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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION STATEMENT 33-79808
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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A. Exact name of trust: FKLA VARIABLE SEPARATE ACCOUNT
B. Name of depositor: FEDERAL KEMPER LIFE ASSURANCE 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.
Federal Kemper Life Assurance Company
1 Kemper Drive
Long Grove, Illinois 60049
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COPIES TO:
FRANK JULIAN, ESQ. JOAN E. BOROS, ESQ.
Federal Kemper Life Assurance Company Katten Muchin & Zavis
1 Kemper Drive 1025 Thomas Jefferson Street, N.W.
Long Grove, Illinois 60049 Washington, D.C. 20007
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It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b), or
[X] on May 1, 1997 pursuant to paragraph (b), or
[ ] 60 days after filing pursuant to paragraph (a)(1), or
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
E. Title and amount of securities being registered:
Units of Interests in the Separate Account under
Flexible Premium Variable Life Insurance Policies.
F. Proposed maximum aggregate offering price to the public of the
securities being registered.
Registration of Indefinite Amount of Securities pursuant to Rule 24f-2
under the Investment Company Act of 1940. (See G. Below)
G. Amount of filing Fee: An indefinite amount of the Registrant's
securities has been registered pursuant to a declaration under Rule
24f-2 under the Investment Company Act of 1940, set out in Form S-6
Registration Statement filed on June 3, 1994 contained in File No.
33-79808. The Rule 24f-2 Notice for the Registrant's most recent fiscal
year was filed on February 27, 1997.
H. Approximate date of proposed public offering:
Continuous.
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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REGISTRANT ELECTS TO BE GOVERNED BY THE PROVISIONS OF RULE 6E-3(T)(B)(13)(I)(B)
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PROSPECTUS--MAY 1, 1997
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FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
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ISSUED BY
FEDERAL KEMPER LIFE ASSURANCE COMPANY
THROUGH ITS FKLA VARIABLE SEPARATE ACCOUNT
HOME OFFICE: 1 KEMPER DRIVE, LONG GROVE, ILLINOIS 60049 (847) 550-5500
This Prospectus describes a variable life insurance policy (the "Policy")
offered by Federal Kemper Life Assurance Company ("FKLA"). The Policy provides
for life insurance and for the accumulation of Cash Value on a variable basis.
Premiums under the Policy are flexible, subject to certain restrictions. The
Death Benefit and Cash Value of the Policy may vary to reflect the investment
experience of the FKLA Variable Separate Account (the "Separate Account").
The Policy meets the definition of "life insurance" under Section 7702 of
the Internal Revenue Code. The Policy may be issued as or become a modified
endowment contract. For a Policy treated as a modified endowment contract,
certain distributions will be includable in gross income for Federal income tax
purposes.
See "Federal Tax Matters", page 20 for a discussion of laws that affect the
tax treatment of the Policy.
An Owner may allocate premiums under a Policy to one or more of the
Subaccounts of the Separate Account and the Fixed Account. Each Subaccount
invests in shares of one Portfolio of an underlying mutual fund. The underlying
mutual funds (and the Portfolios of the underlying mutual funds) currently
available under the Policy are: (a) Investors Fund Series (formerly Kemper
Investors Fund) (Portfolios--Money Market, Total Return, High Yield, Growth,
Government Securities, International and Small Cap Growth); (b) Janus Aspen
Series (Portfolios--Growth, Aggressive Growth and Worldwide Growth); (c) Warburg
Pincus Trust (Portfolios--Small Company Growth, Post-Venture Capital and
International Equity); (d) Fidelity Variable Insurance Products Fund
(Portfolios--Equity-Income and Growth); and (e) Fidelity Variable Insurance
Products Fund II (Portfolios--Asset Manager: Growth and Investment Grade Bond).
The other Portfolios of the Funds are not currently available for investment
under the Policy. The accompanying prospectuses for the Funds describe the
investment objectives and the attendant risks of the portfolios of the Funds.
The Cash Value in the Fixed Account will accrue interest at a rate that is
guaranteed by FKLA.
The Policy permits the Owner to choose from two death benefit options. FKLA
guarantees that prior to the Maturity Date the Death Benefit payable for a
Policy will never be less than the Death Benefit stated in the Policy
Specifications, less Debt, as long as the Policy is in force. There is no
guaranteed Cash Value. If the Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse. A guarantee premium and
guarantee period are stated in the Policy Specifications. Payment of the
guarantee premium is not required but if paid as specified under the Policy will
guarantee that the Policy will not lapse during the guarantee period.
The Owner may examine the Policy and return it to FKLA for a refund during
the Free-Look Period.
It may not be advantageous to purchase a Policy as a replacement for
another type of life insurance policy, or to obtain additional insurance
protection if a flexible premium variable life insurance policy is already
owned.
This Prospectus generally describes only that portion of the Cash Value
allocated to the Separate Account. For a brief summary of the Fixed Account
option see "Fixed Account Option" on page 8.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED
BY A CURRENT PROSPECTUS FOR THE FUNDS. ALL PROSPECTUSES
SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THE POLICIES ARE NOT INSURED BY THE FDIC. THEY ARE
OBLIGATIONS OF THE ISSUING INSURANCE COMPANY AND ARE NOT A
DEPOSIT OF, OR GUARANTEED BY, ANY BANK OR SAVINGS
INSTITUTION AND ARE SUBJECT TO RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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Page
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DEFINITIONS................................................. 1
SUMMARY..................................................... 2
FKLA AND THE SEPARATE ACCOUNT............................... 4
THE FUNDS................................................... 5
FIXED ACCOUNT OPTION........................................ 8
THE POLICY.................................................. 8
POLICY BENEFITS AND RIGHTS.................................. 10
CHARGES AND DEDUCTIONS...................................... 15
GENERAL PROVISIONS.......................................... 17
DOLLAR COST AVERAGING....................................... 19
SYSTEMATIC WITHDRAWAL PLAN.................................. 19
DISTRIBUTION OF POLICIES.................................... 20
FEDERAL TAX MATTERS......................................... 20
LEGAL CONSIDERATIONS........................................ 21
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................ 21
VOTING INTERESTS............................................ 21
STATE REGULATION OF FKLA.................................... 22
DIRECTORS AND OFFICERS OF FKLA.............................. 23
LEGAL MATTERS............................................... 26
LEGAL PROCEEDINGS........................................... 26
EXPERTS..................................................... 26
REGISTRATION STATEMENT...................................... 26
FINANCIAL STATEMENTS........................................ 26
APPENDICES.................................................. 47
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DEFINITIONS
ACCUMULATION UNIT--An accounting unit of measure used to calculate the
value of each Subaccount.
AGE--The Insured's age on his or her nearest birthday.
BENEFICIARY--The person to whom the proceeds due on the Insured's death are
paid.
CASH VALUE--The sum of the value of Policy assets in the Separate Account,
Fixed Account and Loan Account.
DATE OF RECEIPT--Date of receipt means the valuation date during which a
request, form or payment is received at FKLA's Home Office. FKLA is deemed to
have received any request, form or payment on the date it is actually received
at the Home Office, provided that it is received before the close of the New
York Stock Exchange (which is normally 3:00 p.m. Chicago time) on any date when
the New York Stock Exchange is open. Otherwise, it will be deemed to be received
on the next such day.
DEBT--Debt means (1) the principal of any outstanding loan, plus (2) any
loan interest due or accrued to FKLA.
DEDUCTION DAY--The same day in each month as the Policy Date.
FIXED ACCOUNT--The amount of assets held in the General Account
attributable to the fixed portion of the Policy.
FREE-LOOK PERIOD--The period of time in which an Owner may cancel the
Policy and receive a refund. The applicable period of time will depend on the
state in which the Policy is issued; however, it will be at least 10 days from
the date the Policy is received by the Owner.
FUND OR FUNDS--Investors Fund Series (formerly Kemper Investors Fund),
Janus Aspen Series, Warburg Pincus Trust, and Variable Insurance Products Fund
and Variable Insurance Products Fund II (referred to herein as Fidelity Variable
Insurance Products Fund and Fidelity Variable Insurance Products Fund II).
GENERAL ACCOUNT--The assets of FKLA other than those allocated to the
Separate Account or any other separate account.
GUIDELINE SINGLE PREMIUM--The maximum initial amount of premium that can be
paid while retaining qualification as a life insurance policy under the Internal
Revenue Code.
INSURED--The person whose life is covered by the Policy and who is named in
the Policy Specifications.
ISSUE DATE--The date shown in the Policy Specifications. Incontestability
and suicide periods are measured from the Issue Date.
LOAN ACCOUNT--The amount of assets transferred from the Separate Account
and the Fixed Account and held in the General Account as collateral for Policy
Loans.
MATURITY DATE--The Policy Date anniversary nearest the Insured's 100th
birthday.
MORTALITY AND EXPENSE RISK CHARGE--A charge deducted in the calculation of
the Accumulation Unit Value for the assumption of mortality risks and expense
guarantees.
PLANNED PREMIUM--The scheduled premium specified by the Owner in the
application.
POLICY DATE--The date shown in the Policy Specifications. The Policy Date
is the date used to determine Policy Years and Deduction Days. The Policy Date
is the date that insurance coverage takes effect subject to any principles of
conditional receipt under applicable law.
POLICY YEAR--Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
PORTFOLIO--A series of a Fund with its own objectives and policies which
represents shares of beneficial interest in a separate portfolio of securities
and other assets.
SEPARATE ACCOUNT VALUE--The portion of the Cash Value in the Subaccount(s)
of the Separate Account.
SPECIFIED AMOUNT--The amount chosen by the Owner and used to calculate the
death benefit. The Specified Amount is shown in the Policy Specifications.
SUBACCOUNT--A subdivision of the Separate Account.
SURRENDER VALUE--The surrender value of a Policy is (1) the Cash Value
minus (2) any applicable Surrender Charge; minus (3) any Debt.
TRADE DATE--The date 30 days following the date all requirements for
coverage have been completed by the Owner and coverage under the Policy is
recorded by FKLA as in force.
VALUATION DATE--Each business day on which valuation of the assets of the
Separate Account is required by applicable law, which currently is each day that
the New York Stock Exchange is open for trading.
VALUATION PERIOD--The period that starts at the close of a Valuation Date
and ends at the close of the next succeeding Valuation Date.
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SUMMARY
The following summary should be read in conjunction with the detailed
information in this prospectus. You should refer to the heading "Definitions"
for the meaning of certain terms. Variations from the information appearing in
this prospectus due to individual state requirements are described in
supplements which are attached to this prospectus, or in endorsements to the
Policy, as appropriate. Unless otherwise indicated, the description of the
Policy contained in this prospectus assumes that the Policy is in force, that
there is no indebtedness, and that current Federal tax laws apply.
The Owner of a Policy pays a premium for life insurance coverage on the
person insured. The Policy is a flexible premium policy, so subject to certain
limitations, a Policy Owner may choose the amount and frequency of premium
payments. The Policy provides for a Surrender Value which is payable if the
Policy is terminated during an Insured's lifetime. The Death Benefit and Cash
Value of the Policy may increase or decrease to reflect investment experience.
There is no guaranteed Cash Value. If the Surrender Value is insufficient to pay
charges under the Policy, the Policy will lapse unless an additional premium
payment or loan repayment is made. A guarantee premium and a guarantee period
are stated in the Policy Specifications. The Policy is guaranteed to remain in
force during the guarantee period provided the sum of the premiums paid less
withdrawals and debt is equal to or greater than the sum of the guarantee
premiums. (See "The Policy--Premiums and Allocation of Premiums and Separate
Account Value," pages 8 and 9, "Charges and Deductions," page 15, and "Policy
Benefits and Rights," page 10.)
Under certain circumstances, a Policy may be issued as or become a modified
endowment contract as a result of a material change or reduction in benefits as
defined by the Internal Revenue Code. Excess premiums paid may also cause the
Policy to become a modified endowment contract. For a Policy treated as a
modified endowment contract, certain distributions will be included in the
Owner's gross income for purposes of Federal income tax (See "Federal Tax
Matters," page 20.)
The purpose of the Policy is to provide insurance protection for the
beneficiary named therein. No claim is made that the Policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.
POLICY BENEFITS
CASH VALUE. The Policy provides for a Cash Value. The Cash Value will
reflect the amount and frequency of premium payments, the investment experience
of the selected Subaccounts, any values in the Fixed Account and Loan Account,
and charges imposed in connection with the Policy. The Owner bears the entire
investment risk on that portion of the net premiums and Cash Value allocated to
the Separate Account. FKLA does not guarantee a minimum Separate Account Value.
(See "Policy Benefits and Rights--Cash Value," page 12.)
The Owner may surrender a Policy at any time and receive the Surrender
Value, which equals the Cash Value less any applicable surrender charge and
outstanding Debt. Partial withdrawals are also available. (See "Policy Benefits
and Rights--Surrender Privilege," page 14.)
POLICY LOANS. After the first Policy Year, the Owner may borrow up to 95%
of the Policy's Cash Value minus applicable surrender charges, subject to the
requirements of the Internal Revenue Code. The minimum amount of a loan is $500.
Interest at an effective annual rate of 5.00% in the first nine Policy Years and
3.00% thereafter will be charged on outstanding loan amounts. (See "Federal Tax
Matters," page 20.)
When a loan is made, a portion of the Policy's Cash Value equal to the
amount of the loan will be transferred from the Separate Account and the Fixed
Account (proportionately, unless the Owner requests otherwise) to the Loan
Account. Cash Values within the Loan Account will earn 3.00% annual interest.
Such earnings will be allocated to the Loan Account. (See "Policy Benefits and
Rights--Policy Loans," page 13.)
If the Policy is treated as a modified endowment contract, a loan will be
treated as a distribution for Federal income tax purposes and may be subject to
tax, withholding and penalties. (See "Federal Tax Matters," page 20.)
DEATH BENEFITS. As long as the Policy remains in force, the Policy provides
a death benefit payment upon the death of the Insured. The Policy contains two
death benefit options prior to the Maturity Date. Under Option A, the death
benefit is the Specified Amount stated in the Policy Specifications. Under
Option B, the death benefit is the Specified Amount stated in the Policy
Specifications plus the Cash Value. In either case, the death benefit will not
be less than a specified multiple of the Cash Value. The death benefit payable
will be reduced by any Debt. (See "Policy Benefits and Rights--Death Benefits,"
page 10.)
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PREMIUMS
The Owner has flexibility concerning the amount and frequency of premium
payments. At the time of application, the Owner will determine a scheduled
premium. However, the Owner will not be required to adhere to the schedule and,
subject to certain restrictions, may make premium payments in any amount and at
any frequency. The amount, frequency, and period of time over which an Owner
pays premiums may affect whether the Policy will be classified as a modified
endowment contract. The minimum premium payment is $50.
Payment of the scheduled premium will not guarantee that a Policy will
remain in force. Instead, the duration of the Policy depends on the Policy's
Surrender Value. A guarantee premium and a guarantee period are stated in the
Policy Specifications. A policy will remain in force during the guarantee period
provided the sum of the premiums paid less withdrawals and Debt is equal to or
greater than the sum of the guarantee premiums. (See "The Policy--Premiums,"
page 8.)
THE SEPARATE ACCOUNT
ALLOCATION OF PREMIUMS. The portion of the premium available for allocation
equals the premium paid less applicable charges. An Owner indicates in the
application for the Policy the percentages of premium to be allocated among the
Subaccounts of the Separate Account and the Fixed Account. The Separate Account
currently consists of seventeen Subaccounts, each of which invests in shares of
a designated Portfolio of the Investors Fund Series (formerly Kemper Investors
Fund), Janus Aspen Series, Warburg Pincus Trust, Fidelity Variable Insurance
Products Fund or Fidelity Variable Insurance Products Fund II.
On the day following the date of receipt, the initial premium less
applicable charges will be allocated to the Money Market Subaccount. On the
Trade Date, the Separate Account Value in the Money Market Subaccount will be
allocated among the Subaccounts and the Fixed Account in accordance with the
Owner's instructions in the application. (See "The Policy -- Policy Issue," page
8.)
TRANSFERS. An Owner may transfer Separate Account Value among the
Subaccounts. One transfer of all or part of the Separate Account Value may be
made within a fifteen day period. Transfers are also permitted between the Fixed
Account and the Subaccounts, subject to restrictions. (See "Allocation of
Premiums and Separate Account Value--Transfers," page 9.)
THE FUNDS
The following Portfolios of the Funds are currently available for
investment by the Separate Account:
INVESTORS FUND SERIES (FORMERLY KEMPER INVESTORS FUND) -- Money Market
Portfolio, Total Return Portfolio, High Yield Portfolio, Growth Portfolio,
Government Securities Portfolio, International Portfolio and Small Cap Growth
Portfolio.
JANUS ASPEN SERIES -- Growth Portfolio, Aggressive Growth Portfolio and
Worldwide Growth Portfolio.
WARBURG PINCUS TRUST -- Small Company Growth Portfolio, Post-Venture
Capital Portfolio and International Equity Portfolio.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND -- Equity-Income Portfolio and
Growth Portfolio.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II -- Asset Manager: Growth
Portfolio and Investment Grade Bond Portfolio.
For a more detailed description of the Funds, see "The Funds," page 5, the
Funds' prospectuses, and statements of additional information available upon
request.
CHARGES
A state and local premium tax charge of 2.5% is deducted from each premium
payment under the Policy prior to allocation of the net premium. In addition, a
charge of 1% of each premium payment will be deducted to compensate FKLA for
higher corporate income tax liability resulting from changes in the tax law made
by the Omnibus Budget Reconciliation Act of 1990. (See Charges and
Deductions--Deductions from Premiums, page 15.)
No other charges are currently made from premium or the Separate Account
for Federal, state or other taxes. Should FKLA determine that such taxes may be
imposed, it may make deductions from the Separate Account to pay those taxes.
(See "Federal Tax Matters," page 20.)
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Deductions will be made from the Policy's Cash Value in each Subaccount and
the Fixed Account on the Policy Date and on each Deduction Day for the cost of
providing life insurance coverage for the Insured. In addition, FKLA deducts an
asset charge from each Subaccount on a daily basis for the assumption by FKLA of
certain mortality and expense risks incurred in connection with the Policy, at
an annual rate of .60%. This charge may be increased but is guaranteed not to
exceed .90%. (See "Charges and Deductions--Cost of Insurance Charge and
Mortality and Expense Risk Charge," pages 15 and 16.)
A $6 per month administrative expense charge is deducted from the Policy's
Cash Value on each Deduction Day. (See "Charges and Deductions--Monthly
Administrative Charges," page 16.)
If the Policy is surrendered or if the Cash Value is applied under a
Settlement Option, a surrender charge on the premiums paid under the Policy will
be deducted from the amount payable. A surrender charge may also apply to a
partial withdrawal. The surrender charge starts at 6% in the first five Policy
Years and reduces by 1% in Policy Years 6 through 9 and by 2% in Policy Year 10
so that there is no charge in the tenth and later Policy Years. During the first
nine Policy Years following an increase in Specified Amount, an additional
surrender charge will apply. The additional charge will be calculated as
described above based on the amount of the increase, the number of years since
the date of the increase and premium associated with the increase. In addition,
a $25 withdrawal charge may be deducted for each withdrawal. (See "Policy
Benefits and Rights--Surrender Privilege," page 14.)
In addition, the Subaccounts of the Separate Account purchase shares of the
Funds. For fees and expenses of the Funds, see the prospectuses for the Funds.
TAX TREATMENT UNDER CURRENT FEDERAL TAX LAW
The Cash Value, while it remains in the Policy, and the Death Benefit
should be subject to the same Federal income tax treatment as the cash value
under a conventional fixed benefit life insurance policy. Under existing tax
law, if the Policy is not treated as a modified endowment contract, the Owner is
generally not deemed to be in receipt of the Cash Value under a Policy until a
distribution occurs through a withdrawal or surrender. If the Policy is treated
as a modified endowment contract, a loan will also be treated as a distribution.
A change of Owners, an assignment, a loan or a surrender of the Policy may have
tax consequences.
Death Benefits payable under the Policy should be completely excludable
from the gross income of the Beneficiary. As a result, the Beneficiary generally
will not be subject to income tax on the Death Benefit. (See "Federal Tax
Matters," page 20.)
FREE-LOOK PERIOD
The Owner is granted a period of time to examine a Policy and return it for
a refund. The applicable period of time will depend on the state in which the
Policy is issued; however, it will be at least 10 days from the date the Policy
is received by the Owner. (See "Policy Benefits and Rights--Free-Look Period,"
page 15.)
ILLUSTRATIONS OF CASH VALUES, SURRENDER VALUES, DEATH BENEFITS
Tables in Appendix A illustrate the Separate Account Values, Surrender
Values and Death Benefits based upon certain hypothetical assumed rates of
return for the Separate Account and the charges deducted under the Policy.
FKLA AND THE SEPARATE ACCOUNT
FEDERAL KEMPER LIFE ASSURANCE COMPANY
Federal Kemper Life Assurance Company ("FKLA") is a stock life insurance
company organized under the laws of the State of Illinois. FKLA offers life
insurance and annuity products and is admitted to do business in the District of
Columbia and in all states except New York. FKLA is a wholly owned subsidiary of
Kemper Corporation, a non-operating holding company. Zurich Insurance Company
("Zurich"), Insurance Partners, L.P. ("IP") and Insurance Partners Offshore
(Bermuda), L.P. (together with IP, "Insurance Partners") indirectly and directly
own 80 percent and 20 percent, respectively, of Kemper Corporation.
FKLA Variable Separate Account (the "Separate Account") was established by
FKLA as a separate investment account on May 27, 1994. The Separate Account will
receive and invest the net premiums under the Policy. In addition, the Separate
Account may receive and invest net premiums for other variable life insurance
policies offered by FKLA.
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The Separate Account is administered and accounted for as part of the
general business of FKLA, but the income, capital gains or capital losses of the
Separate Account are credited to or charged against the assets held in the
Separate Account, without regard to any other income, capital gains or capital
losses of any other separate account or arising out of any other business which
FKLA may conduct. The benefits provided under the Policy are obligations of
FKLA.
The Separate Account is currently divided into seventeen Subaccounts. Each
Subaccount invests exclusively in shares of the Portfolios designated by the
Policy Owner. Income and both realized and unrealized gains or losses from the
assets of each Subaccount generally are credited to or charged against that
Subaccount without regard to income, gains or losses from any other Subaccount
of the Separate Account or arising out of any business FKLA may conduct. No
funds have been invested in the Separate Account as of the date of this
Prospectus.
The Separate Account has been registered with the Securities and Exchange
Commission ("Commission") as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"). Such registration does not involve
supervision by the Commission of the management, investment practices or
policies of the Separate Account or FKLA.
THE FUNDS
The Separate Account invests in shares of the Investors Fund Series
(formerly Kemper Investors Fund), Janus Aspen Series, Warburg Pincus Trust,
Fidelity Variable Insurance Products Fund and Fidelity Variable Insurance
Products Fund II, series type mutual funds registered with the Commission as
open-end, management investment companies. Registration of the Funds does not
involve supervision of their management, investment practices or policies by the
Commission. The Funds are designed to provide investment vehicles for variable
life insurance and variable annuity contracts and, except for Investors Fund
Series, certain qualified retirement plans. Shares of the Funds currently are
sold only to insurance company separate accounts and qualified retirement plans.
In addition to the Separate Account, shares of the Funds may be sold to variable
life insurance and variable annuity separate accounts of insurance companies not
affiliated with FKLA. It is conceivable that in the future it may be
disadvantageous for variable life insurance separate accounts of companies
unaffiliated with FKLA, or for both variable life insurance separate accounts,
variable annuity separate accounts and qualified retirement plans, to invest
simultaneously in the Funds. Currently neither FKLA nor the Funds foresee any
such disadvantages to variable life insurance owners, variable annuity owners or
qualified retirement plans. Management of the Funds has an obligation to monitor
events to identify material conflicts between such owners and determine what
action, if any, should be taken. In addition, if FKLA believes that a Fund's
response to any of those events or conflicts insufficiently protects the Owners,
it will take appropriate action on its own.
The Separate Account invests in the underlying Portfolios of the Funds. The
assets of each Portfolio are held separate from the assets of the other
Portfolios, and each Portfolio has its own distinct investment objective and
policies. Each Portfolio operates as a separate investment fund, and the income,
gains or losses of one Portfolio has no effect on investment performance of any
other Portfolio.
The seventeen Portfolios are summarized below.
INVESTORS FUND SERIES (FORMERLY KEMPER INVESTORS FUND)
MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments that mature in twelve months or less.
TOTAL RETURN PORTFOLIO seeks a high total return, a combination of income
and capital appreciation, by investing in a combination of debt securities and
common stocks.
HIGH YIELD PORTFOLIO seeks to provide a high level of current income by
investing in fixed-income securities.
GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.
INTERNATIONAL PORTFOLIO seeks total return, a combination of capital growth
and income, principally through an internationally diversified portfolio of
equity securities.
SMALL CAP GROWTH PORTFOLIO seeks maximum appreciation of investors'
capital.
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Zurich Kemper Investments, Inc. ("ZKI" or the "Adviser"), an affiliate of
FKLA, is the investment manager of each Portfolio of the Investors Fund Series
specified above. For its services to the Portfolios, the Adviser receives
compensation monthly at annual rates equal to .50 of 1%, .55 of 1%, .60 of 1%,
.60 of 1%, .55 of 1%, .75 of 1% and .65 of 1% of the average daily net asset
values of the Money Market Portfolio, the Total Return Portfolio, the High Yield
Portfolio, the Growth Portfolio, the Government Securities Portfolio, the
International Portfolio and the Small Cap Growth Portfolio, respectively. Zurich
Investment Management Limited ("ZIML"), an affiliate of ZKI, serves as
sub-advisor with respect to foreign securities investments of the Total Return,
High Yield, Growth, International and Small Cap Growth Portfolios. ZIML is
compensated by ZKI for its services.
JANUS ASPEN SERIES
GROWTH PORTFOLIO seeks long-term growth of capital in a manner consistent
with the preservation of capital. It is a diversified Portfolio that pursues its
objective by investing in common stocks of companies of any size. This Portfolio
generally invests in larger, more established issuers.
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. It is a
nondiversified Portfolio that pursues its investment objective by normally
investing at least 50% of its equity assets in securities issued by medium-sized
companies as described in the Fund's prospectus.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital in a manner
consistent with the preservation of capital. It is a diversified Portfolio that
pursues its objective primarily through investments in common stocks of foreign
and domestic issuers.
Janus Capital Corporation is the investment adviser to each Portfolio of
the Janus Aspen Series specified above and receives a monthly advisory fee based
on the following schedule (expressed as an annual rate):
<TABLE>
<CAPTION>
AVERAGE DAILY NET
ASSETS OF PORTFOLIO ANNUAL RATE
- ----------------------------------- -----------
<S> <C>
First $30,000,000.................. 1.00%
Next $270,000,000.................. .75%
Next $200,000,000.................. .70%
Over $500,000,000.................. .65%
</TABLE>
However, Janus Capital Corporation has agreed to reduce each of the above
Portfolios' advisory fees to the extent that such fee exceeds the effective rate
of the Janus retail fund corresponding to such Portfolio. The effective rate is
the advisory fee calculated by the corresponding retail fund as of the last day
of each calendar quarter (expressed as an annual rate). The effective rate for
the Growth Portfolio, the Aggressive Growth Portfolio and the Worldwide Growth
Portfolio for the period ended December 31, 1996 was .65%, .72% and .66%,
respectively.
WARBURG PINCUS TRUST
SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing in equity
securities of small-sized U.S. companies.
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.
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers.
Warburg, Pincus Counsellors, Inc. ("Warburg") is the investment adviser to
each Portfolio of the Warburg Pincus Trust specified above. For its advisory
services, Warburg receives compensation at annual rates equal to the following
percentages of average daily net asset values: Small Company Growth Portfolio
0.90%; Post-Venture Capital Portfolio 1.25%; and International Equity Portfolio
1.00%.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP) AND VARIABLE INSURANCE PRODUCTS
FUND II (VIPII)
VIP EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily
in income-producing equity securities.
VIP GROWTH PORTFOLIO seeks to achieve capital appreciation.
VIPII ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments and other
investments.
6
<PAGE> 10
VIPII INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current
income as is consistent with the preservation of capital.
Fidelity Management & Research Company ("FMR") receives a monthly advisory
fee for each Portfolio of the Variable Insurance Products Fund and Variable
Insurance Products Fund II specified above. The fee for each Portfolio is
calculated by adding a group fee rate to an individual fund fee rate and
multiplying the result by each Portfolio's average net assets. The group fee
rate, which is based on the average net assets of all the mutual funds advised
by FMR, cannot rise above 0.52% for each of the VIP Equity-Income, VIP Growth
and VIPII Asset Manager: Growth Portfolios and 0.37% for the VIPII Investment
Grade Bond Portfolio, and it drops as total assets under management increase.
The individual fund fee rates are as follows: Equity-Income Portfolio 0.20%;
Growth Portfolio 0.30%; Asset Manager: Growth Portfolio 0.40% and Investment
Grade Bond Portfolio 0.30%. Effective August 1, 1996, FMR voluntarily agreed to
reduce VIPII Asset Manager: Growth Portfolio's individual fund fee rate from
0.40% to 0.30%. For the period ended December 31, 1996, the Portfolios'
management fees were as follows: Equity-Income Portfolio 0.51%; Growth Portfolio
0.61%; Asset Manager: Growth Portfolio 0.65% and Investment Grade Bond Portfolio
0.45%.
