1,000. Any amount due an Owner under a Policy Loan
ordinarily will be paid within 7 days after KILICO receives a
loan request at its Home Office, although payments may be
postponed under certain circumstances.
2. On the date a loan is made, an amount equal to the loan
amount will be transferred from the Separate Account and DCA
Fixed Account to the Loan Account in the General Account.
Unless the Owner directs otherwise, the loaned amount will be
deducted from the Subaccounts and DCA Fixed Account in
proportion to the values that each bears to the total
Separate Account Value plus the DCA Fixed Account Value at
the end of the Valuation Period during which the request is
received.
3. If Surrender Value on the day immediately preceding a Monthly
Deduction Date is less than the monthly deduction for the
next month, KILICO will notify the Owner and any assignee of
record.
4. A Policy Loan will have an effect on the Cash Value of a
Policy. The collateral for the loan (in the Loan Account)
does not participate in the experience of the Subaccounts or
the current interest rate of the DCA Fixed Account while the
loan is outstanding. If the amount credited to the Loan
Account is more than the amount that would have been earned
in the Subaccounts of the DCA Fixed Accounts, the Cash Value
will, and the Death Benefit may, be higher as a result of the
loan. Conversely, if the amount credited to the Loan Account
is less than would have been earned in the Subaccounts or the
DCA Fixed Accounts, the Cash Value, as well as the Death
Benefit, may be less.
C. Loan Interest
1. The loan interest will be assessed at an effective annual
rate of 5.50% in all Policy Years. Interest not paid will be
added to the loan amount due and bear interest at the same
rate.
2. Cash Value in the Loan Account will earn 3.50% annual
interest on a guaranteed basis. Cash Value representing loans
of earnings ("preferred loans") may earn a higher annual rate
of interest. Such earnings will be allocated to the Loan
Account.
D. Loan Repayment
1. While the Policy is in force, Policy Loans may be repaid at
any time, in whole or in part. At the time of repayment, Cash
Value in the Loan Account equal to the amount of the
repayment which exceeds the difference between interest due
and interest earned will be allocated to the Subaccounts,
according to the Owner's
9
<PAGE> 10
current allocation instructions, unless otherwise requested
by the Owner. Transfers from the Loan 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.
2. 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 Deduction Date
1. The Cost of Insurance (COI) is calculated on the Account
Value using current rates, and the net amount at risk using
guaranteed rates. No substandard ratings are applied.
Increases in specified amount can be rated separately from
the original rating.
2. The calculated monthly deductions are distributed among the
Subaccounts and the DCA Fixed Account in proportion that each
Subaccount or DCA Fixed Account bears to the total Separate
Account Value plus DCA Fixed Account Value.
IV. REDEMPTION PROCEDURES
The following outlines are administrative procedures attendant to transactions
which involve redemption of a Policy's values.
A. Free Look Period
1. The Owner may, until the end of the period of time specified in
the Policy, examine the Policy and return it for a refund. The
applicable period of time will depend on the state in which the
Policy is issued; however, it will be at least 10 days from the
date the Policy is received by the Owner. The amount of the refund
will be at least the minimum required by the state in which the
Policy is issued. An Owner seeking a refund should return the
Policy to KILICO at its Home Office or to the agent who sold the
Policy.
2. The Policyowner will receive a refund equal to the Cash Value of
the Policy plus any monthly deductions and any deductions made
against premiums.
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
10
<PAGE> 11
subject to being held in KILICO's office until this time
requirement is met. If only a portion of the refund is needed to
meet the time requirements, the undisputed portion will be
released within the seven day time frame. The disputed portion
will be held until the time requirement is met and then refunded
by separate check. Any refund that needs to be held to meet the
time requirement from KILICO date of deposit can be expedited if
the payor submits proof that the item has been honored by the
bank.
B. Surrender Privilege and Charges
1. While the Insured is living and the Policy is in force, the Owner
may surrender the Policy for its Surrender Value. To surrender the
Policy, the Owner must make written request to KILICO at its Home
Office and return the Policy to KILICO. The Surrender Value is
equal to the Cash Value less any applicable Withdrawal Charge and
any Debt. At any time, a Policy Owner may make withdrawals of
amounts less than the Surrender Value. The minimum amount of each
withdrawal is $100 and the maximum amount is the amount so that a
Net Surrender Value of $5,000 remains after the withdrawal. If a
partial withdrawal would reduce a Policy's Net Surrender Value
below $5,000, KILICO will treat the request as a request to
surrender the Policy. A withdrawal will decrease the Cash Value
by the amount of the withdrawal, and will decrease the Face Amount
in the same proportion as the withdrawal to the total Account
Value.
2. 0.02083% of Account Value is deducted from the Account Value each
Monthly Deduction Day to reimburse KILICO for the payment of state
premium taxes. In addition, a charge for federal taxes equal to
0.0125% of Account Value will be deducted each month to compensate
KILICO for a higher corporate income tax liability resulting from
changes made to the Internal Revenue Code by the Omnibus Budget
Reconciliation Act of 1990.
3. A contingent deferred sales charge ("Withdrawal 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 Withdrawal Charges.
4. The applicable Withdrawal Charge will be determined based upon the
date of receipt of the written request for surrender.
5. The Withdrawal Charge consists of an unrecovered premium tax
component (premium tax charge) and a sales component (surrender
sales charge). The Withdrawal Charge is a percentage of the
Initial Premium, and is applicable in years 1-9 only. The tax
charge will be 2.25% of Initial Premium in the first year, and
will decline by 0.25% each year in Policy Years 2-9 until reaching
zero at the beginning of Policy Year 10. The surrender sales
charge will be 7.75% in each of Policy Years 1 and 2, will decline
0.25% in Policy Year 3, will decline 1.00% in
11
<PAGE> 12
Policy Year 4, and will decline 0.75% in each of Policy Years 5-9,
and will be zero in Policy Years 10 and on.
