e485bpos

As filed with the Securities and Exchange Commission on April 29, 2011

Registration Nos. 333-22375
and 811-3199

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-4


		REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933		o
		Pre-Effective Amendment No.		o
		Post-Effective Amendment No. 22		x
		and
		REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY		x
		ACT OF 1940
		Amendment No. 118

ZALICO VARIABLE ANNUITY SEPARATE ACCOUNT

(formerly KILICO VARIABLE ANNUITY SEPARATE ACCOUNT)

(Exact Name of Registrant)

ZURICH AMERICAN LIFE INSURANCE COMPANY

(formerly KEMPER INVESTORS LIFE INSURANCE COMPANY)

(Name of Depositor)

1400 American Lane, Schaumburg, Illinois 60196
(Address of Depositor’s Principal Executive Offices)

Depositor’s Telephone Number, including Area Code:
(425) 577-5100


Name and Address of Agent for Service:		Copy to:

Juanita M. Thomas, Esq.		Mary Jane Wilson-Bilik, Esq.
1114 Georgia Street		Sutherland Asbill & Brennan LLP
Louisiana, MO 63353		1275 Pennsylvania Avenue, N.W.
		Washington, DC 20004-2415

It is proposed that this filing will become effective:

	o		Immediately upon filing pursuant to paragraph (b) of Rule 485


	x		On May 1, 2011, pursuant to paragraph (b) of Rule 485


	o		60 days after filing pursuant to paragraph (a) of Rule 485

	o		On _______________ pursuant to paragraph (a) of Rule 485

Title of securities being registered:
Units of interest in a separate account under individual and group variable, fixed and market value
adjusted deferred annuity contracts.

Individual and Group Variable, Fixed, and Market Value Adjusted Deferred
Annuity Contracts
Issued by
Zurich American Life Insurance Company
(formerly Kemper Investors Life Insurance Company)
Through
ZALICO Variable Annuity Separate Account
(formerly KILICO Variable Annuity Separate Account)


Home Office		Service Center
1400 American Lane		Scudder Destinations^SM Service Team
Schaumburg, Illinois 60196		PO Box 19097
		Greenville, SC 29602-9097
		Phone: 1-800-449-0523 (toll free)
		7:30 a.m. to 5:00 p.m. Central Time M-F

www.zurichamericanlifeinsurance.com (formerly www.kemperinvestors.com)

Prospectus
May 1, 2011

Scudder
Destinations^SM
Annuity

This Prospectus describes the Scudder Destinations^SM Annuity, a variable, fixed and market value adjusted deferred annuity contract (the “Contract”) offered by Zurich American Life Insurance Company (formerly Kemper Investors Life Insurance Company) (“we” or “ZALICO”). The Contract is designed to provide annuity benefits for retirement that may or may not qualify for certain federal tax advantages. Depending on particular state requirements, the Contract may have been issued on a group or individual basis. The Contract is currently not being issued.

Investing in this Contract involves risk, including possible loss of some or all of your investment.

You may allocate Purchase Payments to one or more of the variable options or the Fixed Account Option, or the Market Value Adjustment (“MVA”) Option (the “MVA Option”) in states where an MVA is authorized. The availability of the Fixed Account Option and the MVA Option may be restricted in some states. The Contract currently offers 24 variable options, each of which is a Subaccount of ZALICO Variable Annuity Separate Account (formerly KILICO Variable Annuity Separate Account) that invests solely in shares of one of the Portfolios listed below. Currently, you may choose to invest among the following Portfolios:

•

AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (Series I Shares):

•

Invesco V.I. Utilities Fund

•

The Alger Portfolios (Class I-2 Shares):

	•		Alger Balanced Portfolio

	•		Alger Capital Appreciation Portfolio

•

Credit Suisse Trust (Trust Class Shares):

•

Credit Suisse Trust-International Equity Flex III Portfolio

•

Dreyfus Investment Portfolios (Initial Share Class):

•

Dreyfus Investment Portfolios, MidCap Stock Portfolio

•		The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class)

•		DWS Investments VIT Funds (Class A Shares):

•

DWS Equity 500 Index VIP

•

DWS Variable Series I (Class A Shares):

	•		DWS Bond VIP

	•		DWS Capital Growth VIP (Successor to DWS Health Care VIP (Variable Series I) and DWS Technology VIP (Variable Series II)) ¹

	•		DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP) ²

	•		DWS Growth & Income VIP

	•		DWS International VIP

•

DWS Variable Series II (Class A Shares):

	•		DWS Balanced VIP

	•		DWS Blue Chip VIP

	•		DWS Core Fixed Income VIP

	•		DWS Diversified International Equity VIP

	•		DWS Dreman Small Mid Cap Value VIP

	•		DWS Global Thematic VIP

	•		DWS Government & Agency Securities VIP

	•		DWS High Income VIP

	•		DWS Large Cap Value VIP (Successor to DWS Strategic Value VIP) ³

	•		DWS Money Market VIP

	•		DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP) (Successor to DWS Mid Cap Growth VIP and to DWS Turner Mid Cap Growth VIP) ⁴

	•		DWS Strategic Income VIP



¹ Effective May 1, 2011, DWS Health Care VIP (DWS Variable Series I) and DWS Technology VIP (DWS Variable Series II) each merged into DWS Capital Growth VIP (DWS Variable Series I), pursuant to shareholder approval on April 11, 2011.



² Effective May 1, 2011, DWS Global Opportunities VIP changed its name to DWS Global Small Cap Growth VIP.



³ Effective May 1, 2011, DWS Strategic Value VIP merged into DWS Large Cap Value VIP, pursuant to shareholder approval on April 11, 2011.



⁴ Effective May 1, 2011, DWS Small Cap Growth VIP changed its name to DWS Small Mid Cap Growth VIP. Also Effective May 1, 2011, DWS Mid Cap Growth VIP and DWS Turner Mid Cap Growth VIP each merged into DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP), pursuant to shareholder approval on April 11, 2011.

We may add or delete Subaccounts and Portfolios in the future. The Contract Value that you allocate to any of the Subaccounts will vary, reflecting the investment experience of the Portfolio in which the selected Subaccount invests. The Contract Value that you allocate to the Fixed Account or one or more Guarantee Periods of the MVA Option accumulates interest at rates set in advance by ZALICO.

Please be aware that Market Value Adjustments are sensitive to changes in interest rates. If you withdraw money from a Guarantee Period before its term has expired, and during a period of rising interest rates, you likely will be assessed a negative Market Value Adjustment. In times of rising interest rates, the negative Market Value Adjustment could result in a substantial downward adjustment to your Contract Value. Before you take a withdrawal from a Guarantee Period, you should know its expiration date, and ask the Service Center to calculate whether a Market Value Adjustment will apply and how much it will be.

The Contracts are not insured by the FDIC. They are obligations of the issuing insurance company and not a deposit of, or guaranteed by, any bank or savings institution and are subject to risks, including possible loss of principal.

This Prospectus contains important information about the Contracts that you should know before investing. You should read it before investing and keep it for future reference. We have filed a Statement of Additional Information (“SAI”) with the Securities and Exchange Commission. The current SAI has the same date as this Prospectus and is incorporated by reference in this Prospectus. You may obtain a free copy by contacting the Service Center. A table of contents for the SAI appears at the end of this Prospectus. You may also find this Prospectus and other information about the Separate Account required to be filed with the Securities and Exchange Commission (“SEC”) at the SEC’s web site at http://www.sec.gov.

The date of this Prospectus is May 1, 2011.

The Securities and Exchange Commission has not approved or disapproved the Contract or
determined that this Prospectus is accurate or complete.
Anyone who tells you otherwise is committing a U.S. Federal crime.

Not FDIC Insured

May Lose Value

No Bank Guarantee

DEFINITIONS

The following terms as used in this Prospectus have the indicated meanings:

Accumulated Guarantee Period Value—The sum of your Guarantee Period Values.

Accumulation Period—The period between the Date of Issue of a Contract and the Annuity Date.

Accumulation Unit—A unit of measurement used to determine the value of each Subaccount during the Accumulation Period.

Annuitant—The person designated to receive or who is actually receiving annuity payments and upon the continuation of whose life annuity payments involving life contingencies depend.

Annuity Date—The date on which annuity payments are to commence.

Annuity Option—One of several methods by which annuity payments can be made.

Annuity Period—The period starting on the Annuity Date.

Annuity Unit—A unit of measurement used to determine the amount of Variable Annuity payments.

Beneficiary—The person designated to receive any benefits under a Contract upon the death of the Annuitant or the Owner prior to the Annuity Period.

Company (“we”, “us”, “our”, “ZALICO”)—Zurich American Life Insurance Company (formerly Kemper Investors Life Insurance Company). Our Home Office is located at 1400 American Lane, Schaumburg, Illinois 60196. For Contract services, you may contact the Service Center at Scudder Destinations^SM Service Team, PO Box 19097, Greenville, South Carolina, 29602-9097 or 1-800-449-0523.

Contract—A Variable, Fixed and Market Value Adjusted Annuity Contract offered on an individual or group basis. Contracts issued on a group basis are represented by a certificate. Contracts issued on an individual basis are represented by an individual annuity contract.

Contract Value—The sum of the values of your Separate Account Contract Value, Accumulated Guarantee Period Value and Fixed Account Contract Value.

Contract Year—Period between anniversaries of the Contract’s Date of Issue.

Contract Quarter—Periods between quarterly anniversaries of the Contract’s Date of Issue.

Contribution Year—Each one year period following the date a Purchase Payment is made.

Date of Issue—The date on which the first Contract Year commences.

Effective Date—The date that the endorsement to your Contract adding enhancements to the MVA Option (the “MVA Endorsement”) became effective, which is April 1, 2005.

Fixed Account—The General Account of ZALICO to which you may allocate all or a portion of Purchase Payments or Contract Value. We guarantee a minimum rate of interest on Purchase Payments allocated to the Fixed Account.

Fixed Account Contract Value—The value of your Contract interest in the Fixed Account.

Fixed Annuity—An annuity under which we guarantee the amount of each annuity payment; it does not vary with the investment experience of a Subaccount.

Fund or Funds—AIM Variable Insurance Funds (Invesco Variable Insurance Funds), The Alger Portfolios, Credit Suisse Trust, Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc., DWS Investments VIT Funds, DWS Variable Series I and DWS Variable Series II, including any Portfolios thereunder.

General Account—All our assets other than those allocated to any separate account.

Guaranteed Interest Rate—The rate of interest we establish for a given Guarantee Period.

Guarantee Period—The time during which we credit your allocation with a Guaranteed Interest Rate. Guarantee Periods may range from one to ten years, at our option. If you withdraw money from a Guarantee Period before its term has expired, you will be assessed a Market Value Adjustment.

Guarantee Period Value—The value of your Contract Value in a Guarantee Period is the sum of your: (1) Purchase Payment allocated or amount transferred to a Guarantee Period; plus (2) interest credited; minus (3) withdrawals, previously assessed Withdrawal Charges and transfers; and (4) as adjusted for any applicable Market Value Adjustment previously made.

Home Office—The address of our Home Office is 1400 American Lane, Schaumburg, Illinois 60196.

Market Adjusted Value—A Guarantee Period Value adjusted by the Market Value Adjustment formula on any date prior to the end of a Guarantee Period.

Market Value Adjustment (“MVA”)—An adjustment of amounts held in a Guarantee Period that we compute in accordance with the Market Value Adjustment formula in your Contract if you take a withdrawal prior to the end of that Guarantee Period. The adjustment reflects the change in the value of the Guarantee Period Value due to changes in interest rates since the date the Guarantee Period started. Any downward Market Value Adjustment is subject to the MVA Floor described in the MVA Endorsement issued on April 1, 2005 and described herein.

Non-Qualified Plan Contract—A Contract which does not receive favorable tax treatment under Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.

Owner (“you”, “your”, “yours”)—The person designated in the Contract as having the privileges of ownership defined in the Contract.

Portfolio—A series of a Fund with its own objective and policies, which represents shares of beneficial interest in a separate portfolio of securities and other assets. Portfolio is sometimes referred to herein as a Fund.

Purchase Payments—Amounts paid to us by you or on your behalf.

Qualified Plan Contract—A Contract issued in connection with a retirement plan which receives favorable tax treatment under Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.

Separate Account—The ZALICO Variable Annuity Separate Account (formerly KILICO Variable Annuity Separate Account).

Separate Account Contract Value—The sum of your Subaccount Values.

Service Center—The address of our Service Center is Scudder Destinations^SM Service Team, PO Box 19097, Greenville, South Carolina, 29602-9097. The overnight address is: Scudder Destinations^SM Service Team, 2000 Wade Hampton Boulevard, Greenville, SC 29615-1064. IBM Business Transformation Outsourcing Insurance Service Corporation is the administrator of the Contract. You can call the Service Center toll-free at 1-800-449-0523.

Start Date—The later of the Effective Date of the MVA Endorsement or the beginning of a new Guarantee Period.

Subaccounts—The twenty-four subdivisions of the Separate Account, the assets of which consist solely of shares of the corresponding Portfolios or Funds.

Subaccount Value—The value of your interest in each Subaccount.

Valuation Date—Each day when the New York Stock Exchange is open for trading, as well as each day otherwise required.

Valuation Period—The interval of time between two consecutive Valuation Dates.

Variable Annuity—An annuity with payments varying in amount in accordance with the investment experience of the Subaccount(s) in which you have an interest.

Withdrawal Charge—The “contingent deferred sales charge” assessed against certain withdrawals of Contract Value in the first seven Contribution Years after a Purchase Payment is made or against certain annuitizations of Contract Value in the first seven Contribution Years after a Purchase Payment is made.

Withdrawal Value—Contract Value, plus or minus any applicable Market Value Adjustment, less any premium tax payable if the Contract is being annuitized, minus any Withdrawal Charge applicable to that Contract.

SUMMARY

Because this is a summary, it does not contain all of the information that may be important. Read the entire Prospectus and Contract before deciding to invest.

The Contracts provide for investment on a tax-deferred basis and for payment of annuity benefits. Both Non-Qualified Plan and Qualified Plan Contracts are described in this Prospectus. The Contract was available to be purchased by natural persons, or by trusts or custodial accounts which hold the Contract as agent for and for the sole benefit of a natural person. The Contract is not available for sale to other types of purchasers without our prior approval. The Contract is currently not being issued.

Subject to certain exceptions, the minimum subsequent Purchase Payment is $500. Any allocation you make to a Subaccount, Fixed Account or Guarantee Period must be at least $500. Our prior approval is required for Purchase Payments over $1,000,000.

Investment Options. The Contract permits you to allocate your Purchase Payments and transfer Contract Value to one or more Subaccounts listed on the cover page of this Prospectus. Each Subaccount invests in shares of a corresponding Portfolio or Fund. Contract Value that you allocate to a Subaccount varies with the investment experience of the Portfolio in which Subaccount invests.

You may also allocate Purchase Payments and transfer Contract Value into the Fixed Account. We guarantee that Purchase Payments allocated to the Fixed Account will earn no less than the minimum guaranteed rate. In our discretion, we may credit interest in excess of the minimum guaranteed rate.

The Contract also permits you to allocate your Purchase Payments and transfer Contract Value to one or more Guarantee Periods under the MVA Option. Amounts you allocate to one or more Guarantee Period will earn a guaranteed interest rate, but will be subject to a market value adjustment (MVA) and a possible surrender charge if you take a withdrawal before the end of the Guarantee Period. Please be aware that Market Value Adjustments are sensitive to changes in interest rates.

If you withdraw money from a Guarantee Period under the MVA Option before its term has expired, and during a period of rising interest rates, you likely will be assessed a negative Market Value Adjustment. In times of rising interest rates, the negative Market Value Adjustment could result in a substantial downward adjustment to your Contract Value. Before you take a withdrawal from a Guarantee Period, you should know its expiration date, and ask the Service Center to calculate whether a Market Value Adjustment will apply and how much it will be.

The MVA Option may not be available in all states. The MVA Option is only available during the Accumulation Period. We may limit the number of Guarantee Periods we offer at our discretion. We credit interest daily to amounts allocated to the MVA Option. We declare the rate at our sole discretion. We guarantee amounts allocated to the MVA Option at Guaranteed Interest Rates for the Guarantee Periods you select. These guaranteed amounts are subject to any applicable Withdrawal Charge, Market Value Adjustment or Records Maintenance Charge. We will not change a Guaranteed Interest Rate for the duration of the Guarantee Period. However, Guaranteed Interest Rates for subsequent Guarantee Periods are set at our discretion. At the end of a Guarantee Period, a new Guarantee Period for the same duration starts, unless you timely elect another Guarantee Period. The interests under the Contract relating to the MVA Option are not registered under the Securities Act of 1933 (“1933 Act”) and the insulated, nonunitized separate account supporting the MVA Option is not registered as an investment company under the Investment Company Act of 1940 (“1940 Act”).

You bear the investment risk under the Contracts, including possible loss of principal, unless you allocate Contract Values to:

	•		the MVA Option. Under the MVA Option, you are guaranteed to receive the Guaranteed Interest Rate over the duration of the Guarantee Period, unless you take a withdrawal before the end of the Guarantee Period. In case of premature withdrawal, you will be assessed a Market Value Adjustment, which, in times of rising interest rates, could have a substantial negative impact on your Contract Value.

	•		the Fixed Account Option, wherein you are guaranteed to earn interest at a rate not less than the minimum guaranteed rate (See “Fixed Account Option”).

Transfers. The Contract permits you to transfer Contract Value between the Subaccounts before and after annuitization, subject to certain limitations. A transfer from a Guarantee Period is subject to a Market Value Adjustment unless effected within 30 days after the existing Guarantee Period ends. Restrictions apply to transfers out of the Fixed Account.

Withdrawals and Withdrawal Charges. You may withdraw Contract Value subject to Withdrawal Charges, any applicable Market Value Adjustment and other specified conditions. We do not deduct sales charges from Purchase Payments.

Each Contract Year, you may withdraw or surrender the Contract, without Withdrawal Charge, up to the greater of:

	•		the excess of Contract Value over total Purchase Payments subject to Withdrawal Charges, minus prior withdrawals that were previously assessed a Withdrawal Charge, or

	•		10% of Contract Value. If you withdraw a larger amount, the excess Purchase Payments withdrawn are subject to a Withdrawal Charge.

The Withdrawal Charge is:

	•		7% in the first Contribution Year,

	•		6% in the second Contribution Year,

	•		5% in the third and fourth Contribution Years,

	•		4% in the fifth Contribution Year,

	•		3% in the sixth Contribution Year,

	•		2% in the seventh Contribution Year, and

	•		0% in the eighth Contribution Year and thereafter.

The Withdrawal Charge also applies at the annuitization of Accumulation Units in their seventh Contribution Year or earlier, except as set forth under “Withdrawal Charge.” Withdrawals may be subject to income tax, a 10% penalty tax, and other tax consequences. Withdrawals from Qualified Plan Contracts may be limited by the Internal Revenue Code (the “Code”).

Contract Charges. Contract charges include:

	•		mortality and expense risk charge,

	•		administration charge,

	•		records maintenance charge,

	•		Withdrawal Charge,

	•		Guaranteed Retirement Income Benefit Rider Charge, if selected,

	•		transfer charge,

SUMMARY OF EXPENSES

The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Contract. The first table describes the fees and expenses that you will pay at the time that you buy the Contract, take a partial withdrawal, annuitize the Contract, surrender the Contract, or transfer cash value between and among the Subaccounts, the Fixed Account, and the Guarantee Periods. State premium taxes may also be deducted.

Contract Owner Transaction Expenses


Sales Load Imposed on Purchases (as a percentage of Purchase Payments):		None

Maximum Withdrawal Charge¹ (as a percentage of Purchase Payments)		7%


Year of Withdrawal after		Withdrawal
Purchase Payments Made		Charge
First year		7.00%
Second year		6.00%
Third year		5.00%
Fourth year		5.00%
Fifth year		4.00%
Sixth year		3.00%
Seventh year		2.00%
Eighth year and following		0.00%


Maximum Transfer Fee		$25²


¹		A Contract Owner may withdraw up to the greater of (i) the excess of Contract Value over total Purchase Payments subject to a Withdrawal Charge less prior withdrawals that were previously assessed a Withdrawal Charge and (ii) 10% of the Contract Value in any Contract Year without assessment of any Withdrawal Charge. In certain circumstances we may reduce or waive the Withdrawal Charge. See “Withdrawal Charge.”