There is no assurance that any of the Portfolios of the Funds will achieve
its objective as stated in the prospectus for the Fund. More detailed
information, including a description of the risks involved in investing in each
of the Portfolios, may be found in the prospectuses for the Funds, which must
accompany or precede this Prospectus, and the Funds' statements of additional
information available upon request from Federal Kemper Life Assurance Company, 1
Kemper Drive, Long Grove, Illinois 60049.
CHANGE OF INVESTMENTS
FKLA reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares held by the Separate Account or
that the Separate Account may purchase. FKLA reserves the right to eliminate the
shares of any of the Portfolios of the Funds and to substitute shares of another
Portfolio of the Funds or of another investment company, if the shares of a
Portfolio are no longer available for investment, or if in its judgment further
investment in any Portfolio becomes inappropriate in view of the purposes of the
Policy or the Separate Account. FKLA may also eliminate or combine one or more
subaccounts, transfer assets, or it may substitute one subaccount for another
subaccount, if, in its sole discretion, marketing, tax or investment conditions
warrant. FKLA will not substitute any shares attributable to an Owner's interest
in a Subaccount of the Separate Account without notice to the Owner and prior
approval of the Commission, to the extent required by the 1940 Act or other
applicable law. Nothing contained in this Prospectus shall prevent the Separate
Account from purchasing other securities for other series or classes of
policies, or from permitting a conversion between series or classes of policies
on the basis of requests made by Owners.
FKLA also reserves the right to establish additional subaccounts of the
Separate Account, each of which would invest in a new portfolio of the Funds, or
in shares of another investment company, with specified investment objectives.
New subaccounts may be established when, in the sole discretion of FKLA,
marketing needs or investment conditions warrant, and any new subaccounts may be
made available to existing Owners as determined by FKLA.
If deemed by FKLA to be in the best interests of persons having voting
interests under the Policy, the Separate Account may be: (a) operated as a
management company under the 1940 Act; (b) deregistered under that Act in the
event such registration is no longer required; or (c) combined with other FKLA
separate accounts. To the extent permitted by law, FKLA may also transfer the
assets of the Separate Account associated with the Policy to another separate
account, or to the General Account.
7
<PAGE> 11
FIXED ACCOUNT OPTION
NET PREMIUMS ALLOCATED BY POLICY OWNERS TO THE FIXED ACCOUNT OF THE POLICY
AND TRANSFERS TO THE FIXED ACCOUNT BECOME PART OF THE GENERAL ACCOUNT OF FKLA,
WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") NOR IS THE FIXED ACCOUNT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
GENERALLY ARE SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND FKLA HAS
BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO THE FIXED PORTION.
DISCLOSURES REGARDING THE FIXED ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE
ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
Under the Fixed Account Option offered under the Policies, FKLA allocates
payments to its General Account and pays a fixed interest rate for stated
periods. This Prospectus describes only the element of the Contract pertaining
to the Separate Account except where it makes specific reference to fixed
accumulation and settlement elements.
The Policies guarantee that payments allocated to the Fixed Account will
earn a minimum fixed interest rate of 3%. FKLA, at its discretion, may credit
interest in excess of 3%. FKLA reserves the right to change the rate of excess
interest credited as provided under the terms of the Policy. FKLA also reserves
the right to declare separate rates of excess interest for net premiums or
amounts transferred at designated times, with the result that amounts at any
given designated time may be credited with a higher or lower rate of excess
interest than the rate or rates of excess interest previously credited to such
amounts and net premiums or amounts transferred at any other designated time.
THE POLICY
POLICY ISSUE
Before FKLA will issue a Policy, it must receive a completed application
and a full initial premium at its Home Office. A Policy ordinarily will be
issued only for Insureds Age 1 through 75 who supply satisfactory evidence of
insurability to FKLA. Acceptance of an application is subject to underwriting by
FKLA.
After underwriting is complete and the Policy is delivered to the Owner,
insurance coverage under the Policy will be deemed to have begun as of the
Policy Date. (See "Premiums," below.)
PREMIUMS
Premiums are to be paid to FKLA at its Home Office. (See "Distribution of
Policies.") Checks ordinarily must be made payable to FKLA.
PLANNED PREMIUMS. When applying for a Policy, a Policy Owner will specify a
Planned Premium payment that provides for the payment of level premiums over a
specified period of time. However, the Policy Owner is not required to pay
Planned Premiums.
The minimum monthly premium that will be accepted by FKLA is $50. For modes
other than monthly the minimums are: annual $600; semi-annual $300; quarterly
$150. The amount, frequency and period of time over which a Policy Owner pays
premiums may affect whether the Policy will be classified as a modified
endowment contract, which is a type of life insurance contract subject to
different tax treatment than conventional life insurance contracts for certain
pre-death distributions. Accordingly, variations from the Planned Premiums on a
Policy that is not otherwise a modified endowment contract may result in the
Policy becoming a modified endowment contract for tax purposes.
Payment of the Planned Premium will not guarantee that a Policy will remain
in force. Instead, the duration of the Policy depends upon the Policy's
Surrender Value. Even if Planned Premiums are paid, the Policy will lapse any
time Surrender Value is insufficient to pay the current monthly deduction and a
Grace Period expires without sufficient payment. (See "Policy Lapse and
Reinstatement.")
A guarantee period and a monthly guarantee premium are specified in the
Policy Specifications. The guarantee period is the period that ends on the third
Policy anniversary. During the guarantee period, the policy will remain in force
and no grace period will begin provided that the total premiums received, less
any withdrawals and any outstanding loans, equals or exceeds the monthly
guarantee premium times the number of months since the Policy Date, including
the current month.
8
<PAGE> 12
FKLA may reject or limit any premium payment that is below the current
minimum premium amount requirements, or that would increase the death benefit by
more than the amount of the premium. All or a portion of a premium payment will
be rejected and returned to the Owner if it would disqualify the Policy as life
insurance under the Internal Revenue Code.
Certain charges will be deducted from each premium payment. (See "Charges
and Deductions.") The remainder of the premium, known as the net premium, will
be allocated as described below under "Allocation of Premiums and Separate
Account Value."
POLICY DATE. The Policy Date is the date used to determine Policy Years and
Deduction Days. The Policy Date will be the date that coverage on the Insured
takes effect. If such date is the 29th, 30th, or 31st of a month, the Policy
Date will be the first of the following month.
In the event an application is declined by FKLA, the Cash Value in the
Money Market Subaccount plus the total amount of monthly deductions and
deductions against premiums will be refunded.
The full initial premium is the only premium required to be paid under a
Policy. However, additional premiums may be necessary to keep the Policy in
force. (See "The Policy--Policy Lapse and Reinstatement.")
ALLOCATION OF PREMIUMS AND SEPARATE ACCOUNT VALUE
ALLOCATION OF PREMIUMS. The initial net premium will be allocated to the
Money Market Subaccount. The Separate Account Value will remain in the Money
Market Subaccount until the Trade Date. On the Trade Date, the Separate Account
Value in the Money Market Subaccount will be allocated to the Subaccounts and
the Fixed Account elected by the Owner in the application for the Policy.
Additional premiums received will continue to be allocated in accordance with
the Owner's instructions in the application unless contrary written instructions
are received. Once a change in allocation is made, all future premiums will be
allocated in accordance with the new allocation, unless contrary written
instructions are received. The minimum amount of any premium that may be
allocated to a Subaccount is $50. Premium may be allocated to a maximum of ten
Subaccounts.
The Separate Account Value will vary with the investment experience of the
chosen Subaccounts. The Owner bears the entire investment risk.
TRANSFERS. After the Trade Date, Separate Account Value may be transferred
among the Subaccounts and into the Fixed Account. One transfer of all or a part
of the Separate Account Value may be made within a fifteen day period. All
transfers made during a business day will be treated as one request.
Fixed Account Value may be transferred to one or more Subaccounts. One
transfer of part of the Fixed Account Value may be made once each Policy Year in
the thirty day period following the end of a Policy Year.
Transfer requests must be in writing in a form acceptable to FKLA, or by
telephone authorization under forms authorized by FKLA. (See "General
Provisions--Written Notices and Requests.") The minimum partial transfer amount
is $500. No partial transfer may be made if the value of the Owner's remaining
interest in a Subaccount or the Fixed Account, from which amounts are to be
transferred, would be less than $500 after such transfer. Transfers will be
based on the Accumulation Unit values next determined following receipt of
valid, complete transfer instructions by FKLA. The transfer provision may be
suspended, modified or terminated at any time by FKLA. FKLA disclaims all
liability for acting in good faith in following instructions which are given in
accordance with procedures established by FKLA, including requests for personal
identifying information, that are designed to limit unauthorized use of the
privilege. Therefore, a Policy Owner would bear this risk of loss in the event
of a fraudulent telephone transfer.
AUTOMATIC ASSET REALLOCATION. A Policy Owner may elect to have transfers
made automatically among the Subaccounts of the Separate Account on an annual or
a quarterly basis so that Cash Value is reallocated to match the Policy Owner's
predefined asset allocation program. An election to participate in the automatic
asset reallocation program must be in writing in the form prescribed by FKLA and
returned to FKLA at its home office.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Lapse will occur when the Surrender Value of a Policy is
insufficient to cover the monthly deductions, and a grace period expires without
a sufficient payment being made. (See "Charges and Deductions.")
A grace period of 61 days will be given to the Owner. It begins when notice
is sent that the Surrender Value of the Policy is insufficient to cover the
monthly deductions. Failure to make a premium payment or loan repayment during
the grace period sufficient to keep the Policy in force for three months will
cause the Policy to lapse and terminate without value.
9
<PAGE> 13
If payment is received within the grace period, the premium or loan
repayment will be allocated to the Subaccounts and the Fixed Account in
accordance with the most current allocation instructions, unless otherwise
requested. Amounts over and above the amounts necessary to prevent lapse may be
paid as additional premiums, however, to the extent otherwise permitted. (See
"The Policy--Premiums.")
FKLA will not accept any payment that would cause the total premium payment
to exceed the maximum payment permitted by the Code for life insurance under the
guideline premium limits. However, the Owner may voluntarily repay a portion of
Debt to avoid lapse. (See "Federal Tax Matters.")
If premium payments have not exceeded the maximum payment permitted by the
Code, the Owner may choose to make a larger payment than the minimum required
payment to avoid the recurrence of the potential lapse of coverage. The Owner
may also combine premium payments with Debt repayments.
The death benefit payable during the grace period will be the Death Benefit
in effect immediately prior to the grace period, less any Debt and any unpaid
monthly deductions.
REINSTATEMENT. If a Policy lapses because of insufficient Surrender Value
to cover the monthly deductions, and it has not been surrendered for its
Surrender Value, it may be reinstated at any time within three years after the
date of lapse. Tax consequences may affect the decision to reinstate.
Reinstatement is subject to:
(1) receipt of evidence of insurability satisfactory to FKLA;
(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 Deduction Day
that coincides with or next follows the date the application for reinstatement
is approved by FKLA. Suicide and incontestability provisions will apply from the
effective date of reinstatement.
POLICY BENEFITS AND RIGHTS
DEATH BENEFITS
While the Policy is in force (see "Policy Lapse and Reinstatement--Lapse,"
above) and prior to the Maturity Date, the death benefit is based on the death
benefit option, the Specified Amount and the table of death benefit percentages
applicable at the time of death. The death benefit proceeds will be equal to the
death benefit minus any debt and minus any monthly deductions due during the
grace period.
A Policy Owner may select one of two death benefit options: Option A or
Option B. An applicant designates the death benefit option in the application.
Subject to certain restrictions, the Owner can change the death benefit option
selected. So long as the Policy remains in force, the death benefit under either
option will never be less than the Specified Amount.
The Specified Amount is chosen by the Owner on the application and is
stated in the Policy Specifications. The minimum Specified Amount permitted
under the Policy is $25,000. However, a lesser Specified Amount may be permitted
in the case of a single premium.
OPTION A. Under Option A, the death benefit will be equal to the Specified
Amount or, if greater, the Cash Value (determined as of the end of the Valuation
Period during which the Insured dies) multiplied by a death benefit percentage.
The death benefit percentages vary according to the age of the Insured and will
be at least equal to the cash value corridor in Section 7702 of the Internal
Revenue Code. The death benefit percentage is 250% for an Insured at Age 40 or
under, and it declines for older Insureds. A table showing the death benefit
percentages is in the Appendix B to this Prospectus and in the Policy.
OPTION B. Under Option B, the death benefit will be equal to the Specified
Amount plus the Cash Value (determined as of the end of the Valuation Period
during which the Insured dies) or, if greater, the Cash Value multiplied by a
death benefit percentage. The specified percentage is the same as that used in
connection with Option A and as stated in the Appendix. The death benefit under
Option B will always vary as Cash Value varies.
EXAMPLES OF OPTIONS A AND B. The following examples demonstrate the
determination of death benefits under Options A and B. The examples show three
Policies--Policies I, II, and III--with the same Specified
10
<PAGE> 14
Amount, but Cash Values that vary as shown, and which assume an Insured is Age
35 at the time of death and that there is no outstanding Debt.
<TABLE>
<CAPTION>
POLICY I POLICY II POLICY III
-------- --------- ----------
<S> <C> <C> <C>
Specified Amount.......................... $100,000 $100,000 $100,000
Cash Value on Date of Death............... $ 25,000 $ 50,000 $ 75,000
Death Benefit Percentage.................. 250% 250% 250%
Death Benefit Under Option A.............. $100,000 $125,000 $187,500
Death Benefit Under Option B.............. $125,000 $150,000 $187,500
</TABLE>
Under Option A, the death benefit for Policy I is equal to $100,000 since
the death benefit is the greater of the Specified Amount ($100,000) or the Cash
Value at the date of death multiplied by the death benefit percentage ($25,000 X
250% = $62,500). For both Policies II and III under Option A, the Cash Value
multiplied by the death benefit percentage ($50,000 X 250% = $125,000 for Policy
II; $75,000 X 250% = $187,500 for Policy III) is greater than the Specified
Amount ($100,000), so the death benefit is equal to the higher value. Under
Option B, the death benefit for Policy I is equal to $125,000 since the death
benefit is the greater of Specified Amount plus Cash Value ($100,000 + $25,000 =
$125,000) or the Cash Value multiplied by the death benefit percentage ($25,000
X 250% = $62,500). Similarly, in Policy II, Specified Amount plus Cash Value
($100,000 + $50,000 = $150,000) is greater than Cash Value multiplied by the
death benefit percentage ($50,000 X 250% = $125,000). In Policy III, the Cash
Value multiplied by the death benefit percentage ($75,000 X 250% = $187,500) is
greater than the Specified Amount plus Cash Value ($100,000 + $75,000 =
$175,000), so the death benefit is equal to the higher value.
All calculations of death benefit will be made as of the end of the
Valuation Period during which the Insured dies. Death benefit proceeds may be
paid to a Beneficiary in a lump sum or under a payment plan offered under the
Policy. The Policy should be consulted for details.
Death benefits under the Policy will ordinarily be paid within seven days
after FKLA receives all documentation required for such a payment. Payments may
be postponed in certain circumstances. (See "General Provisions -- Postponement
of Payments")
CHANGES IN DEATH BENEFIT OPTION
After the first Policy Year, a Policy Owner may request that the death
benefit under the Policy be changed from Option A to Option B, or from Option B
to Option A. Changes in the death benefit option may be made only once per
Policy Year and should be made in writing to FKLA's Home Office. The effective
date of any such change is the next Monthly Processing Date after the change is
accepted.
A change in the death benefit from Option A to Option B will result in a
reduction in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the death benefit payable under Option B at the
time of the change will equal that which would have been payable under Option A
immediately prior to the change. The change in option will affect the
determination of the death benefit since Cash Value will then be added to the
new Specified Amount, and the death benefit will then vary with Cash Value.
A change in the death benefit from Option B to Option A will result in an
increase in the Specified Amount of the Policy by the amount of the Policy's
Cash Value, with the result that the death benefit payable under Option A at the
time of the change will equal that which would have been payable under Option B
immediately prior to the change. However, the change in option will affect the
determination of the death benefit since the Cash Value will no longer be added
to the Specified Amount in determining the death benefit. From that point on,
the death benefit will equal the new Specified Amount (or, if higher, the Cash
Value times the applicable specified percentage).
A change in death benefit option may affect the future monthly cost of
insurance charge since this charge varies with the net amount at risk, which
generally is the amount by which the death benefit exceeds Cash Value. (See
"Charges and Deductions--Cost of Insurance Charge.") Assuming that the Policy's
death benefit would not be equal to Cash Value times a death benefit percentage
under either Option A or B, changing from Option B to Option A will generally
decrease the future net amount at risk, and therefore decrease the future cost
of insurance charges. Changing from Option A to Option B will generally result
in a net amount at risk that remains level. Such a change, however, will result
in an increase in the cost of insurance charges over time, since the cost of
insurance rates increase with the insured's Age.
11
<PAGE> 15
CHANGES IN SPECIFIED AMOUNT
After the first Policy Year, a Policy Owner may request an increase or
decrease in the Specified Amount under a Policy subject to approval from FKLA. A
change in Specified Amount may only be made once per Policy Year and must be in
an amount at least equal to $10,000. Increases are not allowed after the Insured
attains age 85. Increasing the Specified Amount could increase the death benefit
under a Policy, and decreasing the Specified Amount could decrease the death
benefit. (See "Federal Tax Matters.") The amount of change in the death benefit
will depend, among other things, upon the death benefit option chosen by the
Owner and the degree to which the death benefit under a Policy exceeds the
Specified Amount prior to the change. Changing the Specified Amount could affect
the subsequent level of the death benefit while the Policy is in force and the
subsequent level of Policy values. An increase in Specified Amount may increase
the net amount at risk under a Policy, which will increase an Owner's cost of
insurance charge and the guarantee premium amount. However, the guarantee period
will not be extended as a result of an increase in Specified Amount. Conversely,
a decrease in Specified Amount may decrease the net amount at risk, which will
decrease an Owner's cost of insurance charge. A decrease in Specified Amount
will not decrease the guarantee premium.
INCREASES. Additional evidence of insurability satisfactory to FKLA will be
required for an increase in Specified Amount.
DECREASES. Any decrease in Specified Amount will first be applied to the
most recent increases successively, then to the original Specified Amount. A
decrease will not be permitted if the Specified Amount would fall below the
lesser of the initial Specified Amount or $25,000. If a decrease in the
Specified Amount would result in total premiums paid exceeding the premium
limitations prescribed under tax law to qualify the Policy as a life insurance
contract, FKLA will refund the Policy Owner the amount of such excess above the
premium limitations.
FKLA reserves the right to disallow a requested decrease, and will not
permit a requested decrease, among other reasons, (1) if compliance with the
guideline premium limitations under tax law resulting from the requested
decrease would result in immediate termination of the Policy, or (2) if, to
effect the requested decrease, payments to the Owner would have to be made from
Cash Value for compliance with the guideline premium limitations, and the amount
of such payments would exceed the Surrender Value under the Policy.
Any request for an increase or decrease in Specified Amount must be made by
written application to FKLA's Home Office. It will become effective on the
Deduction Day on or next following FKLA's acceptance of the request. If the
Owner is not the Insured, FKLA will also require the consent of the Insured
before accepting a request.
BENEFITS AT MATURITY
If the Insured is living on the Policy Date anniversary nearest the
Insured's Age 100, FKLA will pay the Owner the Surrender Value of the Policy, on
surrender of the Policy to FKLA. On the Maturity Date, the Policy will terminate
and FKLA will have no further obligations under the Policy.
CASH VALUE
The Policy's Cash Value will reflect the investment experience of the
selected Subaccounts, the frequency and amount of premiums paid, transfers
between Subaccounts, any Fixed Account or Loan Account values, and any charges
assessed in connection with the Policy. An Owner may make partial withdrawals of
Cash Value or surrender the Policy and receive the Policy's Surrender Value,
which equals the Cash Value less surrender charges and Debt. (See "Surrender
Privilege.") There is no minimum guaranteed Cash Value.
CALCULATION OF CASH VALUE. The Cash Value of the Policy is the total of the
Policy's Separate Account Value, Fixed Account Value and Loan Account value. The
Cash Value is determined on each Valuation Date. It will first be calculated on
the Policy Date. On that date, the Cash Value equals the initial premium, less
the monthly deductions for the first Policy Month. (See "Charges and
Deductions.")
On any Valuation Date during the Policy Year, the Policy's Separate Account
Value in any Subaccount will equal:
(1) The Policy's Separate Account Value in the Subaccount at the end
of the preceding Valuation Period, multiplied by the Investment Experience
Factor (defined below) for the current Valuation Period; plus
(2) Any net premiums received during the current Valuation Period
which are allocated to the Subaccount; plus
12
<PAGE> 16
(3) All amounts transferred to the Subaccount, either from another
Subaccount or the Fixed Account or from the Loan Account in connection with
the repayment of a Policy loan (see "Policy Benefits and Rights--Policy
Loans,") during the current Valuation Period; minus
(4) The pro rata portion of the monthly cost of insurance charge,
administrative charge, and any other charges assessed to the Subaccount.
(See "Charges and Deductions--Cost of Insurance Charge."); minus
(5) All amounts transferred from the Subaccount during the current
Valuation Period; minus
(6) All amounts withdrawn from the Subaccount during the current
Valuation Period; minus
(7) All amounts loaned from the Subaccount during the current
Valuation Period.
There will also be Cash Value in the Loan Account if there is a Policy loan
outstanding. The Loan Account is credited with amounts transferred from
Subaccounts in connection with Policy loans. The Loan Account balance accrues
daily interest at an effective annual rate of 3.00%. (See "Policy Benefits and
Rights--Policy Loans.")
The Cash Value in the Fixed Account is credited with interest at the annual
rate declared by FKLA. The annual rate will never be less than 3%.
ACCUMULATION UNIT VALUE. Each Subaccount has a distinct Accumulation Unit
Value. When net premiums or other amounts are allocated to a Subaccount, a
number of units are purchased based on the Accumulation Unit Value of the
Subaccount at the end of the Valuation Period during which the allocation is
made. When amounts are transferred out of, or deducted from, a Subaccount, units
are redeemed in a similar manner.
For each Subaccount, the Accumulation Unit Value was initially set at the
same unit value as the net asset value of a share of the underlying Portfolio.
The Accumulation Unit Value for each subsequent Valuation Period is the
Investment Experience Factor for that Valuation Period multiplied by the
Accumulation Unit Value for the immediately preceding period. Each Valuation
Period has a single Accumulation Unit Value which applies for each day in the
period. The number of Accumulation Units will not change as a result of
investment experience. The Investment Experience Factor may be greater or less
than one; therefore, the Accumulation Unit Value may increase or decrease.
INVESTMENT EXPERIENCE FACTOR. The investment experience of the Separate
Account is calculated by applying the Investment Experience Factor to the
Separate Account Value in each Subaccount during a Valuation Period. Each
Subaccount has its own distinct Investment Experience Factor. The Investment
Experience Factor of a Subaccount for any Valuation Period is determined by
dividing (1) by (2) and subtracting (3) from the result, where:
(1) is the net result of:
a. the net asset value per share of the investment held in the
Subaccount determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the investment held in the Subaccount division, if the
"ex-dividend" date occurs during the current Valuation Period; plus or
minus
c. a charge or credit for any taxes reserved for the current valuation
period which we determine to have resulted from the investment
operations of the Subaccount;
(2) is the net asset value per share of the investment held in the
Subaccount, determined at the end of the last prior Valuation Period;
(3) is the factor representing the Mortality and Expense Risk Charge. (See
"Charges and Deductions--Mortality and Expense Risk Charge.")
POLICY LOANS
After the first Policy Year, the Owner may by written request to FKLA
borrow all or part of the maximum loan amount of the Policy. The maximum loan
amount is 95% of the Policy's Cash Value minus applicable surrender charges,
subject to the requirements of the Internal Revenue Code. The amount of any new
loan may not exceed the maximum loan amount less Debt on the date a loan is
granted. The minimum amount of a loan is $500. Any amount due an Owner under a
Policy Loan ordinarily will be paid within 7 days after FKLA receives a loan
request at its Home Office, although payments may be postponed under certain
circumstances. (See "Postponement of Payments," and "Federal Tax Matters.")
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<PAGE> 17
On the date a Policy loan is made, an amount equal to the loan amount will
be transferred from the Separate Account and Fixed Account to the Loan Account.
Unless the Owner directs otherwise, the loaned amount will be deducted from the
Subaccounts and the Fixed Account in proportion to the values that each bears to
the Separate Account Value of the Policy in all of the Subaccounts plus the
Fixed Account Value at the end of the Valuation Period during which the request
is received.
The loan interest will be assessed at an effective annual rate of 5.00% in
the first nine Policy Years and 3.00% thereafter. Interest not paid when due
will be added to the loan amount due upon the earlier of the next Policy Date
Anniversary or when coverage ceases upon lapse, surrender, death or maturity and
bear interest at the same rate. When interest is added to the loan amount, a
transfer in this amount will be made from the Separate Account and the Fixed
Account to the Loan Account.
Cash Value in the Loan Account will earn 3.00% annual interest. Earnings
will be allocated to the Loan Account.
LOAN REPAYMENT. While the Policy is in force, policy loans may be repaid
at any time, in whole or in part. At the time of repayment, Cash Value in the
Loan Account equal to the amount of the repayment which exceeds the difference
between interest due and interest earned will be allocated to the Subaccounts
and the Fixed Account according to the Owner's current allocation instructions,
unless otherwise requested by the Owner. Transfers from the Loan Account to the
Separate Account or the Fixed Account as a result of the repayment of Debt will
be allocated at the end of the Valuation Period during which the repayment is
received. Such transfers will not be counted in determining the transfers made
within a 15 day period.
EFFECTS OF POLICY LOAN. Policy loans decrease Surrender Value and,
therefore, the amount available to pay the charges necessary to keep the Policy
in force. If Surrender Value on the day immediately preceding a Deduction Day is
less than the monthly deductions for the next month, FKLA will notify the Owner.
(See "General Provisions--Written Notices and Requests.") The Policy will lapse
and terminate without value, unless a sufficient payment is made to FKLA within
61 days of the date such notice is sent to the Owner. (See "The Policy--Policy
Lapse and Reinstatement.")
EFFECT ON INVESTMENT EXPERIENCE. A Policy Loan will have an effect on the
Cash Value of a Policy. The collateral for the loan (the amount held in the Loan
Account) does not participate in the experience of the Subaccounts or the
current interest rate of the Fixed 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 or the Fixed Account, the Cash Value will, and the
Death Benefit may, be higher as a result of the loan. Conversely, if the amount
credited to the Loan Account is less than would have been earned in the
Subaccounts or the Fixed Account, the Cash Value, as well as the Death Benefit,
may be less.
TAX TREATMENT. If the Policy is treated as a modified endowment contract, a
loan will be taxed in the same way as a loan from an annuity. Therefore, a loan
may be subject to Federal income tax and a 10% tax penalty may apply. (See
"Federal Tax Matters.")
SURRENDER PRIVILEGE
While the Insured is living and the Policy is in force, the Owner may
surrender the Policy for its Surrender Value. To surrender the Policy, the Owner
must make written request to FKLA at its Home Office and return the Policy to
FKLA. The Surrender Value is equal to the Cash Value less any applicable
Surrender Charge and any Debt. (See "Surrender Charge," below.)
SURRENDER CHARGE. A contingent deferred sales charge ("Surrender Charge")
is imposed to cover expenses relating to the sale of the Policy including
commissions paid to sales personnel, and other promotion and acquisition
expenses. If this Policy is surrendered or if the Cash Value is applied under a
Settlement Option (see "General Provisions--Settlement Options"), the amount
payable may reflect a deduction for applicable Surrender Charges. A Surrender
Charge will not be assessed against Cash Values applied under a settlement
option if the Policy has been in force for five or more years and the settlement
option elected provides for benefit payments of at least five years. The amount
of the Surrender Charge will be calculated as a percentage of the total premiums
paid under the Policy. During the period from the Policy Date to the fifth
Policy Anniversary, the rate is 6%; on the fifth Policy Anniversary, the rate
decreases to 5%, and on each of the next three Policy Anniversaries it will
decrease an additional 1% with a final decrease of 2% on the ninth Policy
Anniversary. During the first nine Policy Years following an increase in
Specified Amount, an additional surrender charge will apply. The additional
charge will be calculated as described above based on the amount of the
increase, the number of years since the date of the increase and premiums
associated with the increase. The Surrender Charge in any Policy Year will never
exceed $60 per $1,000 of initial Death Benefit.
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<PAGE> 18
The applicable Surrender Charge will be determined based upon the date of
receipt of the written request for surrender.
PARTIAL WITHDRAWALS. After the first Policy Year, a Policy Owner may make
withdrawals of amounts less than the Surrender Value. The minimum amount of each
withdrawal is $500. Surrender charges will apply to partial withdrawals, but
only to the extent the withdrawal (plus all previous withdrawals made under the
Policy) exceeds Cash Value less total premiums paid into the Policy. For
purposes of determining the surrender charge assessed against a partial
withdrawal, amounts in excess of the total premiums paid under the Policy will
be considered to have been withdrawn first. A $25 withdrawal charge may be
imposed for processing each withdrawal. (See "Charges and Deductions.") A
withdrawal will decrease the Cash Value by the amount of the withdrawal and, if
Death Benefit Option A is in effect, will reduce the Specified Amount by the
amount of the withdrawal (before the withdrawal charge and any applicable
surrender charge.)