6. A Records Maintenance Charge of $30 per year will be used to cover
certain administrative costs associated with the Policies. If the
Account Value on the prior Policy Anniversary is greater than or
equal to $50,000 we will not charge the Records Maintenance
Charge. We will deduct the Records Maintenance Charge upon
surrender of a Policy, if it would otherwise be due at the end of
the current Policy Year.
7. 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 attributable to the Policy,
unless the surrender benefit is to be paid under a settlement
option involving variable payments. In that case, the policy
reserve attributable to the surrender will remain in the Separate
Account or such other separate account as KILICO may designate
for that purpose in accordance with the Policy, and the benefit
payments shall be paid as described in the prospectus in
accordance with the settlement and payment options chosen by the
beneficiary. Any benefit payment in excess of the policy reserve
maintained in the Separate Account for the Policy shall be paid
out of the General Account reserve maintained for that purpose.
C. Death Claims
1. KILICO will ordinarily pay a death benefit to the beneficiary
within seven calendar days after receipt, at its Home Office, of
the policy, due proof of death of the insured and all other
requirements necessary* to make payment. KILICO will send the
check to the beneficiary with seven days after KILICO receives all
required documents.
2. KILICO will make payment of the death benefit out of its General
Account, and will transfer assets from the Separate Account to the
General Account in an amount equal to the reserve in the Separate
Account for the Policy, unless the death benefit is to be paid
under a settlement option involving variable payments. In that
case, the policy reserve attributable to the death benefit will
remain in the Separate Account or such other separate account as
KILICO may designate for that purpose in accordance with the
Policy, and the benefit payments shall be paid as described in the
prospectus in accordance with the settlement and payment options
chosen by the beneficiary. Any benefit payment in excess of the
policy reserve maintained in the Separate Account for the Policy
shall be paid out of the General Account reserve maintained for
that purpose.
*State insurance laws impose various requirements, such as receipt of a tax
waiver, before payment of the death benefit may be made. In addition, payment of
the death benefit is subject to the provisions of the policies regarding suicide
and incontestability.
D. Maturity Benefit and Extended Maturity
1. In certain states, if the Insured is still living and the Policy
is in force on the Maturity Date, KILICO will pay the Policy owner a Maturity
Benefit. The Maturity Benefit will equal the net Surrender Value on the Maturity
Date. The Maturity Date is the Policy Anniversary after the Insured's 100th
birthday.
2. KILICO will pay the Maturity Benefit in the same manner as it
pays surrender benefits, as described above.
3. In states where approved, an Extended Maturity Rider will be
issued with all Policies at no extra premium. Under this Rider, the Death
Benefit after the Maturity Date is the greater of the Specified Amount or the
Cash Value. In addition, after the Maturity Date, KILICO will not charge the
cost of insurance charge or mortality and expense risk charge. The Rider is
effective only if the Net Surrender Value at age 100 equals at least 30% of the
initial Specified Amount.
E. Premium Refunds
KILICO will not normally refund premium payments unless one of the
following situations occurs:
1. The proposed Insured is determined to be uninsurable by KILICO's
standards.
2. The premium paid is in permanent suspense because underwriting
requirements were never completed.
3. The delivery period has expired and delivery has not been
completed.
4. The Owner exercises the Free Look Privilege.
12
<PAGE> 13
5. 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.
6. In the event an application is declined by KILICO, the initial
premium will be refunded.
F. Guideline Premium Test - Tax Qualification
The Guideline Premium Test is a two part test applied to determine if a policy
qualifies as life insurance as defined in the IRS Code, Section 7702.
1. Part I - Guideline Premium Limitation. The sum of the actual
premiums paid into the contract cannot exceed the greater of:
a. the guideline single premium, or
b. the sum of the guideline level premiums at that time.
2. The guideline single premium is the premium needed at issue for
the future benefits under contract, computed on the basis of:
a. the guaranteed mortality charges specified in the contract.
b. other guaranteed charges specified in the contract, and
c. a gross interest rate which is the greater of an annual
effective rate of six percent or the rate or rates guaranteed
at issue.
3. For this plan the guideline single premium is based on:
a. the guaranteed maximum mortality rates, for all durations.
b. mortality and expense risk charge, as an adjustment to the
interest rate, 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 gross 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.
13
<PAGE> 14
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 Policy must always be greater than or
equal to the Cash Value times the death benefit factor.
Death benefit factors vary only by attained age and range from
1.00 to 2.50 for the KILICO Modified Single Premium VUL.
A check for compliance will be made at the time premiums are
applied and at least annually thereafter. If a violation is
detected, the agent will be notified and monies refunded.
G. Misstatement of Age or Sex
If the age or sex of the Insured is misstated, the Death Benefit will be
adjusted based on what the Initial Premium would have purchased using the
correct age and/or sex.
H. 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;
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.
I. 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.
J. Suicide
Suicide by the Insured, while sane or insane, within two years from the Issue
Date of the policy is a risk not assumed under the policy. KILICO's liability
issue for such suicide under a Single Life Policy is limited to the premiums
paid less any withdrawals and debt.
If the Insured dies by suicide, while sane or insane, within two years of any
reinstatement, our total liability with respect to such reinstatement will be
limited to the Premiums paid less any partial withdrawals and Policy Debt.
If the first death under a Survivorship Policy is by suicide, within two years
of the Issue Date or date of reinstatement, whether the Insured was sane or
insane, we will reissue the Policy. The new Policy on the survivor will be a
single life permanent Policy which is available at the time of reissue. The
suicide provision for the new Policy will be effective as of the original Issue
Date.