²		We reserve the right to charge a fee of $25 for each transfer of Contract Value in excess of 12 transfers per calendar year. See “Transfers During the Accumulation Period.”

The next table describes the fees and expenses that you will pay periodically during the time that you own the Contract, not including Fund fees and expenses.

Periodic Charges other than Portfolio Expenses


	Current

Annual Records Maintenance Charge³		$30

Separate Account Annual Expenses (as a percentage of average Separate Account Contract Value)


With the Standard Death Benefit Only

Mortality and Expense Risk Charge	1.25	%
Administration Charge	0.15	%

Total Separate Account Annual Expense Charges⁴	1.40	%

With the Optional Guaranteed Retirement Income Benefit

Mortality and Expense Risk Charge	1.25	%
Optional Guaranteed Retirement Income Benefit⁵	0.25	%
Administration Charge	0.15	%

Total Separate Account Annual Expense Charges	1.65	%


³		The records maintenance charge applies to Contracts with Contract Value less than $50,000 on the date of assessment. In certain circumstances we may reduce or waive the annual records maintenance charge. See “Records Maintenance Charge.”

⁴		If you annuitize the Contract on a variable basis, we will assess a daily Mortality and Expense Risk Charge and Administration Charge at an annual rate of 1.40% on the assets held in the Separate Account.


⁵		We no longer offer the Guaranteed Retirement Income Benefit rider. If you have elected the Guaranteed Retirement Income Benefit rider and your rider remains in force, the 0.25% rider charge will continue to be deducted on the last business day of each contract quarter. The rider charge will be deducted prorata as a percentage of Contract Value from each Subaccount, Guarantee Period, and the Fixed Account in which you have Contract Value until you annuitize or surrender the Contract or the Annuitant reaches age 91, whichever comes first.

The following table shows the range of Fund fees and expenses for the fiscal year ended December 31, 2010. Expenses of the Funds may be higher or lower in the future. You can obtain more detailed information concerning each Fund’s fees and expenses in the prospectus for each Fund.

Range of Annual Operating Expenses for the Funds During 2010¹



	Lowest	Highest
Total Annual Fund Operating Expenses (total of all expenses that are deducted from Fund assets, including management fees, 12b-1 fees, and other expenses, before any contractual waivers or reimbursements of fees and expenses)	0.33%	2.43%
Net Total Annual Fund Operating Expenses After Reimbursements and Waivers (total of all expenses that are deducted from Fund assets, including management fees, 12b-1 fees, and other expenses, after any contractual waivers or reimbursements of fees and expenses)²	0.33%	2.43%





¹		The Fund expenses used to prepare this table were provided to us by the Fund(s). We have not independently verified such information. The expenses shown are those incurred for the year ended December 31, 2010. Current or future expenses may be greater or less than those shown.



²		The range of Net Total Annual Fund Operating Expenses After Reimbursements and Waivers takes into account contractual arrangements for those Funds that require a Fund’s investment adviser to reimburse or waive Fund expenses for a limited period of time ending no earlier than April 30, 2012. For more information about these arrangements, consult the prospectuses for the Funds.

The next table shows the fees and expenses charged by each Fund for the fiscal year ended December 31, 2010.

Annual Fund Operating Expenses (expenses that are deducted from Portfolio assets)

(as a percentage of average daily net assets in the Funds as of December 31, 2010):



					Contractual
					Waiver
				Gross	or
				Total	Expense	Net Total
	Management	12b-1	Other	Annual	Reimburse-	Annual
Name of Fund	Fees	Fees	Expenses	Expenses	ment	Expenses
AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (Series I Shares)
Invesco V.I. Utilities Fund ¹	0.60%	N/A	0.44%	1.04%	0.11%	0.93%

The Alger Portfolios (Class I-2 Shares)
Alger Balanced Portfolio	0.71%	N/A	0.20%	0.91%	N/A	0.91%
Alger Capital Appreciation Portfolio	0.81%	N/A	0.17%	0.98%	N/A	0.98%

Credit Suisse Trust (Trust Class Shares)
Credit Suisse Trust- International Equity Flex III Portfolio²	1.00%	N/A	1.43%	2.43%	N/A	2.43%

Dreyfus Investment Portfolios (Initial Share Class)
Dreyfus Investment Portfolios, Mid Cap Stock Portfolio	0.75%	N/A	0.09%	0.84%	N/A	0.84%

The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class)
	0.75%	N/A	0.14%	0.89%	N/A	0.89%

DWS Investments VIT Funds (Class A Shares)
DWS Equity 500 Index VIP	0.20%	N/A	0.13%	0.33%	N/A	0.33%

DWS Variable Series I (Class A Shares)
DWS Bond VIP	0.39%	N/A	0.20%	0.59%	N/A	0.59%
DWS Capital Growth VIP (Successor to DWS Health Care VIP (Variable Series I) and DWS Technology VIP (Variable Series II))	0.37%	N/A	0.14%	0.51%	N/A	0.51%
DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP)³	0.89%	N/A	0.23%	1.12%	N/A	1.12%
DWS Growth & Income VIP	0.39%	N/A	0.24%	0.63%	N/A	0.63%
DWS International VIP ⁴	0.79%	N/A	0.21%	1.00%	N/A	1.00%

DWS Variable Series II (Class A Shares)⁵
DWS Balanced VIP	0.37%	N/A	0.30%	0.67%	N/A	0.67%
DWS Blue Chip VIP	0.55%	N/A	0.21%	0.76%	N/A	0.76%
DWS Core Fixed Income VIP	0.50%	N/A	0.22%	0.72%	N/A	0.72%
DWS Diversified International Equity VIP	0.65%	N/A	0.34%	0.99%	N/A	0.99%
DWS Dreman Small Mid Cap Value VIP	0.65%	N/A	0.22%	0.87%	N/A	0.87%
DWS Global Thematic VIP	0.92%	N/A	0.49%	1.41%	N/A	1.41%
DWS Government & Agency Securities VIP	0.45%	N/A	0.19%	0.64%	N/A	0.64%
DWS High Income VIP	0.50%	N/A	0.22%	0.72%	N/A	0.72%
DWS Large Cap Value VIP (Successor to DWS Strategic Value VIP)	0.65%	N/A	0.17%	0.82%	N/A	0.82%
DWS Money Market VIP	0.29%	N/A	0.17%	0.46%	N/A	0.46%

Contractual

Waiver

Gross

Total

Expense

Net Total

Management

12b-1

Other

Annual

Reimburse-

Annual

Name of Fund

Fees

Expenses

ment

Expenses

DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP) (Successor to DWS Mid Cap Growth VIP and to DWS Turner Mid Cap Growth VIP)

0.55%

N/A

0.23%

0.78%

N/A

0.78%

DWS Strategic Income VIP

0.55%

N/A

0.40%

0.95%

N/A

0.95%

¹ Through at least April 30, 2012 the adviser for the Invesco V.I. Utilities Fund has contractually agreed to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Net Total Annual Expenses (excluding certain items discussed below) of Series I shares to 0.93% of average daily net assets for the Invesco V.I. Utilities Fund. In determining the adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Net Total Annual Expenses to exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary or non-routine items; and (v) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement.

² Voluntary fee waivers and reimbursements reduced Net Total Annual Expenses to 1.99% for the Credit Suisse Trust International Equity Flex III Portfolio during 2010. Gross Total Annual Expenses include dividend expenses on short sales, which were 0.64% during 2010. Effective January 1, 2011, the adviser for the Credit Suisse Trust International Equity Flex III Portfolio will voluntarily waive fees and reimburse expenses so that the portfolio’s Net Total Annual Expenses, excluding dividend expenses on short sales, will not exceed 1.45%. Fee waivers and/or reimbursements are voluntary and may be discontinued at any time.

³ The investment manager for the DWS Variable Series I has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the DWS Global Small Cap Growth VIP, excluding certain expenses such as extraordinary expenses, taxes, brokerage, and interest, to the extent necessary to maintain the Portfolio’s Net Total Annual Expenses at 1.00% through September 30, 2011.

⁴ The “Other Expenses” for the DWS International VIP include expenses of 0.01% for acquired fund fees and expenses. “Acquired fund fees and expenses” are not fees or expenses incurred by the Fund directly, but are expenses of the investment companies in which the Fund invests. You incur these fees and expenses indirectly through the valuation of the Fund’s investment in those investment companies.

⁵ The “Other Expenses” for DWS Balanced VIP and DWS Dreman Small Mid Cap Value VIP include expenses of 0.02%, 0.05%, respectively, for acquired fund fees and expenses. “Acquired fund fees and expenses” are not fees or expenses incurred by the Funds directly, but are expenses of the investment companies in which the Funds invest. You incur these fees and expenses indirectly through the valuation of the Funds’ investment in those investment companies.

The investment manager for the DWS Variable Series II has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Portfolios, excluding certain expenses such as extraordinary expenses, taxes, brokerage, and interest, so that Net Total Annual Expenses of the Portfolios will not exceed the following amounts: 0.71% for the DWS Core Fixed Income VIP, 1.03% for the DWS Global Thematic VIP, 0.51% for the DWS Money Market VIP, and 0.78% for the DWS Strategic Income VIP, through September 30, 2011.

The expenses shown above are deducted by each underlying Fund or Portfolio before the Fund or Portfolio provides us with its daily net asset value. We then deduct applicable Separate Account charges from the net asset value to calculate the unit value of the corresponding Subaccount. The management fees and other expenses are more fully described in the prospectus for each underlying Portfolio.

The advisers and/or other service providers of certain Funds have agreed to reduce their fees and/or reimburse the Funds’ expenses in order to keep the Funds’ expenses below specified limits. The

expenses of certain Funds are reduced by contractual fee reduction and expense reimbursement arrangements that will remain in effect until at least April 30, 2012. Other Funds have voluntary fee reduction and/or expense reimbursement arrangements that may be terminated at any time. The minimum and maximum Net Total Annual Fund Operating Expenses for all Funds after each fee reduction and/or expense reimbursement arrangement is described in the relevant Fund’s prospectus.

THE FUND’S INVESTMENT MANAGER OR ADVISER PROVIDED THE ABOVE EXPENSES FOR THE FUNDS. WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE ABOVE INFORMATION.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include Contract Owner transaction expenses, Contract fees, Separate Account annual expenses, and Fund fees and expenses.

The Example assumes that you invest $10,000 in the Contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year and assumes the maximum fees and expenses of any of the Funds prior to any fee waivers or expense reimbursements. In addition, this Example assumes no transfers were made and no premium taxes were deducted. If these arrangements were considered, the expenses shown would be higher. This Example also does not take into consideration any fee waiver or expense reimbursement arrangements of the Funds. If these arrangements were taken into consideration, the expenses shown would be lower.

Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

(1)

If you surrender your Contract at the end of the applicable time period:


1	3	5	10
year	years	years	years
$1,119	$1,779	$2,591	$4,633

(2)

If you annuitize your Contract at the end of the available time period under Annuity Option 2, 3, 4, or under Annuity Option 1 for a period of five years or more^*:


1	3	5	10
year	years	years	years
$394	$1,224	$2,115	$4,633

If you annuitize your Contract at the end of the available time period under Annuity Option 1 for a period of less than five years^*:


1	3	5	10
year	years	years	years
$1,119	$1,779	$2,591	$4,633

(3)

If you do not surrender or annuitize your Contract at the end of the applicable time period:


1	3	5	10
year	years	years	years
$394	$1,224	$2,115	$4,633


*		Withdrawal Charges do not apply if the Contract is annuitized under Annuity Option 2, 3 or 4, or under Annuity Option 1 for a period of five years or more. Withdrawal Charges do apply if the Contract is annuitized under Annuity Option 1 for a period of less than five years.

The Example is an illustration and does not represent past or future expenses and charges of the Subaccounts. Your actual expenses may be greater or less than those shown. Similarly, your rate of return may be more or less than the 5% assumed rate in the Example.

The Example does not include the deduction of premium taxes, which may be assessed before or upon annuitization or any taxes or penalties you may be required to pay if you surrender your Contract.

The Record Maintenance Charge of $30 is reflected as an annual charge of 0.040% that is determined by dividing total Record Maintenance Charges collected during 2010 ( $689,331) by total average net assets attributable to the Contract during 2010 ( $1,736,292,661).

REDEMPTION FEES

A Fund or Portfolio may assess a redemption fee of up to 2% on Subaccount assets that are redeemed out of the Fund or Portfolio in connection with a withdrawal or transfer. Each Fund or Portfolio determines the amount of the redemption fee and when the fee is imposed. The redemption fee will reduce your Contract Value. For more information, see the Fund or Portfolio prospectus.

DISTRIBUTION COSTS

For information concerning the compensation we pay in relation to prior sale of the Contracts, see “Distribution of Contracts.”

CONDENSED FINANCIAL INFORMATION

In Appendix C, we have included a financial history of the accumulation unit values for the Subaccounts available under the Contract.

ZALICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE FUNDS

Zurich American Life Insurance Company

We were organized in 1947 and are a stock life insurance company organized under the laws of the State of Illinois. Our home office is located at 1400 American Lane, Schaumburg, Illinois 60196. For Contract services, you may contact us at the Service Center at Scudder Destinations^SM Service Team, PO Box 19097, Greenville, South Carolina, 29602-9097. We offer annuity and life insurance products and

are admitted to do business in the District of Columbia and all states except New York. We are a wholly-owned subsidiary of Zurich American Corporation (formerly Kemper Corporation), a non-operating holding company. Zurich American Corporation is an indirect wholly-owned subsidiary of Zurich Financial Services (“ZFS”), a Swiss holding company.

Effective August 22, 2010, Kemper Investors Life Insurance Company (“KILICO”), the insurance company that issued your Contract, changed its name to Zurich American Life Insurance Company, or ZALICO. The change in the name of the insurance company from KILICO to ZALICO does not change or alter any of the terms or provisions of your Contract. ZALICO will continue to honor all its obligations under your Contract. ZALICO remains organized under the laws of the State of Illinois. ZALICO continues to be a wholly-owned subsidiary of Zurich American Corporation and an indirect wholly-owned subsidiary of ZFS.

Effective September 3, 2003 (the “Closing Date”), ZALICO transferred certain of its business, as well as the capital stock of its wholly-owned subsidiaries, to its former affiliate, Federal Kemper Life Assurance Company (“FKLA”). In a contemporaneous transaction, FKLA and ZALICO entered into a coinsurance agreement under which FKLA administers the business and the records of, and 100% reinsures, certain lines of business issued by ZALICO, including certain registered variable annuity contracts that are funded through the ZALICO Variable Annuity Separate Account (formerly KILICO Variable Annuity Separate Account) (the “Separate Account”). These transfers were part of a larger transaction under which the capital stock of FKLA was sold to Bank One Insurance Holdings, Inc. (“Bank One”). On July 1, 2004, Bank One merged into JP Morgan Chase & Co., and FKLA changed its name to Chase Insurance Life and Annuity Company (“Chase Insurance”).

On July 3, 2006, Protective Life Insurance Company of Birmingham, Alabama (“Protective Life”), purchased Chase Insurance from JP Morgan Chase & Co. Effective April 1, 2007, Chase Insurance merged with and into Protective Life. Protective Life has reinsured 100% of the variable annuity business of Chase Insurance to Commonwealth Annuity and Life Insurance Company (formerly Allmerica Financial Life Insurance and Annuity Company), a subsidiary of The Goldman Sachs Group, Inc.

These acquisitions, transfers and the coinsurance agreement do not relate directly to the Contracts, although certain other contracts issued by ZALICO and administered by Protective Life are supported by the Separate Account. Your rights and benefits and our obligations under the Contracts are not changed by these transactions and agreements.

Effective September 7, 2004, we transferred our customer services operations and the administration of the Contracts to IBM Business Transformation Outsourcing Insurance Service Corporation (“IBM Outsourcing”), in Greenville, South Carolina. IBM Outsourcing provides all of the services required for complete support and administration of your Contract, including processing all premium payments and all requests for transfers, partial withdrawals, surrenders and death benefits, responding to inquiries, and calculating accumulation unit values for your Contract and the Separate Account.

Risks of Managing General Account Assets

The assets we hold in our General Account are used to support the payment of the death benefit under the Contracts, as well as to support payments under the optional Guaranteed Retirement Income Benefit (“GRIB rider”), as applicable. To the extent that ZALICO is required to pay you amounts under the death benefit or GRIB rider that are in addition to your Contract Value in the Separate Account, such amounts will come from our General Account assets. You should be aware that the General Account is

exposed to the risks normally associated with a portfolio of fixed-income securities, including interest rate, liquidity and credit risks. The Company’s financial statements contained in the Statement of Additional Information include a further discussion of the risks inherent in the General Account’s investments.

Financial Condition of the Company

The benefits under the Contract are paid by ZALICO from its General Account assets and from your Contract Value held in the Separate Account. It is important that you understand that payment of the benefits is not assured and depends upon certain factors discussed below.

Assets in the Separate Account. You assume all of the investment risk for your Contract Value that you allocate to the Subaccounts of the Separate Account. Your Contract Value in those Subaccounts constitutes a portion of the assets of the Separate Account. These assets are segregated and insulated from our General Account, and may not be charged with liabilities arising from any other business that we may conduct (See “The Separate Account ”).

Assets in the General Account. Allocations you make to the MVA Option and the Fixed Account are supported by the assets in our General Account (See “The MVA Option” and “Fixed Account Option ”). Any guarantees under the Contract that exceed your Separate Account Contract Value, such as those associated with the death benefit and the GRIB rider, are paid from our General Account. Therefore, any benefits that we may be obligated to pay under the Contract in excess of Separate Account Contract Value are subject to our financial strength and claims-paying ability and our long-term ability to make such payments. The assets of the Separate Account, however, are also available to cover the liabilities of our General Account, but only to the extent that the Separate Account assets exceed the Separate Account liabilities arising under the Contract supported by it. We issue other types of insurance policies and financial products as well, and we also pay our obligations under these products from our assets in the General Account.

Our Financial Condition. As an insurance company, we are required by state insurance regulation to hold a specified amount of reserves in order to meet all the contractual obligations of our General Account to our Contract Owners. We monitor our reserves so that we hold sufficient amounts to cover actual or expected Contract and claims payments. However, it is important to note that there is no assurance that we will always be able to meet our claims-paying obligations, and that there are risks to purchasing and owning any insurance product.

State insurance regulators also require insurance companies to maintain a minimum amount of capital, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurer’s operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on our General Account assets, as well as the loss in market value of these investments. We may also experience liquidity risk if our General Account assets cannot be readily converted into cash to meet obligations to our Contract Owners or to provide collateral necessary to finance our business operations.

How to Obtain More Information. We encourage our Contract Owners to read and understand our financial statements. We prepare our financial statements on a statutory basis. Our financial statements, which are presented in conformity with accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations – Division of Insurance, as well as the financial statements of the Separate Account (which are prepared in accordance with generally accepted accounting principles), are located in the Statement of Additional Information (“SAI”). The SAI is

available at no charge by writing to our Service Center at the address on the cover page of this Prospectus, or by calling us at (800) 449-0523, or by visiting our website www.zurichamericanlifeinsurance.com (formerly www.kemperinvestors.com). In addition, the SAI is available on the SEC’s website at http://www.sec.gov.

The Guarantee Periods of the MVA Option

During the Accumulation Period, you may allocate Purchase Payments and Contract Value to one or more Guarantee Periods of the MVA Option with durations generally of one to ten years. You may choose a different Guarantee Period by pre-authorized telephone instructions or by giving us written notice (See “Guarantee Periods of the MVA Option”). The MVA Option may not be available in all states. At our discretion, we may offer additional Guarantee Periods or limit the number of Guarantee Periods available to three.

The amounts you allocate to the MVA Option are invested under the laws regulating our General Account. Assets supporting the amounts allocated to Guarantee Periods are held in a “non-unitized” separate account. A non-unitized separate account is a separate account in which you do not participate in the performance of the assets held in the separate account. The assets of the non-unitized separate account are held to fund our guaranteed obligations. The “non-unitized” separate account is insulated, so that the assets of the separate account are not chargeable with liabilities arising out of the business conducted by any other separate account or out of any other business we may conduct. In addition, our General Account assets are available to fund benefits under the Contracts.

State insurance laws concerning the nature and quality of investments regulate our General Account investments and any non-unitized separate account investments. These laws generally permit investment in federal, state and municipal obligations, preferred and common stocks, corporate bonds, real estate mortgages, real estate and certain other investments.