FREE-LOOK PERIOD
The Owner may, until the end of the period of time specified in the Policy,
examine the Policy and return it for a refund. The applicable period of time
will depend on the state in which the Policy is issued; however, it will be at
least 10 days from the date the Policy is received by the Owner. The amount of
the refund will be the sum of the Cash Value in the Money Market Subaccount plus
the total amount of monthly deductions and deductions made against Premiums. An
Owner seeking a refund should return the Policy to FKLA at its Home Office or to
the agent who sold the Policy.
CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUMS
A state and local premium tax charge of 2.5% is deducted from each premium
payment under the Policy prior to allocation of the net premium. This charge is
to reimburse FKLA for the payment of state premium taxes. FKLA expects to pay an
average state premium tax rate of approximately 2.5% but the actual premium tax
attributable to a Policy may be more or less. In addition, a charge for federal
taxes equal to 1% of each premium payment will be deducted to compensate FKLA
for a higher corporate income tax liability resulting from changes made to the
Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1990.
COST OF INSURANCE CHARGE
A monthly deduction is made from the Subaccounts and the Fixed Account for
the cost of insurance to cover FKLA's anticipated mortality costs. The cost of
insurance charge is deducted monthly in advance and is allocated among the
Subaccounts and the Fixed Account in proportion each bears to the Cash Value of
the Policy less Debt.
The cost of insurance will be deducted on the Policy Date and on each
Deduction Day thereafter by the cancellation of units. If the Deduction Day
falls on a day other than a Valuation Date, the charge will be determined on the
next Valuation Date. The cost of insurance charge is determined by multiplying
the applicable cost of insurance rate (see below) by the "net amount at risk"
for each policy month. The net amount at risk is equal to the Death Benefit
minus the Cash Value on the Deduction Day.
COST OF INSURANCE RATE. The monthly cost of insurance rates are based on
the issue age, sex, rate class of the Insured and Policy Year. The monthly cost
of insurance rates will be determined by FKLA based on its expectations as to
future mortality experience. Any change in the schedule of rates will apply to
all individuals of the same class as the Insured. The cost of insurance rate may
never exceed those shown in the table of guaranteed maximum cost of insurance
rates in the Policy. The guaranteed maximum cost of insurance rates are based on
the 1980 Commissioner's Standard Ordinary Smoker and Non-Smoker Mortality
Tables, Age Nearest Birthday, published by the National Association of Insurance
Commissioners.
RATE CLASS. The rate class of an Insured will affect the cost of insurance
rate. FKLA currently places Insureds in preferred rate classes and rate classes
involving a higher mortality risk. The cost of insurance rates for rate classes
involving a higher mortality risk are multiples of the preferred rates. (See
"Charges and Deductions--Cost of Insurance Rate," above.)
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<PAGE> 19
MORTALITY AND EXPENSE RISK CHARGE
A daily charge is deducted from the Subaccounts of the Separate Account for
mortality and expense risks assumed by FKLA. This charge will be at an annual
rate of 0.60%. This charge may be increased in the future but in no event will
it exceed an annual rate of 0.90%.
The mortality and expense risk assumed is that FKLA's estimates of
longevity and of the expenses incurred over the lengthy period the Policy may be
in effect--which estimates are the basis for the level of other charges FKLA
makes under the Policy--will not be correct.
MONTHLY ADMINISTRATIVE CHARGE
FKLA deducts a monthly administrative expense charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to owners. Currently, this charge is $6 per
month.
OTHER CHARGES
SURRENDER CHARGE. During the first nine Policy Years, if the Policy is
surrendered or if the Cash Value is applied under a Settlement Option, a
Surrender Charge is imposed against the total premium paid. In addition, the
Surrender Charge may apply against a partial withdrawal if the withdrawal (plus
all prior partial withdrawals) exceeds Cash Value less total premiums paid. The
charge decreases from 6% to 0%, depending on the Policy Year of the date of
surrender or application under a Settlement Option. During the first nine Policy
Years following an increase in Specified Amount, an additional surrender charge
will apply. The additional charge will be calculated as described above based on
the amount of the increase, the number of years since the date of the increase
and premium associated with the increase. A Surrender Charge will not be
assessed against Cash Values applied under a Settlement Option if the Policy has
been in force for five or more years and the Settlement Option elected provides
for the payment of benefits for at least five years. The Surrender Charges are
intended to compensate FKLA for expenses in connection with the distribution of
the Policy. Surrender Charges are described in more detail under "Policy
Benefits--Surrender Privilege."
WITHDRAWAL CHARGE. A charge of $25 may be imposed for each partial
withdrawal. This charge is designed to reimburse FKLA for the administrative
expenses related to the withdrawal. A Surrender Charge may also apply to a
partial withdrawal. (See "Surrender Charge" above.)
TAXES. Currently, no charges are made against the Separate Account for
Federal, state or other taxes that may be attributable to the Separate Account.
FKLA may, however, in the future impose charges for Federal income taxes
attributable to the Separate Account. Charges for other taxes, if any,
attributable to the Policy may also be made. (See "Federal Tax Matters.")
CHARGES AGAINST THE FUNDS. Under the investment advisory agreements between
the Funds, on behalf of the Portfolios, and the investment managers and/or
advisers for the Portfolios, such entities provide investment advisory services
for the Portfolios. The Funds are responsible for the advisory fees and all
their other expenses. The investment advisory fees differ with respect to each
of the Portfolios of the Funds and are described on pages 6 and 7 of this
Prospectus. FKLA may receive compensation from the investment advisers of the
Funds for services related to the Funds. Such compensation will be consistent
with the services rendered or the cost savings resulting from the arrangement.
For more information concerning the investment advisory fees and other charges
against the Portfolios of the Funds, see the prospectuses for the Funds and the
Statements of Additional Information available upon request.
SYSTEMATIC WITHDRAWAL PLAN. A charge of $50 is imposed to enter into a
Systematic Withdrawal Plan (SWP.) In addition, a $25 charge will be imposed each
time a change is made to the SWP. These charges are to reimburse FKLA for
expenses related to the administration of the SWP. (See "Systematic Withdrawal
Plan.")
REDUCTION OF CHARGES. FKLA may reduce certain charges and the minimum
initial premium in special circumstances that result in lower sales,
administrative, or mortality expenses. For example, special circumstances may
exist in connection with group or sponsored arrangements, sales to FKLA
policyowners, or sales to employees or clients of members of the Zurich Kemper
group of companies. The amounts of any reductions will reflect the reduced sales
effort and administrative costs resulting from, or the different mortality
experience expected as a result of, the special circumstances. Reductions will
not be unfairly discriminatory against any person, including the affected Owners
and owners of all other policies funded by the Separate Account.
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<PAGE> 20
GENERAL PROVISIONS
SETTLEMENT OPTIONS
The Owner, or Beneficiary at the death of the Insured if no election by the
Owner is in effect, may elect to have all of the Death Benefit or Surrender
Value of this Policy paid in a lump sum or have the amount applied to one of the
Settlement Options. Payments under these options will not be affected by the
investment experience of the Separate Account after proceeds are applied under a
Settlement Option. Payment will be made as elected by the payee on a monthly,
quarterly, semi-annual or annual basis. The option selected must result in a
payment that is at least equal to FKLA's required minimum, according to rules in
effect at the time the option is chosen. If at any time the payments are less
than the minimum payment, FKLA may increase the period between payments to
quarterly, semi-annual or annual so that the payment is at least equal to our
minimum payment or make the payment in one lump sum.
The Cash Value on the day immediately preceding the date on which the first
benefit payment is due will first be reduced by any applicable Surrender Charge
and Debt. The Surrender Value will be used to determine the benefit payment. The
payment will be based on the Settlement Option elected in accordance with the
appropriate settlement option table.
OPTION 1--INCOME FOR SPECIFIED PERIOD. FKLA will pay income for the period
and payment mode elected but not less than 5 years nor more than 30 years.
OPTION 2--LIFE INCOME. FKLA will pay a monthly income to the payee during
the payee's lifetime. If this Option is elected, annuity payments terminate
automatically and immediately on the death of the annuitant without regard to
the number or total amount of payments made. Thus, it is possible for an
individual to receive only one payment if death occurred prior to the date the
second payment was due.
OPTION 3--LIFE INCOME WITH INSTALLMENTS GUARANTEED. FKLA will pay a monthly
income for the guaranteed period elected and thereafter for the remaining
lifetime of the payee. The period elected may only be 5, 10, 15 or 20 years.
OPTION 4--JOINT AND SURVIVOR ANNUITY. FKLA will pay the full monthly income
while both payees are living. Upon the death of either payee, the income will
continue during the lifetime of the surviving payee. The surviving payee's
income shall be the percentage of such full amount chosen at the time of
election of this option. The percentages available are 50%, 66 2/3%, 75% and
100%. Annuity payments terminate automatically and immediately upon the death of
the surviving payee without regard to the number or total amount of payments
received.
FKLA's consent is necessary for any other payment methods.
The guaranteed monthly payments are based on an interest rate of 2.50% per
year and, where mortality is involved, the "1983 Table a" individual mortality
table developed by the Society of Actuaries, with a 5 year setback.
POSTPONEMENT OF PAYMENTS
GENERAL. Payment of any amount due upon: (a) Policy termination at the
Maturity Date, (b) surrender of the Policy, (c) payment of any Policy loan, or
(d) death of the Insured, may be postponed whenever:
(1) The New York Stock Exchange is closed other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the Commission;
(2) The Commission by order permits postponement for the protection of
Owners; or
(3) An emergency exists, as determined by the Commission, as a result
of which disposal of securities of the Funds is not reasonably practicable
or it is not reasonably practicable to determine the value of the net
assets of the Separate Account.
Transfers may also be postponed under these circumstances.
PAYMENT NOT HONORED BY BANK. The portion of any payment due under the
Policy which is derived from any amount paid to FKLA by check or draft may be
postponed until such time as FKLA determines that such instrument has been
honored by the bank upon which it was drawn.
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THE CONTRACT
The Policy, any endorsements, and the application constitute the entire
contract between FKLA and the Owner. All statements made by the Insured or
contained in the application will, in the absence of fraud or misrepresentation,
be deemed representations and not warranties.
Only the President, the Secretary, or an Assistant Secretary of FKLA is
authorized to change or waive the terms of a Policy. Any change or waiver must
be in writing and signed by one of those persons.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured is misstated, the Death Benefit will be
changed to what the cost of insurance on the previous Deduction Day would have
purchased based on the correct sex and age.
INCONTESTABILITY
FKLA may contest the validity of a Policy if any material
misrepresentations are made in the application. However, a Policy will be
incontestable after it has been in force during the lifetime of the Insured for
two years from the Issue Date. A new two year contestability period will apply
to increases in insurance, and to reinstatements beginning with the effective
date of the increase or reinstatement.
SUICIDE
Suicide by the Insured, while sane or insane, within two years from the
Issue Date of the Policy is a risk not assumed under the Policy. FKLA's
liability for such suicide is limited to the premiums paid less any withdrawals
and Debt. When the laws of the state in which a Policy is delivered require less
than a two year period, the period or amount paid will be as stated in such
laws.
ASSIGNMENT
No assignment of a Policy is binding on FKLA until it is received by FKLA
at its Home Office. FKLA assumes no responsibility for the validity of the
assignment. Any claim under an assignment is subject to proof of the extent of
the interest of the assignee. If this Policy is assigned, the rights of the
Owner and Beneficiary are subject to the rights of the assignee of record.
NONPARTICIPATING
This Policy will not pay dividends. It will not participate in any of
FKLA's surplus or earnings.
OWNER AND BENEFICIARY
The Owner may, at any time during the life of the Insured and while the
Policy is in force, designate a new Owner.
Primary and secondary Beneficiaries may be designated by the Owner in the
application. If changed, the primary or secondary Beneficiary is as shown in the
latest change filed with FKLA. If no Beneficiary survives the Insured, the
Insured's estate will be the Beneficiary. The interest of any Beneficiary may be
subject to that of an assignee.
Any change of Owner or Beneficiary must be made in writing in a form
acceptable to FKLA. The change will take effect as of the date the request is
signed. FKLA will not be liable for any payment made or other action taken
before the notice has been received at FKLA's Home Office.
RECORDS AND REPORTS
FKLA will maintain all records relating to the Separate Account. FKLA will
send Owners, at their last known address of record, an annual report stating the
Death Benefit, the Accumulation Unit Value, the Cash Value and Surrender Value
under the Policy, and indicating any additional premium payments, partial
withdrawals, transfers, Policy loans and repayments and charges made during the
Policy Year. In addition, Owners will be sent confirmations and acknowledgments
of various transactions. Owners will also be sent annual and semi-annual reports
for the Fund to the extent required by the 1940 Act.
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<PAGE> 22
WRITTEN NOTICES AND REQUESTS
Any written notice or request to be sent to FKLA should be sent to its Home
Office, 1 Kemper Drive, Long Grove, Illinois 60049. The notice or request should
include the Policy number and the Insured's full name. Any notice sent by FKLA
to an Owner will be sent to the address shown in the application unless an
address change has been filed with FKLA.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, a Policy Owner may elect to add one or
more of the following optional insurance benefits to the Policy by a Rider at
the time of application for a Policy. These optional benefits are: waiver of all
monthly deductions against the Policy in the event of total disability of the
Insured; term insurance on the Insured's dependent children; acceleration of the
payment of a portion of the death benefit when the Insured is terminally ill;
term insurance on an additional insured specified by the Owner; and extension of
the Maturity Date under the Policy. If the Maturity Date is extended, the death
benefit after the Maturity Date will be equal to the Cash Value multiplied by
the death benefit factor in Appendix B to this Prospectus. The cost of any
additional insurance benefits will be deducted as part of the monthly
deductions. Certain restrictions may apply. Restrictions and provisions related
to these benefits are more fully described in the applicable rider. Samples of
the provisions are available from FKLA upon written request.
DOLLAR COST AVERAGING
A Policy Owner may predesignate a portion of the Cash Value under a Policy
attributable to the Money Market or Government Securities Subaccount to be
automatically transferred on a monthly basis to one or more of the other
Subaccounts and the Fixed Account. A Policy Owner may enroll in this program at
the time the Policy is issued or anytime thereafter by properly completing the
Dollar Cost Averaging enrollment form and returning it to FKLA at its home
office at least five (5) business days prior to the effective date that all
Dollar Cost Averaging transfers will be made ("Transfer Date").
Transfers will commence on the first Transfer Date following the Trade
Date. Transfers will be made in the amounts designated by the Policy Owner and
must be at least $500 per Subaccount. The total Cash Value in the Money Market
or Government Securities Subaccount at the time Dollar Cost Averaging is elected
must be at least equal to the greater of $10,000 or the amount designated to be
transferred on each Transfer Date multiplied by the duration selected. Dollar
Cost Averaging will cease automatically if the Cash Value does not equal or
exceed the amount designated to be transferred on each Transfer Date and the
remaining amount will be transferred.
Dollar Cost Averaging will terminate when (i) the number of designated
monthly transfers has been completed, (ii) the Cash Value attributable to the
Money Market or Government Securities Subaccount is insufficient to complete the
next transfer, (iii) the Policy Owner requests termination in writing and such
writing is received by FKLA at its home office at least five business days prior
to the next Transfer Date in order to cancel the transfer scheduled to take
effect on such date, or (iv) the Policy is surrendered. FKLA reserves the right
to amend Dollar Cost Averaging on thirty days notice or terminate it at any
time.
A Policy Owner may initiate, reinstate or change Dollar Cost Averaging or
change existing Dollar Cost Averaging terms by properly completing the new
enrollment form and returning it to FKLA at its home office at least five (5)
business days, (ten (10) business days for Fixed Account transfers), prior to
the next Transfer Date such transfer is to be made.
SYSTEMATIC WITHDRAWAL PLAN
FKLA administers a Systematic Withdrawal Plan ("SWP") which allows certain
Policy Owners to preauthorize periodic withdrawals. Policy Owners entering into
a SWP agreement instruct FKLA to withdraw selected amounts from the Fixed
Account, or from a maximum of two Subaccounts on a monthly, quarterly,
semi-annual or annual basis. Currently the SWP is available to Policy Owners who
request a minimum $500 periodic payment. The amounts distributed under the SWP
are partial withdrawals and will be subject to surrender charges, if applicable.
(See "Policy Benefits and Rights--Surrender Privileges.") A charge of $50 will
be imposed at the time a SWP is established. In addition, a $25 charge will be
imposed each time a change is made to the SWP. These charges are designed to
reimburse FKLA for expenses related to the administration of the SWP.
Withdrawals taken under the SWP may be subject to income taxes, withholding and
tax penalties. See "Federal Tax Matters." Policy Owners interested in the SWP
may obtain an application and full information concerning
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<PAGE> 23
this program and its restrictions from their representative or FKLA's home
office. The right is reserved to amend the SWP on thirty days' notice. The SWP
may be terminated at any time by the Contract Owner or FKLA.
DISTRIBUTION OF POLICIES
The Policy is sold by licensed insurance representatives who represent FKLA
and who are registered representatives of broker-dealers which are registered
under the Securities Exchange Act of 1934 and are members of the National
Association of Securities Dealers, Inc. The Policy is distributed through the
principal underwriter, Investors Brokerage Services, Inc. ("IBS"), an affiliate
of FKLA.
Gross commissions paid by FKLA on the sale of the Policy plus fees for
marketing services provided by affiliates of FKLA are not more than 10% in the
first year and on increases in subsequent years and 6% in renewal years. A
service fee at an annual rate of 0.10% on assets which have been maintained and
serviced may also be paid. Firms to which service fees and commissions may be
paid include affiliated broker-dealers.
IBS is engaged in the sale and distribution of other variable life policies
and annuities.
FEDERAL TAX MATTERS
The ultimate effect of Federal income taxes on the Policy, on Settlement
Options and on the economic benefit to the Owner, Beneficiary or payee depends
on FKLA's tax status, and upon the tax status of the individual concerned.
FKLA'S TAX STATUS
Under current interpretations of Federal income tax law, FKLA is taxed as a
life insurance company and the operations of the Separate Account are treated as
part of the total operations of FKLA. The operations of the Separate Account do
not materially affect FKLA's Federal income tax liability because FKLA is
allowed a deduction to the extent that net investment income of the Separate
Account is applied to increase Owners' equity. FKLA may incur state and local
taxes attributable to the Separate Account. At present, these taxes are not
significant. Accordingly, FKLA does not charge or credit the Separate Account
for Federal, state or local taxes. Thus, the Separate Account may realize net
investment income, such as interest, dividends or capital gains, and reinvest
such income all without tax consequences to the Separate Account.
If there is a material change in applicable Federal, state or local law,
however, charges or credits may be made to the Separate Account for Federal,
state or local taxes, or reserves for such taxes, if any, attributable to the
Separate Account. Such charges or credits will be determined independent of the
taxes actually paid by FKLA.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code ("Code") provides that if certain
tests are met, a Policy will be treated as a life insurance policy for federal
tax purposes. FKLA will monitor compliance with these tests. The Policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the death benefit payable under a Policy is excludable
from gross income of the beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those
policies issued or materially changed on or after June 21, 1988 on which the
total premiums paid during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits after seven level
annual premiums. The Code provides for taxation of surrenders, partial
surrenders, loans, collateral assignments and other pre-death distributions from
modified endowment contracts in the same way annuities are taxed. Modified
endowment contract distributions are defined by the Code as amounts not received
as an annuity and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into the policy. A 10%
tax penalty also applies to the taxable portion of such distributions unless the
Policy Owner is over age 59 1/2 or disabled, or if other exceptions apply.
It may not be advantageous to replace existing insurance with Policies
described in this Prospectus. It may also be disadvantageous to purchase a
policy to obtain additional insurance protection if the purchaser already owns
another variable life insurance policy.
The Policies offered by this Prospectus may or may not be issued as
modified endowment contracts. FKLA will monitor premiums paid and will notify
the Policy Owner when the Policy's non-modified endowment status is in jeopardy.
If a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a
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<PAGE> 24
policy is issued which causes a reduction in death benefits may still become
fully or partially taxable to the Owner pursuant to Section 7702(f)(7) of the
Code. The Policy Owner should carefully consider this potential effect and seek
further information before initiating any changes in the terms of the Policy.
Under certain conditions, a Policy may become a modified endowment as a result
of a material change or a reduction in benefits as defined by Section 7702A(c)
of the Code.
In addition to meeting the tests required under Section 7702 and Section
7702A, Section 817(h) of the Code requires that the investments of separate
accounts such as the FKLA Variable Separate Account be adequately diversified.
Regulations issued by the Secretary of the Treasury, set the standards for
measuring the adequacy of this diversification. A variable life policy that is
not adequately diversified under these regulations would not be treated as life
insurance under Section 7702 of the Code. To be adequately diversified, each
Subaccount of the Separate Account must meet certain tests. FKLA believes that
the investments of the Separate Account meet the applicable diversification
standards.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfers between funds, exchanges of funds or
changes in investment objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code, FKLA will take
whatever steps are available to remain in compliance.
FKLA will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse may have adverse
tax consequences depending on the circumstances.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
OTHER CONSIDERATIONS
Because of the complexity of the law in its application to a specific
individual, tax advice may be needed by a person contemplating purchase of a
Policy or the exercise of elections under a Policy. The above comments
concerning the Federal income tax consequences are not exhaustive and are not
intended as tax advice. Counsel and other competent advisers should be consulted
for more complete information. This discussion is based on FKLA's understanding
of Federal income tax laws as they are currently interpreted by the Internal
Revenue Service. No representation is made as to the likelihood of continuation
of these current laws and interpretations. FKLA also believes the Policy meets
other requirements concerning Owner control over investments. However, the
Secretary of the Treasury has not issued regulations on this subject. Such
regulations, if adopted, could include requirements not included in the Policy.
Because the guidance has not been published, there can be no assurance as to
content or even whether application will be prospective only. If possible, FKLA
will make modifications to the Policy to comply with such regulations.
LEGAL CONSIDERATIONS
On July 6, 1983, the Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
The Policy described in this Prospectus contains cost of insurance rates that
distinguish between men and women. Accordingly, employers and employee
organizations should consider, in consultation with legal counsel, the impact of
federal, state and local laws, including Title VII of the Civil Rights Act, the
Equal Pay Act, and NORRIS and subsequent cases on any employment-related
insurance or fringe benefit program before purchasing this Policy.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
FKLA holds the assets of the Separate Account. The assets are kept
segregated and held separate and apart from the general funds of FKLA. FKLA
maintains records of all purchases and redemptions of the shares of each
portfolio of the Fund by each of the Subaccounts.
VOTING INTERESTS
To the extent required by law, FKLA will vote a Fund's shares held in the
Separate Account at regular and special shareholder meetings of the Fund in
accordance with instructions received from persons having voting interests in
the corresponding Subaccounts of the Separate Account. If, however, the 1940 Act
or any regulation
21
<PAGE> 25
thereunder should be amended or if the present interpretation thereof should
change, and as a result FKLA determines that it is permitted to vote a Fund's
shares in its own right, it may elect to do so.
Owners of all Policies participating in each Subaccount shall have voting
interests with respect to that Subaccount, based upon each Owner's proportionate
interest in that Subaccount as measured by units.
Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio of
a Fund.
FKLA will vote shares of a Fund for which it has not received timely
instructions in proportion to the voting instructions that FKLA has received
with respect to all variable policies participating in a Portfolio. FKLA will
also vote any Fund shares attributed to amounts it has accumulated in the
Subaccounts in the same proportions that Owners vote.
FKLA may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the subclassification or investment objective
of a Fund or of one or more of its Portfolios or to approve or disapprove an
investment advisory contract for a Portfolio of a Fund. In addition, FKLA itself
may disregard voting instructions in favor of changes initiated by an Owner in
the investment policy or the investment adviser of a Portfolio of a Fund if FKLA
reasonably disapproves of such changes. A proposed change would be disapproved
only if the change is contrary to state law or prohibited by state regulatory
authorities, or if FKLA determines that the change would have an adverse effect
on its General Account in that the proposed investment policy for a Portfolio
may result in overly speculative or unsound investments. In the event FKLA does
disregard voting instructions, a summary of that action and the reasons for such
action will be included in the next annual report to Owners.
STATE REGULATION OF FKLA
FKLA, a stock life insurance company organized under the laws of Illinois,
is subject to regulation by the Illinois Department of Insurance. An annual
statement is filed with the Director of Insurance on or before March 1st of each
year covering the operations and reporting on the financial condition of FKLA as
of December 31st of the preceding year. Periodically, the Director of Insurance
examines the liabilities and reserves of FKLA and the Separate Account and
certifies to their adequacy, and a full examination of FKLA's operations is
conducted by the National Association of Insurance Commissioners at least once
every three years.
In addition, FKLA is subject to the insurance laws and regulations of other
states within which it is licensed to operate. Generally, the insurance
department of any other state applies the laws of the state of domicile in
determining permissible investments.
22
<PAGE> 26
DIRECTORS AND OFFICERS OF FKLA
The directors and principal officers of FKLA are listed below together with
their current positions and their other business experience during the past five
years. The address of each officer and director is 1 Kemper Drive, Long Grove,
Illinois 60049.
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH FKLA
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
------------------ -----------------------------------------------------
<S> <C>
John B. Scott (52) Chief Executive Officer, President and Director of Fidelity
Chief Executive Officer since Life Association (FLA) since 1988. Chief Executive Officer
April 1988. President since May and President of Kemper Investors Life Insurance Company
1987. Director since 1988. (KILICO) since February 1992 and November 1993,
respectively. Director of KILICO since 1992. Chief Executive
Officer, President and Director of Zurich Life Insurance
Company of America (ZLICA) and Zurich Direct, Inc. (ZD)
since March 1996. Chairman of the Board and Director of
Investors Brokerage Services, Inc. (IBS) and Investors
Brokerage Services Insurance Agency, Inc. (IBSIA) since
1993. Chairman of the Board of FKLA and FLA from April 1988
to January 1996. Chairman of the Board of KILICO from
February 1992 to January 1996. Executive Vice President and
Director of Kemper Corporation (K-Corp.) from January 1994
and March 1996, respectively. Executive Vice President of
Kemper Financial Companies, Inc. from January 1994 to
January 1996 and Director from 1992 to January 1996.
Eliane C. Frye (49) Executive Vice President of KILICO and FLA since 1995.
Executive Vice President since Executive Vice President of ZLICA and ZD since March 1996.
1995. Director of IBS and IBSIA since 1995. Senior Vice President
of KILICO, FKLA and FLA from 1993 to 1995. Vice President of
FKLA and FLA from 1988 to 1993.
Frederick L. Blackmon (45) Senior Vice President and Chief Financial Officer of KILICO
Senior Vice President and Chief since December 1995. Senior Vice President and Chief
Financial Officer since December Financial Officer of FLA since January 1996. Senior Vice
1995. President and Chief Financial Officer of ZLICA since March
1996. Senior Vice President, Chief Financial Officer and
Director of ZD since March 1996. Treasurer and Chief
Financial Officer of K-Corp. since January 1996. Chief
Financial Officer of Alexander Hamilton Life Insurance
Company from April 1989 to November 1995.
James C. Harkensee (38) Senior Vice President of KILICO and FLA since January 1996.
Senior Vice President since Senior Vice President of ZLICA since 1995. Senior Vice
January 1996. President of ZD since 1995. Vice President of ZLICA from
1992 to 1995. Chief Actuary of ZLICA from 1991 to 1994.
Assistant Vice President of ZLICA from 1990 to 1992. Vice
President of ZD from 1994 to 1995.
James E. Hohmann (41) Senior Vice President and Chief Actuary of KILICO since
Senior Vice President and Chief December 1995. Senior Vice President and Chief Actuary of
Actuary since December 1995. FLA since January 1996. Senior Vice President and Chief
Actuary of ZLICA since March 1996. Senior Vice President,
Chief Actuary and Director of ZD since March 1996. Managing
Principal (Partner) of Tillinghast-Towers Perrin from
January 1991 to December 1995. Consultant/Principal
(Partner) of Tillinghast-Towers Perrin from November 1986 to
January 1991.
Edward K. Loughridge (42) Senior Vice President and Corporate Development Officer of
Senior Vice President and KILICO and FLA since January 1996. Senior Vice President and
Corporate Development Officer Corporate Development Officer for ZLICA and ZD since March
since January 1996. 1996. Senior Vice President of Human Resources of
Zurich-American Insurance Group from February 1992 to March
1996.
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH FKLA
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
------------------ -----------------------------------------------------
<S> <C>
Debra P. Rezabek (41) Senior Vice President of KILICO and FLA since March 1996.
Senior Vice President since 1996. Corporate Secretary of KILICO and FLA since January 1996.
General Counsel since 1992. Vice President of KILICO, FKLA and FLA since 1995. General
Corporate Secretary since January Counsel of KILICO since 1992. General Counsel and Director
1996. 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, Corporate Secretary and
Director of ZD since March 1996. Secretary of IBS and IBSIA
since 1993. Director of IBS and IBSIA from 1993 to 1996.
Assistant General Counsel of FKLA and FLA from 1988 to 1992.
General Counsel and Assistant Secretary of KILICO, FKLA and
FLA from 1992 to 1996. Assistant Secretary of K-Corp. since
January 1996.