If the second death is by suicide, within two years of the Issue Date, whether
the Insured was sane or insane, we will pay only the Premiums paid less any
partial withdrawals and Policy Debt. If the second death is by suicide, within
two years after the date of reinstatement whether the Insured was sane or
insane, our total liability with respect to such reinstatement will be limited
to Premiums paid less any partial withdrawals and Policy Debt. When the laws of
the state in which a Policy is delivered require less than a two year period,
the period will be as stated in such laws.
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<PAGE> 15
V. RECORDS AND REPORTS
KILICO will maintain all records relating to the Separate Account. KILICO will
send Owners, at their last known address of record, an annual report stating the
Death Benefit, the Accumulation Unit Value, the Cash Value and Surrender Value
under the policy, and indicating any additional premium payments, transfers,
policy loans and repayments and charges made during the Policy Year. Owners will
also be sent annual and semi-annual reports for the Funds to the extent required
by the 1940 Act.
15
<PAGE> 1
EXHIBIT 9
ILLUSTRATIONS OF CASH VALUES,
SURRENDER VALUES, AND DEATH BENEFITS
(Destinations Life)
The tables in this Illustration have been prepared to help show how
values under Individual and Survivorship Policies change with investment
experience. The tables illustrate how Cash Values, Surrender Values (reflecting
the deduction of Withdrawal Charges, if any) and Death Benefits under a Policy
issued on an Insured or Insureds 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 Portfolio
investment advisory fees and other Portfolio expenses at an annual effective
rate of 0.87%, which is the arithmetic average of the actual and estimated fees
and expenses for all of the Portfolios, including any expense reimbursements or
fee waivers. Without expense reimbursements and fee waivers, the annual
effective rate would have been 2.17%. KILICO anticipates that the expense
reimbursement and fee waiver arrangements will continue past the current year.
If there should be an increase or decrease in the expense reimbursements and fee
waivers of a Portfolio that has such arrangements, that change will be reflected
in the net asset value of the corresponding Portfolio.
The tables also reflect applicable charges and deductions including (a)
a monthly Administration Charge of 0.35% annually for the first ten Policy Years
and 0.25% annually thereafter, (b) a monthly Tax Charge of 0.40% annually for
the first ten Policy Years and 0.0% thereafter, (c) an annual Records
Maintenance Charge of $30.00 per year, and (d) monthly charges for insurance
protection. However, no Records Maintenance Charge is deducted in any year in
which the Policy Value exceeds $50,000 on the prior Policy Anniversary. The
current cost of insurance charge for Individual Policies, Standard Class (NT) is
the lower of (a) 0.55% annually of Cash Value for the first ten Policy Years and
0.25% thereafter or (b) the guaranteed cost of insurance charge. The current
cost of insurance charge for Survivorship Policies, Standard class (NT) is the
lower of (a) 0.45% annually of Cash Value for the first ten Policy Years and
0.20% thereafter or (b) the guaranteed cost of insurance charge. We may change
the current asset based cost of insurance charge. 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 approximate net annual investment rate of
return of -0.87%, 5.13% and 11.13%, 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 issued to standard non-tobacco
Insureds. Values for Policies issued on a basis involving a higher mortality
risk would result in lower Cash Values, Surrender Values and Death Benefits than
those illustrated. Females generally have a more favorable rate structure than
males.
The tables also reflect the fact that no charges for Federal, state or
other income taxes are currently made against the Separate Account. If such a
charge is made in the future, it will take a higher gross rate of return than
illustrated to produce the net after-tax returns shown in the tables.
Upon request, KILICO will furnish an illustration based on the proposed
Insured's age, sex and premium payment requested.
<PAGE> 2
INDIVIDUAL
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER [$10,000] INITIAL PREMIUM ISSUE AGE [40]
$54,658 INITIAL SPECIFIED AMOUNT
VALUES -- CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------- -------------------------------- ---------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit Value Value Benefit
-------- -------------- ----- --------- ---------- ------ --------- ---------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,697 8,824 54,658 10,285 9,329 54,658 10,872 9,863 54,658
2 11,025 9,374 8,552 54,658 10,546 9,591 54,658 11,787 10,782 54,658
3 11,576 9,061 8,307 54,658 10,815 9,885 54,658 12,782 11,827 54,658
4 12,155 8,758 8,127 54,658 11,092 10,264 54,658 13,864 13,034 54,658
5 12,763 8,463 7,930 54,658 11,377 10,647 54,658 15,040 14,310 54,658
6 13,401 8,178 7,736 54,658 11,670 11,040 54,658 16,319 15,689 54,658
7 14,071 7,901 7,546 54,658 11,971 11,441 54,658 17,709 17,179 54,658
8 14,775 7,633 7,358 54,658 12,281 11,851 54,658 19,221 18,791 54,658
9 15,513 7,373 7,174 54,658 12,599 12,269 54,658 20,864 20,534 54,658
10 16,289 7,120 7,120 54,658 12,927 12,897 54,658 22,651 22,621 54,658