We consider the return available on the instruments in which Contract proceeds are invested when establishing Guaranteed Interest Rates. This return is only one of many factors considered in establishing Guaranteed Interest Rates. (See “The Accumulation Period-4. Establishment of Guaranteed Interest Rates.”)

Our investment strategy for the non-unitized separate account is generally to match Guarantee Period liabilities with assets, such as debt instruments. We expect to invest in debt instruments such as:

	•		securities issued by the United States Government or its agencies or instrumentalities, which issues may or may not be guaranteed by the United States Government;

	•		debt securities which have an investment grade, at the time of purchase, within the four highest grades assigned by Moody’s Investors Services, Inc. (“Moody’s”) (Aaa, Aa, A or Baa), Standard & Poor’s Corporation (“Standard & Poor’s”) (AAA, AA, A or BBB), or any other nationally recognized rating service;

	•		other debt instruments including issues of or guaranteed by banks or bank holding companies and corporations, which obligations, although not rated by Moody’s or Standard & Poor’s, are deemed by our management to have an investment quality comparable to securities which may be otherwise purchased; and

	•		options and futures transactions on fixed income securities.

We are not obligated to invest the amounts allocated to the MVA Option according to any particular strategy, except as state insurance laws may require.

The Separate Account

We established the ZALICO Variable Annuity Separate Account (formerly KILICO Variable Annuity Separate Account) on May 29, 1981, pursuant to Illinois law as the KILICO Money Market Separate Account. The SEC does not supervise the management, investment practices or policies of the Separate Account or ZALICO.

As a result of KILICO changing its name to ZALICO in August 2010, on November 2, 2010, ZALICO changed the name of KILICO Variable Annuity Separate Account, the separate account supporting your Contract, to ZALICO Variable Annuity Separate Account. The change in the name of the Separate Account does not change the status, duties, or obligations of the ZALICO Variable Annuity Separate Account under federal or state laws. ZALICO Variable Annuity Separate Account remains registered with the SEC as a unit investment trust and remains subject to the same duties, obligations, and restrictions under the 1940 Act and state insurance laws.

Benefits provided under the Contracts are our obligations. Although the assets in the Separate Account are our property, they are held separately from our other assets and are not chargeable with liabilities arising out of any other business we may conduct. Income, capital gains and capital losses, whether or not realized, from the assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to the income, capital gains and capital losses arising out of any other business we may conduct.

Twenty-four Subaccounts of the Separate Account are currently available. Each Subaccount invests exclusively in shares of one of the corresponding Funds or Portfolios. We may add or delete Subaccounts in the future. Not all Subaccounts may be available in all jurisdictions or under all Contracts.

The Separate Account purchases and redeems shares from the Funds at net asset value. We redeem shares of the Funds as necessary to provide benefits, to deduct Contract charges and to transfer assets from one Subaccount to another as you request. All dividends and capital gains distributions received by the Separate Account from a Fund or Portfolio are reinvested in that Fund or Portfolio at net asset value and retained as assets of the corresponding Subaccount.

The Separate Account’s financial statements appear in the Statement of Additional Information.

The Portfolios, which sell their shares to the Subaccounts, may discontinue offering their shares to the Subaccounts. We will not discontinue a Subaccount available for investment without receiving the necessary approvals, if any, from the SEC and applicable state insurance departments. We will notify you of any changes. We reserve the right to make other structural and operational changes affecting the Separate Account.

The Funds

The Separate Account invests in shares of the following Funds:

	•		AIM Variable Insurance Funds (Invesco Variable Insurance Funds)


	•		The Alger Portfolios


	•		Credit Suisse Trust

	•		Dreyfus Investment Portfolios

	•		The Dreyfus Socially Responsible Growth Fund, Inc.

	•		DWS Investments VIT Funds

	•		DWS Variable Series I

•

DWS Variable Series II

The Funds provide investment vehicles for variable life insurance and variable annuity contracts and, in the case of Credit Suisse Trust, certain qualified retirement plans. Shares of the Funds are sold only to insurance company separate accounts and qualified retirement plans. Shares of the Funds may be sold to separate accounts of other insurance companies, whether or not affiliated with us. It is conceivable that in the future it may be disadvantageous for variable life insurance separate accounts and variable annuity separate accounts of companies unaffiliated with us, or for variable life insurance separate accounts, variable annuity separate accounts and qualified retirement plans to invest simultaneously in the accounts, variable annuity separate accounts and qualified retirement plans to invest simultaneously in the Funds. Currently, we do not foresee disadvantages to variable life insurance owners, variable annuity owners or qualified retirement plans from these arrangements. The Funds monitor events for material conflicts between owners and determine what action, if any, should be taken. In addition, if we believe that a Fund’s response to any of those events or conflicts insufficiently protects Owners, we will take appropriate action.

There can be no assurance that the DWS Money Market VIP portfolio will be able to maintain a stable net asset value per share. During extended periods of low interest rates, and partly as a result of insurance charges, the yield on the DWS Money Market VIP Subaccount may become extremely low and possibly negative. You could lose money when invested in the DWS Money Market VIP Subaccount.

A Fund may consist of separate Portfolios. The assets of each Portfolio are held separate from the assets of the other Portfolios, and each Portfolio has its own distinct investment objective and policies. Each Portfolio operates as a separate investment fund, and the investment performance of one Portfolio has no effect on the investment performance of any other Portfolio.

The following table summarizes each Fund/Portfolio’s investment objective and provides the name of each investment adviser.



	Fund/Portfolio			Investment Objective and Investment Adviser
	Alger Balanced Portfolio (Class I-2 Shares)			Seeks current income and long term capitalization. Investment adviser is Fred Alger Management, Inc.
	Alger Capital Appreciation Portfolio (Class I-2 Shares)			Seeks long term capitalization. Investment adviser is Fred Alger Management, Inc.
	Credit Suisse Trust-International Equity Flex III Portfolio (Trust Class Shares)			Seeks capital appreciation. Investment adviser is Credit Suisse Asset Management, LLC.
	Dreyfus Investment Portfolios, MidCap Stock Portfolio (Initial Share Class)			Seeks investment results that are greater than the total return performance of publicly traded common stocks of medium-size domestic companies in the aggregate, as represented by the Standard & Poor’s MidCap 400^® Index (S&P 400). Investment adviser is The Dreyfus Corporation.
	DWS Balanced VIP (Class A Shares)			Seeks high total return, a combination of income and capital appreciation. Investment adviser is Deutsche Investment Management Americas Inc. The subadvisers are QS Investors, LLC and Deutsche Asset Management International GmbH (DeAMi).
	DWS Blue Chip VIP (Class A			Seeks growth of capital and income. Investment adviser is


	Shares)			Deutsche Investment Management Americas Inc. The subadviser is QS Investors, LLC.
	DWS Bond VIP (Class A Shares)			Seeks to maximize total return consistent with preservation of capital and prudent investment management, by investing for both current income and capital appreciation. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS Capital Growth VIP (Successor to DWS Health Care VIP (Variable Series I) and DWS Technology VIP (Variable Series II)) (Class A Shares) ¹			Seeks to provide long-term growth of capital. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS Core Fixed Income VIP (Class A Shares)			Seeks high current income. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS Diversified International Equity VIP (Class A Shares)			Seeks capital appreciation. Investment adviser is Deutsche Investment Management Americas Inc. The subadviser is QS Investors, LLC.
	DWS Dreman Small Mid Cap Value VIP (Class A Shares)			Seeks long-term capital appreciation. Investment adviser is Deutsche Investment Management Americas Inc. The subadviser is Dreman Value Management L.L.C.
	DWS Equity 500 Index VIP (Class A Shares) *			Seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500^® Index”), which emphasizes stocks of large US companies. Investment adviser is Deutsche Investment Management Americas Inc. The subadviser is Northern Trust Investments, Inc.
	DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP) (Class A Shares) ²			Seeks above-average capital appreciation over the long term. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS Global Thematic VIP (Class A Shares)			Seeks long-term capital growth. Investment adviser is Deutsche Investment Management Americas Inc. The subadviser is Global Thematic Partners, LLC.
	DWS Government & Agency Securities VIP (Class A Shares)			Seeks high current income consistent with preservation of capital. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS Growth & Income VIP (Class A Shares)			Seeks long-term growth of capital, current income and growth of income. Investment adviser is Deutsche Investment Management Americas Inc. The Subadviser is QS Investors, LLC.
	DWS High Income VIP (Class A Shares)			Seeks to provide a high level of current income. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS International VIP (Class A Shares)			Seeks long-term growth of capital. Investment adviser is Deutsche Investment Management Americas Inc.



¹ Effective May 1, 2011, DWS Health Care VIP (DWS Variable Series I) and DWS Technology VIP (DWS Variable Series II) each merged into DWS Capital Growth VIP (DWS Variable Series I), pursuant to shareholder approval on April 11, 2011.



² Effective May 1, 2011, DWS Global Opportunities VIP changed its name to DWS Global Small Cap Growth VIP.


	DWS Large Cap Value VIP (Successor to DWS Strategic Value VIP) (Class A Shares)³			Seeks to achieve a high rate of total return. Investment adviser is Deutsche Investment Management Americas Inc. The subadviser is Deutsche Asset Management International GmbH (DeAMi).
	DWS Money Market VIP (Class A Shares)			Seeks maximum current income to the extent consistent with stability of principal. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP) (Successor to DWS Mid Cap Growth VIP and to DWS Turner Mid Cap Growth VIP) (Class A Shares) ⁴			Seeks long-term capital appreciation. Investment adviser is Deutsche Investment Management Americas Inc.
	DWS Strategic Income VIP (Class A Shares)			Seeks a high current return. Investment adviser is Deutsche Investment Management Americas Inc. The subadviser is QS Investors, LLC.
	Invesco V.I. Utilities Fund (Series I Shares)			Seeks long-term growth of capital, and, secondarily, current income. Investment adviser is Invesco Advisers, Inc.
	The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class)			Seeks to provide capital growth, with current income as a secondary goal. Investment adviser is The Dreyfus Corporation.

* “Standard & Poor’s^{^®},” “S&P ^{^®} ,” “S&P 500^{^®},” “Standard & Poor’s^{^®} 500,” “Standard and Poor’s MidCap 400 ^{^®} ,” and “500” are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by Deutsche Investment Management Americas Inc. The DWS Index 500 Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor’s^{^®} , and Standard & Poor’s ^{^®} makes no representation regarding the advisability of investing in the Portfolio. Additional information may be found in the Portfolio’s statement of additional information.

The Portfolios may not achieve their stated objective. More detailed information, including a description of risks, fees and expenses involved in investing in the Portfolios is found in the Portfolios’ prospectuses accompanying this Prospectus and in the Portfolios’ statements of additional information, available from us upon request. You should read the Portfolio prospectuses carefully.

³ Effective May 1, 2011, DWS Strategic Value VIP merged into DWS Large Cap Value VIP, pursuant to shareholder approval on April 11, 2011.

⁴ Effective May 1, 2011, DWS Small Cap Growth VIP changed its name to DWS Small Mid Cap Growth VIP. Also Effective May 1, 2011, DWS Mid Cap Growth VIP and DWS Turner Mid Cap Growth VIP each merged into DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP), pursuant to shareholder approval on April 11, 2011.

Selection of Funds

The Funds or Portfolios offered through the Contracts are selected by ZALICO, and ZALICO may consider various factors, including, but not limited to asset class coverage, the strength of the investment adviser’s (and/or subadviser’s) reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. We also consider whether the Fund or Portfolio or one of its service providers (e.g., the investment adviser, administrator and/or distributor) will make payments to us in connection with certain administrative, marketing, and support services, or whether the Funds or Portfolios adviser was an affiliate. We review the Portfolios periodically and may remove a Portfolio, or limit its availability to new premiums and/or transfers of Contract Value if we determine that a Portfolio no longer satisfies one or more of the selection criteria and/or if the Portfolio has not attracted significant allocations from Contract Owners.

You are responsible for choosing to invest in the Subaccounts that, in turn, invest in the Funds or Portfolios. Your are also responsible for choosing the amounts allocated to each Subaccount that are appropriate for your own individual circumstances and your investment goals, financial situation, and risk tolerance. Since you bear the investment risk of investing in the Subaccounts, you should carefully consider any decisions regarding allocations of Purchase Payments and Contract Value to each Subaccount.

In making your investment selections, we encourage you to thoroughly investigate all of the information regarding the Funds or Portfolios that is available to you, including each Fund or Portfolio’s prospectus, statement of additional information, and annual and semi-annual reports. Other sources such as the Fund or Portfolio’s website or newspapers and financial and other magazines provide more current information, including information about any regulatory actions or investigations relating to a Fund or Portfolio. After you select Subaccounts in which to allocate Purchase Payments or Contract Value, you should monitor and periodically re-evaluate your investment allocations to determine if they are still appropriate.

You bear the risk that the Contract Value of your Contract may decline as a result of negative investment performance of the Subaccounts you have chosen.

We do not provide investment advice and we do not recommend or endorse any of the particular Funds or Portfolios available as variable options in the Contract.

Administrative, Marketing, and Support Services Fees. The Funds and Portfolios currently available for investment under the Contract do not charge 12b-1 fees.

We may receive payments from some of the Funds’ service providers in connection with certain administrative and other services we perform and expenses we incur. The amount of the payment is based on a percentage of the assets of the particular Funds attributable to the Contract and/or to certain other variable insurance products that we issue. These percentages currently range from .085% to .25%. Some service providers pay us more than others.

The chart below provides the current maximum percentages of fees that we anticipate will be paid to us on an annual basis:



Incoming Payments to ZALICO
From the following Funds or	Maximum % of	From the following Funds or	Maximum % of
their Service Providers:	assets*	their Service Providers:	assets*
AIM	.25%	Dreyfus Socially Responsible Growth	.25%
Alger	.25%	DWS	.085%
Credit Suisse	.25%


*		Payments are based on a percentage of the average assets of each Fund owned by the Subaccounts available under this Contract and/or under certain other variable insurance products offered by our affiliates and us.

We may directly or indirectly receive additional amounts or different percentages of assets under management from some of the Funds’ service providers with regard to other variable insurance products we issue. These payments may be derived, in whole or in part, from the profits the investment adviser or sub-adviser realizes from the advisory fee deducted from Portfolio assets. Contract Owners, through their indirect investment in the Funds, bear the costs of these advisory fees. Certain investment advisers or their affiliates may provide us and/or selling firms with wholesaling services to assist us in servicing the Contract, may pay us and/or certain affiliates and/or selling firms amounts to participate in sales meetings or may reimburse our sales costs, and may provide us and/or certain affiliates and/or selling firms with occasional gifts, meals, tickets or other compensation. The amounts in the aggregate may be significant and may provide the investment adviser (or other affiliates) with increased access to us and to our affiliates.

Proceeds from these payments by the Funds or their service providers may be used for any corporate purpose, including payment of expenses that we and/or our affiliates incur in distributing and administering the Contracts, and that we incur, in our role as intermediary, in marketing and administering the underlying Portfolios. We and our affiliates may profit from these payments.

For further details about the compensation payments we make in connection with the sale of the Contracts, see “Distribution of Contracts” in this Prospectus.

Change of Investments

We reserve the right to make additions to, deletions from, or substitutions for the shares held by the Separate Account or that the Separate Account may purchase. We may eliminate the shares of any of the Funds or Portfolios and substitute shares of another portfolio or of another investment company, if the shares of a Fund or Portfolio are no longer available for investment, or if in our judgment further investment in any Fund or Portfolio becomes inappropriate in view of the purposes of the Separate Account. We will not substitute any shares attributable to your interest in a Subaccount without prior notice and the SEC’s prior approval, if required. The Separate Account may purchase other securities for other series or classes of contracts, or may permit a conversion between series or classes of contracts on the basis of requests made by Owners.

We may 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. New subaccounts may be established when, in our discretion, marketing needs or investment conditions warrant. New subaccounts may be made available to existing Owners as we determine. We may also eliminate or combine one or more subaccounts, transfer assets, or substitute one subaccount for another subaccount, if, in our discretion, marketing, tax, or investment conditions warrant. We will notify all Owners of any such changes.

If we deem it to be in the best interests of persons having voting rights under the Contract, the Separate Account may be: (a) operated as a management company under the 1940 Act; (b) deregistered under the 1940 Act in the event such registration is no longer required; or (c) combined with our other separate accounts. To the extent permitted by law, we may transfer the assets of the Separate Account to another separate account or to the General Account.

FIXED ACCOUNT OPTION

Amounts allocated or transferred to the Fixed Account are part of our General Account, supporting insurance and annuity obligations. Interests in the Fixed Account are not registered under the 1933 Act, and the Fixed Account is not registered as an investment company under the 1940 Act. Accordingly, neither the Fixed Account nor any interests therein generally are subject to the provisions of the 1933 or 1940 Acts. We have been advised that the staff of the SEC has not reviewed the disclosures in this Prospectus relating to the Fixed Account. Disclosures regarding the Fixed Account, however, may be subject to the general provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses.

Under the Fixed Account Option, we pay a fixed interest rate for stated periods. This Prospectus describes only the aspects of the Contract involving the Separate Account and the MVA Option, unless we refer to fixed accumulation and annuity elements.

We guarantee that payments allocated to the Fixed Account earn a minimum fixed interest rate not less than the minimum rate allowed by state law. At our discretion, we may credit interest in excess of the minimum guaranteed rate. We reserve the right to change the rate of excess interest credited. We also reserve the right to declare different rates of excess interest depending on when amounts are allocated or transferred to the Fixed Account. As a result, amounts at any designated time may be credited with a different rate of excess interest than the rate previously credited to such amounts and to amounts allocated or transferred at any other designated time.

THE CONTRACTS

General Information.

This Contract is no longer offered for sale, although we continue to accept additional Purchase Payments under the Contract. The minimum additional Purchase Payment is $500 ($50 or more for IRAs). The minimum additional Purchase Payment is $100 if you authorize us to draw on an account via check or electronic debit. Cumulative Purchase Payments in excess of $1,000,000 require our prior approval. The Internal Revenue Code may also limit the maximum annual amount of Purchase Payments. An allocation to a Subaccount, the Fixed Account or a Guarantee Period must be at least $500.

Contracts issued on a group basis are represented by a certificate. Contracts issued on an individual basis are represented by an individual annuity contract. For purposes of this Prospectus, the term “Contract” refers both to certificates and to individual annuity contracts. The Contract was available to be purchased by natural persons, or by trusts or custodial accounts which hold the Contract as agent for and for the sole benefit of a natural person.

We may, at any time, amend the Contract in accordance with changes in the law, including applicable tax laws, regulations or rulings, and for other purposes.

During the Accumulation Period, you may assign the Contract or change a Beneficiary at any time by signing our form and sending our form back to the Service Center completed and in good order. No assignment or Beneficiary change is binding on us until we receive our form in good order. We reserve the right, except to the extent prohibited by applicable laws, regulations, or actions of the State insurance commissioner, to require that the assignment will be effective only upon acceptance by us, and to refuse assignments or transfers at any time on a non-discriminatory basis. We assume no responsibility for the validity of the assignment or Beneficiary change. An assignment may subject you to immediate tax liability and a 10% tax penalty.

Amounts payable during the Annuity Period may not be assigned or encumbered. In addition, to the extent permitted by law, annuity payments are not subject to levy, attachment or other judicial process for the payment of the Annuitant’s debts or obligations.

You designate the Beneficiary. If you or the Annuitant die, and no designated Beneficiary or contingent beneficiary is alive at that time, we will pay your or the Annuitant’s estate.

Under a Qualified Plan Contract, the provisions of the applicable plan may prohibit a change of Beneficiary. Generally, an interest in a Qualified Plan Contract may not be assigned.

The Accumulation Period.

Application of Purchase Payments.

You select how to allocate your Purchase Payments among the Subaccount(s), Guarantee Periods, and/or Fixed Account. The amount of each Purchase Payment allocated to a Subaccount is based on the value of an Accumulation Unit, as next computed after we receive the Purchase Payment in good order at the Service Center or the bank we have designated to receive Purchase Payments (“the bank”). Generally, we determine the value of an Accumulation Unit as of 3:00 p.m. Central Time on each day that the New York Stock Exchange (“NYSE”) is open for trading. Purchase Payments that we receive at the Service Center in good order after 3:00 p.m. Central Time will be priced using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE. Electronic payments received by wire or through electronic credit or debit transactions at the bank in good order after 3:00 p.m. Central Time will be priced using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE. Please contact the Service Center for wiring instructions or instructions on automatic electronic debiting.