George Vlaisavljevich (54) Senior Vice President of KILICO, FLA and ZLICA since October
Senior Vice President since 1996. Director of IBS and IBSIA since October 1996.
October 1996. Executive Vice President of The Copeland Companies from
April 1983 to September 1996.
Loren J. Alter (58) Director of KILICO, FLA and Zurich Kemper Investments, Inc.
Director since January 1996. (ZKI) since January 1996. Director of ZLICA since May 1979.
Executive Vice President of Zurich Insurance Company since
1979. President, Chief Executive Officer and Director of
K-Corp. since January 1996.
William H. Bolinder (53) Chairman of the Board and Director of KILICO and FLA since
Chairman of the Board and Director January 1996. Chairman of the Board of ZLICA and ZD since
since January 1996. March 1995. Chairman of the Board of K-Corp. since January
1996. Vice Chairman and Director of ZKI since January 1996.
Member of the Corporate Executive Board of Zurich Insurance
Group since October 1994. Chairman of the Board of American
Guarantee and Liability Insurance Company, Zurich American
Insurance Company of Illinois, American Zurich Insurance
Company and Steadfast Insurance Company since 1995. Chief
Executive Officer of American Guarantee and Liability
Insurance Company, Zurich American Insurance Company of
Illinois, American Zurich Insurance Company and Steadfast
Insurance Company from 1986 to June 1995. President of
Zurich Holding Company of America since 1986. Manager of
Zurich Insurance Company, U.S. Branch since 1986.
Underwriter for Zurich American Lloyds since 1986.
Daniel L. Doctoroff (38) Director of KILICO, FLA and K-Corp. since January 1996.
Director since January 1996. Director of ZLICA since March 1996. Managing Partner of
Insurance Partners Advisors, L.P. since February 1994. Vice
President of Keystone, Inc. since October 1992. Managing
Director of Rosecliff Inc./Oak Hill Partners, Inc. since
August 1987. Director of Bell & Howell Company since 1989;
Specialty Foods Corporation since 1993; and Capstar Hotel
Company since 1995.
Steven M. Gluckstern (46) Director of KILICO, FLA and K-Corp. since January 1996.
Vice Chairman and Director since Director of ZLICA since March 1996. Vice Chairman of FKLA
January 1996. and FLA since January 1996. Member of the Corporate
Executive Board of Zurich Insurance Group since March 1997.
Chairman of the Board and Director of ZKI since January
1996. Chairman of the Board and Chief Executive Officer of
Zurich Reinsurance Centre, Inc. since May 1993. President of
Centre Re, Bermuda from December 1986 to May 1993.
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
NAME AND AGE
POSITION WITH FKLA
YEAR OF ELECTION OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS OR MORE
------------------ -----------------------------------------------------
<S> <C>
Markus Rohrbasser (42) Director of KILICO, FLA and ZLICA since May 1997. Chief
Director since May 1997. Financial Officer and Member of the Corporate Executive
Board of Zurich Insurance Company since January 1997. Member
of Enlarged Corporate Executive Board and Chief Executive
Officer of Union Bank of Switzerland (North America) from
1992 to 1997.
Michael P. Stramaglia (37) Director of KILICO and FLA since January 1996. Director of
Director since January 1996. ZLICA since March 1996. President of Zurich Life Insurance
Company of Canada (ZLICC) since June 1994. Chief Operating
Officer of ZLICC since March 1997. President of KEZMO,
L.L.C. and President of KEZLI, L.L.C. since 1995. Chief
Executive Officer of ZLICC from June 1994 to March 1997.
Executive Vice President and Chief Operating Officer of
ZLICC from June 1993 to June 1994. Senior Vice President of
the Corporate Division of ZLICC from January 1990 to June
1993. Director of ZLICC, Zurich Life of Canada Holdings
Limited, Zurich Indemnity Company of Canada, Zurich Canadian
Holdings Limited, and Zurmex Canada Holdings Limited.
Paul H. Warren (41) Director of FKLA , FLA and K-Corp. since January 1996.
Director since January 1996. Director of ZLICA since March 1996. Partner of Insurance
Partners Advisors, L.P. since March 1994. Managing Director
of International Insurance Advisors since March 1992. Vice
President of J.P. Morgan from June 1986 to March 1992.
Director of Unionamerica Holdings plc since June 1993;
Unionamerica Insurance Company since September 1993; Tarquin
plc since November 1994; Charman Underwriting Agencies Ltd.
since November 1994; and Corporate Health Dimensions since
March 1997.
</TABLE>
25
<PAGE> 29
LEGAL MATTERS
All matters of Illinois law pertaining to the Policy, including the
validity of the Policy and FKLA's right to issue the Policy under Illinois
Insurance Law, have been passed upon by Frank J. Julian, Associate General
Counsel of FKLA. Katten Muchin & Zavis, Washington, D.C., has advised FKLA on
certain legal matters concerning Federal securities laws applicable to the issue
and sale of Policies.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. FKLA is not a party in
any litigation that is of material importance in relation to its total assets or
that relates to the Separate Account.
EXPERTS
The balance sheets of FKLA as of December 31, 1996 and January 4, 1996 and
the related statements of operations, stockholder's equity, and cash flows for
the periods from January 4, 1996 to December 31, 1996 and for each of the years
in the two year period ended December 31, 1995 have been included herein and in
the registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering FKLA's financial statements contains an
explanatory paragraph that states as a result of the acquisition of its parent,
Kemper Corporation, the financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and therefore, is not comparable.
Actuarial matters included in this Prospectus have been examined by
Christopher J. Nickele, FSA as stated in the opinion filed as an exhibit to the
Registration Statement.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies. For further information concerning the Separate Account, FKLA and the
Policy, reference is made to the Registration Statement as amended with
exhibits. Copies of the Registration Statement are available from the Commission
upon payment of a fee.
FINANCIAL STATEMENTS
The financial statements of FKLA that are included should be considered
only as bearing upon FKLA's ability to meet its contractual obligations under
the Policy. FKLA's financial statements do not bear on the investment experience
of the assets held in the Separate Account. No financial statements are included
for the Separate Account. As of the end of December 31, 1996, the most recently
completed fiscal year of the Separate Account, it had not yet commenced
operations, had no assets or liabilities and received no income nor incurred any
expense.
26
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder
Federal Kemper Life Assurance Company:
We have audited the accompanying balance sheets of Federal Kemper Life
Assurance Company as of December 31, 1996 and as of January 4, 1996, and the
related statements of operations, stockholder's equity, and cash flows for the
periods from January 4, 1996 to December 31, 1996 (post-acquisition), and for
each of the years in the two-year period ended December 31, 1995
(pre-acquisition). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned post-acquisition financial statements
present fairly, in all material respects, the financial position of Federal
Kemper Life Assurance Company as of December 31, 1996 and as of January 4, 1996,
and the results of its operations and its cash flows for the post-acquisition
period, in conformity with generally accepted accounting principles. Further, in
our opinion, the aforementioned pre-acquisition financial statements present
fairly, in all material respects, the financial position of Federal Kemper Life
Assurance Company and the results of its operations and its cash flows for the
pre-acquisition periods, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, effective January 4,
1996, an investor group as described in Note 1, acquired all of the outstanding
stock of Federal Kemper Life Assurance Company in a business combination
accounted for as a purchase. As a result of the acquisition, the financial
information for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997
27
<PAGE> 31
FEDERAL KEMPER LIFE ASSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
1996 1996
----------- ----------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value
(amortized cost: December 31, 1996, $1,977,813; January 4,
1996, $1,902,934)......................................... $1,945,466 $1,902,934
Short-term investments...................................... 20,133 49,724
Joint venture mortgage loans................................ 109,130 114,002
Third-party mortgage loans.................................. 26,420 46,308
Other real estate-related investments....................... 16,256 13,785
Policy loans................................................ 109,772 109,345
Other invested assets....................................... 13,310 19,978
---------- ----------
Total investments................................. 2,240,487 2,256,076
Cash........................................................ 20,586 66,680
Accrued investment income................................... 28,762 28,363
Goodwill.................................................... 304,889 317,593
Value of business acquired.................................. 473,863 495,595
Deferred insurance acquisition costs........................ 53,602 --
Federal income tax receivable............................... 1,777 18,646
Reinsurance recoverable..................................... 123,533 113,577
Other assets and receivables................................ 30,296 51,866
---------- ----------
Total assets...................................... $3,277,795 $3,348,396
========== ==========
LIABILITIES
Future policy benefits...................................... $2,090,050 $2,177,265
Ceded future policy benefits................................ 123,533 113,577
Benefits and claims payable to policyholders................ 163,350 140,423
Other accounts payable and liabilities...................... 102,152 49,074
Deferred income taxes....................................... 75,359 84,929
---------- ----------
Total liabilities................................. 2,554,444 2,565,268
---------- ----------
Commitments and contingent liabilities
STOCKHOLDER'S EQUITY
Capital stock--$20 par value,
authorized 500,000 shares; outstanding 136,351 shares..... 2,727 2,727
Additional paid-in capital.................................. 780,401 780,401
Unrealized loss on investments.............................. (23,376) --
Retained deficit............................................ (36,401) --
---------- ----------
Total stockholder's equity........................ 723,351 783,128
---------- ----------
Total liabilities and stockholder's equity........ $3,277,795 $3,348,396
========== ==========
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 32
FEDERAL KEMPER LIFE ASSURANCE COMPANY
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
PREACQUISITION
----------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
REVENUE
Net investment income....................................... $146,855 $ 165,328 $166,055
Premium income.............................................. 155,646 154,606 151,829
Realized investment gains (losses).......................... 3,509 (95,420) (20,855)
Fees and other income....................................... 58,094 58,623 60,077
-------- --------- --------
Total revenue..................................... 364,104 283,137 357,106
-------- --------- --------
BENEFITS AND EXPENSES
Benefits and interest credited to policyholders............. 230,294 236,820 226,120
Commissions, taxes, licenses and fees....................... 41,712 46,699 43,373
Operating expenses.......................................... 40,467 34,600 29,154
Deferral of insurance acquisition costs..................... (58,481) (81,202) (82,016)
Amortization of insurance acquisition costs................. 5,295 44,001 38,360
Amortization of value of business acquired.................. 34,077 -- --
Amortization of goodwill.................................... 12,704 -- --
-------- --------- --------
Total benefits and expenses....................... 306,068 280,918 254,991
-------- --------- --------
Income before income tax expense............................ 58,036 2,219 102,115
Income tax expense.......................................... 25,502 451 38,294
-------- --------- --------
Net income........................................ $ 32,534 $ 1,768 $ 63,821
======== ========= ========
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 33
FEDERAL KEMPER LIFE ASSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
PREACQUISITION
-------------------------
DECEMBER 31 JANUARY 4 DECEMBER 31 DECEMBER 31
1996 1996 1995 1994
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
CAPITAL STOCK, beginning and end of period.... $ 2,727 $ 2,727 $ 2,727 $ 2,727
--------- --------- --------- ---------
ADDITIONAL PAID-IN CAPITAL, beginning of
period...................................... 780,401 113,478 113,478 113,478
Adjustment to reflect purchase accounting
method...................................... -- 666,923 -- --
--------- --------- --------- ---------
End of period....................... 780,401 780,401 113,478 113,478
--------- --------- --------- ---------
UNREALIZED GAIN (LOSS) ON INVESTMENTS,
beginning of period......................... -- 48,004 (85,556) 59,639
Unrealized gain (loss) on revaluation of
investments, net............................ (23,376) -- 133,560 (145,195)
Adjustment to reflect purchase accounting
method...................................... -- (48,004) -- --
--------- --------- --------- ---------
End of period....................... (23,376) -- 48,004 (85,556)
--------- --------- --------- ---------
RETAINED EARNINGS (DEFICIT), beginning of
period...................................... -- 262,284 273,516 305,195
Net income.................................... 32,534 -- 1,768 63,821
Dividends to parent........................... (68,935) -- (13,000) (95,500)
Adjustment to reflect purchase accounting
method...................................... -- (262,284) -- --
--------- --------- --------- ---------
End of period....................... (36,401) -- 262,284 273,516
--------- --------- --------- ---------
Total stockholder's equity.......... $ 723,351 $ 783,128 $ 426,493 $ 304,165
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 34
FEDERAL KEMPER LIFE ASSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
PREACQUISITION
-----------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 32,534 $ 1,768 $ 63,821
Reconcilement of net income to net cash provided:
Realized investment losses (gains).................. (3,509) 95,420 20,855
Interest credited and other charges................. 30,450 37,105 52,883
Deferred insurance acquisition costs................ (53,186) (37,201) (43,656)
Amortization of value of business acquired.......... 34,077 -- --
Amortization of goodwill............................ 12,704 -- --
Amortization of discount and premium on
investments....................................... 11,658 (2,084) (3,300)
Deferred income taxes............................... (14,036) 6,027 4,032
Net change in Federal income tax receivable......... 16,869 (8,850) (9,796)
Other, net.......................................... 54,979 47,167 76,589
--------- --------- ---------
Net cash provided from operating activities.... 122,540 139,352 161,428
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Fixed maturities held to maturity................... 144,467 118,644 107,473
Fixed maturities sold prior to maturity............. 331,545 176,430 813,192
Mortgage loans, policy loans and other invested
assets............................................ 113,758 121,331 214,202
Cost of investments purchased or loans originated:
Fixed maturities.................................... (562,792) (289,534) (964,806)
Mortgage loans, policy loans and other invested
assets............................................ (78,730) (73,236) (129,178)
Short-term investments, net............................ 29,591 34,839 55,822
Net change in receivable and payable for securities
transactions........................................ 11,017 (10,108) (14,382)
Net reductions in other assets......................... (3,066) (479) 222
--------- --------- ---------
Net cash provided by (used in) investing
activities................................... (14,210) 77,887 82,545
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits............................................ 137,729 163,016 165,073
Withdrawals......................................... (255,395) (283,586) (342,846)
Dividends to parent.................................... (68,935) (13,000) (95,500)
Other.................................................. 32,177 (18,442) 10,409
--------- --------- ---------
Net cash used in financing activities.......... (154,424) (152,012) (262,864)
--------- --------- ---------
Net increase (decrease) in cash........... (46,094) 65,227 (18,891)
CASH, beginning of period................................ 66,680 1,453 20,344
--------- --------- ---------
CASH, end of period...................................... $ 20,586 $ 66,680 $ 1,453
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 35
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Federal Kemper Life Assurance Company (the "Company") issues fixed annuity
products and term life and interest-sensitive life insurance products marketed
primarily through a network of brokerage general agents and other independent
distributors. The Company is licensed in the District of Columbia and all states
except New York. The Company is a wholly-owned subsidiary of Kemper Corporation
("Kemper"). On January 4, 1996, an investor group comprised of Zurich Insurance
Company ("Zurich"), Insurance Partners, L.P. ("IP") and Insurance Partners
Offshore (Bermuda), L.P. (together with IP, "Insurance Partners") acquired all
of the issued and outstanding common stock of Kemper. As a result of the change
in control, Zurich and Insurance Partners own 80 percent and 20 percent,
respectively, of Kemper and therefore the Company.
PURCHASE ACCOUNTING METHOD
The acquisition of the Company on January 4, 1996, was accounted for using
the purchase method of accounting. The financial statements of the Company prior
to January 4, 1996, were prepared on a historical cost basis in accordance with
generally accepted accounting principles. The accompanying financial statements
and notes thereto prepared prior to January 4, 1996 have been labeled
"preacquisition". The accompanying financial statements of the Company as of
January 4, 1996 (the acquisition date) and as of and for the year ended December
31, 1996, have been prepared in conformity with the purchase method of
accounting. The Company has presented January 4, 1996 (the acquisition date), as
the opening purchase accounting balance sheet for comparative purposes
throughout the accompanying financial statements and notes thereto.
Under purchase accounting, the Company's assets and liabilities have been
marked to their relative fair market values as of the acquisition date. The
difference between the cost of acquiring the Company and the net fair market
values of the Company's assets and liabilities as of the acquisition date has
been recorded as goodwill. The Company is amortizing goodwill on a straight-line
basis over twenty-five years. The allocated cost of acquiring the Company was
$783.1 million and the acquisition resulted in goodwill of $317.6 million as of
January 4, 1996.
The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding goodwill
as of each reporting period. In the event that the Company determines that
goodwill is not recoverable, it would amortize such amounts as additional
goodwill expense in the accompanying financial statements. As of December 31,
1996, the Company believes that no such adjustment is necessary.
Purchase accounting adjustments primarily affected the recorded historical
values of fixed maturities, mortgage loans, other invested assets, deferred
insurance acquisition costs, future policy benefits and deferred income taxes.
Deferred insurance acquisition costs, and the related amortization thereof,
for policies sold prior to January 4, 1996, have been replaced by the value of
business acquired.
The value of business acquired reflects the estimated fair value of the
Company's life insurance business in force and represents the portion of the
cost to acquire the Company that is allocated to the value of the right to
receive future cash flows from insurance contracts existing at the date of
acquisition. Such value is the present value of the actuarially determined
projected cash flows for the acquired policies.
A 15 percent discount rate was used to determine such value and represents
the rate of return required by Zurich and Insurance Partners to invest in the
business being acquired. In selecting the rate of return used to value the
policies purchased, the Company considered the magnitude of the risks associated
with each of the actuarial assumptions used in determining expected future cash
flows, the cost of capital available to fund the acquisition, the perceived
likelihood of changes in insurance regulations and tax laws, the complexity of
the Company's business, and the prices paid (i.e., discount rates used in
determining other life insurance company valuations) on similar blocks of
business sold in recent periods.
The value of the business acquired related to annuities and
interest-sensitive life products is amortized over the estimated contract life
of such 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 value of
business acquired related to term-life insurance products is amortized over the
premium
32
<PAGE> 36
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
paying period of the policies. The estimated amortization and accretion of
interest for the value of business acquired for each of the years through
December 31, 2001 are as follows:
<TABLE>
<CAPTION>
PROJECTED
(IN THOUSANDS) BEGINNING ACCRETION OF ENDING
YEAR ENDED DECEMBER 31 BALANCE AMORTIZATION INTEREST BALANCE
- ----------------------------------------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
1996........................................... $495,595 $(61,623) $27,546 $461,518
1997........................................... 461,518 (64,131) 25,353 422,740
1998........................................... 422,740 (57,945) 23,243 388,038
1999........................................... 388,038 (52,386) 21,362 357,014
2000........................................... 357,014 (47,289) 19,681 329,406
2001........................................... 329,406 (43,998) 18,138 303,546
</TABLE>
The projected ending balance of the value of business acquired will be
further adjusted to reflect the impact of unrealized gains or losses on fixed
maturities held as available for sale in the investment portfolio. Such
adjustments are not recorded in the Company's net income but rather are recorded
as a credit or charge to stockholder's equity, net of income tax. As of December
31, 1996, this adjustment increased the value of business acquired and
stockholder's equity by approximately $12.3 million and $8.0 million,
respectively.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and liabilities as
well as the disclosure of contingent assets or liabilities at the date of the
financial statements. As a result, actual results reported as revenues and
expenses could differ from the estimates reported in the accompanying financial
statements. As further discussed in the accompanying notes to the financial
statements, significant estimates and assumptions affect deferred insurance
acquisition costs, the value of business acquired, provisions for real estate-
related losses and reserves, other-than-temporary declines in values for fixed
maturities, the valuation allowance for deferred income taxes and the
calculation of fair value disclosures for certain financial instruments.
LIFE INSURANCE REVENUE AND EXPENSES
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.
Revenue for annuities and interest-sensitive life insurance products
consists of investment income, and policy charges such as mortality, expense and
surrender charges. Expenses consist of benefits and interest credited to
contracts, policy maintenance costs and amortization of deferred insurance
acquisition costs.
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
and interest-sensitive life insurance products are being amortized over the
estimated contract life in relation to the present value of estimated gross
profits. Deferred insurance acquisition costs related to such interest-sensitive
products also reflect the estimated impact of unrealized gains or losses on
fixed maturities held as available for sale in the investment portfolio, through
a credit or charge to stockholder's equity, net of income tax. The deferred
insurance acquisition costs for term-life insurance products are being amortized
over the premium paying period of the policies.
FUTURE POLICY BENEFITS
Liabilities for future policy benefits, except annuities and
interest-sensitive life products, have been computed principally by a net level
premium method. Anticipated rates of mortality are based principally on the
1975-1980
33
<PAGE> 37
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Select and Ultimate Table, modified by Company experience, including
withdrawals. Estimated future investment yields net of investment expenses and
asset default costs are 6.28 percent for all issue years prior to January 4,
1996. For policies issued after January 4, 1996, estimated future investment
yields are generally 7.25 percent, graded to 6 percent over 20 years.
Liabilities for future policy benefits related to annuities and
interest-sensitive life contracts reflect net premiums received plus interest
credited during the contract accumulation period and the present value of future
payments for contracts that have annuitized. Current interest rates credited
during the contract accumulation period range from 4.5 percent to 8.0 percent.
Future minimum guaranteed interest rates vary from 3.0 percent to 4.5 percent.
For contracts that have annuitized, interest rates used in determining the
present value of future payments range principally from 2.5 percent to 12.0
percent.
INVESTED ASSETS AND RELATED INCOME
Investments in fixed maturities are carried at fair value. Short-term
investments are carried at cost, which approximates fair value. (See note
captioned "Fair Value of Financial Instruments".)
The amortized cost of fixed maturities is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed and asset-backed securities, over the estimated life of the
security. Such amortization is included in net investment income. Amortization
of the discount or premium from mortgage-backed and asset-backed securities is
recognized using a level effective yield method which considers the estimated
timing and amount of prepayments of the underlying loans and is adjusted to
reflect differences which arise between the prepayments originally anticipated
and the actual prepayments received and currently anticipated. To the extent
that the estimated lives of such securities change as a result of changes in
prepayment rates, the adjustment is also included in net investment income. The
Company does not accrue interest income on fixed maturities deemed to be
impaired on an other-than-temporary basis, or on mortgage loans, real estate-
related bonds and other real estate loans where the likelihood of collection of
interest is doubtful.
Mortgage loans are carried at their unpaid balance, net of unamortized
discount and any applicable reserves or write-downs. Other real estate-related
investments net of any applicable reserve and write-downs include notes
receivable from real estate ventures, investments in real estate ventures,
adjusted for the equity in the operating income or loss of such ventures and
common stock and real estate owned carried at fair value.
Real estate reserves are established when declines in collateral values,
estimated in light of current economic conditions and calculated in conformity
with Statement of Financial Accounting Standards ("SFAS") 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN, indicate a likelihood of loss. At year-end
1995, reflecting the Company's change in strategy with respect to its real
estate portfolio, and the disposition thereof, and on January 4, 1996,
reflecting the acquisition of the Company, real estate-related investments were
valued using an estimate of the investments' observable market prices, net of
estimated costs to sell. Prior to year-end 1995, the Company evaluated its real
estate-related assets (including accrued interest) by estimating the
probabilities of loss utilizing various projections that included several
factors relating to the borrower, property, term of the loan, tenant
composition, rental rates, other supply and demand factors and overall economic
conditions. Generally, at that time, the reserve was based upon the excess of
the loan amount over the estimated future cash flows from the loan, discounted
at the loan's contractual rate of interest taking into consideration the effects
of recourse to, and subordination of loans held by, affiliated non-life realty
companies.
Under purchase accounting, the market value of the Company's policy loans
and other invested assets consisting primarily of venture capital investments
and a leveraged lease, became the Company's new cost basis in such investments.
Investments in policy loans and other invested assets after January 4, 1996 are
carried at cost. Other invested assets also include equity securities, not
related to real estate-related investments, which are carried at fair value.
Realized gains or losses on sales of investments, determined on the basis
of identifiable cost on the disposition of the respective investment,
recognition of other-than-temporary declines in value and changes in real
estate-related reserves and write-downs are included in revenue. Net unrealized
gains or losses on revaluation of investments are credited or charged to
stockholder's equity. Such unrealized gains are recorded net of deferred income
tax expense, while unrealized losses are not tax benefitted.
34
<PAGE> 38
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAX
The operations of the Company prior to January 4, 1996 have been included
in the consolidated Federal income tax return of Kemper. Income taxes receivable
or payable have been determined on a separate return basis, and payments have
been received from or remitted to Kemper pursuant to a tax allocation
arrangement between Kemper and its subsidiaries, including the Company. The
Company generally had received a tax benefit for losses to the extent such
losses can be utilized in Kemper's consolidated Federal tax return. Subsequent
to January 4, 1996, the Company will file 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.
Federal income tax refunded by Kemper under the tax allocation arrangement for
the period from January 1, 1996 to January 4, 1996 and for the years ended
December 31, 1995 and 1994 amounted to $16.7 million, $3.1 million and $40.4
million, respectively. The Company paid $41.3 million of Federal income taxes
directly to the United States Treasury Department during 1996.
Not reflected in the statement of cash flows are rollovers of mortgage
loans, other loans and investments totaling approximately $32.8 million in 1994.
(3) INVESTED ASSETS AND RELATED INCOME
The Company is carrying its fixed maturity investment portfolio at
estimated fair value as fixed maturities are considered available for sale. The
carrying value (estimated fair value) of fixed maturities compared with
amortized cost, adjusted for other-than-temporary declines in value, were as
follows:
<TABLE>
<CAPTION>
Estimated Unrealized
Carrying Amortized ---------------------
Value Cost Gains Losses
(in thousands) -------- --------- ----- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 81,879 $ 82,698 $ -- $ (819)
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 14,365 14,644 -- (279)
Debt securities issued by foreign governments.......... 54,521 55,916 400 (1,795)
Corporate securities................................... 808,494 824,570 3,180 (19,256)
Mortgage and asset-backed securities................... 986,207 999,985 766 (14,544)
---------- ---------- ------ --------
Total fixed maturities.......................... $1,945,466 $1,977,813 $4,346 $(36,693)
========== ========== ====== ========
JANUARY 4, 1996
U.S. treasury securities and obligations of U.S.
government agencies and authorities.................. $ 124,365 $ 124,365 $ -- $ --
Obligations of states and political subdivisions,
special revenue and nonguaranteed.................... 12,553 12,553 -- --
Debt securities issued by foreign governments.......... 38,935 38,935 -- --
Corporate securities................................... 715,001 715,001 -- --
Mortgage and asset-backed securities................... 1,012,080 1,012,080 -- --
---------- ---------- ------ --------
Total fixed maturities.......................... $1,902,934 $1,902,934 $ -- $ --
========== ========== ====== ========
</TABLE>
Upon default or indication of potential default by an issuer of fixed
maturity securities, the Company-owned issue(s) of such issuer would be placed
on nonaccrual status and, since declines in fair value would no longer be
considered by the Company to be temporary, would be analyzed for possible
write-down. Any such issue would be written down to its net realizable value
during the fiscal quarter in which the impairment was determined to
35
<PAGE> 39
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
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 $151.8 million real estate portfolio at December 31, 1996
consists of joint venture and third-party mortgage loans and other real
estate-related investments.
At December 31, 1996 and January 4, 1996, total impaired loans were as
follows:
<TABLE>
<CAPTION>
December 31 January 4
1996 1996
(in millions) ----------- ---------
<S> <C> <C>
Impaired loans without reserves--gross...................... $80.3 $ --
Impaired loans with reserves--gross......................... 10.3 9.4
----- -----
Total gross impaired loans........................... 90.6 9.4
Reserves related to impaired loans.......................... (8.8) (2.8)
----- -----
Net impaired loans................................... $81.8 $ 6.6
===== =====
</TABLE>
Impaired loans without reserves include loans in which the deficit in
equity investments in real estate-related investments is considered in
determining reserves and write-downs. At December 31, 1996, the Company's
deficit in equity investments considered in determining reserves and write-downs
amounted to $2.6 million. The Company had an average balance of $36.9 million
and $53.3 million in impaired loans for 1996 and 1995, respectively. Cash
payments received on impaired loans are generally applied to reduce the
outstanding loan balance.
At December 31, 1996 and January 4, 1996, loans on nonaccrual status
amounted to $23.7 million and $11.4 million, respectively. The Company's
nonaccrual loans are generally included in impaired loans.
At December 31, 1996, securities carried at approximately $2.6 million were
on deposit with governmental agencies as required by law.
Proceeds from sales of investments in fixed maturities prior to maturity
were $331.5 million, $176.4 million and $813.2 million during 1996, 1995 and
1994, respectively. Gross gains of $6.4 million, $10.9 million and $6.1 million
and gross losses of $6.6 million, $5.0 million and $41.9 million were realized
on sales of fixed maturities in 1996, 1995 and 1994, respectively.
The following table sets forth the maturity aging schedule of fixed
maturity investments at December 31, 1996:
<TABLE>
<CAPTION>
Carrying Amortized
Value Cost Value
(in thousands) -------- ----------
<S> <C> <C>
One year or less............................................ $ 7,210 $ 7,217
Over one year through five.................................. 299,332 301,877
Over five years through ten................................. 508,259 520,878
Over ten years.............................................. 144,458 147,856
Securities not due at a single maturity date(1)............. 986,207 999,985
---------- ----------
Total fixed maturities............................... $1,945,466 $1,977,813
========== ==========
</TABLE>
- ---------------
(1) Weighted average maturity of 6.3 years.