11 17,103 6,931 6,931 54,658 13,370 13,340 54,658 24,791 24,761 54,658
12 17,959 6,746 6,746 54,658 13,830 13,800 54,658 27,136 27,106 54,658
13 18,856 6,565 6,565 54,658 14,307 14,277 54,658 29,706 29,676 54,658
14 19,799 6,388 6,388 54,658 14,801 14,771 54,658 32,523 32,493 54,658
15 20,789 6,215 6,215 54,658 15,313 15,283 54,658 35,611 35,581 54,658
16 21,829 6,045 6,045 54,658 15,845 15,815 54,658 38,994 38,964 56,931
17 22,920 5,880 5,880 54,658 16,395 16,365 54,658 42,702 42,672 60,636
18 24,066 5,719 5,719 54,658 16,966 16,936 54,658 46,765 46,735 64,536
19 25,270 5,561 5,561 54,658 17,558 17,528 54,658 51,219 51,219 68,633
20 26,533 5,406 5,406 54,658 18,172 18,142 54,658 56,132 56,132 72,972
25 33,864 4,685 4,685 54,658 21,594 21,564 54,658 88,742 88,742 106,490
30 43,219 4,041 4,041 54,658 25,694 25,664 54,658 140,296 140,296 161,341
35 55,160 3,466 3,466 54,658 30,603 30,573 54,658 221,801 221,801 232,891
40 70,400 2,954 2,954 54,658 36,482 36,452 54,658 350,656 350,656 368,189
45 89,850 2,496 2,496 54,658 43,522 43,492 54,658 554,369 554,369 582,088
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 3
INDIVIDUAL
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER [$10,000] INITIAL PREMIUM ISSUE AGE [40]
$54,658 INITIAL SPECIFIED AMOUNT
VALUES -- GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------------------- ---------------------------------- ----------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit Value Value Benefit
------ -------------- ------ ----- ------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,645 8,777 54,658 10,233 9,282 54,658 10,821 9,817 54,658
2 11,025 9,261 8,448 54,658 10,435 9,490 54,658 11,680 10,675 54,658
3 11,576 8,877 8,138 54,658 10,637 9,721 54,658 12,612 11,657 54,658
4 12,155 8,492 7,880 54,658 10,836 10,026 54,658 13,625 12,795 54,658
5 12,763 8,105 7,594 54,658 11,032 10,307 54,658 14,726 13,996 54,658
6 13,401 7,714 7,297 54,658 11,224 10,594 54,658 15,922 15,292 54,658
7 14,071 7,318 6,989 54,658 11,411 10,881 54,658 17,224 16,694 54,658
8 14,775 6,917 6,668 54,658 11,592 11,162 54,658 18,640 18,210 54,658
9 15,513 6,508 6,333 54,658 11,765 11,435 54,658 20,182 19,852 54,658
10 16,289 6,091 6,091 54,658 11,929 11,899 54,658 21,862 21,832 54,658
11 17,103 5,691 5,691 54,658 12,143 12,113 54,658 23,813 23,783 54,658
12 17,959 5,275 5,275 54,658 12,345 12,315 54,658 25,953 25,923 54,658
13 18,856 4,837 4,837 54,658 12,534 12,504 54,658 28,301 28,271 54,658
14 19,799 4,375 4,375 54,658 12,704 12,674 54,658 30,881 30,851 54,658
15 20,789 3,884 3,884 54,658 12,852 12,822 54,658 33,718 33,688 54,658
16 21,829 3,360 3,360 54,658 12,974 12,944 54,658 36,841 36,811 54,658
17 22,920 2,799 2,799 54,658 13,065 13,035 54,658 40,273 40,243 57,188
18 24,066 2,197 2,197 54,658 13,123 13,093 54,658 44,029 43,999 60,760
19 25,270 1,549 1,549 54,658 13,140 13,110 54,658 48,139 48,109 64,506
20 26,533 847 847 54,658 13,111 13,081 54,658 52,638 52,638 68,430
25 33,864 0 0 10,000 11,904 11,874 54,658 82,492 82,492 98,991
30 43,219 0 0 10,000 7,453 7,423 54,658 128,827 128,827 148,151
35 55,160 0 0 10,000 0 0 10,000 201,203 201,203 211,263
40 70,400 0 0 10,000 0 0 10,000 315,824 315,824 331,615
45 89,850 0 0 10,000 0 0 10,000 489,718 489,718 514,204
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 4
SURVIVORSHIP
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER ISSUE AGE [45]
FEMALE STANDARD NON-SMOKER ISSUE AGE [40]
[$10,000] INITIAL PREMIUM
$88,962 INITIAL SPECIFIED AMOUNT
VALUES -- CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
----------------------------------------------- -------------------------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit
---------- ---------- ---------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,741 8,865 88,962 10,333 9,373 88,962
2 11,025 9,460 8,630 88,962 10,647 9,683 88,962
3 11,576 9,185 8,421 88,962 10,971 10,028 88,962
4 12,155 8,917 8,275 88,962 11,307 10,477 88,962
5 12,763 8,656 8,111 88,962 11,653 10,923 88,962
6 13,401 8,400 7,947 88,962 12,009 11,379 88,962
7 14,071 8,147 7,780 88,962 12,373 11,843 88,962
8 14,775 7,895 7,611 88,962 12,746 12,316 88,962
9 15,513 7,645 7,438 88,962 13,126 12,796 88,962
10 16,289 7,394 7,394 88,962 13,514 13,484 88,962
11 17,103 7,202 7,202 88,962 13,986 13,956 88,962
12 17,959 7,014 7,014 88,962 14,475 14,445 88,962
13 18,856 6,830 6,830 88,962 14,983 14,953 88,962
14 19,799 6,651 6,651 88,962 15,510 15,480 88,962
15 20,789 6,475 6,475 88,962 16,057 16,027 88,962
16 21,829 6,303 6,303 88,962 16,623 16,593 88,962
17 22,920 6,135 6,135 88,962 17,211 17,181 88,962
18 24,066 5,971 5,971 88,962 17,821 17,791 88,962
19 25,270 5,810 5,810 88,962 18,454 18,424 88,962
20 26,533 5,653 5,653 88,962 19,110 19,080 88,962
25 33,864 4,918 4,918 88,962 22,775 22,745 88,962
30 43,219 4,259 4,259 88,962 27,175 27,145 88,962
35 55,160 3,671 3,671 88,962 32,458 32,428 88,962
40 70,400 3,144 3,144 88,962 38,801 38,771 88,962
45 89,850 2,672 2,672 88,962 46,416 46,386 88,962
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------------------------
Policy Cash Surrender Death
Year Value Value Benefit
---------- --------- --------- -----------
<S> <C> <C> <C>
1 10,924 9,911 88,962
2 11,901 10,896 88,962
3 12,969 12,014 88,962
4 14,137 13,307 88,962
5 15,413 14,683 88,962
6 16,806 16,176 88,962
7 18,326 17,796 88,962
8 19,983 19,553 88,962