Purchase Payments allocated to a Guarantee Period or to the Fixed Account begin earning interest one day after we receive them in good order at the Service Center or the bank. Upon receipt of a Purchase Payment in good order, we determine the number of Accumulation Units credited by dividing the Purchase Payment allocated to a Subaccount by the Subaccount’s Accumulation Unit value, as next computed after we receive the Purchase Payment.

Some of the Funds reserve the right to delay or refuse purchase requests from the Separate Account, as further described in their prospectuses and/or statements of additional information. Therefore, if you request a transaction under your Contract that is part of a purchase request delayed or refused by a Fund, we will be unable to process your request. In that event, we will notify you promptly in writing or by telephone.

The number of Accumulation Units will not change due to investment experience. Accumulation Unit value varies to reflect the investment experience of the Subaccount and the assessment of charges against the Subaccount, other than the Withdrawal Charge, the Records Maintenance Charge and Guaranteed Retirement Income Benefit Charge (See “CONTRACTS ISSUED BEFORE NOVEMBER

12, 2001”). The number of Accumulation Units is reduced when the Records Maintenance Charge and Guaranteed Retirement Income Benefit Charge are assessed.

Accumulation Unit Value.

Each Subaccount has an Accumulation Unit value. When Purchase Payments or other amounts are allocated to a Subaccount, the number of units purchased is based on the Subaccount’s Accumulation Unit value at the end of the current Valuation Period. When amounts are transferred out of or deducted from a Subaccount, units are redeemed in a similar manner.

The Accumulation Unit value for each subsequent Valuation Period is the investment experience factor for that Valuation Period times the Accumulation Unit value for the preceding Valuation Period. Each Valuation Period has a single Accumulation Unit value which applies to each day in the Valuation Period.

Each Subaccount has its own investment experience factor. The investment experience of the Separate Account is calculated by applying the investment experience factor to the Accumulation Unit value in each Subaccount during a Valuation Period.

The investment experience factor of a Subaccount for any Valuation Period is determined by the following formula:

(a divided by b) minus c, where:

“a” is:

	•		the net asset value per share of the Portfolio held in the Subaccount as of the end of the current Valuation Period; plus

	•		the per share amount of any dividend or capital gain distributions made by the Portfolio held in the Subaccount, if the “ex-dividend” date occurs during the current Valuation Period; plus or minus

	•		a credit or charge for any taxes reserved for the current Valuation Period which we determine have resulted from the investment operations of the Subaccount;

“b” is the net asset value per share of the Portfolio held in the Subaccount as of the end of the preceding Valuation Period;
and

“c” is the factor representing asset-based charges (the mortality and expense risk and administration charges).

Guarantee Periods of the MVA Option.

You may allocate Purchase Payments to one or more Guarantee Periods with durations of one to ten years. Each Guarantee Period has a Guaranteed Interest Rate that will not change during the Guarantee Period. Interest is credited daily at the effective annual rate.

The following example illustrates how we credit Guarantee Period interest.

EXAMPLE OF GUARANTEED INTEREST RATE ACCUMULATION


Purchase Payment		$40,000.00
Guarantee Period		5 Years
Guaranteed Interest Rate		3.00% Effective Annual Rate


	Interest Credited		Cumulative Interest
Year	During Year		Credited
1	$	1,200.00	$	1,200.00
2		1,236.00		2,436.00
3		1,273.08		3,709.08
4		1,311.27		5,020.35
5		1,350.61		6,370.96

Accumulated value at the end of 5 years is:

$40,000.00 + $6,370.96 = $46,370.96

Note: This example assumes that no withdrawals or transfers are made during the five-year period. If you make withdrawals or transfers during this period, Market Value Adjustments and Withdrawal Charges apply.

The hypothetical interest rate is not intended to predict future Guaranteed Interest Rates. Actual Guaranteed Interest Rates for any Guarantee Period may be more than those shown.

At the end of any Guarantee Period, we send written notice of the beginning of a new Guarantee Period. A new Guarantee Period for the same duration starts unless you elect another Guarantee Period within 30 days after the end of the terminating Guarantee Period. You may choose a different Guarantee Period by calling the Service Center or by mailing us written notice in good order. You should not select a new Guarantee Period extending beyond the Annuity Date. Otherwise, the Guarantee Period amount available for annuitization will be subject to Market Value Adjustments and may be subject to Withdrawal Charges. In a rising interest rate environment, the Market Value Adjustment could result in a substantial downward adjustment to your Contract Value. (See “Market Value Adjustment” and “Withdrawal Charge” below.)

The amount reinvested at the beginning of a new Guarantee Period is the Guarantee Period Value for the Guarantee Period just ended. The Guaranteed Interest Rate in effect when the new Guarantee Period begins applies for the duration of the new Guarantee Period.

You may call or write us at the Service Center for the new Guaranteed Interest Rates.

Establishment of Guaranteed Interest Rates.

We declare the Guaranteed Interest Rates for each of the durations of Guarantee Periods from time to time at our discretion. Once established, rates are guaranteed for the respective Guarantee Periods. We advise you of the Guaranteed Interest Rate for a chosen Guarantee Period when we receive a Purchase Payment, when a transfer is effectuated or when a Guarantee Period renews. Withdrawals of Accumulated Guarantee Period Value are subject to Withdrawal Charges and Records Maintenance Charges and may be subject to a Market Value Adjustment. (See “Market Value Adjustment” below.)

We have no specific formula for establishing the Guaranteed Interest Rates. The determination may be influenced by, but not necessarily correspond to, the current interest rate environment. (See “The MVA Option”.) We may also consider, among other factors, the duration of a Guarantee Period, regulatory and tax requirements, sales commissions and administrative expenses we bear, and general economic trends.

We make the final determination of the Guaranteed Interest Rates to be declared. We cannot predict or guarantee the level of future Guaranteed Interest Rates.

Contract Value.

On any Valuation Date, Contract Value equals the total of:

	•		the number of Accumulation Units credited to each Subaccount, times

	•		the value of a corresponding Accumulation Unit for each Subaccount, plus

	•		your Accumulated Guarantee Period Value in the MVA Option, plus

	•		your interest in the Fixed Account.

Transfers During the Accumulation Period.

During the Accumulation Period, you may transfer the Contract Value among the Subaccounts, the Guarantee Periods and the Fixed Account subject to the following provisions:

	•		the amount transferred must be at least $100 unless the total Contract Value attributable to a Subaccount, Guarantee Period or Fixed Account is transferred;

	•		the Contract Value remaining in a Subaccount, Guarantee Period or Fixed Account must be at least $500 unless the total value is transferred;

	•		transfers may not be made from any Subaccount to the Fixed Account over the six months following any transfer from the Fixed Account into one or more Subaccounts;

	•		transfers from the Fixed Account may be made one time during the Contract Year during the 30 days following an anniversary of a Contract Year; and

	•		transfer requests we receive must be in good order.

We may charge a $25 fee for each transfer in excess of 12 transfers per calendar year. However, transfers made pursuant to the Asset Allocation and Dollar Cost Averaging programs do not count toward these 12 transfers. In addition, transfers of Guarantee Period Value are subject to Market Value Adjustment unless the transfer is made within 30 days of the end of the Guarantee Period. Because a transfer before the end of a Guarantee Period is subject to a Market Value Adjustment, the amount transferred from the Guarantee Period may be more or less than the requested dollar amount.

We will make transfers pursuant to your mailed, faxed or telephone instructions that specify in detail the requested changes and are in good order. Transfers involving a Subaccount are based upon the Accumulation Unit values, as next calculated after we receive transfer instructions in good order at the Service Center. We may suspend, modify or terminate the transfer provision. We disclaim all liability if we follow in good faith instructions you give to us in accordance with our procedures, including requests for personal identifying information, that are designed to limit unauthorized use of the privilege. Therefore, you bear the risk of loss in the event of a fraudulent telephone transfer.

Mail, Fax, and Telephone Access. You may request transfers in writing by mailing your request (in good order) to our Service Center, or by faxing your request (in good order) to our Service Center at

1-864-609-3962. You may also request transfers by telephone by calling our Service Center at 1-800-449-0523 and providing us with all required information.

Website Access. You may request transfers through our website. Our website address at www.zurichamericanlifeinsurance.com (formerly www.kemperinvestors.com) is available 24 hours a day. Our website will allow you to request transfers among the Subaccounts, Fixed Account, and the Guarantee Periods and inquire about your Contract. To use the website for access to your Contract information or to request transfers, you must enter your Contract number and Personal Identification Number (PIN), which you can obtain from our Service Center.

Pricing of Transfers. We will price any transfer request that we receive in good order at the Service Center (by mail, fax, or telephone) or through our website address before the NYSE closes for regular trading (usually, 3:00 p.m. Central Time) using the Accumulation Unit values next determined at the end of that regular trading session of the NYSE.

And we will price any transfer request that we receive in good order at the Service Center (by mail, fax, or telephone) or through our website after the close of the regular business session of the NYSE, on any day the NYSE is open for regular trading, using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE.

E-mail Access. Currently, we do not allow transfer requests or withdrawals by e-mail. You may e-mail us through our website to request an address change or to inquire about your Contract. Please identify your Contract number in any transaction request or correspondence sent to us by e-mail.

Limitations on Transfers. The following transfers must be requested through standard first-class United States mail and must have an original signature:

	•		transfers in excess of $250,000, per Contract, per day, and


	•		transfers into and out of the Credit Suisse Trust-International Equity Flex III, the DWS Global Thematic VIP, the DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP), the DWS International VIP or the DWS Diversified International Equity VIP Subaccounts in excess of $50,000, per Contract, per day.

These administrative procedures have been adopted under the Contract to protect the interests of the remaining Contract Owners from the adverse effects of frequent and large transfers into and out of variable annuity Subaccounts that can adversely affect the investment management of the underlying Funds or Portfolios.

We reserve the right to further amend the transfer procedures in the interest of protecting remaining Contract Owners.

Additional Telephone, Fax, and Online Access Rules and Conditions. We will employ reasonable procedures to confirm that telephone, fax, e-mail and website instructions are genuine. Such procedures may include confirming that instructions are in good order, requiring forms of personal identification prior to acting upon any telephone, fax, e-mail and website instructions, providing written

confirmation of transactions to you, and/or tape recording telephone instructions and saving fax, e-mail and website instructions received from you. We disclaim all liability if we follow in good faith instructions given in accordance with our procedures that are designed to limit unauthorized use of the telephone, fax, e-mail and website privileges. Therefore, you bear the risk of loss in the event of a fraudulent telephone, fax, e-mail and website request.

In order to access our website or our automated customer response system, you will need to obtain a PIN by calling into the Service Center. You should protect your PIN, because the automated customer response system will be available to your representative of record and to anyone who provides your PIN. We will not be able to verify that the person providing electronic instructions is you or authorized by you.

We cannot guarantee that our telephone, fax, e-mail and website services will always be available. For example, our Service Center may be closed during severe weather emergencies or there may be interruptions in telephone or fax service or problems with computer systems that are beyond our control. Outages or slowdowns may prevent or delay our receipt of your request. If the volume of requests is unusually high, we might not be able to receive your order. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your request or correspond in writing to our mailing address.

Transfer requests made in writing, by phone, by fax, or through our website must comply with our transfer provisions stated in this Prospectus. Any transfer requests that are not in good order or are not in compliance with these provisions will not be considered received at our Service Center. We reserve the right to modify, restrict, suspend or eliminate the transfer privileges (including the telephone, fax, and website transfer privilege) at any time, for any class of Contracts, for any reason.

Third Party Transfers. If you authorize a third party to transact transfers on your behalf, we will reallocate the Contract Value pursuant to the authorized asset allocation program. However, we do not offer or participate in any asset allocation program and we take no responsibility for any third party asset allocation program. We may suspend or cancel acceptance of a third party’s instructions at any time and may restrict the variable options available for transfer under third party authorizations.

Automatic Account Rebalancing. You may elect to have transfers made automatically among the Subaccounts on an annual, semiannual or quarterly basis so that Contract Value is reallocated to match the percentage allocations in your predefined allocation elections. Transfers under this program are not subject to the $100 minimum transfer limitation. Your election to participate in the automatic asset reallocation program must be in writing on our form and returned to us in good order.

Policy and Procedures Regarding Disruptive Trading and Market Timing.

Statement of Policy. This Contract is not designed for use by organizations or individuals engaged in market timing or for use by investors who make frequent transfers, programmed transfers, transfers into and then out of a Subaccount in a short period of time, or transfers of large amounts at one time (“Disruptive Trading”).

Market timing and other kinds of Disruptive Trading can increase your investment risks and have harmful effects for you, for other Contract Owners, for the underlying Portfolios, and for other persons who have material rights under the Contract, such as insureds and beneficiaries. These risks and harmful effects include:


	•		dilution of the interests of long-term investors in a Subaccount if market timers manage to transfer into an underlying Portfolio at prices that are below the true value or to transfer out of the underlying Portfolio at prices that are above the true value of the underlying Portfolio’s investments (some market timers attempt to do this through methods known as “time-zone arbitrage” and “liquidity arbitrage”); and


	•		reduced investment performance due to adverse effects on Portfolio management by:


	o		impeding a Portfolio manager’s ability to sustain an investment objective;

	o		causing the underlying Portfolio to maintain a higher level of cash than would otherwise be the case; or

	o		causing an underlying Portfolio to liquidate investments prematurely (or otherwise at an inopportune time) in order to pay withdrawals or transfers out of the underlying Portfolio; and

	o		increased costs to you in the form of increased brokerage and administrative expenses. These costs are borne by all Contract Owners invested in those Subaccounts, not just those making the transfers.

Policy Against Disruptive Trading. We have adopted policies and procedures that are intended to detect and deter market timing and other forms of Disruptive Trading in the Contract. We do not make special arrangements or grant exceptions or waivers to accommodate any persons or class of persons with regard to these policies and procedures.

Do not invest with us if you intend to engage in market timing or potentially Disruptive Trading.

For these purposes, we do not include transfers made pursuant to Dollar Cost Averaging.

Detection. We monitor the transfer activities of Owners in order to detect market timing and other forms of Disruptive Trading activity. However, despite our monitoring we may not be able to detect or halt all Disruptive Trading activity. Our ability to detect Disruptive Trading may be limited by operational or technological systems, as well as by our ability to predict strategies employed by market timers to avoid detection. As a result, despite our efforts, there is no assurance that we will be able to identify and curtail all Disruptive Trading by such Contract Owners or intermediaries acting on their behalf.

In addition, because other insurance companies (and retirement plans) with different market timing policies and procedures may invest in the underlying Portfolios, we cannot guarantee that all harmful trading will be detected or that an underlying Portfolio will not suffer harm from Disruptive Trading in the subaccounts of variable products issued by these other insurance companies (or retirement plans) that invest in the underlying Portfolios.

As a result, to the extent we are not able to detect Disruptive Trading activity, or other insurance companies (or retirement plans) fail to detect such activity, it is possible that a market timer may be able to engage in Disruptive Trading transactions that may interfere with underlying Portfolio management and cause you to experience detrimental effects such as increased costs, lower performance and a dilution of your interest in a underlying Portfolio.

Deterrence. We impose limits on transfer activity within the Contract in order to deter Disruptive Trading.

We will accept the following transfers only if the order is sent to us with an original signature and by first class U.S. Mail:

	•		transfers in excess of $250,000 per Contract, per day; and

	•		transfers in excess of $50,000 per Contract, per day, into or out any of the following Subaccounts:


	o		Credit Suisse Trust-International Equity Flex III,


	o		DWS Global Thematic VIP,


	o		DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP),


	o		DWS International VIP, or

	o		DWS Diversified International Equity VIP.

If you send a transfer request in excess of these restrictions by any other method (such as fax, phone, or overnight mail), we will not honor your request.

If we identify suspicious transfer activity, we will advise you in writing that we are monitoring your transfer activity and that we will impose restrictions if we identify a pattern of Disruptive Trading activity. If we identify such a pattern as a result of continued monitoring, we will notify you in writing that all future transfers must be requested through first class U.S. Mail with an original signature. This means that we would accept only written transfer requests with an original signature transmitted to us only by U.S. mail. We may also restrict the transfer privileges of others acting on your behalf, including your registered representative or an asset allocation or investment advisory service.

To further deter any market timing and Disruptive Trading activities, we may at any time and without prior notice:

	•		terminate all telephone, website, email or fax transfer privileges;

	•		limit the total number of transfers;

	•		place further limits on the dollar amount that may be transfer;

	•		require a minimum period of time between transfers; or

	•		refuse transfer requests from intermediaries acting on behalf of you.

Our ability to impose these restrictions in order to discourage market timing and other forms of Disruptive Trading may be limited by provisions of your Contract. As a result, to the extent the provisions of your Contract limit our actions, some Contract Owners may be able to market time through the Contract, while others would bear the harm associated with the timing.

We reserve the right to reject any premium payment or transfer request from any person without prior notice, if, in our judgment, (1) the payment or transfer, or series of transfers, would have a negative impact on an underlying Portfolio’s operations, (2) if an underlying Portfolio would reject or has rejected our purchase order, or has instructed us not to allow that purchase or transfer, or (3) because of a history of large or frequent transfers. We may impose other restrictions on transfers, or even prohibit transfers for any Owner who, in our view, has abused, or appears likely to abuse, the transfer privilege. We also reserve the right to reverse a potentially harmful transfer if an underlying Portfolio refuses or reverses our order; in such instances some Contract Owners may be treated differently than others. For all of these purposes, we may aggregate two or more variable insurance products that we believe are connected.

In addition to our internal policies and procedures, we will administer your Contract to comply with any applicable state, federal, and other regulatory requirements concerning transfers. We reserve the right to implement, administer, and charge you for any fee or restriction, including redemption fees,

imposed by any underlying Portfolio. To the extent permitted by law, we also reserve the right to defer the transfer privilege at any time that we are unable to purchase or redeem shares of any of the underlying Portfolios.

Under our current policies and procedures, we do not:

	•		impose redemption fees on transfers;

	•		expressly limit the number, size or frequency of transfers in a given period (except for certain Subaccounts listed above where transfers that exceed a certain size are prohibited); or

	•		allow a certain number of transfers in a given period.

Redemption fees, other transfer limits, and other procedures or restrictions may be more or less successful than ours in deterring market timing or other forms of Disruptive Trading and in preventing or limiting harm from such trading.

Please note that the limits and restrictions described herein are subject to our ability to monitor transfer activity. Our ability to detect market timing and other Disruptive Trading may be limited by operational and technological systems, as well as by our ability to predict strategies employed by Contact Owners (or those acting on their behalf) to avoid detection. As a result, despite our efforts to prevent harmful trading activity among the Subaccounts available under the Contract, there is no assurance that we will be able to deter or detect market timing or Disruptive Trading by such Contract Owners or intermediaries acting on their behalf. Moreover, our ability to discourage and restrict market timing or Disruptive Trading may be limited by decisions of state regulatory bodies and court order which we cannot predict.

We may revise our policies and procedures in our sole discretion at any time and without prior notice, as we deem necessary or appropriate (1) to better detect and deter market timing or other Disruptive Trading if we discover that our current procedures do not adequately curtail such activity, (2) to comply with state or federal regulatory requirements, or (3) to impose additional or alternative restrictions on Owners engaging in frequent transfer activity among the underlying Portfolios under the Contract. The actions we take will be based on policies and procedures that we apply uniformly to all Contract Owners.

Underlying Portfolio Frequent Trading Policies. The underlying Portfolios may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the underlying Portfolios describe any such policies and procedures. The frequent trading policies and procedures of one underlying Portfolio may be different, and more or less restrictive, than the frequent trading policies and procedures of another underlying Portfolios and the policies and procedures we have adopted for the Contract to discourage market timing and other programmed, large, frequent, or short-term transfers.

You should be aware that, as required by SEC regulation, we have entered into a written agreement with each underlying Fund or principal underwriter that obligates us to provide the Fund, upon written request, with information about you and your trading activities in the Fund’s Portfolios. In addition, we are obligated to execute instructions from the Funds that may require us to restrict or prohibit your investment in a specific Portfolio if the Fund identifies you as violating the frequent trading policies that the Fund has established for that Portfolio.

If we receive a premium payment from you with instructions to allocate it into a Fund that has directed us to restrict or prohibit your trades into the Fund, then we will request new allocation instructions from you. If you request a transfer into a Fund that has directed us to restrict or prohibit your trades, then we will not effect the transfer.