36
<PAGE> 40
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(3) INVESTED ASSETS AND RELATED INCOME (CONTINUED)
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
Preacquisition
-----------------------
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Interest and dividends on fixed maturities.................. $124,735 $141,340 $147,160
Dividends on equity securities.............................. 709 763 882
Income from short-term investments.......................... 6,046 6,541 2,804
Income from mortgage loans.................................. 11,148 14,280 11,667
Income from policy loans.................................... 5,607 5,710 5,518
Income (loss) from other real estate-related investments.... 1,448 (955) (731)
Income from other loans and investments..................... 1,772 214 1,498
-------- -------- --------
Total investment income.............................. 151,465 167,893 168,798
Investment expense.......................................... (4,610) (2,565) (2,743)
-------- -------- --------
Net investment income................................ $146,855 $165,328 $166,055
======== ======== ========
</TABLE>
Realized gains (losses) for the years ended December 31, 1996, 1995 and
1994, were as follows:
<TABLE>
<CAPTION>
Realized Gains (Losses)
-----------------------------------------
Preacquisition
--------------------------
1996 1995 1994
(in thousands) ------ --------- --------
<S> <C> <C> <C>
Real estate-related......................................... $ 88 $(102,147) $ 2,337
Fixed maturities............................................ (224) 5,889 (35,801)
Equity securities........................................... 795 (224) 11,166
Other....................................................... 2,850 1,062 1,443
------ --------- --------
Realized investment gains (losses) before income tax
expense (benefit)...................................... 3,509 (95,420) (20,855)
Income tax expense (benefit)................................ 1,228 (33,397) (7,299)
------ --------- --------
Net realized investment gains (losses).................... $2,281 $ (62,023) $(13,556)
====== ========= ========
</TABLE>
Unrealized gains (losses) are computed below as follows: fixed
maturities--the difference between fair value and amortized cost, adjusted for
other-than-temporary declines in value; equity securities and other--the
difference between fair value and cost. The change in unrealized investment
gains (losses) by class of investment for the years ended December 31, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Change in Unrealized Gains (Losses)
------------------------------------------------
Preacquisition
--------------------
December 31
December 31 January 4 --------------------
1996 1996 1995 1994
(in thousands) ------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
Fixed maturities................................... $(32,347) $-- $170,483 $(180,816)
Equity securities.................................. 677 -- 1,581 (1,814)
Adjustment to deferred insurance acquisition
costs............................................ 415 -- (15,522) 8,188
Adjustment to value of business acquired........... 12,345 -- -- --
-------- --- -------- ---------
Unrealized gain (loss) before income tax
expense....................................... (18,910) -- 156,542 (174,442)
Income tax expense................................. (4,466) -- (22,982) 29,247
-------- --- -------- ---------
Net unrealized gain (loss) on investments... $(23,376) $-- $133,560 $(145,195)
======== === ======== =========
</TABLE>
37
<PAGE> 41
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(4) UNCONSOLIDATED INVESTEES
At December 31, 1996, the Company, along with other Kemper subsidiaries,
directly held partnership interests in a number of real estate joint ventures.
The Company's direct and indirect real estate joint venture investments are
accounted for utilizing the equity method, with the Company recording its share
of the operating results of the respective partnerships. The Company, as an
equity owner, has the ability to fund, and historically has elected to fund,
operating requirements of certain of the joint ventures. Consolidation
accounting methods are not utilized as the Company, in most instances, does not
own more than 50 percent in the aggregate, and in any event, major decisions of
the partnership must be made jointly by all partners.
As of December 31, 1996 and January 4, 1996, the Company's net equity
investment in unconsolidated investees amounted to $5.2 million and $5.5
million, respectively. The Company's share of net income related to such
unconsolidated investees amounted to $356 thousand for the year ended December
31, 1996, compared with net losses of $2.6 million, and $3.2 million for the
years ended December 31, 1995 and 1994, respectively.
Also at January 4, 1996, the Company had joint venture-related loans
totaling $9.3 million before reserves to partnerships in which Lumbermens Mutual
Casualty Company ("Lumbermens"), an affiliate until August 1993, had equity
interests. These joint venture-related loans were sold during 1996.
(5) CONCENTRATION OF CREDIT AND INTEREST RATE RISK
The Company generally strives to maintain a diversified invested asset
portfolio; however, certain concentrations of risk exist in the Company's
ownership of mortgage-backed and asset-backed securities and real estate.
Approximately 43.7 percent of the Company's investment-grade fixed
maturities at December 31, 1996 were mortgage-backed securities, down from 54.4
percent at January 4, 1996, due to sales and paydowns during 1996. These
investments had an average yield of 7.18 percent during 1996 and consisted
primarily of marketable mortgage pass-through securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation and other
investment-grade securities collateralized by mortgage pass-through securities
issued by these entities. The Company has not made any investments in
interest-only or other similarly volatile tranches of mortgage-backed
securities. The Company's mortgage-backed investments are generally of AAA
credit quality, and the markets for these investments have been and are expected
to remain liquid. The Company plans to continue to reduce its holding of such
investments over time.
As a result of purchases during 1996, approximately 7.5 percent of the
Company's investment-grade fixed maturities at December 31, 1996 consisted of
corporate asset-backed securities. The majority of the Company's investments in
asset-backed securities were backed by manufactured housing loans, auto loans
and home equity loans.
Investment income was lower in 1996, compared with both 1995 and 1994,
primarily reflecting purchase accounting adjustments related to the amortization
of premiums on fixed maturity investments. Under purchase accounting, the market
value of the Company's fixed maturity investments as of January 4, 1996 became
the Company's new cost basis in such investments. The difference between the new
cost basis and original par is then amortized against investment income over the
remaining effective lives of the fixed maturity investments. As a result of the
interest rate environment as of January 4, 1996, the market value of the
Company's fixed maturity investments was approximately $64.7 million greater
than original par. The amortization of such premiums reduced investment income
by approximately $14.0 million in 1996, compared with 1995 and 1994.
Future investment income from mortgage-backed securities and other
asset-backed securities may be affected by the timing of principal payments and
the yields on reinvestment alternatives available at the time of such payments.
As a result of purchase accounting adjustments to fixed maturities, most of the
Company's mortgage-backed securities are carried at a premium over par.
Prepayment activity resulting from a decline in interest rates on such
securities purchased at a premium would accelerate the amortization of the
premiums which would result in reductions of investment income related to such
securities. At December 31, 1996, the Company had unamortized premiums and
discounts of $18.8 million and $1.8 million, respectively, related to
mortgage-backed and asset-backed securities. The Company believes that as a
result of the purchase accounting adjustments and the current interest rate
environment, anticipated prepayment activity is expected to result in reductions
to future investment income similar to those reductions experienced by the
Company in 1996.
38
<PAGE> 42
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(5) CONCENTRATION OF CREDIT RISK (CONTINUED)
The Company's real estate portfolio is distributed by geographic location
and property type, as shown in the following two tables:
GEOGRAPHIC DISTRIBUTION AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
Illinois............................. 53.5%
California........................... 23.9
Florida.............................. 5.7
Washington........................... 2.9
Hawaii............................... 2.6
Oregon............................... 2.6
Colorado............................. 2.2
Texas................................ 1.7
Ohio................................. 1.1
Other states......................... 3.8
-----
Total...................... 100.0%
=====
</TABLE>
DISTRIBUTION BY PROPERTY TYPE AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
Office............................... 52.3%
Hotel................................ 17.4
Land................................. 14.7
Apartments........................... 5.8
Industrial........................... .3
Other................................ 9.5
-----
Total...................... 100.0%
=====
</TABLE>
Real estate markets have been depressed in recent periods in areas where
most of the Company's real estate portfolio is located. Portions of California's
and Hawaii's real estate market conditions have continued to be worse than in
many other areas of the country. Real estate markets in northern California and
Illinois continue to show some stabilization and improvement.
Undeveloped land represented approximately 14.7 percent of the Company's
real estate portfolio at December 31, 1996. To maximize the value of certain
land and other projects, additional development has been proceeding or has been
planned. Such development of existing projects would continue to require
funding, either from the Company or third parties. In the present real estate
markets, third-party financing can require credit enhancing arrangements (e.g.,
standby financing arrangements and loan commitments) from the Company. The
values of development projects are dependent on a number of factors, including
Kemper's and the Company's plans with respect thereto, obtaining necessary
construction and zoning permits and market demand for the permitted use of the
property. The values of certain development projects have been written down as
of December 31, 1995, reflecting changes in plans in connection with the
Zurich-led acquisition of Kemper. There can be no assurance that such permits
will be obtained as planned or at all, nor that such expenditures will occur as
scheduled, nor that Kemper's and the Company's plans with respect to such
projects may not change substantially.
Approximately 72 percent of the Company's total real estate is on
properties or projects where the Company, Kemper, or their affiliates have taken
ownership positions in joint ventures with a small number of partners. (See note
captioned "Unconsolidated Investees".)
At December 31, 1996, the Company's loans to and investments in projects
with the Prime Group, Inc. or its affiliates totaled approximately $65.1
million, or 42.9 percent, of the Company's real estate portfolio. Prime
Group-related commitments accounted for $11.9 million of the off-balance-sheet
legal commitments at December 31, 1996, of which the Company expects to fund
$6.8 million.
At December 31, 1996, loans to and investments in joint ventures in which
Patrick M. Nesbitt or his affiliates ("Nesbitt"), have interests constituted
approximately $17.8 million, or 11.7 percent, of the Company's real estate
portfolio. The Nesbitt ventures primarily consist of nine hotel properties. At
December 31, 1996, the Company did not have any Nesbitt-related
off-balance-sheet legal funding commitments outstanding.
At December 31, 1996, loans to and investments in a master limited
partnership (the "MLP") between subsidiaries of Kemper and subsidiaries of
Lumbermens, constituted approximately $12.1 million, or 8.0 percent, of the
Company's real estate portfolio. The Company's interest in the MLP is a less
than one percent limited partnership interest and Kemper's interest is 75
percent at December 31, 1996. At December 31, 1996, the Company did not have any
MLP-related off-balance-sheet legal commitments outstanding.
39
<PAGE> 43
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(6) INCOME TAXES
Income tax expense (benefit) was as follows for the years ended December
31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Preacquisition
--------------------
1996 1995 1994
(in thousands) -------- ------- -------
<S> <C> <C> <C>
Current..................................................... $ 39,538 $(5,576) $34,262
Deferred.................................................... (14,036) 6,027 4,032
-------- ------- -------
Total............................................. $ 25,502 $ 451 $38,294
======== ======= =======
</TABLE>
Included in the 1995 current tax benefit is the recognition of a net
operating loss carryover at December 31, 1995 which was utilized against taxable
income on Kemper's consolidated short-period Federal income tax return for the
January 1 through January 4, 1996 tax year. Beginning January 5, 1996, the
Company will file a stand alone Federal income tax return. Previously, the
Company had filed a consolidated Federal income tax return with Kemper. In 1996,
the Company and Kemper settled all outstanding balances under the tax allocation
agreement.
The actual income tax expense for 1996, 1995 and 1994 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 1996, 1995, and 1994 to income before income tax expense.
<TABLE>
<CAPTION>
Preacquisition
-----------------
1996 1995 1994
(in thousands) ------- ---- -------
<S> <C> <C> <C>
Computed expected tax expense............................... $20,313 $777 $35,740
Difference between "expected" and actual tax expense
(benefit):
State taxes............................................... 731 (240) 896
Amortization of goodwill.................................. 4,446 -- --
Prior year provision adjustment........................... -- -- 1,675
Other, net................................................ 12 (86) (17)
------- ---- -------
Total actual tax expense.......................... $25,502 $451 $38,294
======= ==== =======
</TABLE>
Deferred tax assets and liabilities are generally determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company only records deferred tax
assets if future realization of the tax benefit is more likely than not, with a
valuation allowance recorded for the portion that is not likely to be realized.
The Company has established a valuation allowance to reduce the deferred
Federal tax asset related to real estate and other investments to the amount
that, based upon available evidence, is, in management's judgment, more likely
than not to be realized. Any reversals of the valuation allowance are contingent
upon the recognition of future capital gains in the Company's Federal income tax
return or a change in circumstances which causes the recognition of the benefits
to become more likely than not. The change in the valuation allowance is related
solely to the change in the net deferred Federal tax asset or liability from
unrealized gains or losses on investments.
40
<PAGE> 44
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred Federal tax liability were as follows:
<TABLE>
<CAPTION>
Preacquisition
--------------------
December 31
December 31 January 4 --------------------
1996 1996 1995 1994
(in thousands) ----------- --------- -------- --------
<S> <C> <C> <C> <C>
Deferred Federal tax assets:
Real estate-related........................... $ 12,548 $ 8,031 $ 6,043 $ 10,824
Unrealized losses on investments.............. 11,321 -- -- --
Life policy reserves.......................... 81,127 76,285 77,134 76,820
Other investment-related...................... 5,048 4,789 3,764 3,301
Tax capitalization of deferred insurance
acquisition costs.......................... 31,744 26,601 26,601 21,093
Deferred revenue.............................. 18,581 13,236 13,236 8,764
Other......................................... 6,674 4,164 4,162 3,161
-------- -------- -------- --------
Total deferred Federal tax assets.......... 167,043 133,106 130,940 123,963
Valuation allowance........................... (16,628) (5,361) (5,361) (5,361)
-------- -------- -------- --------
Total deferred Federal tax assets after
valuation allowance...................... 150,415 127,745 125,579 118,602
-------- -------- -------- --------
Deferred Federal tax liabilities:
Deferred insurance acquisition costs.......... 18,761 -- 142,806 135,218
Value of business acquired.................... 165,852 173,458 -- --
Depreciation and amortization................. 9,360 8,040 11,447 11,566
Other investment-related...................... 26,301 27,762 28,564 531
Other......................................... 5,500 3,414 2,491 2,007
-------- -------- -------- --------
Total deferred Federal tax liabilities..... 225,774 212,674 185,308 149,322
-------- -------- -------- --------
Net deferred Federal tax liabilities............ $(75,359) $(84,929) $(59,729) $(30,720)
======== ======== ======== ========
</TABLE>
The valuation allowance is subject to future adjustments based on, among
other items, the Company's estimates of future operating earnings and capital
gains.
The tax returns through the year 1986 have been examined by the Internal
Revenue Service ("IRS"). Changes proposed are not material to the Company's
financial position. The tax returns for the years 1987 through 1993 are
currently under examination by the IRS.
(7) RELATED-PARTY TRANSACTIONS
The Company paid cash dividends to Kemper of $68.9 million, $13.0 million
and $95.5 million during 1996, 1995 and 1994, respectively.
The Company has loans to joint ventures, consisting primarily of mortgage
loans on real estate, in which the Company and/or one of its affiliates has an
ownership interest. At December 31, 1996 and January 4, 1996, joint venture
mortgage loans totaled $109.1 million and $114.0 million, respectively, and
during 1996, 1995 and 1994, the Company earned interest income on these joint
venture loans of $7.6 million, $8.8 million and $7.5 million, respectively.
During 1995 and 1994, the Company sold certain mortgages and real
estate-related investments, net of reserves, amounting to approximately $1.4
million and $68.8 million, respectively, to an affiliated non-life realty
company, in exchange for cash. No gain or loss was recognized on these sales.
During 1996, the Company purchased approximately $10.0 million of real
estate-related investments from such affiliated non-life realty subsidiaries for
cash. The Company also paid to Kemper real estate subsidiaries $1.0 million and
$.8 million in 1996 and 1995, respectively, related to the management of the
Company's real estate portfolio.
41
<PAGE> 45
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(7) RELATED-PARTY TRANSACTIONS (CONTINUED)
The Company shares its employees and operations with various other Kemper
wholly-owned subsidiaries, primarily Kemper Investors Life Insurance Company
("KILICO") and Zurich Life Insurance Company of America ("ZLICA"), as well as
with Fidelity Life Association ("FLA"). FLA is a mutual life insurance company
that shares common management and common board members with the Company, KILICO,
ZLICA and Kemper. The Company allocates expenses for the utilization of its
employees and facilities to KILICO and ZLICA based upon their share of
administrative, legal, marketing, and operation and support services. The
Company has a formal management services agreement with FLA which charges FLA
based upon certain fixed and variable charges. Expenses allocated to KILICO and
ZLICA during 1996, 1995, and 1994 amounted to $16.1 million, $14.3 million and
$11.1 million, respectively. Expenses charged to FLA during 1996, 1995 and 1994
amounted to $8.6 million, $8.6 million and $9.0 million, respectively.
The Company is also allocated expenses for the utilization of the
investment management services of Zurich Kemper Investments, Inc. ("ZKI"), an
affiliated company. During 1996, 1995 and 1994, expenses allocated to the
Company from ZKI amounted to $1.8 million, $2.1 million and $2.1 million,
respectively.
Other related party transactions are also described in the note captioned
"Reinsurance".
(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
individual death claims. The Company's retention limit on term life insurance is
$300 thousand (face amount) on the life of any one individual, with the excess
amounts ceded to outside reinsurers. 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 balance sheet as reinsurance recoverables and ceded
future policy benefits.
The following is a summary of the reinsurance activities of the Company for
the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
PREACQUISITION
--------------------------
1996 1995 1994
-------- -------- --------------
(in thousands)
<S> <C> <C> <C>
Direct business............................................. $223,232 $220,392 $216,954
Reinsurance assumed......................................... 66 75 50
Reinsurance ceded........................................... (67,652) (65,861) (65,175)
-------- -------- --------
Premium income.............................................. $155,646 $154,606 $151,829
======== ======== ========
</TABLE>
The following is a summary of life insurance in force at December 31, 1996
and January 4, 1996:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 4
1996 1996
----------- ---------
(in billions)
<S> <C> <C>
Direct and assumed.......................................... $98.0 $98.0
Ceded....................................................... 41.8 28.8
</TABLE>
The Company has ceded a significant amount of life insurance premiums under
various reinsurance contracts for the portion of life insurance in excess of the
Company's retention limits on policies written before 1992 with FLA. Beginning
in 1992, the Company began to reinsure the excess of insurance risks over the
Company's retention limits with other unaffiliated insurance companies,
primarily American United Life Insurance Company "AUL". Reinsurance premiums
ceded to FLA during 1996, 1995 and 1994 amounted to approximately 32.3 percent,
49.4 percent and 56.1 percent, respectively, of total premiums ceded. Life
insurance in force ceded to FLA and AUL amounted to $9.7 billion and $9.4
billion, respectively, at December 31, 1996 and $11.6 billion and $9.1 billion,
respectively, at January 4, 1996. The reinsurance receivable from FLA and AUL
amounted to $34.6
42
<PAGE> 46
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(8) REINSURANCE (CONTINUED)
million and $13.5 million, respectively, at December 31, 1996 and $38.2 million
and $12.5 million, respectively, at January 4, 1996.
In December 1996, the Company ceded on a yearly renewable term basis
approximately $14.4 billion (face amount) of term life insurance to KILICO. As a
result of this transaction, the Company ceded premiums and reserves of
approximately $7.3 million. The difference between the cash transferred, which
represents the statutory reserves of the business ceded, and the reserves ceded
under generally accepted accounting principles, of approximately $18.4 million,
was deemed to be a dividend to Kemper and was recorded as a reduction to
retained earnings during 1996.
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a welfare plan that provides medical and life
insurance benefits to its retired and active employees and the Company allocates
a portion of the costs of providing such benefits to other Kemper subsidiaries.
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 status of the plan as of December 31, 1996 and January 4, 1996 was as
follows:
<TABLE>
<CAPTION>
December 31 January 4
1996 1996
(in thousands) ----------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 967 $ 938
Fully eligible active plan participants................... 456 626
Other active plan participants............................ 1,703 2,403
Unrecognized gain from actuarial experience............... 1,398 --
------- -------
Gross accrued liability..................................... 4,524 3,967
Liabilities allocated to affiliated companies............... (2,714) (985)
------- -------
Net accrued liability....................................... $ 1,810 $ 2,982
======= =======
</TABLE>
Components of net periodic postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
Preacquisition
--------------
1996 1995
(in thousands) ---- --------------
<S> <C> <C>
Service cost-benefits attributed to service during the
period.................................................... $334 $327
Interest cost on accumulated postretirement benefit
obligations............................................... 285 229
Amortization of unrecognized actuarial gain................. -- (75)
---- ----
Net periodic postretirement benefit cost.................... $619 $481
==== ====
</TABLE>
The discount rate used in determining the allocated postretirement benefit
obligation was 7.75 percent and 7.25 percent for 1996 and 1995, respectively.
The assumed health care trend rate used was based on projected experience for
1996 and 1997, 10 percent in 1998, gradually declining to 5.0 percent by the
year 2001 and remaining at that level thereafter.
A one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of December 31, 1996 and January 4, 1996 by $504 thousand and $773 thousand,
respectively, and the net postretirement health care interest and service costs
for the years ended December 31, 1996 and 1995 by $102 thousand and $134
thousand, respectively.
43
<PAGE> 47
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
During 1994, the Company adopted certain severance-related policies to
provide benefits, generally limited in time, to former or inactive employees
after employment but before retirement. The effect of adopting these policies
was immaterial.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various legal actions for which it establishes
liabilities where appropriate. In the opinion of the Company's management, based
upon the advice of legal counsel, the resolution of such litigation is not
expected to have a material adverse effect on the financial statements.
Although none of the Company or its joint venture projects have been
identified as a "potentially responsible party" under Federal environmental
guidelines, inherent in the ownership of or lending to real estate projects is
the possibility that environmental pollution conditions may exist on or near or
relate to properties owned or previously owned on properties securing loans.
Where the Company has presently identified remediation costs, they have been
taken into account in determining the cash flows and resulting valuations of the
related real estate assets. Based on the Company's receipt and review of
environmental reports on most of the projects in which it is involved, the
Company believes its environmental exposure would be immaterial to its results
of operations. However, the Company may be required in the future to take
actions to remedy environmental exposures, and there can be no assurance that
material environmental exposures will not develop or be identified in the
future. The amount of future environmental costs is impossible to estimate due
to, among other factors, the unknown magnitude of possible exposures, the
unknown timing and extent of corrective actions that may be required, the
determination of the Company's liability in proportion to others and the extent
such costs may be covered by insurance or various environmental indemnification
agreements.
See the note captioned "Financial Instruments--Off-Balance-Sheet Risk"
below for the discussion regarding the Company's loan commitments and standby
financing agreements.
The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during the years
1996 and prior. The Company's financial statements include provisions for all
known assessments that are expected to be levied against the Company as well as
an estimate of amounts (net of estimated future premium tax recoveries) that the
Company believes it will be assessed in the future for which the life insurance
industry has estimated the cost to cover losses to policyholders. The Company is
also contingently liable for any future guaranty fund assessments related to
insolvencies of unaffiliated insurance companies, for which the life insurance
industry has been unable to estimate the cost to cover losses to policyholders.
No specific amount can be reasonably estimated for such insolvencies as of
December 31, 1996.
(11) FINANCIAL INSTRUMENTS--OFF-BALANCE-SHEET RISK
At December 31, 1996, the Company had future legal loan commitments and
stand-by financing agreements totaling $17.9 million to support the financing
needs of various real estate investments. To the extent these arrangements are
called upon, amounts loaned would be secured by assets of the joint ventures,
including first mortgage liens on the real estate. The Company's criteria in
making these arrangements are the same as for its mortgage loans and other real
estate investments. The Company presently expects to fund approximately $13.3
million of these arrangements. These commitments are included in the Company's
analysis of real estate-related reserves and write-downs. The fair values of
loan commitments and standby financing agreements are estimated in conjunction
with and using the same methodology as the fair value estimates of mortgage
loans and other real estate-related investments.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at specific points in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. A significant portion of the Company's financial instruments are
carried at fair value. (See note captioned "Invested Assets and Related
Income".) Fair value estimates for financial instruments not carried at fair
value are generally determined using discounted cash flow models and assumptions
that are based on judgments regarding current and future economic conditions and
the risk characteristics of the investments. Although fair value estimates are
44
<PAGE> 48
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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. In
addition, tax ramifications related to the realization of unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Fixed maturities and equity securities: Fair values for fixed maturity
securities and for equity securities were determined by using market quotations,
or independent pricing services that use prices provided by market makers or
estimates of fair values obtained from yield data relating to instruments or
securities with similar characteristics, or fair value as determined in good
faith by the Company's portfolio manager, ZKI.
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Mortgage loans and other real estate-related investments: Fair values for
mortgage loans and other real estate-related investments were estimated based
upon the investments observable market price, net of estimated costs to sell.
The estimates of fair value should be used with care given the inherent
difficulty of estimating the fair value of real estate due to the lack of a
liquid quotable market.
Other loans and investments: The carrying amounts reported in the balance
sheet for these instruments approximate fair values. The fair values of policy
loans were estimated by discounting the expected future cash flows using an
interest rate charged on policy loans for similar policies currently being
issued.
Future policy benefits: Fair values of future 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 1996 to be 4.75 percent, while the assumed average
market crediting rate was 5.8 percent in 1996.
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1996 and January 4, 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1996 January 4, 1996
------------------------ ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial instruments recorded as assets:
Fixed maturities.............................. $1,945,466 $1,945,466 $1,902,934 $1,902,934
Cash and short-term investments............... 40,719 40,719 116,404 116,404
Mortgage loans and other real estate-related
assets..................................... 151,806 151,806 174,095 174,095
Policy loans.................................. 109,772 109,772 109,345 109,345
Other invested assets......................... 13,310 13,310 19,978 19,978
Financial instruments recorded as liabilities:
Future policy benefits, excluding term life
insurance.................................. 1,929,065 1,670,628 1,991,118 1,991,118
</TABLE>
(14) STOCKHOLDER'S EQUITY--RETAINED EARNINGS
The maximum amount of dividends which can be paid by insurance companies
domiciled in the State of Illinois to shareholders without prior approval of
regulatory authorities is restricted. The maximum amount of dividends which can
be paid by the Company without prior approval in 1997 is $52.4 million. The
Company paid cash dividends of $68.9 million, $13.0 million and $95.5 million
during 1996, 1995 and 1994, respectively.
45
<PAGE> 49
FEDERAL KEMPER LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
The Company's net income and stockholder's equity as determined in
accordance with statutory accounting principles were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands) -------- -------- --------
<S> <C> <C> <C>
Net income.................................................. $ 52,406 $ 10,342 $ 73,260
======== ======== ========
Statutory surplus........................................... $180,378 $174,100 $179,477
======== ======== ========
</TABLE>
46
<PAGE> 50
APPENDIX A
ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES,
DEATH BENEFITS
The tables in this Prospectus have been prepared to help show how values
under a Policy change with investment experience. The tables illustrate how Cash
Values, Surrender Values (reflecting the deduction of Surrender Charges, if any)
and Death Benefits under a Policy issued on an insured of a given age would vary
over time if the hypothetical gross investment rates of return were a uniform,
after tax, annual rate of 0%, 6%, and 12%. If the hypothetical gross investment
rate of return averages 0%, 6%, or 12%, but fluctuates over or under those
averages throughout the years, the Cash Values, Surrender Values and Death
Benefits may be different.
The amounts shown for the Cash Value, Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the Subaccounts is lower than the gross return. This is
because of a daily charge to the Subaccounts for assuming mortality and expense
risks, which is equivalent to an effective annual charge of 0.60% on a current
basis. This charge is guaranteed not to exceed an effective annual rate of
0.90%. In addition, the net investment returns also reflect the deduction of the
Fund investment advisory fees and other Fund expenses, (.85%, the average of the
fees and expenses). The tables also reflect applicable charges and deductions
including a 3.5% deduction against premiums, a monthly administrative charge of
$6 and monthly charges for providing insurance protection. For each hypothetical
gross investment rate of return, tables are provided reflecting current and
guaranteed cost of insurance charges. Hypothetical gross average investment
rates of return of 0%, 6% and 12% correspond to the following approximate net
annual investment rate of return of -1.45%, 4.55% and 10.55%, on a current
basis. On a guaranteed basis, these rates of return would be -1.75%, 4.25% and
10.25%, respectively. Cost of insurance rates vary by issue age, sex, rating
class and Policy Year and, therefore, are not reflected in the approximate net
annual investment rate of return above.
The values shown are for Policies which are issued to a male preferred
nonsmoker. Values for Policies issued on a basis involving a higher mortality
risk would result in lower Cash Values, Surrender Values and Death Benefits than
those illustrated. Females generally have a more favorable rate structure than
males.
The tables also reflect the fact that no charges for federal, state or
other income taxes are currently made against the Separate Account. If such a
charge is made in the future, it will take a higher gross rate of return than
illustrated to produce the net after-tax returns shown in the tables.
Upon request, FKLA will furnish an illustration based on the proposed
Insured's age, sex and premium payment requested.