9 21,791 21,461 88,962
10 23,762 23,732 88,962
11 26,042 26,012 88,962
12 28,540 28,510 88,962
13 31,278 31,248 88,962
14 34,278 34,248 88,962
15 37,566 37,536 88,962
16 41,171 41,141 88,962
17 45,124 45,094 88,962
18 49,460 49,430 88,962
19 54,219 54,219 88,962
20 59,477 59,477 88,962
25 94,601 94,601 113,521
30 150,059 150,059 172,568
35 237,829 237,829 249,721
40 376,987 376,987 395,836
45 597,489 597,489 627,364
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 5
SURVIVORSHIP
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER ISSUE AGE [45]
FEMALE STANDARD NON-SMOKER ISSUE AGE [40]
[$10,000] INITIAL PREMIUM
$88,962 INITIAL SPECIFIED AMOUNT
VALUES -- GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------------------- ---------------------------------- ----------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit Value Value Benefit
------ -------------- ------ ----- ------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,741 8,865 88,962 10,333 9,373 88,962 10,924 9,911 88,962
2 11,025 9,460 8,630 88,962 10,647 9,683 88,962 11,901 10,896 88,962
3 11,576 9,185 8,421 88,962 10,971 10,028 88,962 12,969 12,014 88,962
4 12,155 8,917 8,275 88,962 11,307 10,477 88,962 14,137 13,307 88,962
5 12,763 8,656 8,111 88,962 11,653 10,923 88,962 15,413 14,683 88,962
6 13,401 8,400 7,947 88,962 12,009 11,379 88,962 16,806 16,176 88,962
7 14,071 8,147 7,780 88,962 12,373 11,843 88,962 18,326 17,796 88,962
8 14,775 7,895 7,611 88,962 12,746 12,316 88,962 19,983 19,553 88,962
9 15,513 7,645 7,438 88,962 13,126 12,796 88,962 21,791 21,461 88,962
10 16,289 7,394 7,394 88,962 13,514 13,484 88,962 23,762 23,732 88,962
11 17,103 7,178 7,178 88,962 13,977 13,947 88,962 26,042 26,012 88,962
12 17,959 6,956 6,956 88,962 14,450 14,420 88,962 28,540 28,510 88,962
13 18,856 6,728 6,728 88,962 14,932 14,902 88,962 31,278 31,248 88,962
14 19,799 6,491 6,491 88,962 15,420 15,390 88,962 34,278 34,248 88,962
15 20,789 6,243 6,243 88,962 15,914 15,884 88,962 37,566 37,536 88,962
16 21,829 5,980 5,980 88,962 16,410 16,380 88,962 41,171 41,141 88,962
17 22,920 5,701 5,701 88,962 16,907 16,877 88,962 45,124 45,094 88,962
18 24,066 5,401 5,401 88,962 17,402 17,372 88,962 49,460 49,430 88,962
19 25,270 5,076 5,076 88,962 17,890 17,860 88,962 54,219 54,219 88,962
20 26,533 4,721 4,721 88,962 18,367 18,337 88,962 59,477 59,477 88,962
25 33,864 2,216 2,216 88,962 20,338 20,308 88,962 94,601 94,601 113,521
30 43,219 0 0 10,000 20,422 20,392 88,962 149,986 149,986 172,484
35 55,160 0 0 10,000 15,320 15,290 88,962 237,123 237,123 248,979
40 70,400 0 0 10,000 0 0 10,000 374,804 374,804 393,544
45 89,850 0 0 10,000 0 0 10,000 585,459 585,459 614,732
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 6
ILLUSTRATIONS OF CASH VALUES,
SURRENDER VALUES, AND DEATH BENEFITS
(Destinations Life Plus)
The tables in this Illustration have been prepared to help show how
values under Individual and Survivorship Policies change with investment
experience. The tables illustrate how Cash Values, Surrender Values (reflecting
the deduction of Withdrawal Charges, if any) and Death Benefits under a Policy
issued on an Insured or Insureds 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 Portfolio
investment advisory fees and other Portfolio expenses at an annual effective
rate of 0.87%, which is the arithmetic average of the actual and estimated fees
and expenses for all of the Portfolios, including any expense reimbursements or
fee waivers. Without expense reimbursements and fee waivers, the annual
effective rate would have been 2.17%. KILICO anticipates that the expense
reimbursement and fee waiver arrangements will continue past the current year.
If there should be an increase or decrease in the expense reimbursements and
fees waivers of a Portfolio that has such arrangements, that change will be
reflected in the net asset value of the corresponding Portfolio.
The tables also reflect applicable charges and deductions including (a) a
monthly Administration Charge of 0.35% annually for the first ten Policy Years
and 0.25% annually thereafter, (b) a monthly Tax Charge of 0.40% annually for
the first ten Policy Years and 0.0% thereafter, (c) an annual Records
Maintenance Charge of $30.00 per year, and (d) monthly charges for insurance
protection. However, no Records Maintenance Charge is deducted in any year in
which the Policy Value exceeds $50,000 on the prior Policy Anniversary. The
current cost of insurance charge for Individual Policies, Standard Class (NT)
is the lower of (a) 0.25% annually of Cash Value for the first ten Policy Years
and 0.10% thereafter or (b) the guaranteed cost of insurance charge. The
current cost of insurance charge for Survivorship Policies, Standard class (NT)
is the lower of (a) 0.20% annually of Cash Value for the first ten Policy Years
and 0.10% thereafter or (b) the guaranteed cost of insurance charge. We may
change the current asset based cost of insurance charge. 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 approximate
net annual investment rate of return of -0.87%, 5.13% and 11.13%, 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 issued to standard non-tobacco
Insureds. Values for Policies issued on a basis involving a higher mortality
risk would result in lower Cash Values, Surrender Values and Death Benefits than
those illustrated. Females generally have a more favorable rate structure than
males.