Omnibus Order. Contract Owners and other persons with material rights under the Contract also should be aware that the purchase and redemption orders received by the underlying Portfolios generally are “omnibus” orders from intermediaries such as retirement plans and separate accounts funding variable insurance products. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and individual owners of variable insurance products. The omnibus nature of these orders may limit the underlying Portfolios’ ability to apply their respective frequent trading policies and procedures. We cannot guarantee that the underlying Portfolios will not be harmed by transfer activity relating to the retirement plans or other insurance companies that may invest in the underlying Portfolios. These other insurance companies are responsible for their own policies and procedures regarding frequent transfer activity. If their policies and procedures fail to successfully discourage harmful transfer activity, it will affect other owners of underlying Portfolio shares, as well as the owners of all of the variable annuity or life insurance policies, including ours, whose variable options correspond to the affected underlying Portfolios. In addition, if an underlying Portfolio believes that an omnibus order we submit may reflect one or more transfer requests from Owners engaged in market timing and other programmed, large, frequent, or short-term transfers, the underlying Portfolio may reject the entire omnibus order and thereby delay or prevent us from implementing your request.

Withdrawals During the Accumulation Period.

You may redeem some or all of the Contract Value, subject to any applicable Market Value Adjustment and minus any Withdrawal Charge. In a rising interest rate environment, the Market Value Adjustment could result in a substantial downward adjustment to your Contract Value.

Withdrawals will have tax consequences. (See “Federal Tax Considerations.”) A withdrawal of the entire Contract Value is called a surrender.

In any Contract Year, you may withdraw or surrender the Contract, without Withdrawal Charge, up to the greater of:

	•		the excess of Contract Value over total Purchase Payments subject to Withdrawal Charges, minus prior withdrawals that were previously assessed a Withdrawal Charge, or

	•		10% of the Contract Value.

See “Contract Charges and Expenses-Withdrawal Charge” for a discussion of the charges we deduct from partial withdrawals and surrenders.

If your Contract Value is allocated to more than one Subaccounts, you must specify the Subaccount(s) from which you want us to take the partial withdrawal. If you do not specify the Subaccount(s), we will redeem Accumulation Units on a pro rata basis from all Subaccount(s) in which you have an interest. Accumulation Units attributable to the earliest Contribution Years are redeemed first.

Partial withdrawals are subject to the following:

•

Partial withdrawals are not permitted from the Fixed Account in the first Contract Year.

	•		The minimum withdrawal is $100 (before any Market Value Adjustment), or your entire interest in the variable option(s) from which withdrawal is requested.

	•		You must leave at least $500 in each Subaccount from which the withdrawal is requested, unless the total value is withdrawn.

A request to withdraw shall be made in writing (in good order) to us at the Service Center and should be accompanied by the Contract if surrender is requested. You may request a surrender or partial withdrawal in writing by mailing your request (in good order) to our Service Center, or by faxing your request (in good order) to our Service Center at 1-864-609-3962.

Withdrawal requests are processed only on days when the New York Stock Exchange is open. The Withdrawal Value attributable to the Subaccounts is determined on the basis of the Accumulation Unit values, as calculated after we receive the request. We will price any partial withdrawal or surrender request that we receive in good order at the Service Center before the NYSE closes for regular trading (usually 3:00 p.m. Central Time) using the Accumulation Unit values next determined at the end of that regular trading session of the NYSE. We will price any partial withdrawal or surrender request that we receive in good order at the Service Center after the NYSE closes for regular trading (usually 3:00 p.m. Central Time), using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE. The Withdrawal Value attributable to the Subaccounts is paid within seven days after we receive the request. However, we may suspend withdrawals or delay payment:

	•		during any period when the New York Stock Exchange is closed,

	•		when trading in a Fund or Portfolio is restricted or the SEC determines that an emergency exists, or

	•		as the SEC by order may permit.

If, pursuant to SEC rules, the DWS Money Market VIP Portfolio suspends payment of redemption proceeds in connection with a liquidation of the Portfolio, we will delay payment of any transfer, partial withdrawal, surrender, loan, or death benefit from the DWS Money Market VIP Sub-account until the Portfolio no longer suspends such payments.

For withdrawal requests from the MVA Option and the Fixed Account, we may defer any payment for up to six months, as permitted by state law. During the deferral period, we will continue to credit interest at the current Guaranteed Interest Rate for the same Guarantee Period.

Withdrawals are permitted from Contracts issued in connection with Section 403(b) Qualified Plans only under limited circumstances. If your Contract was issued pursuant to a 403(b) plan, we generally are required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders, withdrawals or transfers you request comply with applicable tax requirements and to decline requests that are not in compliance. We will defer such payments you request until all information required under the tax law has been received. By requesting a surrender, withdrawal or transfer, you consent to the sharing of confidential information about you, your Contract, and transactions under your Contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers. (See “Federal Tax Considerations.”)

A participant in the Texas Optional Retirement Program (“ORP”) must obtain a certificate of termination from the participant’s employer before a Contract can be redeemed. The Attorney General of Texas has ruled that participants in the ORP may redeem their interest in a Contract issued pursuant to the ORP only upon termination of employment in Texas public institutions of higher education, or upon retirement, death or total disability. In those states adopting similar requirements for optional retirement programs, we will follow similar procedures.

Other types of Qualified Plan Contracts also may be subject to withdrawal restrictions under the Code or the terms of the Qualified Plan. You should consult your tax adviser and your plan sponsor regarding such restrictions. To the extent that you request a transaction with respect to your Qualified Plan Contract that requires us to share confidential information about you in order to comply with the rules under the Code or the plan governing your Qualified Contract, you consent to such information sharing by requesting the transaction.

Market Value Adjustment.

Any withdrawal, transfer or annuitization of Guarantee Period Values, unless effected within 30 days after a Guarantee Period ends, may be adjusted up or down by a Market Value Adjustment. We calculate and apply the Market Value Adjustment before we calculate and deduct the Withdrawal Charge.

The Market Value Adjustment reflects the relationship between (a) the currently established interest rate (“Current Interest Rate”) for a Guarantee Period equal to the remaining length of the Guarantee Period, rounded to the next higher number of complete years, and (b) the Guaranteed Interest Rate applicable to the amount being withdrawn. Generally, if the Guaranteed Interest Rate is the same or lower than the applicable Current Interest Rate, the Market Value Adjustment reduces Guarantee Period Value and results in a lower payment. Conversely, if the Guaranteed Interest Rate is higher than the applicable Current Interest Rate, the Market Value Adjustment increases Guarantee Period Value and results in a higher payment.

MVA Endorsement Adding the MVA Floor. Effective April 1, 2005 (the “Effective Date”), we amended your Contract or certificate by putting a “floor” on the Market Value Adjustment feature and increasing the Guaranteed Interest Rate to 3% on all Guarantee Period Values. For this to occur, we issued an endorsement to your Contract or certificate (the “MVA Endorsement”).

The MVA Endorsement enhanced the MVA formula for your Contract by limiting (i.e., putting a “floor” on) any downward Market Value Adjustment that might be applied after the Effective Date of the MVA Endorsement. The “floor” ensures that, regardless of any changes in interest rates, if you withdraw or transfer money from a Guarantee Period before it expires and after the Start Date, then you will receive a return on your Guarantee Period Value as of the Start Date (before any deductions for Contract charges) that will not be less than the Contract’s new minimum Guaranteed Interest Rate of 3% per annum. The Start Date is the later of the Effective Date of the MVA Endorsement or the beginning of a new Guarantee Period.

In applying the MVA formula, each amount allocated to a different Guarantee Period or allocated at different times will be considered separately.

The specific terms of this change to your Contract are described in the MVA Endorsement.

As a result of the issuance of the MVA Endorsement, the interests under the Contract relating to the MVA Option are no longer securities registered under the Securities Act of 1933.

The Market Value Adjustment (MVA) uses this formula:


Where:

“I” is the Guaranteed Interest Rate being credited to the Guarantee Period Value (GPV) subject to the Market Value Adjustment,

“J” is the Current Interest Rate we declare, as of the effective date of the application of the Market Value Adjustment, for current allocations to a Guarantee Period the length of which is equal to the balance of the Guarantee Period for the Guarantee Period Value subject to the Market Value Adjustment, rounded to the next higher number of complete years, and

“t” is the number of days remaining in the Guarantee Period.

Any downward Market Value Adjustment is limited by the MVA “floor” described above.

For an illustration of the new “floor” on a downward Market Value Adjustment, as well as an upward Market Value Adjustment, see Appendix A.

10.

Guaranteed Death Benefit.

We pay a death benefit to the Beneficiary if any of the following occurs during the Accumulation Period:

	•		the Owner, or a joint owner, dies,

	•		the Annuitant dies with no living contingent annuitant, or

	•		the contingent annuitant dies after the Annuitant.

Each Beneficiary or contingent beneficiary will bear the investment risk (i.e., receive any gains or bear any losses) on investments held in the Subaccounts until the payment of the death benefit. The amount of the death benefit depends on the age of the deceased Owner or Annuitant when the death benefit becomes payable.

If the deceased Owner or Annuitant dies before age 91, we will pay the Beneficiary the greatest of the following less debt:

	•		Contract Value,

	•		Purchase Payments minus previous withdrawals, accumulated at 5.00% interest per year to the earlier of the deceased’s age 80 or the date of death, plus Purchase Payments minus all withdrawals from age 80 to the date of death, or

	•		the greatest anniversary value before death.

The greatest anniversary value equals:

	•		the highest of the Contract Values on each Contract anniversary prior to the deceased’s age 81, plus the dollar amount of any Purchase Payments made since that anniversary, minus

	•		withdrawals since that anniversary.

We pay Contract Value to the Beneficiary if an Owner or Annuitant dies after age 91. The Owner or Beneficiary (unless the Owner has already elected an Annuity Option), as appropriate, may elect to have all or a part of the death benefit proceeds paid to the Beneficiary under one of the Annuity Options described under “Annuity Options” below. The death benefit must be distributed within five years after the date of death unless an Annuity Option is elected or a surviving spouse elects to continue the Contract in accordance with the provisions described below.

Note: The right of a spouse to continue the Contract and all Contract provisions relating to spousal continuation are available only to a person who meets the definition of “spouse” under the Federal Defense of Marriage Act, or any other applicable Federal law. Under current Federal law, a prospective or current Owner who has entered into or is contemplating a civil union or a same sex marriage should be aware that the rights of the spouse under the spousal continuation provisions of this Contract will not be available to such partner or same sex marriage spouse.

For Non-Qualified Plan Contracts or Individual Retirement Annuities, if the Beneficiary is the Owner’s surviving spouse (as defined under Federal law) (or the Annuitant’s surviving spouse if the Owner is not a natural person), the surviving spouse may elect to continue the Contract in lieu of taking a death benefit distribution.

The spouse will become the successor Owner of the Contract subject to the following:

	•		The Contract Value will be increased to reflect the amount of the death benefit. The difference will be credited to the DWS Money Market VIP Subaccount.

	•		No Withdrawal Charges will apply on existing values in the Contract. However, Purchase Payments made after the original owner’s death are subject to Withdrawal Charges.

	•		Upon the death of the surviving spouse, the death benefit will be calculated from the time that the election to continue the Contract is made. A subsequent spouse of the surviving spouse will not be able to continue the Contract.

The above option is subject to availability of this feature in your state.

As an alternative to the above election, the surviving spouse may elect to continue a Non-Qualified Plan Contract or an Individual Retirement Annuity without receiving the increase in Contract Value attributable to the death benefit. In this case, all rights, benefits and charges under the Contract will continue including any applicable Withdrawal Charges.

CONTRACT CHARGES AND EXPENSES

This section describes the charges and deductions that we make under the Contract to compensate for: (1) the services and benefits we provide; (2) the costs and expenses we incur; and (3) the risks we assume. The fees and charges we deduct under the Contract may result in a profit to us.

We deduct the following charges and expenses:

	•		mortality and expense risk charge,

	•		administration charge,

	•		records maintenance charge,

	•		Withdrawal Charge,

	•		Guaranteed Retirement Income Benefit Rider Charge, if any,

	•		transfer charge,

	•		investment management fees and other expenses, and

•

applicable state premium taxes.

Subject to certain expense limitations, you indirectly bear investment management fees and other Fund expenses.

Charges Against The Separate Account.

Mortality and Expense Risk Charge.

We assess each Subaccount a daily asset charge for mortality and expense risks at a rate of 1.25% per annum. Variable Annuity payments reflect the investment experience of each Subaccount but are not affected by changes in actual mortality experience or by actual expenses we incur. If you annuitize the Contract on a variable basis, we will continue to assess a daily Mortality and Expense Risk Charge at an annual rate of 1.25% against the assets you hold in the Separate Account.

The mortality risk we assume arises from two contractual obligations. First, if you or the Annuitant die before age 91 and before the Annuity Date, we may, in some cases, pay more than Contract Value. (See “Guaranteed Death Benefit”, above.) Second, when Annuity Options involving life contingencies are selected, we assume the risk that Annuitants will live beyond actuarial life expectancies.

We also assume an expense risk. Actual expenses of administering the Contracts may exceed the amounts we recover from the Records Maintenance Charge or the administrative cost portion of the daily asset charge.

Administration Charge.

We assess each Subaccount a daily administration charge at a rate of 0.15% per annum. This charge reimburses us for expenses incurred for administering the Contracts. These expenses include Owner inquiries, changes in allocations, Owner reports, Contract maintenance costs, and data processing costs. The administration charge covers the average anticipated administrative expenses incurred while the Contracts are in force. There is not necessarily a direct relationship between the amount of the charge and the administrative costs of a particular Contract. If you annuitize the Contract on a variable basis, we will continue to assess a daily Administration Charge at an annual rate of 0.15% against the assets you hold in the Separate Account.

Records Maintenance Charge.

We deduct an annual Records Maintenance Charge of $30 during the Accumulation Period. The charge is assessed:

	•		at the end of each Contract Year,

	•		on Contract surrender, and

	•		upon annuitization.

However, we do not deduct the Records Maintenance Charge for Contracts with Contract Value of at least $50,000 on the assessment date.

This charge reimburses us for the expenses of establishing and maintaining Contract records. The Records Maintenance Charge reduces the net assets of each Subaccount, Guarantee Period and the Fixed Account.

The Records Maintenance Charge is assessed equally among all Subaccounts in which you have an interest.

Withdrawal Charge.

We deduct a Withdrawal Charge to cover Contract sales expenses, including commissions and other promotion and acquisition expenses.

Each Contract Year, you may withdraw or surrender the Contract, without Withdrawal Charge, up to the greater of:

	•		the excess of Contract Value over total Purchase Payments subject to Withdrawal Charges, minus prior withdrawals that were previously assessed a Withdrawal Charge, or

	•		10% of the Contract Value.

If you withdraw a larger amount, the excess Purchase Payments withdrawn are subject to a Withdrawal Charge. The Withdrawal Charge applies in the first seven Contribution Years following each Purchase Payment as follows:


Contribution Year	Withdrawal Charge
First		7	%
Second		6	%
Third		5	%
Fourth		5	%
Fifth		4	%
Sixth		3	%
Seventh		2	%
Eighth and following		0	%

Purchase Payments are deemed surrendered in the order in which they were received.

When a withdrawal is requested in good order, you receive a check in the amount requested. If a Withdrawal Charge applies, Contract Value is reduced by the Withdrawal Charge, plus the dollar amount sent to you.

Because Contribution Years are based on the date each Purchase Payment is made, you may be subject to a Withdrawal Charge, even though the Contract may have been issued many years earlier. (For additional details, see “Withdrawals During the Accumulation Period.”)

Subject to certain exceptions and state approvals, Withdrawal Charges are not assessed on withdrawals:

	•		after you have been confined in a hospital or skilled health care facility for at least 30 days and you remain confined at the time of the request;

	•		within 30 days following your discharge from a hospital or skilled health care facility after a confinement of at least 30 days; or

	•		if you or the Annuitant become disabled after the Contract is issued and before age 65.

Restrictions and provisions related to the nursing care or hospitalization disability waivers are described in Contract endorsements.

The Withdrawal Charge compensates us for Contract distribution expenses, which include the payment of on-going trail commissions to selling firms (See “Distribution of Contracts”). Currently, we anticipate Withdrawal Charges will not fully cover distribution expenses. We may use our general assets to pay distribution expenses. Those assets may include proceeds from the mortality and expense risk charge.

The Withdrawal Charge also applies at annuitization to amounts attributable to Purchase Payments in their seventh Contribution Year or earlier. No Withdrawal Charge applies upon annuitization if you select Annuity Options 2, 3 or 4 or if payments under Annuity Option 1 are scheduled to continue for at least five years. See “The Annuity Period-Annuity Options” for a discussion of the Annuity Options available.

Optional Guaranteed Retirement Income Benefit (“GRIB”) Rider Charge.

If you have selected the GRIB rider and it is in force, we will deduct an annual charge of 0.25% of Contract Value for this rider. We deduct a prorata portion of the charge on the last business day of each calendar quarter. This quarterly charge is deducted from each Subaccount, each Guarantee Period and the Fixed Account in which you have value based on the proportion that the value you have in each account bears to your total Contract Value. If the GRIB rider is not exercised by the Annuitant’s age 91, the GRIB terminates without value on that date. Contract Owners must exercise the GRIB rider no later than the Contract anniversary before the Annuitant’s age 91. We do not charge for this rider after the Annuitant’s 91^st birthday. We do not assess the GRIB Charge after you annuitize your Contract.

Transfer Charge.

We currently allow you to make unlimited transfers without charge. We reserve the right to assess a transfer fee of $25 for the thirteenth and each subsequent transfer during a Contract Year.

Investment Management Fees and Other Expenses.

Each Fund or Portfolio’s net asset value may reflect the deduction of investment management fees, Rule 12b-1 fees and general operating expenses. Subject to limitations, you indirectly bear these fees and expenses. (See “Summary of Expenses.”) For 2010, total annual investment management fees and expenses for the Funds and Portfolios offered through the Contracts ranged from 0.33% to 2.43% of average daily Portfolio assets. Further detail is provided in the attached prospectuses for the Funds or Portfolios and the Portfolios’ or Funds’ statements of additional information.

Redemption Fees. A Fund or Portfolio may assess a redemption fee of up to 2% on Subaccount assets that are redeemed out of the Fund or Portfolio in connection with a withdrawal or transfer. Each Fund or Portfolio determines the amount of the redemption fee and when the fee is imposed. The redemption fee is retained by or paid to the Fund or Portfolio and is not retained by us. The redemption fee will be deducted from your Contract Value. For more information on each Fund or Portfolio’s redemption fee, see the Fund or Portfolio prospectus.

State and Local Government Premium Taxes.

Certain state and local governments impose a premium tax of up to 3.5% of Purchase Payments which, depending on the state, is paid by us at the time we receive a Purchase Payment from you or at the time you annuitize your Contract. If you live in a state where we pay premium tax at the time we receive a Purchase Payment from you (Maine, South Dakota, West Virginia, and Wyoming), we reserve the right to deduct the amount of the premium tax payable from your Contract Value at the time we receive your

Purchase Payment. If you live in a state where we pay premium tax when you annuitize your Contract (California and Nevada), we will deduct the amount of the premium tax payable from your Contract Value (if you annuitize under the standard feature in your Contract) or from your GRIB base (if you annuitize under the GRIB rider). We will take this deduction at the time of annuitization of your Contract. In no event will this deduction for premium tax exceed the amount of your Contract Value at the time of annuitization. The charge we deduct for premium tax will never exceed the amount of premium tax we have paid to your state on your Purchase Payments. See “Appendix A-State and Local Government Premium Tax Chart” in the Statement of Additional Information.

Exceptions.

We may decrease the mortality and expense risk charge, the administration charge, and the Records Maintenance Charge without notice. However, we guarantee that they will not increase. We bear the risk that those charges will not cover our costs. On the other hand, should the charges exceed our costs, we will not refund any charges. Any profit is available for corporate purposes including, among other things, payment of distribution expenses.

We may also reduce or waive charges, including but not limited to, the Records Maintenance Charge, the Withdrawal Charge, and mortality and expense risk and administration charges, for certain sales that may result in cost savings, such as those where we incur lower sales expenses or perform fewer services because of economies due to the size of a group, the average contribution per participant, or the use of mass enrollment procedures. We may also reduce or waive charges and/or credit additional amounts on Contracts issued to:

	•		employees and registered representatives (and their families) of broker-dealers (or their affiliated financial institutions) that have entered into selling group agreements with Synergy Investment Group, LLC (“Synergy”), and


	•		officers, directors and employees (and their families) of ZALICO, DWS Investments VIT Funds, and DWS Variable Series I and II, their investment advisers and principal underwriter or certain affiliated companies, or to any trust, pension, profit-sharing or other benefit plan for such persons.