47
<PAGE> 51
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $1,000 ANNUAL PREMIUM ISSUE AGE 35
$100,000 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS --------------------------- ---------------------------- -----------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- --------- ------- ----- --------- ------- ----- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 711 651 100,000 761 701 100,000 811 751 100,000
2 2,153 1,402 1,282 100,000 1,547 1,427 100,000 1,699 1,579 100,000
3 3,310 2,072 1,892 100,000 2,358 2,178 100,000 2,668 2,488 100,000
4 4,526 2,720 2,480 100,000 3,192 2,952 100,000 3,726 3,486 100,000
5 5,802 3,345 3,045 100,000 4,050 3,750 100,000 4,880 4,580 100,000
6 7,142 3,945 3,645 100,000 4,932 4,632 100,000 6,141 5,841 100,000
7 8,549 4,520 4,240 100,000 5,835 5,555 100,000 7,517 7,237 100,000
8 10,027 5,068 4,828 100,000 6,763 6,523 100,000 9,020 8,780 100,000
9 11,578 5,589 5,409 100,000 7,712 7,532 100,000 10,661 10,481 100,000
10 13,207 6,083 6,083 100,000 8,685 8,685 100,000 12,456 12,456 100,000
11 14,917 6,546 6,546 100,000 9,679 9,679 100,000 14,419 14,419 100,000
12 16,713 6,978 6,978 100,000 10,694 10,694 100,000 16,566 16,566 100,000
13 18,599 7,377 7,377 100,000 11,730 11,730 100,000 18,916 18,916 100,000
14 20,579 7,743 7,743 100,000 12,786 12,786 100,000 21,491 21,491 100,000
15 22,657 8,071 8,071 100,000 13,861 13,861 100,000 24,314 24,314 100,000
16 24,840 8,362 8,362 100,000 14,953 14,953 100,000 27,411 27,411 100,000
17 27,132 8,608 8,608 100,000 16,060 16,060 100,000 30,809 30,809 100,000
18 29,539 8,806 8,806 100,000 17,177 17,177 100,000 34,540 34,540 100,000
19 32,066 8,950 8,950 100,000 18,299 18,299 100,000 38,639 38,639 100,000
20 34,719 9,032 9,032 100,000 19,422 19,422 100,000 43,146 43,146 100,000
- ----------------------------------------------------------------------------------------------------------------
Age 65 69,761 4,832 4,832 100,000 29,447 29,447 100,000 123,683 123,683 150,893
Age 70 94,836 0 0 0 31,298 31,298 100,000 202,749 202,749 235,188
Age 75 126,840 0 0 0 26,525 26,525 100,000 328,574 328,574 351,574
Age 80 167,685 0 0 0 3,645 3,645 100,000 531,262 531,262 557,826
Age 85 219,815 0 0 0 0 0 0 845,412 845,412 887,683
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY FEDERAL KEMPER LIFE ASSURANCE COMPANY THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
48
<PAGE> 52
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $1,000 ANNUAL PREMIUM ISSUE AGE 35
$100,000 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ---------------------------- ----------------------------- ---------------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE
- ------ --------- ----- --------- ----- ----- --------- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 750 690 100,000 801 741 100,000 853 793 100,000
2 2,153 1,490 1,370 100,000 1,640 1,520 100,000 1,796 1,676 100,000
3 3,310 2,220 2,040 100,000 2,518 2,338 100,000 2,841 2,661 100,000
4 4,526 2,940 2,700 100,000 3,437 3,197 100,000 3,998 3,758 100,000
5 5,802 3,651 3,351 100,000 4,399 4,099 100,000 5,278 4,978 100,000
6 7,142 4,353 4,053 100,000 5,407 5,107 100,000 6,695 6,395 100,000
7 8,549 5,045 4,765 100,000 6,461 6,181 100,000 8,264 7,984 100,000
8 10,027 5,728 5,488 100,000 7,565 7,325 100,000 10,000 9,760 100,000
9 11,578 6,402 6,222 100,000 8,721 8,541 100,000 11,922 11,742 100,000
10 13,207 7,067 7,067 100,000 9,931 9,931 100,000 14,050 14,050 100,000
11 14,917 7,724 7,724 100,000 11,198 11,198 100,000 16,406 16,406 100,000
12 16,713 8,372 8,372 100,000 12,524 12,524 100,000 19,013 19,013 100,000
13 18,599 9,011 9,011 100,000 13,912 13,912 100,000 21,899 21,899 100,000
14 20,579 9,642 9,642 100,000 15,365 15,365 100,000 25,094 25,094 100,000
15 22,657 10,264 10,264 100,000 16,887 16,887 100,000 28,631 28,631 100,000
16 24,840 10,879 10,879 100,000 18,479 18,479 100,000 32,546 32,546 100,000
17 27,132 11,485 11,485 100,000 20,147 20,147 100,000 36,879 36,879 100,000
18 29,539 12,083 12,083 100,000 21,893 21,893 100,000 41,677 41,677 100,000
19 32,066 12,673 12,673 100,000 23,720 23,720 100,000 46,987 46,987 100,000
20 34,719 13,256 13,256 100,000 25,633 25,633 100,000 52,865 52,865 100,000
- ----------------------------------------------------------------------------------------------------------------------
Age 65 69,761 15,379 15,379 100,000 47,334 47,334 100,000 157,463 157,463 192,105
Age 70 94,836 14,093 14,093 100,000 61,504 61,504 100,000 263,555 263,555 305,724
Age 75 126,840 9,675 9,675 100,000 78,985 78,985 100,000 437,084 437,084 467,679
Age 80 167,685 0 0 0 102,042 102,042 107,144 722,374 722,374 758,493
Age 85 219,815 0 0 0 131,041 131,041 137,593 1,184,732 1,184,732 1,243,968
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY FEDERAL KEMPER LIFE ASSURANCE COMPANY THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
49
<PAGE> 53
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $3,000 ANNUAL PREMIUM ISSUE AGE 55
$100,000 INITIAL DEATH BENEFIT:
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ---------------------------- ---------------------------- -----------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- --------- ------- ----- --------- ------- ----- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,015 1,835 100,000 2,162 1,982 100,000 2,309 2,129 100,000
2 6,457 3,932 3,572 100,000 4,353 3,993 100,000 4,793 4,433 100,000
3 9,930 5,751 5,211 100,000 6,575 6,035 100,000 7,471 6,931 100,000
4 13,577 7,470 6,750 100,000 8,825 8,105 100,000 10,362 9,642 100,000
5 17,406 9,080 8,180 100,000 11,099 10,199 100,000 13,485 12,585 100,000
6 21,426 10,577 9,677 100,000 13,392 12,492 100,000 16,863 15,963 100,000
7 25,647 11,951 11,111 100,000 15,699 14,859 100,000 20,524 19,684 100,000
8 30,080 13,192 12,472 100,000 18,011 17,291 100,000 24,495 23,775 100,000
9 34,734 14,284 13,744 100,000 20,319 19,779 100,000 28,810 28,270 100,000
10 39,620 15,213 15,213 100,000 22,612 22,612 100,000 33,511 33,511 100,000
11 44,751 15,966 15,966 100,000 24,883 24,883 100,000 38,650 38,650 100,000
12 50,139 16,529 16,529 100,000 27,127 27,127 100,000 44,297 44,297 100,000
13 55,796 16,889 16,889 100,000 29,338 29,338 100,000 50,533 50,533 100,000
14 61,736 17,031 17,031 100,000 31,514 31,514 100,000 57,460 57,460 100,000
15 67,972 16,930 16,930 100,000 33,644 33,644 100,000 65,203 65,203 100,000
16 74,521 16,551 16,551 100,000 35,714 35,714 100,000 73,909 73,909 100,000
17 81,397 15,797 15,797 100,000 37,663 37,663 100,000 83,756 83,756 100,000
18 88,617 14,706 14,706 100,000 39,538 39,538 100,000 94,954 94,954 105,399
19 96,198 13,149 13,149 100,000 41,269 41,269 100,000 107,330 107,330 116,990
20 104,158 11,036 11,036 100,000 42,822 42,822 100,000 120,985 120,985 129,454
- ----------------------------------------------------------------------------------------------------------------
Age 65 39,620 15,213 15,213 100,000 22,612 22,612 100,000 33,511 33,511 100,000
Age 70 67,972 16,930 16,930 100,000 33,644 33,644 100,000 65,203 65,203 100,000
Age 75 104,158 11,036 11,036 100,000 42,822 42,822 100,000 120,985 120,985 129,454
Age 80 150,340 0 0 0 46,854 46,854 100,000 212,290 212,290 222,904
Age 85 209,282 0 0 0 37,114 37,114 100,000 354,177 354,177 371,886
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY FEDERAL KEMPER LIFE ASSURANCE COMPANY THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
50
<PAGE> 54
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE PREFERRED NON-SMOKER $3,000 ANNUAL PREMIUM ISSUE AGE 55
$100,000 INITIAL DEATH BENEFIT:
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PREMIUM GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ---------------------------- ----------------------------- -----------------------------
POLICY INTEREST CASH SURRENDER DEATH CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ --------- ----- --------- ------- ----- --------- ------- ----- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,202 2,022 100,000 2,355 2,175 100,000 2,508 2,328 100,000
2 6,457 4,384 4,024 100,000 4,831 4,471 100,000 5,297 4,937 100,000
3 9,930 6,548 6,008 100,000 7,436 6,896 100,000 8,399 7,859 100,000
4 13,577 8,694 7,974 100,000 10,176 9,456 100,000 11,849 11,129 100,000
5 17,406 10,821 9,921 100,000 13,057 12,157 100,000 15,686 14,786 100,000
6 21,426 12,930 12,030 100,000 16,088 15,188 100,000 19,953 19,053 100,000
7 25,647 15,021 14,181 100,000 19,276 18,436 100,000 24,698 23,858 100,000
8 30,080 17,094 16,374 100,000 22,629 21,909 100,000 29,976 29,256 100,000
9 34,734 19,149 18,609 100,000 26,155 25,615 100,000 35,846 35,306 100,000
10 39,620 21,186 21,186 100,000 29,864 29,864 100,000 42,374 42,374 100,000
11 44,751 23,207 23,207 100,000 33,765 33,765 100,000 49,634 49,634 100,000
12 50,139 25,209 25,209 100,000 37,869 37,869 100,000 57,708 57,708 100,000
13 55,796 27,195 27,195 100,000 42,185 42,185 100,000 66,688 66,688 100,000
14 61,736 29,163 29,163 100,000 46,724 46,724 100,000 76,675 76,675 100,000
15 67,972 31,115 31,115 100,000 51,498 51,498 100,000 87,782 87,782 101,827
16 74,521 33,050 33,050 100,000 56,520 56,520 100,000 100,077 100,077 115,088
17 81,397 34,968 34,968 100,000 61,802 61,802 100,000 113,670 113,670 128,448
18 88,617 36,870 36,870 100,000 67,357 67,357 100,000 128,702 128,702 142,859
19 96,198 38,756 38,756 100,000 73,200 73,200 100,000 145,326 145,326 158,405
20 104,158 40,626 40,626 100,000 79,346 79,346 100,000 163,713 163,713 175,173
- -----------------------------------------------------------------------------------------------------------------
Age 65 39,620 21,186 21,186 100,000 29,864 29,864 100,000 42,374 42,374 100,000
Age 70 67,972 31,115 31,115 100,000 51,498 51,498 100,000 87,782 87,782 101,827
Age 75 104,158 40,626 40,626 100,000 79,346 79,346 100,000 163,713 163,713 175,173
Age 80 150,340 43,101 43,101 100,000 113,925 113,925 119,622 287,479 287,479 301,853
Age 85 209,282 40,685 40,685 100,000 156,675 156,675 164,508 488,197 488,197 512,607
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMPTIONS:
(1) BASED ON DEATH BENEFIT OPTION A AND ASSUMES NO POLICY LOANS HAVE BEEN
MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS.
(5) ZERO VALUES INDICATE POLICY LAPSE IN ABSENCE OF AN ADDITIONAL PREMIUM
PAYMENT.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT,
CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT
ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATIONS CAN BE MADE BY FEDERAL KEMPER LIFE ASSURANCE COMPANY THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
51
<PAGE> 55
APPENDIX B
TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED ATTAINED
AGE* PERCENT AGE* PERCENT AGE* PERCENT AGE* PERCENT
- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95+ 100
</TABLE>
* ATTAINED AGE AS OF THE BEGINNING OF THE POLICY YEAR
52
<PAGE> 56
UNDERTAKING PURSUANT TO RULE 484(B)(1)
UNDER THE SECURITIES ACT OF 1933
Pursuant to the Distribution Agreement filed as Exhibit 1-A(3)(a) to this
Registration Statement, Federal Kemper Life Assurance Company (FKLA) and the
Separate Account have agreed to indemnify Investors Brokerage Services, Inc.
(IBS) against any claims, liabilities and expenses which IBS may incur under the
Securities Act of 1933 (the Act), 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 has agreed to indemnify FKLA and the Separate
Account against any and all claims, demands, liabilities and expenses which FKLA
or the Separate Account may incur, arising out of or based upon any act or deed
of IBS or of any registered representative of an NASD member investment dealer
which has an agreement with IBS and is acting in accordance with FKLA's
instructions.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of FKLA
or the Separate Account (by virtue of the fact that they may also be agents,
employees or controlling persons of IBS) pursuant to the foregoing provisions,
or otherwise, FKLA and the Separate Account have been advised that in the
opinion of the Securities and Exchange Commission such indemnification may be
against public policy as expressed in the Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by FKLA or the Separate Account of expenses
incurred or paid by a director, officer or controlling person of FKLA or the
Separate Account in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, FKLA and the Separate Account will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION REGARDING FEES AND CHARGES PURSUANT TO
SECTION 26 OF THE INVESTMENT COMPANY ACT OF 1940
Federal Kemper Life Assurance Company ("FKLA") represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by FKLA.
II-1
<PAGE> 57
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The Facing sheet.
1 Reconciliation and tie between items in N-8B-2 and Prospectus.
The prospectus consisting of 52 pages.
1 The undertaking to file reports.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of
1933.
Representation Regarding Fees and Charges Pursuant to Section 26
of the Investment Company Act of 1940.
The signatures.
Written consents of the following persons:
1 A. Frank J. Julian, Esq. (Included in Opinion filed as Exhibit
3(a)).
C. KPMG Peat Marwick LLP, independent auditors (Filed as Exhibit
6(a)).
D. Christopher J. Nickele, FSA (Included in Opinion filed as
Exhibit 3(b)).
The following exhibits:
<TABLE>
<S> <C>
21-A(1) FKLA Resolution establishing the Separate Account
11-A(3)(a) Distribution Agreement between FKLA and Investors Brokerage Services, Inc.
41-A(3)(b)(i) General Agent Agreement
41-A(3)(b)(ii) Specimen Selling Group Agreement of Investors Brokerage Services, Inc.
11-A(3)(c) Schedules of commissions
11-A(5) Specimen Policy
21-A(6)(a) FKLA Articles of Incorporation
1-A(6)(b) Bylaws of FKLA
31-A(8)(a) Janus Aspen Series Fund Participation Agreement
1-A(8)(a)(i) Service Agreement between Federal Kemper Life Assurance Company and Janus
Capital Corporation.
31-A(8)(b) Participation Agreement among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Federal Kemper Life Assurance Company
31-A(8)(c) Participation Agreement among Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Federal Kemper Life Assurance Company
1-A(8)(d) Participation Agreement by and among Federal Kemper Life Assurance Company
and Warburg, Pincus Trust and Warburg, Pincus Counsellors, Inc. and
Counsellors Securities Inc.
1-A(8)(d)(i) Service Agreement between Warburg Pincus Counsellors, Inc. and Federal
Kemper Life Assurance Company and Kemper Investors Life Insurance Company.
31-A(8)(e) Participation Agreement among Kemper Investors Fund, Zurich Kemper
Investments, Inc., Kemper Distributors, Inc. and Federal Kemper Life
Assurance Company
11-A(10) Application for Policy
13(a) Opinion and consent of legal officer of FKLA as to legality of policies
being registered
3(b) Opinion and consent of actuarial officer of FKLA regarding prospectus
illustrations and actuarial matters
6(a) Consent of independent auditors
38 Procedures Memorandum, pursuant to Rule 6e-3(T)(b)(12)(iii)
211 Representations, description and undertakings regarding mortality and
expense risk charge, pursuant to Rule 6e-3(T)(b)(13)(iii)(F)
</TABLE>
II-2
<PAGE> 58
<TABLE>
<S> <C>
99 Power of Attorney Forms
</TABLE>
- -------------------------
1 Filed with the Pre-Effective Amendment No. 1 of the Registrant on Form S-6
filed on March 24, 1995.
2 Filed with the Post-Effective Amendment No. 2 to the Registration Statement on
Form S-6 for FKLA Variable Separate Account filed on or about May 30, 1996.
3 Filed with Post-Effective Amendment No. 3 to the Registration Statement on
Form S-6 for FKLA Variable Separate Account filed on or about December 27,
1996.
4 Filed with Amendment No. 2 to the Registration Statement on Form S-1 filed on
or about April 23, 1997 (File No. 333-02491).
II-3
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
FKLA Variable Separate Account, certifies that it meets all of the requirements
for effectiveness of this Amendment to the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Long Grove and State of Illinois on
the 28th day of April, 1997.
FKLA VARIABLE SEPARATE ACCOUNT
(Registrant)
By: Federal Kemper Life Assurance Company
(Depositor)
By: /s/ JOHN B. SCOTT*
---------------------------------------
John B. Scott, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following directors
and principal officers of Federal Kemper Life Assurance Company in the
capacities indicated on the 28th day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOHN B. SCOTT* Chief Executive Officer, President and Director
- ----------------------------------------------------- (Principal Executive Officer)
John B. Scott
/s/ W. H. BOLINDER* Chairman of the Board and Director
- -----------------------------------------------------
William H. Bolinder
/s/ FREDERICK L. BLACKMON* Senior Vice President and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer and Principal Accounting
Frederick L. Blackmon Officer)
/s/ LOREN J. ALTER* Director
- -----------------------------------------------------
Loren J. Alter
/s/ DANIEL L. DOCTOROFF* Director
- -----------------------------------------------------
Daniel L. Doctoroff
/s/ STEVEN M. GLUCKSTERN* Director
- -----------------------------------------------------
Steven M. Gluckstern
/s/ MICHAEL P. STRAMAGLIA* Director
- -----------------------------------------------------
Michael P. Stramaglia
/s/ PAUL H. WARREN* Director
- -----------------------------------------------------
Paul H. Warren
</TABLE>
*By: /s/ FRANK J. JULIAN
----------------------------------
Frank J. Julian
Attorney-in-Fact
April 28, 1997
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <S>
1-A(6)(b) Bylaws of FKLA
1-A(8)(a)(i) Service Agreement between Federal Kemper Life Assurance
Company and Janus Capital Corporation.
1-A(8)(d) Participation Agreement by and among Federal Kemper Life
Assurance Company and Warburg, Pincus Trust and Warburg,
Pincus Counsellors, Inc. and Counsellors Securities Inc.
1-A(8)(d)(i) Service Agreement between Warburg Pincus Counsellors, Inc.
and Federal Kemper Life Assurance Company and Kemper
Investors Life Insurance Company.
3(b) Opinion and consent of actuarial officer of FKLA regarding
prospectus illustrations and actuarial matter.
6(a) Consent of Independent Auditors
99 Power of Attorney Forms
</TABLE>
<PAGE> 1
Exhibit 1-A(6)(b)
The undersigned, Debra P. Rezabek, does hereby certify that she is
corporate secretary of Federal Kemper Life Assurance Company, an Illinois
corporation, and that attached is a true and correct copy of the Company's
amended bylaws which were approved by the board of directors and subsequently
filed with the Illinois Department of Insurance on August 19, 1996.
WITNESS my hand and the seal of the Company at Long Grove, Illinois
this 9th day of April, 1997.
/s/ Debra P. Rezabek
Corporate Secretary
(SEAL)
<PAGE> 2
(Amended 03/18/93 to be effective 05/11/93)
(Amended 03/19/92 to be effective 05/12/92)
(Amended 03/21/91)
(Action taken 11/06/86 to be effective 05/21/87)
(Amended 01/12/94)
(Amended 03/17/95)
(Amended 03/22/96 to be effective 01/04/96)
AMENDED BYLAWS OF
FEDERAL KEMPER LIFE ASSURANCE COMPANY
LONG GROVE, ILLINOIS
SHAREHOLDERS' MEETINGS
1. The annual meeting of shareholders shall be held on the second
Tuesday in May of each year at 11:00 A.M., if not a legal holiday, and if a
legal holiday, then on the next business day following. A special meeting of
the shareholders may be called by the chairman of the board, the president, the
secretary or by any officer directed to do so by the board of directors.
Notice of an annual or special meeting of shareholders shall be mailed at least
ten (10) days prior to the meeting to each shareholder at such address as
appears on the stock record of the company, stating the time and place of the
meeting. The notice of a special meeting of shareholders shall state the
purpose of the meeting. Any annual or special meeting of shareholders may act
on any proposal included in the notice of the meeting, and in addition thereto,
any other proposal except a proposal for which special notice is required by
statute.
2. Notice of any annual or special meeting of the shareholders may be
waived by any shareholder, and failure of any shareholder to receive notice of
any meeting of shareholders shall not invalidate the meeting.
3. At any meeting of the shareholders, a majority of the stock issued
and outstanding, and entitled to vote thereat, shall be requisite and shall
constitute a quorum for the transaction of business except as otherwise
provided by statute. If, however, a quorum shall not be present at any
meeting, the shareholders present may recess the meeting from time to time by
majority vote, to reconvene without notice other than announcement at the
meeting. Any resolution of recess shall state the time and place at which the
meeting shall reconvene. At any recessed meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally called.
4. At any meeting of the shareholders, each shareholder shall be
entitled to vote in person or by proxy appointed by an instrument in writing
subscribed by such shareholder or by his duly authorized attorney, and shall
have one vote for each share of stock standing registered in his name on the
stock record of the company. Except as otherwise provided by statute, a
majority of the votes cast shall be sufficient to adopt or reject any proposal.
<PAGE> 3
FKLA Bylaws - 2 - 03/22/96
BOARD OF DIRECTORS
5. The corporate powers shall be exercised by, and the business and
affairs of the company shall be under the control of, the board of directors.
Except as otherwise provided by statute or by the Articles of Incorporation,
the number of directors shall be seven.
In addition to the powers and authority expressly conferred by the
Bylaws, the Articles of Incorporation, and by statute, the board of directors
may exercise all such powers of the company and do all such lawful acts and
things as are not required by statute or by the Articles of Incorporation or by
the Bylaws to be exercised or done by the shareholders.
6. The board of directors from time to time may adopt resolutions and
authorize the payment of refunds of unabsorbed premium deposits (dividends) to
the holders of participating policies. Such refunds (dividends) shall be in
accordance with such rates and rules and applicable to such kind or kinds of
insurance or policies of insurance or classifications thereof as may be
determined by the board of directors.
7. The board of directors shall meet and organize as soon as
practicable after the annual meeting of the shareholders. If the organization
meeting of the board of directors is held immediately after the adjournment of
the annual meeting of shareholders, no notice of such meeting need be given to
any directors.
8. The board of directors may prescribe a schedule of regular meetings
stating the times and places thereof, and when such schedule is adopted no
notice of any such meeting need be given to the directors.
9. A special meeting of the board of directors may be called by the
chairman of the board, president or secretary on three (3) days' notice. Such
notice may be given personally, by telephone, by telegram, or by written notice
mailed or delivered to the business or residence address of a director. Notice
of meeting may be waived by any director, and attendance of a director shall
constitute a waiver of notice of such meeting, except where such director
attends the meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called. Neither
the business to be transacted nor the purpose of any regular or special meeting
of the board of directors need be stated in the notice or waiver of notice of
such meeting unless expressly required by statute.
10. A majority of the board of directors shall be requisite and shall
constitute a quorum for the transaction of business at any meeting of the board
of directors, but if less than a quorum be present at any meeting, a majority
of those present may recess the meeting from time to time to reconvene without
notice other than by announcement at the meeting, until a quorum shall be
present.
<PAGE> 4
FKLA Bylaws - 3 - 03/22/96
11. Except as otherwise provided by statute, by the Charter (Articles
of Incorporation) or by the Bylaws, a majority of the votes cast by the
directors shall be sufficient to adopt or reject any proposal.
EXECUTIVE COMMITTEE - INVESTMENT COMMITTEE
12. The board of directors by vote of a majority of the directors may
elect from among its number an executive committee of not less than three
regular members and one or more alternate members. The chairman of the board
(or in his absence or disability, then the respective officers next in rank)
shall have power to designate any alternate member or members to serve on the
executive committee at any time during the absence or disability of a regular
member. If the committee shall consist of three members then the attendance of
at least one regular member shall be required, and if the committee shall
consist of more than three regular members, the attendance of at least two
regular members shall be required. The executive committee shall have and
exercise, during the interim between the meetings of the board, all authority
of the board of directors. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business. A meeting
of the executive committee may be called and held in conformity with the
provisions of the Bylaws relating to a meeting of the board of directors, or
such meeting may be held informally and action recorded by any member of the
committee in executive committee minutes. The votes of a majority of the
members of the executive committee shall govern with respect to any proposal.
The minutes of the meetings of the executive committee shall be reported to the
board of directors.
13. The executive committee shall have general charge of the investment
affairs of the company, with power to determine and authorize the purchase or
sale of any security or property, and to determine or authorize any action with
respect to the liquidation of, exchange of, or the exercise of any right
pertaining to any security or property in which the company has an interest or
which belongs to the company.
14. The executive committee shall have power to adopt resolutions and
authorize the payment of refunds of unabsorbed premium deposits (dividends to
the holders of participating policies).
15. The executive committee shall have power to adopt resolutions
governing the deposit of funds of the company and the manner of withdrawal or
disbursement of such funds, and to authorize the leasing of safe deposit boxes
and to provide rules and regulations for access to any safe deposit box. The
executive committee shall have the right to repeal or amend any resolution
previously adopted by the board of directors with respect to any banking
account or deposit of funds or safe deposit box unless such resolution shall
have specifically reserved to the board of directors the exclusive right to
amend or repeal such resolution.
16. The board of directors may limit or restrict the authority of the
executive committee to any extent stated in a resolution adopted by the board
of directors.
<PAGE> 5
FKLA Bylaws - 4 - 03/22/96
17. By resolution of the board of directors, there may be delegated to
an investment committee any authority or power determined by the board of
directors respecting the making of loans and investments of the funds of the
company, borrowing funds for the account of the company, and the taking of any
action with respect to the custody of, the liquidation, sale or exchange of, or
the exercise of any right pertaining to any security or asset belonging to the
company and such other powers relating to the deposit of or custody of funds of
the company as may be stated in such resolution. The investment committee
shall consist of not less than three regular members, and the provisions of
Section 12 relating to the designation of alternates and the requirements for
calling and holding a meeting of the executive committee shall apply to
meetings of the investment committee.
OFFICERS
18. The board of directors shall elect or appoint the officers
specified or provided for in the Bylaws, the members of the executive
committee, the members of any committee or advisory board and such other
officers as it may deem advisable, and determine the powers and duties of such
officers. The board shall have power to fix the compensation of members of the
board for their services and shall fix or determine the manner of fixing the
compensation of officers and employees of the company. Any officer or
committee member shall serve at the pleasure of the board, except that with
respect to an officer of the company the board of directors shall have power to
authorize a contract containing such provisions as to term or conditions of
service as it may deem advisable. One person may hold two or more offices.
Any vacancy in any office may be filled by the board of directors. Interim or
temporary appointments may be made at any time by the executive committee. Any
such appointment by the executive committee shall be reported to and confirmed
by the board of directors at the next meeting.
19. Principal Officers. The chairman of the board or the president
shall preside at meetings of shareholders of the company, shall preside at
meetings of the board of directors, shall be ex-officio a member of any
committee appointed by the board, and shall exercise general supervision,
direction and management of the business of the company.
During the absence or disability of the chairman of the board, the
chairman of the board may designate from time to time which of the following
principal officers shall assume and perform the powers and duties of the
chairman of the board, or if no such designation is made then the following
principal officers in the order of rank named, temporarily shall assume and
perform the powers and duties of chairman of the board:
1. Chairman
2. President
3. Deputy chairman, if any
4. Vice chairman, if any
<PAGE> 6
FKLA Bylaws - 5 - 03/22/96
Each of such principal officers shall have such regular duties and
responsibilities as shall be prescribed by the board of directors, the
executive committee or the chairman of the board.
20. Vice Presidents, Treasurer and Secretary. An executive vice
president, a financial vice president, a senior vice president, a vice
president, a treasurer or a secretary shall have such duties and
responsibilities as may be prescribed by the board of directors, the executive
committee or by the chairman of the board.
SHAREHOLDERS
21. The certificates of stock of the company shall be numbered and
shall be entered in the books of the company as they are issued. They shall
show the holder's name and number of shares and shall be signed by the chairman
of the board or the deputy chairman or the vice chairman or the president or a
vice president and by the treasurer or an assistant treasurer or a secretary or
an assistant secretary.
22. A transfer of stock shall be made on the record of the company only
by the person named in the certificate or by his attorney lawfully constituted
in writing, and upon surrender of the certificate therefor.
23. The board of directors shall have power to close the stock transfer
record of the company for a period not exceeding forty (40) days preceding:
(a) the date of any meeting of shareholders, or
(b) the date for payment of any dividend, or
(c) the date for any allotment of rights, or
(d) the date when any change or conversion or
exchange of capital stock shall go into effect,
or in lieu of closing the stock transfer record, the board of directors may fix
in advance a date not exceeding forty (40) days prior to a date mentioned in
items (a), (b), or (c) as a record date for any purpose stated in such items,
and only such shareholders as shall be shareholders of record on the closing or
record date so fixed shall be entitled to notice of and to vote at such
meeting, or to exercise rights respecting change or conversion or exchange of
capital stock, as the case may be, notwithstanding any transfer of any stock on
the record of the company after such record date.