The tables also reflect the fact that no charges for Federal, state or
other income taxes are currently made against the Separate Account. If such a
charge is made in the future, it will take a higher gross rate of return than
illustrated to produce the net after-tax returns shown in the tables.
Upon request, KILICO will furnish an illustration based on the proposed
Insured's age, sex and Premium payment requested.
<PAGE> 7
INDIVIDUAL
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER [$600,000] INITIAL PREMIUM ISSUE AGE [40]
$3,279,476 INITIAL SPECIFIED AMOUNT
VALUES -- CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
---------------------------------- ----------------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit
------- ---------- ---------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 630,000 583,578 531,056 3,279,476 618,927 563,223 3,279,476
2 661,500 567,605 517,798 3,279,476 638,451 582,427 3,279,476
3 694,575 552,070 506,110 3,279,476 658,590 603,763 3,279,476
4 729,304 536,959 498,298 3,279,476 679,366 631,366 3,279,476
5 765,769 522,263 489,360 3,279,476 700,796 658,796 3,279,476
6 804,057 507,968 480,538 3,279,476 722,902 686,902 3,279,476
7 844,260 494,065 471,832 3,279,476 745,706 715,706 3,279,476
8 886,473 480,542 463,243 3,279,476 769,229 745,229 3,279,476
9 930,797 467,390 454,770 3,279,476 793,494 775,494 3,279,476
10 977,337 454,597 454,597 3,279,476 818,525 818,525 3,279,476
11 1,026,204 445,040 445,040 3,279,476 849,854 849,854 3,279,476
12 1,077,514 435,684 435,684 3,279,476 882,383 882,383 3,279,476
13 1,131,389 426,524 426,524 3,279,476 916,156 916,156 3,279,476
14 1,187,959 417,557 417,557 3,279,476 951,223 951,223 3,279,476
15 1,247,357 408,778 408,778 3,279,476 987,631 987,631 3,279,476
16 1,309,725 400,184 400,184 3,279,476 1,025,433 1,025,433 3,279,476
17 1,375,211 391,771 391,771 3,279,476 1,064,682 1,064,682 3,279,476
18 1,443,972 383,535 383,535 3,279,476 1,105,433 1,105,433 3,279,476
19 1,516,170 375,471 375,471 3,279,476 1,147,744 1,147,744 3,279,476
20 1,591,979 367,578 367,578 3,279,476 1,191,674 1,191,674 3,279,476
25 2,031,813 330,530 330,530 3,279,476 1,437,873 1,437,873 3,279,476
30 2,593,165 297,216 297,216 3,279,476 1,734,935 1,734,935 3,279,476
35 3,309,609 267,259 267,259 3,279,476 2,093,371 2,093,371 3,279,476
40 4,223,993 240,322 240,322 3,279,476 2,525,858 2,525,858 3,279,476
45 5,391,005 216,100 216,100 3,279,476 3,047,697 3,047,697 3,279,476
</TABLE>
<TABLE>
<CAPTION>
12% Hypothetical
Gross Investment Return
------------------------------------------
Policy Cash Surrender Death
Year Value Value Benefit
- ------- ---------- --------- -----------
<S> <C> <C> <C>
1 654,277 595,392 3,279,476
2 713,465 654,965 3,279,476
3 778,007 722,507 3,279,476
4 848,387 800,387 3,279,476
5 925,134 883,134 3,279,476
6 1,008,824 972,824 3,279,476
7 1,100,085 1,070,085 3,279,476
8 1,199,601 1,175,601 3,279,476
9 1,308,120 1,290,120 3,279,476
10 1,426,455 1,426,455 3,279,476
11 1,565,645 1,565,645 3,279,476
12 1,718,417 1,718,417 3,279,476
13 1,886,096 1,886,096 3,279,476
14 2,070,136 2,070,136 3,279,476
15 2,272,135 2,272,135 3,408,202
16 2,493,844 2,493,844 3,641,013
17 2,737,187 2,737,187 3,886,806
18 3,004,275 3,004,275 4,145,900
19 3,297,425 3,297,425 4,418,549
20 3,619,179 3,619,179 4,704,933
25 5,764,824 5,764,824 6,917,789
30 9,182,523 9,182,523 10,559,901
35 14,626,418 14,626,418 15,357,739
40 23,297,749 23,297,749 24,462,636
45 37,109,912 37,109,912 38,965,408
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 8
INDIVIDUAL
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER [$600,000] INITIAL PREMIUM ISSUE AGE [40]
$3,279,476 INITIAL SPECIFIED AMOUNT
VALUES -- GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
------------------------------------ -------------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit
- ------- -------------- -------- -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 630,000 578,714 526,629 3,279,476 613,986 558,727 3,279,476
2 661,500 557,425 508,511 3,279,476 627,994 572,887 3,279,476
3 694,575 536,099 491,469 3,279,476 642,003 588,556 3,279,476
4 729,304 514,675 477,618 3,279,476 655,964 608,735 3,279,476
5 765,769 493,090 462,025 3,279,476 669,829 627,829 3,279,476
6 804,057 471,254 445,807 3,279,476 683,519 647,519 3,279,476
7 844,260 449,106 428,896 3,279,476 696,983 666,983 3,279,476
8 886,473 426,583 411,226 3,279,476 710,166 686,166 3,279,476