Reductions in these charges will not unfairly discriminate against any Owner.

THE ANNUITY PERIOD

Contracts may be annuitized under one of several Annuity Options. Annuity payments begin on the Annuity Date and under the selected Annuity Option. The Annuity Date must be at least one year after the Date of Issue. Subject to state variation, the Annuity Date may not be deferred beyond the later of the Annuitant’s 91st birthday (100th birthday if the Contract is part of a Charitable Remainder Trust) or ten years after the Date of Issue. However, annuitization will be delayed beyond the Annuity Date if we are making systematic withdrawals based on your life expectancy. In this case, annuitization begins when life expectancy withdrawals are stopped.

You may elect to receive annuity payments on a fixed or variable basis, or a combination. Keep in mind that, on the Annuity Date, any of your Contract Value being held in the Fixed Account or allocated to a Guarantee Period will be annuitized on a fixed basis. (The MVA Option is not available during the Annuity Period.) Any of your Contract Value being held in the Separate Account will be annuitized on a variable basis. If you annuitize on a variable basis, we will assess a daily mortality and expense risk charge and an administration charge at an annual rate of 1.40% against your assets invested in the Separate Account.

Special annuitization rules apply if you purchased the GRIB rider. (See “CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001” below.)

Annuity Payments.

Annuity payments are based on:

	•		the annuity table specified in the Contract,

	•		the selected Annuity Option, and

	•		the investment performance of the selected Subaccount(s) (if variable annuitization is elected).

Under variable annuitization, the Annuitant receives the value of a fixed number of Annuity Units each month. An Annuity Unit’s value reflects the investment performance of the Subaccount(s) selected. The amount of each annuity payment varies accordingly. If you annuitize under Option 1 for a period of less than 5 years, your annuity payments will be subject to a Withdrawal Charge. (For additional details, see “Withdrawal Charge.”)

Annuity Options.

You may elect one of the Contract’s Annuity Options. You may decide at any time (subject to the provisions of your retirement plan, if applicable, and state variations) to begin annuity payments before the Annuitant’s 91st birthday (100th birthday if the Contract is part of a Charitable Remainder Trust) or within ten years after the Date of Issue, whichever is later. You may change the Annuity Option before the Annuity Date. If you do not elect an Annuity Option, we will make monthly annuity payments in accordance with Option 3 below with a ten year period certain. Generally, annuity payments are made in monthly installments. However, you must select a payment frequency that results in an annuity payment of at least $50. If the amount falls below $50, we have the right to change the payment frequency to bring the annuity payment up to at least $50.

The amount of periodic annuity payments may depend upon:

	•		the Annuity Option selected;

	•		the age and sex of the Annuitant; and

	•		the investment experience of the selected Subaccount(s).

For example:

	•		If Option 1, income for a specified period, is selected, shorter periods result in fewer payments with higher values.

	•		If Option 2, life income, is selected, it is likely that each payment will be smaller than would result if income for a short period were specified.

	•		If Option 3, life income with installments guaranteed, is selected, each payment will probably be smaller than would result if the life income option were selected.

	•		If Option 4, the joint and survivor annuity, is selected, each payment is smaller than those measured by an individual life income option.

The age of the Annuitant also influences the amount of periodic annuity payments because an older Annuitant is expected to have a shorter life span, resulting in larger payments. The sex of the Annuitant influences the amount of periodic payments because females generally live longer than males, resulting in smaller payments. Finally, if you participate in a Subaccount with higher investment

performance, it is likely you will receive a higher periodic payment, and conversely, you will likely receive a lower periodic payment if you participate in Subaccounts with lower investment performance.

If you die before the Annuity Date, available Annuity Options are limited. Unless you have imposed restrictions, the Annuity Options available are:

	•		Option 2, or

	•		Option 1 or 3 for a period no longer than the life expectancy of the Beneficiary (but not less than five years from your death).

If the Beneficiary is not an individual, the entire interest must be distributed within five years of your death. The death benefit distribution must begin no later than one year from your death, unless a later date is prescribed by federal regulation.

For Qualified Plan Contracts, the period certain elected cannot be longer than the Owner’s life expectancy, in order to satisfy minimum required distribution rules.

Option 1—Income for Specified Period.

Option 1 provides an annuity payable monthly for a selected number of years ranging from five to thirty. Upon the Annuitant’s death, if the Beneficiary is an individual, we automatically continue payments to the Beneficiary for the remainder of the period specified. If the Beneficiary is not an individual (e.g., an estate or trust), we pay the discounted value of the remaining payments in the specified period. Although there is no life contingency risk associated with Option 1, we continue to deduct the mortality and expense risk and administration charge.

If you elect variable annuitization under Option 1, the Annuitant may elect to cancel all or part of the variable annuity payments remaining due. We will then pay the discounted value of the remaining payments calculated as of the date we receive your request in good order at the Service Center.

Option 2—Life Income.

Option 2 provides for an annuity payable monthly over the lifetime of the Annuitant. If Option 2 is elected, annuity payments terminate automatically and immediately on the Annuitant’s death 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.

Option 3 provides an annuity payable monthly during the Annuitant’s lifetime. However, Option 3 also provides for the automatic continuation of payments for the remainder of the specified period if the Beneficiary is an individual and payments have been made for less than the specified period. The period specified may be five, ten, fifteen or twenty years. If the Beneficiary is not an individual, we pay the discounted value of the remaining payments in the specified period.

Option 4—Joint and Survivor Annuity.

Option 4 provides an annuity payable monthly while either Annuitant is living. Upon either Annuitant’s death, the monthly income payable continues over the life of the surviving Annuitant at a percentage specified when Option 4 is elected. Annuity payments terminate automatically and immediately upon the surviving Annuitant’s death without regard to the number or total amount of payments received.

Transfers During the Annuity Period.

During the Annuity Period, the Annuitant may, by sending a written request (in good order) to the Service Center, transfer Subaccount Value from one Subaccount to another Subaccount or to the Fixed Account, subject to the following limitations:

	•		Transfers to a Subaccount are prohibited during the first year of the Annuity Period; subsequent transfers are limited to one per year.

	•		All interest in a Subaccount must be transferred.

	•		If we receive notice of transfer to a Subaccount more than seven days before an annuity payment date, the transfer is effective during the Valuation Period after the date we receive the notice.

	•		If we receive notice of transfer to a Subaccount less than seven days before an annuity payment date, the transfer is effective during the Valuation Period after the annuity payment date.

	•		Transfers to the Fixed Account are available only on an anniversary of the first Annuity Date. We must receive notice at least 30 days prior to the anniversary.

	•		Transfers are not allowed from the Fixed Account to the Subaccounts.

A Subaccount’s Annuity Unit value is determined at the end of the Valuation Period preceding the effective date of the transfer. We may suspend, change or terminate the transfer privilege at any time.

A payee may not have more than three Subaccounts after any transfer.

You may request transfers in writing by mailing your request (in good order) to our Service Center, or by faxing your request (in good order) to our Service Center at 1-864-609-3962.

Annuity Unit Value Under Variable Annuity.

Annuity Unit value is determined independently for each Subaccount.

Annuity Unit value for any Valuation Period is:

	•		Annuity Unit value for the preceding Valuation Period, times

	•		the net investment factor for the current Valuation Period, times

	•		an interest factor which offsets the 2.5% per annum rate of investment earnings assumed by the Contract’s annuity tables.

The net investment factor for a Subaccount for any Valuation Period is:

	•		the Subaccount’s Annuity Unit value at the end of the current Valuation Period, plus or minus the per share charge or credit for taxes reserved; divided by

	•		the Subaccount’s Annuity Unit value at the end of the preceding Valuation Period, plus or minus the per share charge or credit for taxes reserved.

First Periodic Payment Under Variable Annuity.

When annuity payments begin, the value of your Contract interest is:

	•		Accumulation Unit values at the end of the Valuation Period falling on the 20th or 7th day of the month before the first annuity payment is due, times

	•		the number of Accumulation Units credited at the end of the Valuation Period, minus

•

any applicable premium taxes and Withdrawal Charges.

The first annuity payment is determined by multiplying the benefit per $1,000 of value shown in the applicable annuity table by the number of thousands of dollars of Contract Value (or GRIB base, if applicable), after the deduction of any Withdrawal Charges and any premium taxes from Contract Value (or the GRIB base, if applicable).

A 2.5% per annum rate of investment earnings is assumed by the Contract’s annuity tables. If the actual net investment earnings rate exceeds 2.5% per annum, payments increase accordingly. Conversely, if the actual rate is less than 2.5% per annum, annuity payments decrease.

Subsequent Periodic Payments Under Variable Annuity.

Subsequent annuity payments are determined by multiplying the number of Annuity Units by the Annuity Unit value at the Valuation Period before each annuity payment is due. The first annuity payment is divided by the Annuity Unit value as of the Annuity Date to establish the number of Annuity Units representing each annuity payment. This number does not change.

Fixed Annuity Payments.

Each Fixed Annuity payment is determined from tables we prepare. These tables show the monthly payment for each $1,000 of Contract Value allocated to a Fixed Annuity. Payment is based on the Contract Value at the date before the annuity payment is due. Fixed Annuity payments do not change regardless of investment, mortality or expense experience.

Death Benefit Proceeds.

If the Annuitant dies after the Annuity Date while the Contract is in force, the death benefit proceeds, if any, depend upon the form of annuity payment in effect at the time of death. (See “Annuity Options.”)

GRIB Rider.

If you purchased a GRIB rider with your Contract, additional annuitization rights apply. (See “CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001” below.)

FEDERAL TAX CONSIDERATIONS

The following discussion is general in nature and is not intended as tax advice. Each person concerned should consult a competent tax adviser. No attempt is made to consider any applicable state or other income tax or other tax laws, any state and local estate or inheritance tax, or other tax consequences or ownership or receipt of distribution under a Contract.

We believe that our Contracts will qualify as annuity contracts for Federal income tax purposes and the following discussion assumes that they will so qualify.

When you invest in an annuity contract, you usually do not pay taxes on your investment gains until you withdraw the money — generally for retirement purposes. In this way, annuity contracts have been recognized by the tax authorities as a legitimate means of deferring tax on investment income.

If you invest in a variable annuity as part of an IRA, Roth IRA, SIMPLE IRA or SEP IRA program, or in connection with a qualified employer-sponsored pension or profit sharing plan or eligible

deferred compensation plan, your Contract is called a Qualified Plan Contract. If your annuity is independent of any formal retirement or pension plan, it is called a Non-Qualified Plan Contract.

We believe that if you are a natural person you will not be taxed on increases in the Contract Value of your Contract until a distribution occurs or until annuity payments begin. (The agreement to assign or pledge any portion of a Contract’s accumulation value generally will be treated as a distribution.) When annuity payments begin on a Non-Qualified Plan Contract, you will be taxed only on the investment gains you have earned and not on the payments you made to purchase the Contract. Generally, withdrawals from your annuity should only be made once the taxpayer reaches age 59¹/2, dies or is disabled, otherwise a tax penalty of ten percent of the amount treated as income could be applied against any amounts included in income, in addition to the tax otherwise imposed on such amount.


A.		Taxation of Non-Qualified Plan Contracts

Non-Natural Person. If a non-natural person (such as a corporation or a trust) owns a non-qualified annuity contract, the owner generally must include in income any increase in the excess of the accumulation value over the investment in the contract (generally, the Purchase Payments or other consideration paid for the contract) during the taxable year. There are some exceptions to this rule and a prospective owner that is not a natural person should discuss these with a tax adviser.

The following discussion generally applies to Contracts owned by natural persons.

Withdrawals. When a withdrawal from a Non-Qualified Plan Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the accumulation value immediately before the distribution over the owner’s investment in the Contract (generally, the Purchase Payments or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. In the case of a surrender under a Non-Qualified Plan Contract, the amount received generally will be taxable only to the extent it exceeds the owner’s investment in the contract.

If the Contract includes the GRIB rider and it is in force, and the Guaranteed Retirement Income base is greater than the Contract Value, it is possible that the IRS could take the view that the “income on the contract” is a greater amount than would otherwise be the case. This could result in a larger amount being included in gross income in connection with a partial withdrawal, assignment, pledge, or other transfer.

There is also some uncertainty regarding the treatment of the MVA for purposes of determining the income on the Contract. Resolution of the uncertainty could result in the income on the Contract being a greater (or lesser) amount.

Penalty Tax on Certain Withdrawals. In the case of a distribution from a Contract, there may be imposed a Federal tax penalty equal to ten percent of the amount treated as income. In general, however, there is no penalty on distributions:

	•		made on or after the taxpayer reaches age 59¹/2;

	•		made on or after the death of an owner;

	•		attributable to the taxpayer’s becoming disabled; or

	•		made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer.

Other exceptions may apply under certain circumstances and special rules may apply in connection with the exceptions enumerated above. Additional exceptions apply to distributions from a Qualified Plan Contract. You should consult a tax adviser with regard to exceptions from the penalty tax.

Annuity Payments. Although tax consequences may vary depending on the annuity option elected under an annuity contract, a portion of each annuity payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of an annuity payment is generally determined in a manner that is designed to allow you to recover your investment in the contract ratably on a tax-free basis over the expected stream of annuity payments, as determined when annuity payments start. Once your investment in the contract has been fully recovered, however, the full amount of each annuity payment is subject to tax as ordinary income.

With respect to a Contract issued with the GRIB rider, the annuitant may elect to receive a lump sum payment after the Annuity Date. In the case of a Non-Qualified Plan Contract, the Company will treat a portion of such a lump sum payment as includible in income, and will determine the taxable portion of subsequent periodic payments by applying an exclusion ratio to the periodic payments. However, the Federal income tax treatment of such a lump sum payment, and of the periodic payments made thereafter, is uncertain. It is possible the Internal Revenue Service (“IRS”) could take a position that greater amounts are includible in income than the Company currently believes is the case. Prior to electing a lump sum payment after the Annuity Date, you should consult a tax adviser about the tax implications of making such an election.

Partial Annuitization. Under a new tax provision enacted in 2010, if part of an annuity contract’s value is applied to an annuity option that provides payments for one or more lives or for a period of at least ten years, those payments may be taxed as annuity payments instead of withdrawals. Currently, we do not allow partial annuitizations under your Contract.

Taxation of Death Benefit Proceeds. Amounts may be distributed from a Contract because of your death or the death of the annuitant. Generally, such amounts are includible in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the Contract, or (ii) if distributed under an annuity option, they are taxed in the same way as annuity payments.

Transfers, Assignments or Exchanges of a Contract. A transfer or assignment of ownership of a Contract, the designation of an annuitant or payee other than an owner, the selection of certain annuity start dates, or the exchange of a Contract may result in certain tax consequences to you that are not discussed herein. An owner contemplating any such transfer, assignment, designation or exchange, should consult a tax adviser as to the tax consequences.

Withholding. Annuity distributions are generally subject to withholding for the recipient’s Federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions.

Multiple Contracts. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such owner’s income when a taxable withdrawal occurs.

Rider Charges. It is possible that the IRS may take a position that rider charges are deemed to be taxable distributions to you. Although we do not believe that a rider charge under the Contract should

be treated as a taxable withdrawal, you should consult your tax adviser prior to selecting any rider or endorsement under the Contract.

Taxation of Qualified Plan Contracts

The tax rules that apply to Qualified Plan Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Your rights under a Qualified Plan Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Plan Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law. Qualified Plan Contracts have minimum distribution rules that govern the timing and amount of distributions. You should refer to your retirement plan, adoption agreement, or consult a tax adviser for more information about these distribution rules.

1. Qualified Plan Types

Individual Retirement Annuities (IRAs). IRAs, as defined in Section 408 of the Tax Code, permit individuals to make annual contributions of up to the lesser of $5,000 for 2011 ($6,000 if age 50 or older by the end of 2011) or 100% of the compensation included in your income for the year. The contributions may be deductible in whole or in part, depending on the individual’s income. Distributions from certain pension plans may be “rolled over” into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59¹/2, unless certain exceptions apply. The Contract has been approved as to form for use as an IRA, Roth IRA or a SIMPLE IRA by the IRS. Such approval by the IRS is a determination only as to form of the Contract, and does not represent a determination on the merits of the Contract.

SIMPLE IRAs. Simple IRAs permit certain small employers to establish SIMPLE plans as provided by Section 408(p) of the Code, under which employees may elect to defer to a SIMPLE IRA a percentage of compensation up to a limit specified in the Code (as increased for cost of living adjustments). The sponsoring employer is required to make matching or non-elective contributions on behalf of the employees. Distributions from SIMPLE IRAs are subject to the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, premature distributions prior to age 59¹/2 are subject to a 10% penalty tax, which is increased to 25% if the distribution occurs within the first two years after the commencement of the employee’s participation in the plan.

Roth IRAs. Roth IRAs, as described in Code section 408A, permit certain eligible individuals to make non-deductible contributions to a Roth IRA up to a limit specified in the Code or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject to tax based on the fair market value of the IRA. In some cases, the fair market value of a Qualified Plan Contract purchased as an IRA may exceed the Contract Value, such as where the Qualified Plan Contract has an enhanced death benefit or was issued with the GRIB rider. In such cases, a conversion of the IRA to a Roth IRA may result in higher taxes than a surrender of the Contract. The owner may wish to consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59¹/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in

which the conversion was made. Unlike the traditional IRA, there are no minimum required distributions during the owner’s lifetime; however, required distributions at death are generally the same.

SEP IRAs. SEP IRAs, as described in Code section 408(k), permit employers to make contributions to IRAs on behalf of their employees. SEP IRAs generally are subject to the same tax rules and limitations regarding distributions as IRAs, and they are subject to additional requirements regarding plan participation and limits on contributions.

Corporate and Self-Employed (“H.R. 10” and “Keogh”) Pension and Profit-Sharing Plans. The Code permits corporate employers to establish various types of tax-favored retirement plans for employees. The Self-Employed Individuals’ Tax Retirement Act of 1962, as amended, commonly referred to as “H.R. 10” or “Keogh”, permits self-employed individuals also to establish such tax-favored retirement plans for themselves and their employees. Such retirement plans may permit the purchase of the Contracts in order to provide benefits under the plans. The Contract provides a death benefit that in certain circumstances may exceed the greater of the Purchase Payments and the Contract Value. It is possible that such death benefit could be characterized as an incidental death benefit. There are limitations on the amount of incidental benefits that may be provided under pension and profit sharing plans. In addition, the provision of such benefits may result in current taxable income to participants. The Code also restricts when amounts can be distributed from Qualified Plan Contracts that are issued in connection with such retirement plans. Adverse tax consequences to the retirement plan, the participant or both may result if the Contract is transferred to any individual as a means to provide benefit payments, unless the plan complies with all requirements applicable to such benefits prior to transferring the Contract. Other rules and limitations also may apply to such Qualified Plan Contracts under the Code and the retirement plans governing the Contracts. In addition, a 10% penalty tax generally applies to distributions made before age 59¹/2, unless certain exceptions apply. Employers intending to use the Contract in connection with such plans should seek competent advice.

Tax-Sheltered Annuities. Code Section 403(b) permits public school employees and employees of certain types of charitable, educational and scientific organizations to have their employers purchase annuity contracts for them and, subject to certain limitations, to exclude the amount of purchase payments from taxable gross income. Purchase payments may be subject to FICA (social security) tax. These annuity contracts are commonly referred to as “tax-sheltered annuities”. If you purchase a Contract for such purposes, you should seek competent advice as to eligibility, limitations on permissible amounts of purchase payments and other tax consequences associated with the Contracts. In particular, you should consider that the Contract provides a death benefit that in certain circumstances may exceed the greater of the Purchase Payments and the Contract Value. It is possible that such death benefit could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in currently taxable income to you. In addition, there are limitations on the amount of incidental benefits that may be provided under a tax-sheltered annuity. Even if the death benefit under the Contract were characterized as an incidental death benefit, it is unlikely to violate those limits unless you also purchase a life insurance contract as part of your tax-sheltered annuity plan.

Generally, a 10% penalty tax applies to distributions made before age 59¹/2, unless certain exceptions apply. In addition, tax-sheltered annuity contracts must contain restrictions on withdrawals of:

	•		contributions made pursuant to a salary reduction agreement in years beginning after December 31, 1988,

	•		earnings on those contributions, and

	•		earnings after December 31, 1988 on amounts attributable to salary reduction contributions held as of December 31, 1988.