24. The company shall be entitled to treat the holder of record of any
shares of stock as the holder in fact thereof and accordingly shall not be
bound to recognize any equitable or other claim to, or interest in, such shares
on the part of any other person, whether or not the company shall have express
or other notice thereof, except as expressly provided by the laws of Illinois.
<PAGE> 7
FKLA Bylaws - 6 - 03/22/96
25. The board of directors may direct a new certificate of stock to be
issued in the place of any certificate of stock theretofore issued by the
company alleged to have been lost or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate to be lost or destroyed.
The board of directors when directing such issuance of a new certificate of
stock, in its discretion and as a condition precedent to the issuance thereof,
may require the owner of such lost or destroyed certificate to advertise the
same in such manner as it shall require and to give the company a bond in such
sum as the board of directors may determine as indemnity against any claim that
may be made against the company on account of such certificate of stock.
26. The board of directors may determine from time to time whether and,
if allowed, when and under what conditions and regulations the accounts and
books of the company (except such as by statute specifically may be required to
be open to inspection) or any of them shall be open to the inspection of the
shareholders, and the shareholders' rights in this respect are and shall be
restricted and limited accordingly.
27. Dividends upon the capital stock of the company may be declared by
the board of directors in its discretion at any regular or special meeting.
Dividends may be paid in cash, property, shares of capital stock or in any
other form or manner permitted by law, as determined by the board of directors.
28. Before payment of any dividend there may be set aside out of any
funds of the company available for dividends such sum or sums as the
board of directors from time to time, in its discretion, deems proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the company, or for such other purpose
as the board of directors shall deem conducive to the interest of the
company.
MISCELLANEOUS
29. The fiscal year shall begin the first day of January in each year.
30. Each director and officer of the company shall be indemnified by
the company against all expenses (including attorneys fees), judgments, fines,
amounts paid in settlement, and other costs actually and reasonably incurred by
him in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the company) in which he is a party or is
threatened to be made a party by reason of his being or having been a director
or officer of the company, or serving or having served, at the request of the
company, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of his
holding a fiduciary position in connection with the management or
administration of retirement, pension, profit sharing or other benefit plans
including, but not limited to, any fiduciary liability under the Employee
Retirement Income Security Act of 1974 and any amendment thereof, if he acted
in good faith and in a manner he reasonably believed to be in and not opposed
to the best interests of the company, and with respect to any
<PAGE> 8
FKLA Bylaws - 7 - 03/22/96
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that he did not act in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
However, in any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of
his being or having been a director or officer of the company, or serving or
having served at the request of the company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or by reason of his holding a fiduciary position in connection with
a retirement, pension, profit sharing or other employee benefit plan,
including, but not limited to, any fiduciary liability under the Employee
Retirement Income Security Act of 1974 and any amendment thereof, each director
and officer shall be indemnified by the company against expenses (including
attorneys fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which a director or officer shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the company, unless and only to the extent that the court in which such
action or suit was brought or other court of competent jurisdiction shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, he is fairly and reasonably entitled
to indemnity for such expenses as the court shall deem proper.
To the extent that a director or officer has been successful on the
merits or otherwise in defense of any such action, suit or proceeding herein
referred to, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys fees) actually and reasonably
incurred by him in connection therewith.
The right of indemnification herein provided shall not be exclusive of
other rights to which any director or officer may be entitled under any
agreement, vote of disinterested directors or otherwise as a matter of law,
both as to action in his official capacity and as to action in another capacity
while holding such office, and the right of indemnification shall continue as
to any person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Any indemnification shall be made by the company only as authorized in
the specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standard of conduct herein set forth. Such determination shall be made (1) by
the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action,
<PAGE> 9
FKLA Bylaws - 8 - 03/22/96
suit or proceeding, or (2) if such quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion.
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the company in advance of the final disposition of
such action, suit or proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the corporation as herein provided.
Should the company be absorbed in a consolidation or merger, each
director or officer of the company shall be entitled to stand in the same
position with respect to the resulting or surviving corporation as he would if
he had served the resulting or surviving corporation in the same capacity, with
respect to indemnification by reason of his being or having been a director of
the company or serving or having served, at the request of the company, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
The right of indemnification herein provided shall extend and apply to
any employee holding a fiduciary position in connection with the management or
administration of retirement, pension, profit sharing or other employee benefit
plans including, but not limited to, any fiduciary liability under the Employee
Retirement Income Security Act of 1974 and any amendment thereof.
31. Any officer of the company shall furnish a fidelity bond or a bond
guaranteeing the faithful performance of his duties for such an amount as may
be determined by the board of directors, and the cost of such bond shall be
paid by the company.
32. The form of the corporate seal may be determined from time to time
by the board of directors.
33. These Bylaws may be repealed or amended by the vote of a majority
of the whole board of directors at any regular or special meeting, except as
otherwise provided by statute.
<PAGE> 1
[JANUS CAPITAL CORPORATION LETTERHEAD] EXHIBIT 1-A(8)(a)(i)
September 4, 1996
Mr. Otis R. Heldman, Jr.
Marketing Officer
Federal Kemper Life Assurance Company
1 Kemper Drive
Long Grove, IL 60049-0001
Dear Mr. Heldman:
This letter sets forth the agreement between Federal Kemper Life
Assurance Company (the "Company"), and Janus Capital Corporation (the
"Adviser"), concerning certain administrative services.
1. Administrative Services and Expenses. Administrative services for
the separate accounts of the Company (the "Accounts") which invest in
one or more portfolios (collectively, the "Portfolios") of Janus Aspen
Series (the "Trust") pursuant to the Participation Agreement among the
Company, the Adviser, and the Trust dated September 16, 1996 (the
"Participation Agreement"), and for purchasers of variable annuity or
life insurance contracts (the "Contracts") issued through the Account
are the responsibility of the Company. Administrative services for the
Portfolios, in which the Account invests, and for purchasers of shares
of the Portfolios, are the responsibility of the Trust. These
administrative services the Company intends to provide to the Trust and
its Portfolios are set forth in Schedule A attached to this letter
agreement, which may be amended from time to time.
2. Service Fee. In consideration of the anticipated administrative
expense savings resulting to the Trust from the Company's services, the
Adviser agrees to pay the Company a fee ("Service Fee"), computed daily
and paid monthly in arrears, equal to fifteen (15) basis points (0.15%)
applied to the average monthly value of the total number of shares of
the Portfolios held in the subaccounts of the Account, commencing with
the month in which the average monthly value of investments by the
subaccounts of the Account, together with any investments by the
separate accounts of Kemper Investors Life Insurance Company in the
Portfolios, reaches $50 million. The Service Fee will be correspondingly
suspended if the average monthly market value of such investments drops
below $50 million in any month.
For purposes of this Paragraph 2, the average monthly value of the
shares of the Portfolios will be based on the daily net asset values
reported by such Portfolios to the Company divided by the number of
days in the month.
3. Nature of Payments. The parties to this letter agreement
recognize and agree that the Adviser's payments to the Company
relate to administrative services only and do not
<PAGE> 2
constitute payment in any manner for administrative services provided
by the Company to the Account or to the Contracts, for investment
advisory services or for costs of distribution of Contracts or of shares
of the Portfolios, and that these payments are not otherwise related to
investment advisory or distribution services or expenses.
4. Representations and Warranties.
a. The Adviser represents and warrants that in the event the
Trustees of the Trust approve the payment of all or any portion of
the Service Fee by the Trust, the Trust will calculate in the same
manner the Service Fee to all insurance companies that have
entered into Service Fee arrangements with the Adviser and/or the
Trust (the "Participating Insurance Companies").
b. The Company represents and warrants that: (1) it and
its employees and agents meet the requirements of applicable law,
including but not limited to federal and state securities law and
state insurance law, for the performance of services contemplated
herein; and (2) it will not purchase Trust shares of the
Portfolios with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in
connection with such plans and that the Service Fee does not
include any payment to the Company that is prohibited under the
Employee Retirement Income Securities Act of 1974 ("ERISA") with
respect to any assets of a Contract owner invested in a Contract
using the Portfolios as investment vehicles.
c. The Company represents, warrants and agrees that: (1)
the payment of the Service Fee by the Adviser is designed to
reimburse the Company for providing administrative services to the
Trust that the Trust would customarily pay and does not represent
reimbursement to the Company for providing administrative services
to the Contract or Account as described in Section 26 of the
Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations thereunder; (2) no portion of the Service Fee will be
rebated by the Company to any Contract owner; and (3) if the
Company or the Adviser, with advice of counsel, determines that it
is required or appropriate under applicable law, the Company will
disclose to each Contract owner the existence of the Service Fee
received by the Company pursuant to this letter agreement and will
disclose the amount of the Service Fee, if any, that is paid by
the Trust.
5. Indemnification
a. The Company agrees to indemnify and hold harmless the
Adviser and its directors, officers, and employees from any and
all loss, liability and expense resulting from any gross
negligence or willful wrongful act of the Company in performing
its services under this letter agreement, from the inaccuracy or
breach of any representation made in this letter agreement, or
from a breach of a material
<PAGE> 3
provision of this letter agreement, except to the extent such
loss, liability or expense is the result of the Adviser's willful
misfeasance, bad faith or gross negligence in the performance of
its duties.
b. The Adviser agrees to indemnify and hold harmless the
Company and its directors, officers, agents and employees from any
and all loss, liability and expense resulting from any gross
negligence or willful wrongful act of the Adviser in performing
its services under this letter agreement, from the inaccuracy or
breach of any representation made in this letter agreement, or
from a breach of a material provision of this letter agreement,
except to the extent such loss, liability or expense is the result
of the Company's willful misfeasance, bad faith or gross
negligence in the performance of its duties.
6. Termination.
a. Either party may terminate this letter agreement, without penalty,
on sixty (60) days' written notice to the other party.
b. This letter agreement will terminate at the option of either party
in the event of the termination of the Participation Agreement.
c. This letter agreement will terminate immediately upon
the determination of either party, with the advice of counsel,
that the payment of the Service Fee is in conflict with applicable
law.
d. In the event of the termination of either the
Participation Agreement among the Adviser, the Trust and Kemper
Life Insurance Company or the letter agreement between the Adviser
and Kemper Life Insurance Company that is substantially similar to
this letter agreement, the assets of Kemper Life Insurance
Company's separate accounts will no longer be taken into account
in determining whether the $50 million minimum set forth in
Section 2 has been reached.
7. Amendment. This letter agreement may be amended only upon mutual
agreement of the parties hereto in writing.
8. Confidentiality. The terms of this letter agreement will
be treated as confidential and will not be disclosed to the public or any
outside party except with each party's prior written consent, as required
by law or judicial process or as provided in paragraph 4c herein.
9. Assignment. This letter agreement may not be assigned (as
that term is defined in the 1940 Act) by either party without the prior
written approval of the other party, which approval will not be
unreasonably withheld, except that the Adviser may assign its obligations
under this letter agreement, including the payment of all or any portion of
the Service Fee, to the trust upon thirty (30) days' written notice to the
Company.
<PAGE> 4
10. Governing Law. This letter agreement will be construed and
the provisions hereof interpreted under and in accordance with the laws of
the State of Colorado.
11. Counterparts. This letter agreement may be executed in
counterparts, each of which will be deemed an original but all of which
will together constitute one and the same instrument.
If this letter agreement is consistent with your understanding of the matters
we discussed concerning administrative expense payments, kindly sign below and
return a signed copy to us.
Very truly yours,
JANUS CAPITAL CORPORATION
By: /s/ David W. Agostine
-----------------
Name: David W. Agostine
-----------------
Title: Vice President
--------------
FEDERAL KEMPER LIFE ASSURANCE COMPANY
By : /s/ Otis R. Heldman, Jr.
--------------------
Name: Otis R. Heldman, Jr.
--------------------
Title: Marketing Officer
-----------------
Attachment: Schedule A
<PAGE> 5
Schedule A
Pursuant to the letter agreement to which this Schedule is attached, the
Company will perform administrative services including, but not limited to, the
following:
1. Print and mail to Contract owners copies of the Portfolios'
prospectuses, proxy materials, periodic fund reports to shareholders and other
materials that the Trust is required by law or otherwise to provide to its
shareholders.
2. Provide Contract owner services including, but not limited to,
financial consultants' advice with respect to inquiries related to the
Portfolios (not including information about performance or related to sales)
and communicating with Contract owners about Portfolio (and subaccount)
performance.
3. Provide other administrative support for the Trust as mutually
agreed to by the Company and the Adviser and relieve the Trust of other usual
or incidental administrative services provided to individual Contract owners.
<PAGE> 1
Exhibit 1-A(8)(d)
Federal Kemper Life
EXECUTION COPY
PARTICIPATION AGREEMENT
BY AND AMONG
FEDERAL KEMPER LIFE ASSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
THIS AGREEMENT, made and entered into this 10th day of March, 1997, by
and among Federal Kemper Life Assurance Company, organized under the laws of
Illinois (the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement as may be amended
from time to time (each account referred to as the "Account"), Warburg, Pincus
Trust, an open-end management investment company and business trust organized
under the laws of the Commonwealth of Massachusetts (the "Fund"); Warburg,
Pincus Counsellors, Inc. a corporation organized under the laws of the State of
Delaware (the "Adviser"); and Counsellors Securities Inc., a corporation
organized under the laws of the State of New York ("CSI").
WHEREAS, the Fund engages in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies that have entered into participation agreements similar to this
Agreement (the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities and
Exchange Commission (the "SEC") granting Participating Insurance Companies and
variable annuity separate accounts and variable life insurance separate
accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and 15(b)
of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
<PAGE> 2
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans outside of the separate account context (the
"Mixed and Shared Funding Exemptive Order"). The parties to this Agreement
agree that the conditions or undertakings specified in the Mixed and Shared
Funding Exemptive Order and that may be imposed on the Company, the Fund, the
Adviser and/or CSI by virtue of the receipt of such order by the SEC will be
incorporated herein by reference, and such parties agree to comply with such
conditions and undertakings to the extent applicable to each such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of Illinois, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, CSI, the Fund's distributor, is registered as a broker-dealer
with the SEC under the Securities Exchange Act of 1934 (the "1934 Act") and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 2, as such schedule may be amended from time to time (the "Designated
Portfolios"), on behalf of the Accounts to fund the Contracts, and the Fund is
authorized to sell such shares to unit investment trusts such as the Accounts
at net asset value; and
WHEREAS, each Account is subdivided into subaccounts (each, a
"Subaccount"), each of invests in a Designated Portfolio;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund, the Adviser and CSI agree as follows:
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ARTICLE I. SALE OF FUND SHARES
1.1. CSI agrees to sell to the Company those shares of the Designated
Portfolios that each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt and acceptance by CSI or its
designee of the order for the shares of the Fund. For purposes of this Section
1.1, the Company will be the designee of CSI for receipt of such orders from
each Account and receipt by such designee will constitute receipt by CSI;
provided that CSI receives notice of such order by 10:00 a.m. Eastern Time on
the next following Business Day ("T+1"). "Business Day" will mean any day on
which the New York Stock Exchange, Inc. (the "NYSE") is open for trading and on
which the Fund calculates its net asset value pursuant to the rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 in each case that an order
to purchase Fund shares is made in accordance with Section 1.1 above. Payment
will be in federal funds transmitted by wire. This wire transfer will be
initiated by 12:00 p.m. Eastern Time.
1.3. CSI and the Adviser agree to make, and to cause the Fund to make,
shares of the Designated Portfolios available indefinitely for purchase at the
applicable net asset value per share by Participating Insurance Companies and
their separate accounts on those days on which the Fund calculates its
Designated Portfolio net asset value pursuant to rules of the SEC and the Fund
shall use reasonable efforts to calculate such net asset value on each day the
NYSE is open for trading; provided, however, that the Fund or CSI may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Fund acting in good faith, necessary in the best interests of the shareholders
of such Portfolio.
1.4. On each Business Day on which the net asset value of the Fund is
calculated, the Company will aggregate and calculate the net purchase or
redemption orders for each Subaccount investing in a Designated Portfolio. Net
orders will only reflect orders that the Company has received prior to the
close of regular trading on the NYSE currently 4:00_p.m., Eastern Time) on that
Business Day. Orders that the Company has received after the close of regular
trading on the NYSE will be treated as though received on the next Business
Day. Each communication of orders by the Company will constitute a
representation that such orders were received by it prior to the close of
regular trading on the NYSE on the Business Day on which the purchase or
redemption order is priced in accordance with Rule 22c-1 under the 1940 Act.
Other procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated
Portfolio or with instructions that CSI will forward to the Company from time
to time, as practice may develop by mutual agreement of the parties hereto over
the course of performance of this Agreement.
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1.5. CSI and the Adviser agree that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified
pension and retirement plans or such other persons as are permitted under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and regulations promulgated thereunder, the sale to
which will not impair the tax treatment currently afforded the Contracts. No
shares of any Portfolio will be sold to the general public except as set forth
in this Section 1.5.
1.6. CSI and the Adviser agree to cause the redemption for cash, upon the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the
request for redemption. For purposes of this Section 1.6, the Company will be
the designee of the Fund for receipt of requests for redemption from each
Subaccount and receipt by such designee will constitute receipt by the Fund,
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment will be in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds in extraordinary circumstances where such action
is necessary in the best interests of the shareholders of the relevant
Portfolio, but in no event may such payment be delayed longer than the period
permitted by the 1940 Act. The Fund will not bear any responsibility
whatsoever for the proper disbursement or crediting of redemption proceeds; the
Company alone will be responsible for such action. If notification of
redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance
with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate Subaccount.
1.9. CSI or the Adviser will furnish same day notice (by telecopier,
followed by written confirmation) to the Company of the declaration of any
income, dividends or capital gain distributions payable on each Designated
Portfolio's shares. The Company hereby elects to receive all such dividends
and distributions as are payable on the Designated Portfolio shares in the form
of additional shares of that Designated Portfolio. CSI or the Adviser will
notify the Company of the number of shares so issued as payment of such
dividends and distributions. The Company reserves the right to revoke this
election upon reasonable prior
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<PAGE> 5
notice to the Fund and to receive all such dividends and distributions in cash.
To the extent practicable, CSI or the Adviser will furnish the Company with
advance notice of any such declaration of income, dividends or distributions.
1.10. CSI and the Adviser will make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and will
use its best efforts to make such net asset value per share available by 6:00
p.m., Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each
Business Day.
1.11. The Advisor or CSI will provide notice of any error in calculation of
net asset value of a Designated Portfolio as soon as reasonably practical after
discovery thereof. Any such notice will state for each day for which an error
occurred the incorrect price, the correct price and the reason for the price
change. CSI and the Advisor shall make the Account whole for any payments or
adjustments to the number of Shares in a Subaccount that are reasonably
demonstrated to be required as a result of pricing errors.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a separate account under applicable state law and
has registered each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as segregated investment accounts for the
Contracts, and that it will maintain such registration for so long as any
Contracts are outstanding. The Company will amend the registration statement
under the 1933 Act for the Contracts and the registration statement under the
1940 Act for each of the Accounts from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company will register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and
to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity or life insurance contracts under
applicable provisions of the Internal Revenue Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and the
Adviser immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
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<PAGE> 6
2.3. CSI and the Adviser represent and warrant that Fund shares of the
Designated Portfolios sold pursuant to this Agreement will be registered under
the 1933 Act and duly authorized for issuance in accordance with applicable law
and that the Fund is and will remain registered under the 1940 Act for as long
as such shares of the Designated Portfolios are outstanding. CSI and the
Adviser will amend the registration statement for shares of the Fund under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of shares of the Fund or as may otherwise be required by
applicable law. CSI and the Adviser will register and qualify the shares of
the Designated Portfolios for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund.
2.4. CSI and the Adviser represent that each Designated Portfolio is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that a Designated Portfolio has ceased to so qualify or that it might
not so qualify in the future. CSI and the Adviser acknowledge that failure of
the Fund to so qualify as a Regulated Investment Company may affect the tax
status of the Contracts as life insurance or annuity contracts.
2.5. In performing the services described in this Agreement, CSI and the
Adviser will comply with, and will cause the Fund to comply with, all
applicable laws, rules and regulations governing the issuance and sale of
shares of the Fund. Neither the Fund, the Adviser nor CSI makes any
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies, objectives and
restrictions) complies with the insurance laws and regulations of any state.
The Adviser and CSI each agree that upon request they will use their best
efforts to furnish the information required by state insurance laws so that the
Company can obtain the authority needed to issue the Contracts in the various
states.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 the Fund
undertakes to have its Fund Board formulate and approve any plan under Rule
12b-1 to finance distribution expenses in accordance with the 1940 Act.
2.7. CSI and the Adviser represent that the Fund is lawfully organized and
validly existing under the laws of The Commonwealth of Massachusetts and that
it does and will comply in all material respects with applicable provisions of
the 1940 Act.
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<PAGE> 7
2.8. CSI represents and warrants that it will distribute the Fund shares of
the Designated Portfolios in accordance with all applicable federal and state
securities laws including, without limitation, the 1933 Act, the 1934 Act and
the 1940 Act.
2.9. CSI represents and warrants that it is and will remain duly registered
under all applicable federal and state securities laws and that it will perform
its obligations for the Fund in accordance in all material respects with any
applicable state and federal securities laws.
2.10. The Fund represents and warrants that all of its trustees, officers,
employees, and other individuals/entities having access to the funds and/or
securities of the Fund are and continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the minimal coverage as required currently by Rule 17g-(1) of the
1940 Act or related provisions as may be promulgated from time to time. The
aforesaid bond includes coverage for larceny and embezzlement and is issued by
a reputable bonding company. CSI and the Adviser represent and warrant that
they are and continue to be at all times covered by policies similar to the
aforesaid bond.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Adviser or CSI will create and file a definitive prospectus with
the SEC under Rule 497 of the 1933 Act. The Adviser or CSI will provide the
Company, at the Fund's or its affiliate's expense, with as many copies of the
current prospectus only for the Designated Portfolios as the Company may
reasonably request for distribution, at the Company's expense, to prospective
contractowners and applicants. The Advisor or CSI will provide, at the Fund's
or its affiliate's expense, as many copies of said prospectus as necessary for
distribution, at the Company's expense, to existing contractowners. The
Adviser or CSI will provide the copies of said prospectus to the Company or to
its mailing agent. If requested by the Company, the Adviser or CSI will
provide such documentation, including a computer diskette of the Company's
specification or a final copy of a current prospectus set in type at the Fund's
or its affiliate's expense, and such other assistance as is reasonably
necessary in order for the Company at least annually (or more frequently if the
relevent Designated Portfolio prospectus is amended more frequently) to have
the Designated Portfolios' prospectuses, the prospectus for the Contracts and
the prospectuses of other mutual funds in which assets attributable to the
Contracts may be invested printed together in one document (the "Multifund
Prospectus"), in which case the Fund or its affiliate will bear its reasonable
share of expenses as described above, allocated based on the proportionate
number of pages of the Fund's and other fund's respective portions of the
document.
3.2. The Adviser or CSI will provide the Company, at the Fund's or its
affiliate's expense, with as many copies of the statement of additional
information as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners
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<PAGE> 8
and applicants. The Adviser or CSI will provide, at the Fund's or its
affiliate's expense, as many copies of said statement of additional information
as necessary for distribution, at the Company's expense, to any existing
contractowner who requests such statement or whenever state or federal law
otherwise requires that such statement be provided. The Adviser or CSI will
provide the copies of said statement of additional information to the Company
or to its mailing agent.
3.3. To the extent that the Adviser, the Fund or CSI makes a discretionary
change that requires a change (whether by revision or supplement) to any of the
material information contained in any form of Designated Portfolio prospectus
or statement of additional information provided to the Company for inclusion in
a Multifund Prospectus, the Company agrees to make such changes within a
reasonable period of time after receipt of a request to make such change from
the Advisor or CSI. The expenses of printing and mailing incurred by the
Company in complying with such request shall be reimbursed by the Fund or its
affiliates. To the extent that the Fund is legally required to make a change
to a Designated Portfolio prospectus or statement of additional information
provided to the Company for inclusion in a Multifund Prospectus, the Company
agrees to make any such change as soon as possible following receipt of the
form of revised prospectus and/or statement of additional information or
supplement, as applicable, but in no event later than five days following
receipt. To the extent that the Fund is required by law to cease selling
shares of a Designated Portfolio, the Company agrees to cease offering
interests in the Subaccount corresponding to such Designated Portfolio until
the Fund or CSI notifies the Company otherwise.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
statements of additional information other than those actually distributed to
existing owners of the Contracts.
3.4. The Adviser or CSI, at the Fund's or its affiliate's expense, will
provide the Company or its mailing agent with copies of its proxy material, if
any, reports to shareholders and other communications to shareholders in such
quantity as the Company will reasonably require. The Company will distribute
this proxy material, reports and other communications to existing contract
owners and tabulate the votes.
3.5. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in
the appropriate Subaccount in accordance with instructions received from
contractowners; and
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<PAGE> 9
(c) vote shares of the Designated Portfolios held in the
appropriate Subaccount for which no timely instructions have been received, as
well as shares it owns, in the same proportion as shares of such Designated
Portfolio for which instructions have been received from the Company's
contractowners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable contractowners.
Except as set forth above, the Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company will be responsible for assuring that each of its separate
accounts participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and Shared Funding
Exemptive Order.
3.6. CSI and the Adviser will comply with, and will cause the Fund to
comply with, all provisions of the 1940 Act requiring voting by shareholders,
and in particular, either will provide for annual meetings (except insofar as
the SEC may interpret Section 16 of the 1940 Act not to require such meetings)
or, as is currently intended, will comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections_16(a) and, if and when applicable, 16(b).
Further, the Adviser and CSI will cause the Fund to act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees, with whatever rules the SEC may promulgate with
respect thereto and with the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. CSI will provide the Company on a timely basis with investment
performance information for each Designated Portfolio in which a Subaccount
invests, including total return for the preceding calendar month and calendar
quarter, the calendar year to date, and the prior one-year, five-year, and ten
year (or life of the Designated Portfolio) periods. The Company may, based on
such information supplied by CSI, prepare communications for contractowners
("Contractowner Materials"). The Company will provide copies of all
Contractowner Materials concurrently with their first use for CSI's internal
recordkeeping purposes. It is understood that neither CSI nor any Designated
Portfolio will be responsible for errors or omissions in, or the content of,
Contractowner Materials except to the extent that the error or omission
resulted from information provided by or on behalf of CSI or the Designated
Portfolio. Any printed information that is furnished to the Company pursuant
to this Agreement other than each Designated Portfolio's prospectus or
statement of additional information (or information supplemental thereto),
periodic reports and proxy solicitation materials is CSI's sole responsibility
and not the responsibility of any Designated Portfolio or the Fund. The Company
agrees that the Portfolios, the shareholders of the Portfolios and the
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officers and governing Board of the Fund will have no liability or
responsibility to the Company in these respects.
4.2. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published reports
for the Fund which are in the public domain or approved by the Fund or CSI for
distribution, or in sales literature or other material provided by the Fund,
the Adviser or by CSI, except with permission of CSI. The Company will
furnish, or will cause to be furnished, to the Fund, the Adviser or CSI, each
piece of sales literature or other promotional material in which the Company or
an Account is named, at least eight (8) business days prior to its use.
Nothing in this Section 4.2 will be construed as preventing the
Company's affiliates from giving advice on investment in the Fund.
4.3. The Adviser and CSI will not give, or allow the Fund to give, any
information or make, or allow the Fund to make, any representations or
statements on behalf of the Company or concerning the Company, each Account, or
the Contracts other than the information or representations contained in a
registration statement, prospectus or statement of additional information for
the Contracts, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
published reports for each Account or the Contracts which are in the public
domain or approved by the Company for distribution to contractowners, or in
sales literature or other material provided by the Company, except with
permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis. The Adviser or CSI will furnish, or
will cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company or an Account is
named at least eight (8) business days prior to its use. No such material will
be used if the Company reasonably objects to such use within five (5) business
days after receipt of such material.
4.4. CSI or the Adviser will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of additions
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC, the NASD or
other regulatory authority.
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4.5. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts
or any Account, contemporaneously with the filing of such document with the
SEC, the NASD or other regulatory authority.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media (e.g., on-line
networks such as the Internet or other electronic messages)), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisements sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, proxy materials and
any other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
4.7. The Fund and CSI hereby consent to the Company's use of the names
Warburg, Pincus Trust International Equity Portfolio, Warburg, Pincus Trust
Small Company Value Portfolio, Warburg, Pincus Trust Post-Venture Capital
Portfolio or other Designated Portfolio and Warburg, Pincus Counsellors, Inc.
in connection with the marketing of the Contracts, subject to the terms of
Sections 4.1 and 4.2 of this Agreement. Such consent will continue only as
long as any Contracts are invested in the relevant Designated Portfolio and
only as long as such use is consistent with the provision of historical
information on the Contracts.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund, the Adviser and CSI will pay no fee or other compensation to
the Company (other than as set forth in the administrative services letter
agreement between CSI and the Company) except if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the 1940
Act to finance distribution expenses, then, subject to obtaining any required
exemptive orders or other regulatory approvals, the Fund may make payments to
the Company or to the underwriter for the Contracts if and in such amounts
agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement
will be paid by the Fund to the extent permitted by law. The Fund will bear
the expenses for the cost of
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registration and qualification of the Fund's shares; preparation and filing of
the Fund's prospectus, statement of additional information and registration
statement, proxy materials and reports; setting in type and printing the Fund's
prospectus; setting in type and printing proxy materials and reports by it to
contractowners (including the costs of printing a Fund prospectus that contains
an annual report); the preparation of all statements and notices required by
any federal or state law; all taxes on the issuance or transfer of the Fund's
shares; any expenses permitted to be paid or assumed by the Fund pursuant to a
plan, if any, under Rule 12b-1 under the 1940 Act; and all other expenses set
forth in Article III of this Agreement.