9 930,797 403,594 392,697 3,279,476 722,987 704,987 3,279,476
10 977,337 380,047 380,047 3,279,476 735,361 735,361 3,279,476
11 1,026,204 357,621 357,621 3,279,476 750,940 750,940 3,279,476
12 1,077,514 334,155 334,155 3,279,476 765,995 765,995 3,279,476
13 1,131,389 309,437 309,437 3,279,476 780,335 780,335 3,279,476
14 1,187,959 283,217 283,217 3,279,476 793,737 793,737 3,279,476
15 1,247,357 255,272 255,272 3,279,476 805,993 805,993 3,279,476
16 1,309,725 225,339 225,339 3,279,476 816,862 816,862 3,279,476
17 1,375,211 193,179 193,179 3,279,476 826,114 826,114 3,279,476
18 1,443,972 158,603 158,603 3,279,476 833,558 833,558 3,279,476
19 1,516,170 121,258 121,258 3,279,476 838,862 838,862 3,279,476
20 1,591,979 80,705 80,705 3,279,476 841,621 841,621 3,279,476
25 2,031,813 0 0 600,000 797,318 797,318 3,279,476
30 2,593,165 0 0 600,000 574,018 574,018 3,279,476
35 3,309,609 0 0 600,000 0 0 600,000
40 4,223,993 0 0 600,000 0 0 600,000
45 5,391,005 0 0 600,000 0 0 600,000
</TABLE>
<TABLE>
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------------------------
Policy Cash Surrender Death
Year Value Value Benefit
- ------- ---------- --------- -----------
<S> <C> <C> <C>
1 649,264 590,830 3,279,476
2 702,752 644,252 3,279,476
3 760,864 705,364 3,279,476
4 824,016 776,016 3,279,476
5 892,669 850,669 3,279,476
6 967,314 931,314 3,279,476
7 1,048,525 1,018,525 3,279,476
8 1,136,943 1,112,943 3,279,476
9 1,233,259 1,215,259 3,279,476
10 1,338,252 1,338,252 3,279,476
11 1,460,082 1,460,082 3,279,476
12 1,593,746 1,593,746 3,279,476
13 1,740,497 1,740,497 3,279,476
14 1,901,758 1,901,758 3,279,476
15 2,079,183 2,079,183 3,279,476
16 2,274,466 2,274,466 3,320,721
17 2,488,453 2,488,453 3,533,604
18 2,722,536 2,722,536 3,757,100
19 2,978,697 2,978,697 3,991,454
20 3,259,149 3,259,149 4,236,893
25 5,107,579 5,107,579 6,129,095
30 7,976,440 7,976,440 9,172,906
35 12,457,614 12,457,614 13,080,495
40 19,554,465 19,554,465 20,532,188
45 30,321,290 30,321,290 31,837,354
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 9
SURVIVORSHIP
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER ISSUE AGE [45]
FEMALE STANDARD NON-SMOKER ISSUE AGE [40]
[$600,000] INITIAL PREMIUM
$5,337,691 INITIAL SPECIFIED AMOUNT
VALUES -- CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
-------------------------------- -----------------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit
- ----- -------------- ------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 630,000 584,477 531,874 5,337,691 619,995 564,196 5,337,691
2 661,500 569,340 519,381 5,337,691 640,675 584,456 5,337,691
3 694,575 554,578 508,410 5,337,691 662,063 606,946 5,337,691
4 729,304 540,183 501,290 5,337,691 684,183 636,183 5,337,691
5 765,769 526,145 492,998 5,337,691 707,047 665,047 5,337,691
6 804,057 512,360 484,693 5,337,691 730,518 694,518 5,337,691
7 844,260 498,703 476,261 5,337,691 754,583 724,583 5,337,691
8 886,473 485,296 467,825 5,337,691 779,222 755,222 5,337,691
9 930,797 472,249 459,498 5,337,691 804,404 786,404 5,337,691
10 977,337 459,553 459,553 5,337,691 830,194 830,194 5,337,691
11 1,026,204 449,891 449,891 5,337,691 861,970 861,970 5,337,691
12 1,077,514 440,433 440,433 5,337,691 894,963 894,963 5,337,691
13 1,131,389 431,174 431,174 5,337,691 929,218 929,218 5,337,691
14 1,187,959 422,109 422,109 5,337,691 964,784 964,784 5,337,691
15 1,247,357 413,235 413,235 5,337,691 1,001,711 1,001,711 5,337,691
16 1,309,725 404,547 404,547 5,337,691 1,040,052 1,040,052 5,337,691
17 1,375,211 396,042 396,042 5,337,691 1,079,861 1,079,861 5,337,691
18 1,443,972 387,716 387,716 5,337,691 1,121,193 1,121,193 5,337,691
19 1,516,170 379,565 379,565 5,337,691 1,164,107 1,164,107 5,337,691
20 1,591,979 371,585 371,585 5,337,691 1,208,664 1,208,664 5,337,691
25 2,031,813 334,133 334,133 5,337,691 1,458,372 1,458,372 5,337,691
30 2,593,165 300,456 300,456 5,337,691 1,759,670 1,759,670 5,337,691
35 3,309,609 270,173 270,173 5,337,691 2,123,215 2,123,215 5,337,691
40 4,223,993 242,942 242,942 5,337,691 2,561,868 2,561,868 5,337,691
45 5,391,005 218,456 218,456 5,337,691 3,091,147 3,091,147 5,337,691
<CAPTION>
12% Hypothetical
Gross Investment Return
--------------------------------------------
Policy Cash Surrender Death
Year Value Value Benefit
- ----- ---------- --------- -----------
<S> <C> <C> <C>
1 655,421 596,433 5,337,691
2 716,014 657,514 5,337,691
3 782,259 726,759 5,337,691
4 854,686 806,686 5,337,691