These amounts can be paid only if you have reached age 59¹/2, severed employment, died, or become disabled (within the meaning of the tax law), or in the case of hardship (within the meaning of the tax law). Amounts permitted to be distributed in the event of hardship are limited to actual contributions; earnings thereon cannot be distributed on account of hardship. Amounts subject to the withdrawal restrictions applicable to Code Section 403(b)(7) custodial accounts may be subject to more stringent restrictions. (These limitations on withdrawals generally do not apply to the extent you direct us to transfer some or all of the Contract Value to the issuer of another tax-sheltered annuity or into a Code Section 403(b)(7) custodial account, as permitted by law.) Additional restrictions may be imposed by the plan sponsor. Pursuant to new tax regulations, we generally are required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders, withdrawals or transfers you request from an existing 403(b) contract comply with applicable tax requirements before we process your request. We will defer such payments you request until all information required under the tax law has been received. By requesting a surrender or transfer, you consent to the sharing of confidential information about you, the Contract, and transactions under the Contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers.

Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations. The Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. Generally, a Contract purchased by a state or local government or a tax-exempt organization will not be treated as an annuity contract for Federal income tax purposes unless it meets certain conditions set forth in the Code. In addition, in some cases involving rollovers to such Contracts, distributions from the Contracts may be subject to a 10% penalty tax unless an exception applies. Under a non-governmental plan, all investments are owned by and are subject to, the claims of the general creditors of the sponsoring employer. Those who intend to use the Contracts in connection with such plans should seek competent advice.

2. Withdrawals

In the case of a withdrawal under a Qualified Plan Contract, a ratable portion of the amount received is taxable, generally based on the ratio of the “investment in the contract” to the individual’s total account balance or accrued benefit under the retirement plan. The “investment in the contract” generally equals the amount of any non-deductible Purchase Payments paid by or on behalf of any individual. In many cases, the “investment in the contract” under a Qualified Plan Contract can be zero.

3. Direct Rollovers

If the Contract is used in connection with a retirement plan that is qualified under Sections 401(a), 403(a), or 403(b) of the Code or with an eligible government deferred compensation plan that is qualified under Code Section 457(b), any “eligible rollover distribution” from the Contract will be subject to “direct rollover” and mandatory withholding requirements. An eligible rollover distribution generally is any taxable distribution from such a qualified retirement plan, excluding certain amounts such as:

	•		Hardship distributions,

	•		minimum distributions required under Section 401(a)(9) of the Code, and

	•		certain distributions for life, life expectancy, or for ten years or more which are part of a “series of substantially equal periodic payments.”

Under these requirements, Federal income tax equal to 20% of the taxable eligible rollover distribution will be withheld from the amount of the distribution. Unlike withholding on certain other amounts distributed from the Contract, discussed below, you cannot elect out of withholding with respect to an eligible rollover distribution. However, this 20% withholding will not apply if, (i) you (or your spouse or former spouse as a beneficiary or alternate payee) chooses a “direct rollover” from the plan to a tax qualified plan, IRA, Roth IRA or tax-sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions; or (ii) your non-spouse beneficiary chooses a “direct rollover” from the plan to an IRA established by the direct rollover. Prior to receiving an eligible rollover distribution, a notice will be provided explaining generally the direct rollover and mandatory withholding requirements and how to avoid the 20% withholding by electing a direct rollover.

As indicated above, any distribution that is a minimum distribution required under Code section 401(a)(9) is not an eligible rollover distribution. There is some uncertainty regarding how the minimum distribution requirements apply to a Qualified Plan Contract issued with a GRIB rider. As a result, you should consult your tax adviser regarding the interaction between the minimum distribution requirements and the eligible rollover distribution requirements in the context of a Qualified Contract issued with a GRIB rider, including in connection with any lump sum payment after annuity income payments have commenced under the GRIB rider.

Tax Status of the Contracts

Tax law imposes several requirements that variable annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts.

Diversification Requirements. The Code requires that the investments of each investment division of the variable account underlying the Contracts be “adequately diversified” in order for the Contracts to be treated as annuity contracts for Federal income tax purposes. It is intended that each investment division, through the fund in which it invests, will satisfy these diversification requirements.

Owner Control. In some circumstances, owners of variable annuity contracts who retain excessive control over the investment of the underlying portfolio assets of the variable account may be treated as the owners of those assets and may be subject to tax on income produced by those assets. Although there is limited published guidance in this area and it does not address certain aspects of the Contracts, we believe that the owner of a Contract should not be treated as the owner of the underlying assets. We reserve the right to modify the Contracts to bring them into conformity with applicable standards should such modification be necessary to prevent owners of the Contracts from being treated as the owners of the underlying portfolio assets of the variable account.

Required Distributions from Non-Qualified Plan Contracts. In order to be treated as an annuity contract for Federal income tax purposes, section 72(s) of the Code requires any Non-Qualified Plan Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of the death of a holder of the Contract. Specifically, section 72(s) requires that (a) if any owner dies on or after the annuity starting date, but prior to the time the entire interest in the Contract has been distributed, the entire interest in the Contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such owner’s death; and (b) if any owner dies prior to the annuity start date, the entire interest in the Contract will be distributed within five years after the date of such owner’s death. These requirements will be considered satisfied as to any portion of an owner’s interest which is payable to or for the benefit of a designated beneficiary and which is distributed over the life of such designated beneficiary or over a period not extending beyond the life expectancy of that beneficiary, provided that such distributions begin within one year of the owner’s death. The designated beneficiary refers to a natural person designated by the owner as a beneficiary and to whom ownership of the

Contract passes by reason of death. However, if the designated beneficiary is the surviving spouse of the deceased owner, the Contract may be continued with the surviving spouse as the new owner.

The Non-Qualified Plan Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise.

Required Distributions from Qualified Plan Contracts. Qualified Plan Contracts are subject to special rules governing the time at which distributions must begin and the amount that must be distributed each year. In the case of IRAs, distributions of minimum amounts must generally begin by April 1 of the calendar year following the calendar year in which the owner attains age 70¹/2. For other types of Qualified Plan Contracts, minimum distributions generally must commence by April 1 following the later of (1) the calendar year the owner attains age 70¹/2, and (2) the calendar year in which the owner retires. In general, periodic distributions in the form of annuity payments will satisfy the minimum distribution rules only if they meet certain requirements in the regulations under Code section 401(a)(9), including that the annuity payments be nonincreasing and made at least annually over a period permitted in the regulations. Annuity payments generally must meet these requirements even if they commence earlier than otherwise required under the Code.

If you purchased a Qualified Plan Contract with a GRIB rider, you should consult a tax adviser about the implications under the minimum distribution requirements of Code section 401(a)(9). For example, prior to the date a Qualified Plan Contract is “annuitized,” the amount of each annual required minimum distribution is determined by dividing the entire interest in the Contract by the applicable distribution period determined under IRS regulations. For this purpose, the entire interest in the Qualified Plan Contract includes the amount credited under the Contract (i.e., the Contract Value), plus the “actuarial present value” of any additional benefits provided under the Contract (such as certain enhanced death benefits or GRIB values). As a result, your required minimum distribution could be significantly larger than it would be absent such additional benefits, and could even exceed your Contract Value. Only the Contract Value is available for withdrawal from a Qualified Plan Contract that has not been annuitized. If the Contract Value is insufficient to support a required minimum distribution from a Qualified Plan Contract, it is possible that the minimum distribution requirements will not be met.

In addition, if you annuitize a Qualified Plan Contract by exercising the GRIB rider, and later elect to receive a lump sum payment in lieu of some or all of the future guaranteed installments, it is possible that the remaining annuity installments will not satisfy the minimum distribution requirements. You should consult a tax adviser about the implications under the minimum distribution requirements of taking a lump sum payment under the GRIB rider. (See “C. Commutable Annuitization Option” below.)

If the Qualified Plan Contract is an IRA or tax-sheltered annuity, there may be circumstances in which you can satisfy the minimum distribution requirements for the Qualified Plan Contract by taking a distribution from another IRA or tax-sheltered annuity, respectively, that you own. You should consult your tax adviser regarding the availability of this rule in your particular circumstances.

A failure to satisfy the minimum distribution requirements with respect to a Qualified Plan Contract may result in a 50% excise tax and could cause the Qualified Plan to violate the Code provisions governing its “qualified” status. In light of these potential tax consequences and the uncertainty as to how the minimum distribution requirements apply to a Qualified Plan Contract in certain circumstances, you should consult a tax adviser to ensure that those requirements are satisfied with respect to your Qualified Plan Contract.

FEDERAL INCOME TAX WITHHOLDING

We withhold and send to the U.S. Government a part of the taxable portion of each distribution unless the annuitant notifies us before distribution of an available election not to have any amounts withheld. In certain circumstances, we may be required to withhold tax. The withholding rates for the taxable portion of periodic annuity payments are the same as the withholding rates for wage payments. In addition, the withholding rate for the taxable portion of non-periodic payments (including withdrawals prior to the maturity date and conversions of, or rollovers from, non-Roth IRAs to Roth IRAs) is 10%. The withholding rate for eligible rollover distributions is 20%.

Other Tax Issues

Qualified Plan Contracts have minimum distribution rules that govern the timing and amount of distributions. Those rules are described generally above, but you should consult a tax adviser for more information about how they apply to your Qualified Plan Contract, particularly in connection with enhanced death benefits and the GRIB rider.

Distributions from Qualified Plan Contracts generally are subject to withholding for the owner’s Federal income tax liability. The withholding rate varies according to the type of distribution and the owner’s tax status. The owner will be provided the opportunity to elect to not have tax withheld from distributions other than eligible rollover distributions.

Our Taxes

At the present time, we make no charge for any Federal, state or local taxes (other than the charge for state and local premium taxes) that we incur that may be attributable to the subaccounts of the variable account or to the Contracts. We do have the right in the future to make additional charges for any such tax or other economic burden resulting from the application of the tax laws that we determine is attributable to the subaccounts of the variable account or the Contracts.

Under current laws in several states, we may incur state and local taxes (in addition to premium taxes). These taxes are not now significant and we are not currently charging for them. If they increase, we may deduct charges for such taxes.

Federal Estate Taxes

While no attempt is being made to discuss the Federal estate tax implications of the Contract, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedent’s gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. You should consult an estate planning adviser for more information.

Generation-Skipping Transfer Tax

Under certain circumstances, the Code may impose a “generation skipping transfer tax” when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the owner. Regulations issued under the Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS.


E.		Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Act”) increases the federal estate tax exemption to $5,000,000 and reduces the federal estate tax rate to 35%; increases the Federal gift tax exemption to $5,000,000 and retains the federal gift tax rate at 35%; and increases the generation-skipping transfer tax exemption to $5,000,000 and reduces the generation-skipping transfer tax rate to 35%. Commencing in 2012, these exemption amounts will be indexed for inflation.

The estate, gift, and generation-skipping transfer provisions of the 2010 Act are only effective until December 31, 2012; thereafter the provisions will sunset, and the federal estate, gift and generation-skipping transfer taxes will return to their pre-2001 levels, resulting in significantly lower exemptions and significantly higher tax rates. Between now and the end of 2012, Congress may make these provisions of the 2010 Act permanent, or they may do nothing and allow these 2010 Act provisions to sunset, or they may alter the exemptions and/or applicable tax rates.

The uncertainty as to how the current law might be modified in coming years underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and that of your beneficiaries under all possible scenarios.

Medicare Tax

Beginning in 2013, distributions from non-qualified annuity contracts will be considered “investment income” for purposes of the newly enacted Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may be applied to some or all of the taxable portion of distributions (e.g., earnings) to individuals whose income exceeds certain threshold amounts ($200,000 for filing single, $250,000 for married filing jointly and $125,000 for married filing separately.) Please consult a tax adviser for more information.


G.		Federal Defense of Marriage Act

The Contract provides that upon your death, a surviving spouse may have certain continuation rights that he or she may elect to exercise for the Contract’s death benefit and/or for any joint-life coverage under an optional living benefit. All Contract provisions relating to spousal continuation are available only to a person who meets the definition of “spouse” under federal law. The federal Defense of Marriage Act currently does not recognize same-sex marriages or civil unions, even those which are permitted under individual state laws. Therefore, spousal continuation provisions in this Contract will not be available to such partners or same-sex marriage spouses. Consult a tax adviser for more information on this subject.


H.		Annuity Purchases by Residents of Puerto Rico

The IRS has announced that income received by residents of Puerto Rico under life insurance or annuity contracts issued by a Puerto Rico branch of a United States Life Insurance Company is U.S.-source income that is generally subject to United States Federal income tax.


I.		Annuity Purchases by Nonresident Aliens and Foreign Corporations

The discussion above provides general information regarding U.S. Federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S.

citizens or residents will generally be subject to U.S. Federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchaser’s country of citizenship or residence. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S. state, and foreign taxation with respect to an annuity contract purchase.


J.		Foreign Tax Credits

We may benefit from any foreign tax credits attributable to taxes paid by certain portfolios to foreign jurisdictions to the extent permitted under federal tax law.


K.		Possible Tax Law Changes

Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contracts could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments and their effect on the Contract.

We have the right to modify the Contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any Contract and do not intend the above discussion as tax advice.

SENDING FORMS AND WRITTEN REQUESTS IN GOOD ORDER

We cannot process your instructions to effect a transaction relating to the Contract until we have received your instructions in good order at our Service Center or at our website, as appropriate. “Good order” means the actual receipt by us of the instructions relating to a transaction in writing (or by telephone or electronically, as appropriate), along with all forms, information and supporting legal documentation (including any required spousal or joint owner’s consents) that we require in order to effect the transaction. To be in “good order,” instructions must be sufficiently clear so that we do not need to exercise any discretion to follow such instructions.

SIGNATURE GUARANTEES

Signature guarantees are relied upon as a means of preventing the perpetuation of fraud in financial transactions, including the disbursement of funds or assets from a victim’s account with a financial institution or a provider of financial services. They provide protection to investors by, for example, making it more difficult for a person to take another person’s money by forging a signature on a written request for the disbursement of funds.

As a protection against fraud, we require a Medallion signature guarantee for any disbursement to another carrier in connection with the exchange of one annuity contract for another in a “tax-free exchange” under Section 1035 of the Internal Revenue Code.

An investor can obtain a signature guarantee from more than 7,000 financial institutions across the United States and Canada that participate in a Medallion signature guarantee program. This includes many:

	•		national and state banks;

	•		savings banks and savings and loan associations;

	•		securities brokers and dealers; and

	•		credit unions.

The best source of a signature guarantee is a bank, savings and loan association, brokerage firm, or credit union with which you do business. Guarantor firms may, but frequently do not, charge a fee for their services.

A notary public cannot provide a signature guarantee. Notarization will not substitute for a signature guarantee.

DISTRIBUTION OF CONTRACTS

Distribution and Principal Underwriting Agreement. Synergy Investment Group, LLC (“Synergy”) currently serves as principal underwriter for the Contracts. Synergy’s home office is located at 8320 University Executive Park Drive, Suite 112, Charlotte, NC 28262. Synergy is not affiliated with ZALICO. Synergy is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Synergy is a member of the Securities Investor Protection Corporation.

Until April 1, 2010, Investors Brokerage Services, Inc. (“IBS”), located at 1707 North Randall Road, Suite 310, Elgin, IL 60123-9409, served as principal underwriter for the Contracts. Effective April 1, 2010, ZALICO entered into an Amendment of Distribution Agreement with IBS under which IBS’s role as principal underwriter for the Contracts was terminated. Simultaneously, IBS and Synergy entered into an Assignment of Selling Agreements, whereby IBS assigned all selling group agreements pertaining to the Contracts to Synergy.

The Contracts are no longer offered for sale to the public.

Special Compensation Paid to the Principal Underwriter. We pay compensation to Synergy in the amount of $3,500.00 per month to compensate it for serving as principal underwriter for the Contracts.

Compensation to Broker-Dealers Selling the Contracts. The Contracts were offered to the public through broker-dealers (“selling firms”) that are licensed under the federal securities laws and state insurance laws. The selling firms originally entered into written selling agreements with IBS; IBS assigned those selling agreements to Synergy on April 1, 2010. We pay commissions directly to certain selling firms for their past sales of the Contracts.

With respect to Contracts issued on or after April 20, 2000 with the GRIB rider, annuitization compensation of 2% is paid on Contracts that are seven years old or older and that are annuitized for a period of five or more years. Ask your sales representative for further information about what your sales representative and the selling firm for which he or she works may receive in connection with your purchase and annuitization of a Contract.

Additional Compensation Paid to Selected Selling Firms. We have paid and may pay certain selling firms additional cash amounts for “preferred product” treatment of the Contracts in their marketing

programs based on past sales of the Contracts and other criteria in order to receive enhanced marketing services and increased access to their sales representatives. In addition to access to their distribution network, such selling firms have received separate compensation or reimbursement for, among other things, the hiring and training of sales personnel, marketing, sponsoring of conferences and seminars, and/or other services they provided to us. These special compensation arrangements were not offered to all selling firms and the terms of such arrangements differed between selling firms.

We had entered into such “preferred product” arrangements with the following selling firms: AG Edwards; CSN Insurance Agency; Compass Bancshares Insurance Agency, FL; Compass Brokerage Inc.; PFIC; ABN AMRO; WM Financial Services, Inc.; Michigan National Bank; and Standard Investment Services.

The amounts paid during 2010 to such selling firms under such arrangements ranged from 25 to 75 basis points of Contract Value, equivalent to from $25.00 to $75.00 on a $10,000 investment.

During the last fiscal year, we paid the following selling firms the amounts shown below in addition to sales commissions.



Name of Firm and Principal	Aggregate Amount Paid
Business Address	During Last Fiscal Year

WS Insurance Services LLC (Formerly AG Edwards) 1 North Jefferson Suite 960 St. Louis, Missouri 63103	$	3,238.85

No specific charge is assessed directly to Contract Owners or the Separate Account to cover commissions and other incentives or payments we pay in connection with the distribution of the Contracts. However, we intend to recoup commissions and other sales expenses and incentives we pay through the fees and charges we deduct under the Contract and through other corporate revenue.

You should be aware that any selling firm or its sales representatives may receive different compensation or incentives for selling one product over another. As such, they may be inclined to favor or disfavor one product over another due to differing rates of compensation. You may wish to take such payments into account when considering and evaluating any recommendation relating to the Contracts.

VOTING RIGHTS

Proxy materials in connection with any Fund shareholder meeting are delivered to each Owner with Subaccount interests invested in the Fund as of the record date. Proxy materials include a voting instruction form. We vote all Fund shares proportionately in accordance with instructions received from Owners. We will also vote any Fund shares attributed to amounts we have accumulated in the Subaccounts in the same proportion that Owners vote.

A Fund is not required to hold annual shareholders’ meetings. Funds hold special meetings as required or deemed desirable for such purposes as electing trustees, changing fundamental policies or approving an investment advisory agreement.

Owners have voting rights in a Fund or Portfolio based upon the Owner’s proportionate interest in the corresponding Subaccount as measured by units. Owners have voting rights before surrender, the Annuity Date or the death of the Annuitant. Thereafter, the Annuitant entitled to receive Variable

Annuity payments has voting rights. During the Annuity Period, Annuitants’ voting rights decrease as Annuity Units decrease.

REPORTS TO CONTRACT OWNERS AND INQUIRIES

After each Contract anniversary, we send you a statement showing amounts credited to each Subaccount, to the Fixed Account option and to the Guarantee Period Value. In addition, if you transfer amounts among the variable options or make additional payments, you receive written confirmation of these transactions. We will also send a current statement upon your request. We also send you annual and semi-annual reports for the Funds or Portfolios that correspond to the Subaccounts in which you invest and a list of the securities held by that Fund or Portfolio.

You may direct inquiries to the selling agent or may contact the Service Center.

DOLLAR COST AVERAGING

Under our Dollar Cost Averaging program, a predesignated portion of Subaccount Value is automatically transferred monthly, quarterly, semiannually or annually for a specified duration to other Subaccounts, Guarantee Periods and the Fixed Account. The DCA theoretically gives you a lower average cost per unit over time than you would receive if you made a one time purchase of the selected Subaccounts. There is no guarantee that DCA will produce that result. There is currently no charge for this service. The Dollar Cost Averaging program is available only during the Accumulation Period. You may also elect transfers from the Fixed Account on a monthly or quarterly basis for a minimum duration of one year. You may enroll any time by completing our Dollar Cost Averaging form. Transfers are made based on the date you specify. We must receive the enrollment form in good order at least five business days before the transfer date.