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser will ensure that the Fund will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts will be
treated as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing,
the Adviser will cause the Fund to comply with Section 817(h) of the Internal
Revenue Code and Treasury Regulation 1.817-5, as amended from time to time,
relating to the diversification requirements for variable annuity, endowment,
or life insurance contracts and any amendments or other modifications to such
Section or Regulation. In the event of a breach of this Article VI, the
Adviser will take all reasonable steps: (a) to notify the Company of such
breach; and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the
Fund for the existence of any irreconcilable material conflict among the
interests of the contractowners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity and variable life
insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Fund Board will promptly inform the
Company if it determines that an irreconcilable material conflict exists and
the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its
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responsibilities, as delineated in the Mixed and Shared Funding Exemptive
Order, by providing the Fund Board with all information reasonably necessary
for the Fund Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Fund Board whenever
contractowner voting instructions are to be disregarded. The Company's
responsibilities hereunder will be carried out with a view only to the interest
of contractowners.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested trustees, that an irreconcilable material conflict exists,
the Company will, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps
are necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (a) withdrawing the assets allocable to some or all of the
Subaccounts from the Fund or any Designated Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contractowners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contractowners or variable life insurance contractowners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Subaccount's investment in the Fund and terminate this Agreement with respect
to such Subaccount; provided, however, that such withdrawal and termination
will be limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested trustees of the Fund
Board. No charge or penalty will be imposed as a result of such withdrawal.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state insurance regulators, then the Company will
withdraw the affected Subaccount's investment in the Fund and terminate this
Agreement with respect to such Subaccount; provided, however, that such
withdrawal and termination will be limited to the extent required by the
foregoing irreconcilable material conflict as determined by a majority of the
disinterested directors of the Fund Board. No charge or penalty will be
imposed as a result of such withdrawal.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Fund Board will determine whether any
proposed action
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adequately remedies any irreconcilable material conflict, but in no event will
the Fund or the Adviser (or any other investment adviser to the Fund) be
required to establish a new funding medium for the Contracts. The Company will
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
contractowners materially affected by the irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
will be submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and
Shared Funding Exemptive Order, then: (a) the Fund and/or the Participating
Insurance Companies, as appropriate, will take such steps as may be necessary
to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted,
to the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2,
7.3, 7.4, and 7.5 of this Agreement will continue in effect only to the extent
that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund,
the Adviser, CSI, and each person, if any, who controls or is associated with
the Fund, the Adviser or CSI within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner, employee or agent
of the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in the registration
statement, prospectus or statement of additional information for the Contracts
or contained in the Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of the
14
<PAGE> 15
foregoing), including any prospectuses or statements of additional information
of the Fund to which the Company has made any changes to the information
provided to the Company or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated or
necessary to make such statements not misleading in light of the circumstances
in which they were made; provided that this agreement to indemnify will not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by the Fund, the Adviser or CSI for use in
the registration statement, prospectus or statement of additional information
for the Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Company or wrongful conduct of the
Company or persons under its control, with respect to the sale or distribution
of the Contracts or Fund shares (other than statements or representations
contained in the Fund registration statement, Fund prospectus, Fund statement
of additional information, sales literature or other promotional material of
the Fund not supplied by the Company or persons under its control); or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Fund (or amendment or supplement) or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make such statements not misleading in light of the
circumstances in which they were made, if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund by or
on behalf of the Company or persons under its control; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(5) arise out of any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach by the Company of this
Agreement, including, but not limited to, a failure to comply with the
provisions of Section 3.3;
except to the extent provided in Sections 8.1(b) and 8.3
hereof. This indemnification will be in addition to any liability that the
Company otherwise may have.
(b) No party will be entitled to indemnification under Section
8.1(a) to the extent such loss, claim, damage, liability or litigation is due
to the willful misfeasance, bad faith, or
15
<PAGE> 16
gross negligence in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of its obligations
or duties under this Agreement by the party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or sale of
the Fund shares or the Contracts or the operation of the Fund.
8.2. Indemnification By The Adviser, the Fund and CSI
(a) The Adviser, the Fund and CSI, in each case solely to the
extent relating to such party's responsibilities hereunder, agree to indemnify
and hold harmless the Company and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner, employee or agent
of the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the Fund or
sales literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing) or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated or necessary to make such statements not misleading in light of the
circumstances in which they were made (in each case substantially as
transmitted to you by the Fund or CSI), provided that this agreement to
indemnify will not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Adviser, CSI or the Fund by or on
behalf of the Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales literature of the
Fund (or any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations or wrongful conduct of the Adviser, the Fund or CSI or persons
under the control of the Adviser, the Fund or CSI respectively, with respect to
the sale of the Fund shares (other than statements or representations contained
in a registration statement, prospectus, statement of additional
16
<PAGE> 17
information, sales literature or other promotional material covering the
Contracts not supplied by CSI or persons under its control); or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, prospectus,
statement of additional information or sales literature or other promotional
material covering the Contracts (or any amendment or supplement thereto), or
the omission or alleged omission to state therein a material fact required to
be stated or necessary to make such statement or statements not misleading in
light of the circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Adviser, the Fund or CSI or persons under the
control of the Adviser, the Fund or CSI; or
(4) arise as a result of any failure by the Fund, the
Adviser or CSI to provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification requirements and
procedures related thereto specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of
any representation and/or warranty made by the Adviser, the Fund or CSI in this
Agreement, or arise out of or result from any other material breach of this
Agreement by the Adviser, the Fund or CSI;
except to the extent provided in Sections 8.2(b) and 8.3
hereof. These indemnifications will be in addition to any liability that the
Fund, the Adviser or CSI otherwise may have.
(b) No party will be entitled to indemnification under Section
8.2(a) to the extent such loss, claim, damage, liability or litigation is due
to the willful misfeasance, bad faith, or gross negligence in the performance
of such party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement by the
party seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the
Fund and CSI of the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection with the issuance
or sale of the Contracts or the operation of the account.
8.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article
VIII ("Indemnifying Party" for the purpose of this Section 8.3) will not be
liable under the
17
<PAGE> 18
indemnification provisions of this Article VIII with respect to any claim made
against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such
service on any designated agent), but failure to notify the Indemnifying Party
of any such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of the indemnification provision of this
Article VIII, except to the extent that the failure to notify results in the
failure of actual notice to the Indemnifying Party and such Indemnifying Party
is damaged solely as a result of failure to give such notice. In case any such
action is brought against the Indemnified Party, the Indemnifying Party will be
entitled to participate, at its own expense, in the defense thereof. The
Indemnifying Party also will be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Indemnifying Party to the Indemnified Party of the Indemnifying Party's
election to assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and the
Indemnifying Party will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs of
investigation, unless: (a) the Indemnifying Party and the Indemnified Party
will have mutually agreed to the retention of such counsel; or (b) the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there is a final judgment for the plaintiff,
the Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the
1934 Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to,
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<PAGE> 19
the Mixed and Shared Funding Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with
respect to some or all of the Designated Portfolios, upon ninety (90) days'
advance written notice to the other parties; or
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated Portfolio
if shares of the Designated Portfolio are not reasonably available or
appropriate to meet the requirements of the Contracts as determined in good
faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated Portfolio
in the event any of the Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or Federal law or such
law precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written
notice by the other parties, upon institution of formal proceedings against the
Company by the NASD, the SEC, the insurance commission of any state or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the administration of the Contracts, the
operation of the Account, or the purchase of the Fund shares, provided that the
Fund determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of formal proceedings
against the Fund, Adviser or CSI by the NASD, the SEC, or any state securities
or insurance department or any other regulatory body, provided that the Company
determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Fund's, Adviser's or
CSI's ability to perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated Portfolio
if the Designated Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Internal Revenue
19
<PAGE> 20
Code, or under any successor or similar provision, or if the Company reasonably
and in good faith believes that the Designated Portfolio may fail to so
qualify; or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any Designated Portfolio
if the Designated Portfolio fails to meet the diversification requirements
specified in Article VI hereof or if the Company reasonably and in good faith
believes the Designated Portfolio may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material breach of any
provision of this Agreement which material breach is not cured within thirty
(30) days of said notice; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund, the Adviser or CSI
has suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material
adverse publicity which is likely to have a material adverse impact upon the
business and operations of the Company, such termination to be effective sixty
(60) days' after receipt by the other parties of written notice of the election
to terminate; or
(j) at the option of the Fund or CSI, if the Fund or CSI
respectively, determines in its sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Fund or the Adviser, such termination
to be effective sixty (60) days' after receipt by the other parties of written
notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any Subaccount) to substitute the shares of another
investment company for the corresponding Designated Portfolio shares of the
Fund in accordance with the terms of the Contracts for which those Designated
Portfolio shares had been selected to serve as the underlying investment media.
The Company will give sixty (60) days' prior written notice to the Fund of the
date of any proposed vote, proposed regulatory approval request or other action
taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests
of: (1) all contractowners of
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<PAGE> 21
variable insurance products of all separate accounts; or (2) the interests of
the Participating Insurance Companies investing in the Fund as set forth in
Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
Except as specified in Section 10.1(m), no termination of this
Agreement will be effective unless and until the party terminating this
Agreement gives prior written notice to all other parties of its intent to
terminate, which notice will set forth the basis for the termination.
10.3. Effect of Termination
In the event of any termination of this Agreement other than pursuant
to subsection (d), (j), (l) or (m) of Section 10.1, CSI and the Adviser will,
at the option of the Company, continue to make available additional shares of
the Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts.") Specifically, without
limitation, the owners of the Existing Contracts will be permitted to
reallocate investments in the Designated Portfolios (as in effect on such
date), redeem investments in the Designated Portfolios and/or invest in the
Designated Portfolios upon the making of additional purchase payments under the
Existing Contracts.
10.4. Surviving Provisions
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive and not
be affected by any termination of this Agreement. In addition, each party's
obligations under Section 12.6 will survive and not be affected by any
termination of this Agreement. Finally, with respect to Existing Contracts,
all provisions of this Agreement also will survive and not be affected by any
termination of this Agreement.
10.5 Effectuation of Termination
The parties to this Agreement agree to cooperate in effectuating the
termination of this Agreement.
ARTICLE XI. NOTICES
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<PAGE> 22
11.1. Any notice will be deemed duly given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other parties.
If to the Company: If to the Fund, the Adviser and/or CSI:
Federal Kemper Life Assurance 466 Lexington Avenue
Company 10th Floor
1 Kemper Dr. New York, NY 10017
Long Grove, IL 60049 Attn: Eugene P. Grace
Attn: General Counsel Senior Vice President
ARTICLE XII. MISCELLANEOUS
12.1. The Fund, the Adviser and CSI acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the "Company
Protected Parties" for purposes of this Section 12.1), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Company Protected Parties or any of their
employees or agents in connection with the Company's performance of its duties
under this Agreement are the valuable property of the Company Protected
Parties. The Fund, the Adviser and CSI agree that if they come into possession
of any list or compilation of the identities of or other information about the
Company Protected Parties' customers, or any other information or property of
the Company Protected Parties, other than such information as is publicly
available or as may be independently developed or compiled by the Fund, the
Adviser or CSI from information supplied to them by the Company Protected
Parties' customers who also maintain accounts directly with the Fund, the
Adviser or CSI, the Fund, the Adviser and CSI will hold such information or
property in confidence and refrain from using, disclosing or distributing any
of such information or other property except: (a)_with the Company's prior
written consent; or (b)_as required by law or judicial process. The Company
acknowledges that the identities of the customers of the Fund, the Adviser,
CSI or any of their affiliates (collectively the "Adviser Protected
Parties" for purposes of this Section_12.1), information maintained regarding
those customers, and all computer programs and procedures or other information
developed or used by the Adviser Protected Parties or any of their employees or
agents in connection with the Fund's, the Adviser's or CSI's performance of
their respective duties under this Agreement are the valuable property of the
Adviser Protected Parties. The Company agrees that if it comes into possession
of any list or compilation of the identities of or other information about the
Adviser Protected Parties' customers, or any other information or property of
the Adviser Protected Parties, other than such information as is publicly
available or as may be independently developed or compiled by the Company from
information supplied to them by the Adviser Protected Parties' customers who
also maintain accounts directly with the Company, the Company will hold
22
<PAGE> 23
such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property except:
(a) with the Fund's, the Adviser's or CSI's prior written consent; or (b) as
required by law or judicial process. Each party acknowledges that any breach
of the agreements in this Section 12.1 would result in immediate and
irreparable harm to the other parties for which there would be no adequate
remedy at law and agree that in the event of such a breach, the other parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.4. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.5. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
12.6. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records will
be preserved, maintained and made available to the extent required by law and
in accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby. Upon
request by the Fund or CSI, the Company agrees to promptly make copies or, if
required, originals of all records pertaining to the performance of services
under this Agreement available to the Fund or CSI, as the case may be. The
Fund, the Adviser and CSI each agree that the Company will have the right to
inspect, audit and copy all records pertaining to the performance of services
under this Agreement pursuant to the requirements of any state insurance
department. Each party also agrees to promptly notify the other parties if it
experiences any difficulty in maintaining the records in an accurate and
complete manner. This provision will survive termination of this Agreement.
12.7. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all
23
<PAGE> 24
necessary corporate or board action, as applicable, by such party and when so
executed and delivered this Agreement will be the valid and binding obligation
of such party enforceable in accordance with its terms.
12.8. The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this agreement,
will be satisfied solely out of the assets of the Fund and that no trustee,
officer, agent or holder of shares of beneficial interest of the Fund will be
personally liable for any such liabilities. No Portfolio or series of the Fund
will be liable for the obligations or liabilities of any other Portfolio or
series.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Designated Portfolios of the Fund or other applicable terms
of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
24
<PAGE> 25
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
FEDERAL KEMPER LIFE ASSURANCE
COMPANY
SEAL By: /s/ Otis R. Heldman, Jr.
Name: Otis R. Heldman, Jr.
Title: Marketing Officer
ATTEST: By: Frank J. Julian
WARBURG, PINCUS TRUST
SEAL By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President & Secretary
WARBURG, PINCUS COUNSELLORS, INC.
SEAL By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Sr. Vice President
COUNSELLORS SECURITIES INC.
SEAL By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President
ATTEST: By: /s/ Maryann Maglia
25
<PAGE> 26
SCHEDULE 1
PARTICIPATION AGREEMENT
BY AND AMONG
FEDERAL KEMPER LIFE ASSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
The following separate accounts of Federal Kemper Life Assurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Designated Portfolios of the Fund shown in Schedule 2:
FKLA Variable Separate Account -
established May 27, 1994
March 10, 1997
26
<PAGE> 27
SCHEDULE 2
PARTICIPATION AGREEMENT
BY AND AMONG
FEDERAL KEMPER LIFE ASSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Warburg, Pincus Trust:
Warburg, Pincus Trust International Equity Portfolio
Warburg, Pincus Trust Small Company Value Portfolio
Warburg, Pincus Trust Post-Venture Capital Portfolio
March 10, 1997
<PAGE> 1
EXHIBIT 1-A(8)(d)(i)
[COUNSELLORS SECURITIES INC. LETTERHEAD]
March 10, 1997
Federal Kemper Life Assurance Company
Kemper Investors Life Insurance Company
One Kemper Drive
Long Grove,IL 60049-0001
Ladies and Gentlemen:
This letter sets forth the agreement between Warburg Pincus
Counsellors, Inc. ("Counsellors") and Federal Kemper Life Assurance Company
("FKLAC") and Kemper Investors Life Insurance Company ("KILIC" and,
collectively, the "Companies") concerning certain administrative services to be
provided by you on a sub-administration basis, with respect to Designated
Portfolios (as defined below) of the Warburg, Pincus Trust (the "Fund").
1. Administrative Services and Expenses. Administrative services for the
Accounts (as defined below) which invest in Designated Portfolios (as
defined below) of the Fund pursuant to the Participation Agreements
between each of the Companies and the Fund, Counsellors Securities, Inc.
("CSI") and Counsellors (the "Participation Agreements") and for purchasers
of Contracts (as defined below) are the responsibility of the Companies.
Administrative services for the Designated Portfolios, in which the
Accounts invest, and for purchasers of shares of the Designated Portfolios,
are the responsibility of the Fund, CSI or Counsellors.
Capitalized terms not defined herein shall have the meanings ascribed to
them in the Participation Agreements.
You have agreed to assist us, as we may request from time to time, with
the provision of administrative services ("Administrative Services") to the
Designated Portfolios, on a subadministration basis, as they may relate to
the investment in the Designated Portfolios by the Accounts. It is
anticipated that Administrative Services may include (but shall not be
limited to) the mailing of Fund reports, notices, proxies and proxy
statements and other informational materials to holders of the Contracts
supported by the Accounts with allocations to the Designated Portfolios;
the provision of various reports for the Fund and for submission to the
Fund's Board of Trustees; the provision of shareholder support services
with respect to the Designated Portfolios; such services listed on Schedule
A attached hereto and made a part hereof.
2. Administrative Expense Payments. In consideration of the anticipated
administrative expense savings resulting from the arrangements set forth
in this Agreement, Counsellors agrees to pay the Company on a quarterly
basis an amount set forth in Schedule B attached hereto and made a part
hereof.
<PAGE> 2
For purposes of computing the payment to the Company contemplated under
this Paragraph 2 for each quarterly period, the total of the average daily
net assets invested by the Accounts shall be multiplied by the rate shown
in Schedule B multiplied by the actual number of days in the period divided
by 365.
The expense payment contemplated by this Paragraph 2 shall be
calculated by Counsellors at the end of each quarter and will be paid to
the Companies within 30 days thereafter on a pro-rata basis. Payment will
be accompanied by a statement showing the calculation of the quarterly
amount payable by Counsellors and such other supporting data as may be
reasonably requested by the Companies.
3. Nature of Payments. The parties to this letter agreement recognize and
agree that Counsellors's payments to the Companies relate to Administrative
Services only. The amount of administrative expense payments made by
Counsellors to the Companies pursuant to Paragraph 2 of this letter
agreement shall not be deemed to be conclusive with respect to actual
administrative expenses or savings of Counsellors.
4. Term. This letter agreement shall remain in full force and effect
for so long as the assets of the Designated Portfolios are attributable to
amounts invested by the Accounts under the Participation Agreements, unless
terminated in accordance with Paragraph 5 of this letter agreement.
5. Termination. This letter agreement will be terminated by either party
upon 90 days' advance written notice or immediately upon termination of a
Participation Agreement (with respect to such Participation Agreement) or
upon the mutual agreement of the parties hereto in writing.
6. Representation. The Companies represent and agree that they will
maintain and preserve all records as required by law to be maintained and
preserved in connection with providing the Administrative Services, and
will otherwise comply with all laws, rules and regulations applicable to
the Administrative Services.
7. Subcontractors. The Companies may, with the consent of Counsellors,
contract with or establish relationships with other parties for the
provision of the Administrative Services or other activities of the
Companies required by this letter agreement, provided that the Companies
shall be fully responsible for the acts and omissions of such other
parties.
8. Authority. This letter agreement shall in no way limit the authority of
the Fund, CSI or Counsellors to take such action as any of such parties may
deem appropriate or advisable in connection with all matters relating to
the operations of the Fund and/or sale of its shares. The Companies
understand and agree that the obligations of Counsellors under this letter
agreement are not binding upon the Fund.
9. Indemnification. This letter agreement will be subject to
the indemnification provisions in Article VIII of each of the Participation
Agreements.
10. Miscellaneous. This letter agreement may be amended only upon
mutual agreement of the parties hereto in writing. This
letter agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the
other party. This
2
<PAGE> 3
letter agreement, including Schedule A and Schedule B, constitutes the
entire agreement between the parties with respect to the matters dealt
with herein, and supersedes any previous agreements and documents with
respect to such matters. This letter agreement may be executed in
counterparts, each if which shall be deemed an original but all if which
shall together constitute one and the same instrument. Each Company agrees
to notify Counsellors promptly if for any reason it is unable to perform
fully and promptly any if its obligations under this letter agreement.
The parties to this letter agreement acknowledge and agree that all
liabilities if the Fund arising, directly or indirectly, under this
agreement will be satisfied solely out if the assets of the Fund and that
no trustee, officer, agent or holder if shares if beneficial interest if
the Fund will be personally liable for any such liabilities. No Portfolio
of the Fund will be liable for the obligations or liabilities if any other
Portfolio.
11. Notice. Any notices required to be sent hereunder shall be sent in
accordance with the respective Participation Agreement.
If this letter agreement is consistent with your understanding if the matters
we discussed concerning administrative expense payments, kindly sign below
and return a signed copy to us.
Very truly yours,
Warburg, Pincus Counsellors, Inc.
By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Senior Vice President
Acknowledged and Agreed:
FKLAC KILIC
By: /s/ Otis R. Heldman, Jr. By: /s/ Otis R. Heldman, Jr.
Name: Otis R. Heldman, Jr. Name: Otis R. Heldman, Jr.
Title: Marketing Officer Title: Marketing Officer
Attachment: Schedule A
Schedule B
3
<PAGE> 4
SCHEDULE A
I. Fund-related contractowner services
- - Certain costs associated with dissemination of Fund prospectus to existing
contractowners, as provided in the Participation Agreements.
- - Fund proxies (including facilitating distribution of proxy material to
contractowners, tabulation and reporting).
- - Telephonic support for contractowners with respect
to inquiries about the Fund (not including information related to sales).
- - Communications to contractowners regarding performance of the Account and the
Designated Portfolios.
II. Sub-accounting services
- - Aggregating purchase and redemption orders of the Account for sales of the
Designated Portfolios.
- - Recording issuance and transfers of shares of the Designated Portfolios held
by the Account.
- - Processing and reinvesting dividends and distributions of the
Designated Portfolios held by the Account.
III. Other administrative support
- - Providing other administrative support to the Fund as mutually agreed between
the Company and the Fund, Counsellors or CSI.
<PAGE> 5
SCHEDULE B
Counsellors agrees to pay each Company a quarterly amount that is equal on an
annual basis to twenty-five basis points (.25%) of the average combined daily
net assets of all of shares of the Fund held in the Account of such Company
pursuant to the respective Participation Agreement commencing with the quarter
in which the sum of the combined average net asset value of investments by the
Accounts of the Companies exceeds $200 million. Prior to such quarter, and in
any subsequent quarter in which the average aggregate net asset value of
investments by the Accounts drops below $200 million, Counsellors agrees to pay
to each Company a fee equal to twenty basis points (.20%) of the average daily
value of the total number of shares of the Fund held by the Account of such
Company.
<PAGE> 1
EXHIBIT 3(b)
ACTUARIAL OPINION
This opinion is supplied with the filing of Post-Effective Amendment No. 4 to
the Registration Statement on Form S-6, File No. 33-79808, by the FKLA Variable
Separate Account (the "Separate Account") and Federal Kemper Life Assurance
Company ("FKLA") covering an indefinite number of units of interest in the
Separate Account. Premiums received under FKLA's Variable Life Policies may be
allocated by FKLA to the Separate Account as described in the Prospectus
included in the Registration Statement.
I am familiar with the Policy provisions and the description in the Prospectus
and it is my opinion that the illustrations of death benefits, accumulated
values, cash values, and accumulated premiums included in Appendix A of the
Prospectus, based on the assumptions in the illustrations, are consistent with
the Policy provisions. The Policy rate structure has not been designed to make
the relationship between planned premiums and benefits, as shown in the
illustrations, appear more favorable to prospective nonsmoker males ages 35 and
55, than to nonsmoker males at other ages. The nonsmoker risk class generally
has a more favorable rate structure than the smoker risk classes. Female risk
classes generally have a more favorable rate structure than male risk classes.
The current and guaranteed monthly mortality rates used in the illustrations
have not been designed so as to make the relationship between current and
guaranteed rates more favorable for the ages and sexes illustrated than for a
nonsmoker male at other ages. The nonsmoker risk classes generally have lower
monthly mortality rates than the smoker risk classes. The female risk classes
generally have lower monthly mortality rates than the male risk classes.
I consent to the use of this opinion as an Exhibit to Post-Effective Amendment
No. 4 to the Registration Statement and to the reference to me under the
heading "Experts" in the Prospectus.
/s/ Christopher J. Nickele
--------------------------------
Christopher J. Nickele, FSA MAAA
Actuarial Officer - Agency
<PAGE> 1
Exhibit 6(a)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Federal Kemper Life Assurance Company:
We consent to the use of our reports included herein on Federal Kemper Life
Assurance Company (FKLA) and to the reference to our firm under the heading
"Experts" in the prospectus. Our report on FKLA's financial statements dated
March 21, 1997, contains an explanatory paragraph that states as a result of
the acquisition of its parent, Kemper Corporation, the consolidated financial
information, for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.
KPMG PEAT MARWICK LLP
Chicago, Illinois
April 25, 1997
<PAGE> 1
Exhibit 99
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
organized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts"): registration statements on any form or forms under
the Acts, and all amendments and supplements thereto (including post-effective
amendments), with any exhibits and all agreements, consents, exemptive
applications and other documents and instruments necessary or appropriate in
connection therewith, each of said attorneys-in-fact and agents being empowered
to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in order to effectuate the same, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 4th day
of April, 1997.
/s/ John B. Scott
John B. Scott, Chief Executive Officer,
President and Director
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
oganized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts"): registration statements on any form or forms under
the Acts, and all amendments and supplements thereto (including post-effective
amendments), with any exhibits and all agreements, consents, exemptive
applications and other documents and instruments necessary or appropriate in
connection therewith, each of said attorneys-in-fact and agents being empowered
to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in order to effectuate the same, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
18th day of April, 1997.
/s/ W. H. Bolinder
William H. Bolinder, Chairman of the
Board and Director
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
organized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts"): registration statements on any form or forms under
the Acts, and all amendments and supplements thereto (including post-effective
amendments), with any exhibits and all agreements, consents, exemptive
applications and other documents and instruments necessary or appropriate in
connection therewith, each of said attorneys-in-fact and agents being empowered
to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in order to effectuate the same, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 7th day
of April, 1997.
/s/ Frederick L. Blackmon
Frederick L. Blackmon, Senior Vice
President and Chief Financial Officer
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
organized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts"): registration statements on any form or forms under
the Acts, and all amendments and supplements thereto (including post-effective
amendments), with any exhibits and all agreements, consents, exemptive
applications and other documents and instruments necessary or appropriate in
connection therewith, each of said attorneys-in-fact and agents being empowered
to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in order to effectuate the same, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 4th day
of April, 1997.
/s/ Loren J. Alter
Loren J. Alter, Director
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
organized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts") for Federal Kemper Life Assurance Company and its
FKLA Variable Separate Account: registration statements on Form S-6 (Kemper
Quick VUL) under the Acts relating to variable life insurance policies (to be
filed in April or May 1997), and all amendments and supplements thereto
(including post-effective amendments), with any exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, and to have
full power and authority to do or cause to be done in the name and on behalf of
the undersigned each and every act and thing requisite and necessary or
appropriate with respect thereto to be done in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 17th day
of April, 1997.
/s/ Daniel L. Doctoroff
Daniel L. Doctoroff, Director
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
organized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts"): registration statements on any form or forms under
the Acts, and all amendments and supplements thereto (including post-effective
amendments), with any exhibits and all agreements, consents, exemptive
applications and other documents and instruments necessary or appropriate in
connection therewith, each of said attorneys-in-fact and agents being empowered
to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in order to effectuate the same, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day
of April, 1997.
/s/ Steven M. Gluckstern
Steven M. Gluckstern, Director
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
organized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts"): registration statements on any form or forms under
the Acts, and all amendments and supplements thereto (including post-effective
amendments), with any exhibits and all agreements, consents, exemptive
applications and other documents and instruments necessary or appropriate in
connection therewith, each of said attorneys-in-fact and agents being empowered
to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in order to effectuate the same, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th day
of April, 1997.
/s/ Michael P. Stramaglia
Michael P. Stramaglia, Director
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of Federal Kemper Life Assurance Company, a life insurance company
organized and existing under the laws of Illinois, does hereby constitute and
appoint Frederick L. Blackmon, Debra P. Rezabek and Frank J. Julian, and each
of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place and stead, to execute and file any of
the documents referred to below relating to registrations under the Securities
Act of 1933, as amended, or the Investment Company Act of 1940, as amended
(collectively, the "Acts") for Federal Kemper Life Assurance Company and its
FKLA Variable Separate Account: registration statements on Form S-6 (Kemper
Quick VUL) under the Acts relating to variable life insurance policies (to be
filed in April or May 1997), and all amendments and supplements thereto
(including post-effective amendments), with any exhibits and all agreements,
consents, exemptive applications and other documents and instruments necessary
or appropriate in connection therewith, each of said attorneys-in-fact and
agents being empowered to act with or without the others or other, and to have
full power and authority to do or cause to be done in the name and on behalf of
the undersigned each and every act and thing requisite and necessary or
appropriate with respect thereto to be done in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 17th day
of April, 1997.
/s/ Paul H. Warren
Paul H. Warren, Director