5 933,857 891,857 5,337,691
6 1,020,245 984,245 5,337,691
7 1,114,495 1,084,495 5,337,691
8 1,217,310 1,193,310 5,337,691
9 1,329,453 1,311,453 5,337,691
10 1,451,756 1,451,756 5,337,691
11 1,593,415 1,593,415 5,337,691
12 1,748,896 1,748,896 5,337,691
13 1,919,549 1,919,549 5,337,691
14 2,106,854 2,106,854 5,337,691
15 2,312,436 2,312,436 5,337,691
16 2,538,077 2,538,077 5,337,691
17 2,785,736 2,785,736 5,337,691
18 3,057,562 3,057,562 5,337,691
19 3,355,911 3,355,911 5,337,691
20 3,683,372 3,683,372 5,337,691
25 5,867,074 5,867,074 7,040,489
30 9,345,392 9,345,392 10,747,201
35 14,885,845 14,885,845 15,630,138
40 23,710,978 23,710,978 24,896,527
45 37,768,126 37,768,126 39,656,532
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, CASH VALUE AND SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY KEMPER INVESTORS LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 10
SURVIVORSHIP
MODIFIED SINGLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER ISSUE AGE [45]
FEMALE STANDARD NON-SMOKER ISSUE AGE [40]
[$600,000] INITIAL PREMIUM
$5,337,691 INITIAL SPECIFIED AMOUNT
VALUES -- GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
------------------------------------------------------- ------------------------------------------
Premium
Policy Paid Plus Cash Surrender Death Cash Surrender Death
Year Interest at 5% Value Value Benefit Value Value Benefit
---------- ---------- ---------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 630,000 584,477 531,874 5,337,691 619,995 564,196 5,337,691
2 661,500 569,340 519,381 5,337,691 640,675 584,456 5,337,691
3 694,575 554,578 508,410 5,337,691 662,063 606,946 5,337,691
4 729,304 540,183 501,290 5,337,691 684,183 636,183 5,337,691
5 765,769 526,145 492,998 5,337,691 707,047 665,047 5,337,691
6 804,057 512,360 484,693 5,337,691 730,518 694,518 5,337,691
7 844,260 498,703 476,261 5,337,691 754,583 724,583 5,337,691
8 886,473 485,124 467,660 5,337,691 779,222 755,222 5,337,691
9 930,797 471,567 458,835 5,337,691 804,404 786,404 5,337,691
10 977,337 457,964 457,964 5,337,691 830,090 830,090 5,337,691
11 1,026,204 446,469 446,469 5,337,691 860,526 860,526 5,337,691
12 1,077,514 434,646 434,646 5,337,691 891,652 891,652 5,337,691
13 1,131,389 422,390 422,390 5,337,691 923,404 923,404 5,337,691
14 1,187,959 409,574 409,574 5,337,691 955,693 955,693 5,337,691
15 1,247,357 396,060 396,060 5,337,691 988,419 988,419 5,337,691
16 1,309,725 381,680 381,680 5,337,691 1,021,452 1,021,452 5,337,691
17 1,375,211 366,255 366,255 5,337,691 1,054,654 1,054,654 5,337,691
18 1,443,972 349,575 349,575 5,337,691 1,087,853 1,087,853 5,337,691
19 1,516,170 331,397 331,397 5,337,691 1,120,846 1,120,846 5,337,691
20 1,591,979 311,415 311,415 5,337,691 1,153,373 1,153,373 5,337,691
25 2,031,813 167,577 167,577 5,337,691 1,294,300 1,294,300 5,337,691
30 2,593,165 0 0 600,000 1,330,567 1,330,567 5,337,691
35 3,309,609 0 0 600,000 1,074,088 1,074,088 5,337,691
40 4,223,993 0 0 600,000 0 0 600,000
45 5,391,005 0 0 600,000 0 0 600,000
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------------------------
Policy Cash Surrender Death
Year Value Value Benefit
---------- ---------- --------- -----------
<S> <C> <C> <C>
1 655,421 596,433 5,337,691
2 716,014 657,514 5,337,691
3 782,259 726,759 5,337,691
4 854,686 806,686 5,337,691
5 933,857 891,857 5,337,691
6 1,020,245 984,245 5,337,691
7 1,114,495 1,084,495 5,337,691
8 1,217,310 1,193,310 5,337,691
9 1,329,453 1,311,453 5,337,691
10 1,451,756 1,451,756 5,337,691
11 1,593,081 1,593,081 5,337,691
12 1,747,983 1,747,983 5,337,691
13 1,917,767 1,917,767 5,337,691
14 2,103,865 2,103,865 5,337,691
15 2,307,870 2,307,870 5,337,691
16 2,531,540 2,531,540 5,337,691
17 2,776,845 2,776,845 5,337,691
18 3,045,979 3,045,979 5,337,691
19 3,341,402 3,341,402 5,337,691
20 3,665,873 3,665,873 5,337,691
25 5,831,895 5,831,895 6,998,274
30 9,246,219 9,246,219 10,633,152
35 14,617,959 14,617,959 15,348,857
40 23,105,622 23,105,622 24,260,903
45 36,091,935 36,091,935 37,896,532
</TABLE>
ASSUMPTIONS:
(1) NO ADDITIONAL PREMIUMS PAID AND NO POLICY LOANS OR PARTIAL WITHDRAWALS
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.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT UNDER KILICO'S NO LAPSE GUARANTEE. IF A CONTRACT
LOAN WERE OUTSTANDING OR THE POLICY WERE ISSUED WITHOUT THE NO LAPSE
GUARANTEE, WHEN THE SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE 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.