The minimum transfer amount is $100 per Subaccount, Guarantee Period or Fixed Account. The total Contract Value in an account at the time Dollar Cost Averaging is elected must be at least equal to the amount designated to be transferred on each transfer date times the duration selected.

Dollar Cost Averaging ends if:

	•		the number of designated monthly transfers has been completed,

	•		Contract Value in the transferring account is insufficient to complete the next transfer (the remaining amount is transferred),

	•		we receive the Owner’s written termination at least five business days before the next transfer date, or

	•		the Contract is surrendered or annuitized.

If the Fixed Account balance is at least $10,000, you may elect automatic calendar quarter transfers of interest accrued in the Fixed Account to one or more of the Subaccounts or Guarantee Periods. You may enroll in this program any time by completing our Dollar Cost Averaging form. Transfers are made within five business days of the end of the calendar quarter. We must receive the enrollment form at least ten days before the end of the calendar quarter.

Dollar Cost Averaging is not available during the Annuity Period.

SYSTEMATIC WITHDRAWAL PLAN

We offer a Systematic Withdrawal Plan (“SWP”) allowing you to pre-authorize periodic withdrawals during the Accumulation Period. You instruct us to withdraw selected amounts, or amounts

based on your life expectancy, from the Fixed Account, or from any of the Subaccounts or Guarantee Periods on a monthly, quarterly, semi-annual or annual basis. The SWP is available when you submit a written request (in good order) to the Service Center for a minimum $100 periodic payment. A Market Value Adjustment applies to any withdrawals under the SWP from a Guarantee Period, unless effected within 30 days after the Guarantee Period ends. SWP withdrawals from the Fixed Account are not available in the first Contract Year and are limited to the amount not subject to Withdrawal Charges. If the amounts distributed under the SWP from the Subaccounts or Guarantee Periods exceed the free withdrawal amount, the Withdrawal Charge is applied on any amounts exceeding the free withdrawal amount. Withdrawals taken under the SWP may be subject to the 10% tax penalty on early withdrawals and to income taxes and withholding. If you are interested in SWP, you may obtain an application and information concerning this program and its restrictions from us or your agent. We give 30 days’ notice if we amend the SWP. The SWP may be terminated at any time by you or us.

EXPERTS

The statutory financial statements and schedules of Zurich American Life Insurance Company as of December 31, 2010 and 2009 and for each of the three years ended December 31, 2010 (prepared in conformity with accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations — Division of Insurance) and the U.S. GAAP statement of assets, liabilities, and Contract owners’ equity of ZALICO Variable Annuity Separate Account as of December 31, 2010 and the related statement of operations for the year then ended and the statement of changes in Contract owners’ equity for each of periods presented included in the Statement of Additional Information, have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

LEGAL PROCEEDINGS

ZALICO has been named as defendant in certain lawsuits incidental to our insurance business. Our management believes that the resolution of these various lawsuits will not result in any material adverse effect on the Separate Account, on our consolidated financial position, or on our ability to meet our obligations under the Contracts. As of the date of this Prospectus, it also appears that there are no pending or threatened lawsuits that are likely to have a material adverse impact on Synergy’s ability to perform its obligations under its principal underwriting agreement.

FINANCIAL STATEMENTS

The financial statements of ZALICO and the Separate Account are set forth in the Statement of Additional Information. The financial statements of ZALICO should be considered primarily as bearing on our ability to meet our obligations under the Contracts. The Contracts are not entitled to participate in our earnings, dividends or surplus.

CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001

Guaranteed Retirement Income Benefit: General

The Guaranteed Retirement Income Benefit (“GRIB”) rider was an optional Contract benefit available under Contracts issued before November 12, 2001. GRIB is not offered on Contracts issued on or after November 12, 2001. We reserve the right to begin offering GRIB at any time.

GRIB provides a minimum fixed annuity guaranteed lifetime income to the Annuitant as described below. Requests to exercise the GRIB must be received by us in good order. GRIB may be exercised only within 30 days after the seventh Contract anniversary and within 30 days before and 30 days after later Contract anniversaries. We will not accept requests to exercise the GRIB option outside of these 30-day and 60-day windows. In addition, GRIB must be exercised between the Annuitant’s 60th and 91st birthdays. However, if the Annuitant is age 44 or younger on the Date of Issue, GRIB may be exercised after the Contract’s 15th Anniversary, even though the Annuitant is not yet 60 years old. GRIB may not be appropriate for Annuitants age 80 and older. State premium taxes may be assessed when you exercise GRIB.

If you elected GRIB, the charge is 0.25% of Contract Value. We deduct a pro rata portion of the charge from each Subaccount, each Guarantee Period and the Fixed Account in which you have value on the last business day of each calendar quarter. If the GRIB rider is not exercised by the Annuitant’s age 91, the GRIB terminates without value on that date. Contract Owners must exercise the GRIB rider no later than the Contract anniversary before the Annuitant’s age 91. We no longer charge for GRIB after the Annuitant’s 91st birthday. We do not assess the GRIB charge after you annuitize. The GRIB charge is in addition to the Contract fees and expenses appearing in the “Summary of Expenses”. You may cancel the GRIB rider at any time by written notice to us. Once discontinued, GRIB may not be elected again. Since any guaranteed benefits under GRIB will be lost, you should carefully consider your decision to cancel GRIB.

GRIB only applies to the determination of income payments upon annuitization in the circumstances described in this section of the Prospectus. It is not a guarantee of Contract Value or performance. This benefit does not enhance the amounts paid in partial withdrawals, surrenders, or death benefits. If you surrender your Contract, you will not receive any benefit under this optional benefit.

Annuity Payments with GRIB

Annuity payments are based on the greater of:

	•		the income provided by applying the GRIB base to the guaranteed annuity factors, and

	•		the income provided by applying the Contract Value to the current annuity factors.

The GRIB base is the greatest of:

	•		Contract Value,


	•		Purchase Payments minus previous withdrawals, accumulated at 5.00% interest per year to the earlier of the Annuitant’s age 80 or the GRIB exercise date plus Purchase Payments minus all withdrawals from age 80 to the GRIB exercise date (the “Purchase Payment Roll-Up Value”), and


	•		the greatest anniversary value before the exercise date.

The greatest anniversary value equals:

	•		the highest of the Contract Values on each Contract anniversary prior to the Annuitant’s age 81, plus

	•		the dollar amount of any Purchase Payments made since that anniversary, minus

	•		withdrawals since that anniversary.

We determine your greatest anniversary value solely to calculate your GRIB base. Your greatest anniversary value is not a cash value or surrender value; it is not available for withdrawal;

it is not a minimum return for any Subaccount; and it is not a guarantee of any Contract Value. Your greatest anniversary value is a hypothetical value that you may never realize unless and until: (a) you annuitize your Contract, (b) you exercise the GRIB, and (c) the greatest anniversary value on the Exercise Date is greater than either the Contract Value or the Purchase Payment Roll-Up Value on the Exercise Date. When you exercise the GRIB, we will calculate the GRIB base, in part, by using your greatest anniversary value as calculated on your Exercise Date. Calculation of the greatest anniversary value on any date other than the Exercise Date is subject to recalculation and you are not entitled to any interim value of the greatest anniversary value.

Applying additional Purchase Payments to your Contract may increase your interim greatest anniversary value, which in turn may appear to increase your GRIB base. However, in some instances when you apply additional Purchase Payments to your Contract, your hypothetical greatest anniversary value, as calculated on the Contact anniversary date immediately subsequent to the Purchase Payments, may be less than the interim greatest anniversary value and your GRIB base calculation may appear to be negatively impacted.

The guaranteed annuity factors are based on the 1983a table projected using projection scale G, with interest at 2.5% (the “Annuity 2000” table). However, if GRIB is exercised on or after the 10th Contract anniversary, interest at 3.5% is assumed. Contracts issued in the state of Montana or in connection with certain employer-sponsored employee benefit plans are required to use unisex annuity factors. In such cases, the guaranteed annuity factors will be based on unisex rates.

Because GRIB is based on conservative actuarial factors, the income guaranteed may often be less than the income provided under the regular provisions of the Contract. If the regular annuitization provisions would provide a greater benefit than GRIB, the greater amount will be paid.

GRIB is paid for the life of a single Annuitant or the lifetimes of two Annuitants. If paid for the life of a single Annuitant, GRIB is paid in the amount determined above. If paid for the lifetimes of two Annuitants, GRIB is paid in the amount determined above, but the age of the older Annuitant is used to determine the GRIB base.

If you elect GRIB payable for the life of a single Annuitant, you may elect a period certain of 5, 10, 15, or 20 years. If the Annuitant dies before GRIB has been paid for the period elected, the remaining GRIB payments are paid as they fall due to the Beneficiary, if the Beneficiary is a natural person. If the Beneficiary is not a natural person, the remaining payments may be commuted at a minimum 2.5% interest rate and paid in a lump sum.

If you elect GRIB payable for the lifetimes of two Annuitants, the period certain is 5, 10, 15, 20, or 25 years. The full GRIB is payable as long as at least one of the two Annuitants is alive, but for no less than 25 years. If both Annuitants die before GRIB has been paid for the period elected, the remaining GRIB payments are paid as they fall due to the Beneficiary, if the Beneficiary is a natural person. If the Beneficiary is not a natural person, the remaining payments may be commuted at a minimum 2.5% interest rate and paid in a lump sum.

For Qualified Plan Contracts, the period certain elected cannot be longer than the Owner’s life expectancy, in order to satisfy minimum required distribution rules.

GRIB payments are also available on a quarterly, semi-annual or annual basis. We may make other annuity options available.

We may deduct premium taxes at the time of annuitization from Contract Value (or from the GRIB base, if applicable).

Commutable Annuitization Option

If you purchased your Contract on or after August 24, 1999, and you exercise the GRIB option to receive guaranteed benefits, you may elect to have payments made under a commutable annuitization option. Under the commutable annuitization option, partial lump sum payments are permitted, subject to the following general requirements:


	•		At the time you exercise the GRIB option, you must elect the commutable annuitization option in order to be eligible for the lump sum payments.


	•		Lump sum payments are available only during the period certain applicable under the payout option you elected. For example, lump sum payments can be elected only during the 5, 10, 15, or 20 year certain period that applies to the payout.


	•		Lump sum payments are available once in each calendar year and may not be elected until one year after annuitization has started. We reserve the right to make exceptions.

If you select a commutation option in connection with your GRIB rider, you may be subject to additional tax risks. You should consult a tax adviser before selecting any commutation options in connection with your GRIB rider. (See “Required Distributions from Qualified Plan Contracts” above.)

1. Original Commutation Option.

The commutable annuitization option originally allowed the Annuitant to elect a lump sum payment in lieu of receiving some or all of the guaranteed installment payments remaining in the period certain under the Contract. There is some uncertainty regarding how the required minimum distribution rules of Code section 401(a)(9) apply to a Qualified Plan Contract after such a commutation is elected. As a result, you should consult a tax adviser before doing so. The original commutation option is summarized as follows:


	•		The Annuitant may elect to receive a partial lump sum payment of the present value of the remaining payments in the period certain, subject to the restrictions described below. If a partial lump sum payment is elected, the remaining payments in the period certain will be reduced based on the ratio of the amount of the partial withdrawal to the amount of the present value of the remaining installments in the period certain prior to the withdrawal. If the Annuitant is still living after the period certain is over, the Annuitant will begin receiving the original annuitization payment amount again.


	•		Each time that a partial lump sum payment is made, we will determine the percentage that the payment represents of the present value of the remaining installments in the period certain. For Non-Qualified Plan Contracts, the sum of these percentages over the life of the Contract generally cannot exceed 75%. For Qualified Plan Contracts, partial lump sum payments of up to 100% of the present value of the remaining installments in the period certain may be made.


	•		In determining the amount of the lump sum payment that is available, the present value of the remaining installments in the period certain will be calculated based on an interest rate equal to the GRIB annuity factor interest rate (3.5% if GRIB was exercised on or after the 10th Contract anniversary; 2.5% if exercised before that date) plus an interest rate adjustment that has the effect of reducing the amount of the lump sum payment. The interest rate adjustment is equal to the following:


	Interest rate
Number of years remaining in the period certain	Adjustment
15 or more years		1.00	%
10 or more, but less than 15, years		1.50	%
less than 10 years		2.00	%

2. Additional Commutation Options.

As described in the FEDERAL TAX CONSIDERATIONS section of this Prospectus, there is some uncertainty about how the minimum distribution requirements in Code section 401(a)(9) apply to your Contract after a lump sum payment is elected under the commutable annuitization option. In particular, there is uncertainty regarding how to treat options that allow a commutation of the guaranteed installments remaining to be made in a period certain but not the life-contingent payments that could remain payable after the period certain (which we call the “Life Income Payments”). The following two commutation options are intended to provide access to the Life Income Payments through a commutation.


	•		*Lump Sum Option*: Under this option, we will pay a lump sum distribution reflecting our calculation of the present value of your remaining guaranteed installments (if any) and the actuarial present value of your future contingent Life Income Payments. Once we pay the lump sum, no further payments will be made and your Contract will terminate. This option is also available in connection with Non-Qualified Plan Contracts.


	•		*Level Lifetime Payment Option:* Under this option, we will pay a lump sum distribution reflecting our calculation of the present value of your remaining guaranteed installments (if any), followed by life-contingent periodic payments for life (which we call the “New Level Lifetime Payments”). The New Level Lifetime Payments will commence immediately after this option is elected (rather than at the end of the originally-scheduled period certain). The New Level Lifetime Payments will continue for as long as the Annuitant (or the original joint Annuitant, if any) live, but with no period certain. The New Level Lifetime Payments will be made in lieu of any Life Income Payments that otherwise might become payable following the original period certain. The New Level Lifetime Payments will be calculated based on our calculation of the actuarial present value of your future contingent Life Income Payments as of the election date, which are discounted for mortality and other relevant factors. The New Level Lifetime Payments will be lower in amount compared to your original Life Income Payments, primarily because they will commence before the end of your original period certain. Once the New Level Lifetime Payments begin, they cannot be accelerated or paid out in a lump sum. The New Level Lifetime Payments do not include a period certain, meaning they will cease, and your Contract will terminate, upon the later of the Annuitant’s death or the death of the last surviving joint Annuitant, if any.

Effect of Death of Owner or Annuitant on GRIB

The GRIB terminates upon the death of the Owner or the Annuitant (if the Owner is not a natural person) unless the Owner’s or Annuitant’s surviving spouse elects to continue the Contract as described in “Guaranteed Death Benefit” Section above. A spouse may continue only a Non-Qualified Plan Contract or an Individual Retirement Annuity.

APPENDIX A

ILLUSTRATION OF THE “FLOOR” ON THE DOWNWARD MARKET VALUE
ADJUSTMENT (MVA)


Purchase Payment		$40,000

Guarantee Period		5 Years

Guaranteed Interest Rate		5% Annual Effective Rate

The following examples illustrate how the “floor” on a downward MVA, that was added to your Contract effective April 1, 2005, may affect the values of your Contract upon a withdrawal. In these examples, the Guarantee Period starts on the Effective Date of the MVA Endorsement (i.e., the Start Date); a withdrawal occurs one year after the Start Date. The MVA operates in a similar manner for transfers. No Withdrawal Charge applies to transfers.

In these examples, the Guarantee Period Value for the $40,000.00 Purchase Payment is guaranteed to equal $51,051.26 at the end of the five-year Guarantee Period. After one year, when the first withdrawals occur in these examples, the Guarantee Period Value is $42,000.00. It is also assumed, for the purposes of these examples, that no prior partial withdrawals or transfers have occurred.

A downward MVA results when you take a full or partial withdrawal during periods of rising interest rates. Assume in this example that, one year after the Purchase Payment, the interest rate on a four-year Guarantee Period rose to 6.5% .

In this example, the MVA will be based on the hypothetical interest rate we are crediting at the time of the withdrawal on new money allocated to a Guarantee Period with a duration equal to the time remaining in your Guarantee Period rounded to the next higher number of complete years. One year after the Purchase Payment there would have been four years remaining in your Guarantee Period, so the hypothetical crediting rate for a four-year Guarantee Period will be used (6.5%). These examples also show how the Withdrawal Charge (if any) would be calculated separately after the MVA.

Note: We declare interest rates on the MVA Options at our sole discretion. The interest rates used in this example are hypothetical and do not reflect current interest rates being credited by us, and the interest rates do not represent any of our intentions regarding future interest crediting rates.

Example of Full Withdrawal

Upon a full withdrawal, the market value adjustment factor would be:

* Actual calculation utilizes 10 decimal places.

A-1

The downward MVA is subject to a “floor” so that the downward MVA can remove only interest credited in excess of 3% on the Guarantee Period Value from the Start Date. The “floor” in this example is calculated as:

-$800.00 = $40,000.00 x (1 + .03) - $40,000.00 x (1 + .05)

The Market Adjusted Value after applying the floored downward MVA would be:

$41,200.00 = $42,000.00 - $800.00

A Withdrawal Charge of 6% would be assessed against the Purchase Payments subject to a Withdrawal Charge in excess of the amount available as a free withdrawal. In this case, there are no prior withdrawals, so 10% of the Contract Value is not subject to a Withdrawal Charge.

The Withdrawal Charge on a full withdrawal is:

$2,148.00 = ($40,000.00 – (.10 x $42,000.00)) x .06

Thus, the amount payable on a full withdrawal after the application of the MVA floor would be:

$39,052.00 = $41,200.00 - $2,148.00

Example of Partial Withdrawal of 50% of Guarantee Period Value

If instead of a full withdrawal, assume that 50% of the Guarantee Period Value ($21,000.00) was withdrawn from the Contract (partial withdrawal of 50%) after the first year.

The downward MVA is subject to the floor of -$800.00 described above. In this example, this means that only the interest credited on the entire Guarantee Period Value for the one-year period between the Start Date and the date of withdrawal that was in excess of 3% (i.e., the difference between 5% interest and 3% interest) can be removed at the time of the partial withdrawal. The partial withdrawal will have the impact of reducing the return, to date, in the Guarantee Period to the minimum guaranteed interest rate of 3% per annum.

The Market Adjusted Value after applying the floored downward MVA would be:

$20,200.00 = $21,000.00 - $800.00

$888.00 = ($19,000.00 – (.10 x $42,000.00)) x .06

Thus, the amount payable, net of Withdrawal Charges, on this partial withdrawal after the application of the MVA floor would be:

$19,312.00 = $20,200.00 - $888.00

A-2

Example of a Second Withdrawal of the Remaining Guarantee Period Value

Assume that the owner took a second withdrawal of the remaining balance after the second year and the hypothetical crediting rate for a three-year Guarantee Period was 6.5% at that time.

After the second year, the Guaranteed Period Value ($21,000) would have been credited with 5% interest and would have increased by $1,050 to $22,050.

Upon a full withdrawal, the market value adjustment factor would be:

The downward MVA is subject to a “floor” discussed above. In this example, the downward MVA can remove only interest credited in excess of 3% (i.e., the difference between 5% interest and 3% interest) on the remaining Guarantee Period Value for the one-year period from the time of the prior withdrawal. The “floor” in this example is calculated as:

-$420.00 = $21,000.00 x (1 + .03) - $21,000.00 x (1 + .05)

The Market Adjusted Value after applying the floored downward MVA would be:

$21,630.00 = $22,050.00 - $420.00

A Withdrawal Charge of 5% would be assessed against the Purchase Payments subject to a Withdrawal Charge in excess of the amount available as a free withdrawal. In this case, 10% of the Contract Value is not subject to a Withdrawal Charge.

The Withdrawal Charge is thus:

$939.75 = ($21,000.00 - (.10 x $22,050.00)) x .05

Thus, the amount payable on a full withdrawal after the application of the MVA floor would be:

$20,690.25 = $21,630.00 - $939.75

ILLUSTRATION OF AN UPWARD MARKET VALUE ADJUSTMENT

An upward Market Value Adjustment results from a withdrawal that occurs when interest rates have decreased. Assume interest rates have decreased one year later and we are then crediting 4% for a four-year Guarantee Period. Upon a full withdrawal, the market value adjustment factor would be:

The Market Value Adjustment is an increase of $1638.83 to the Guarantee Period Value:

$1,638.83 = $42,000.00 x .0390198

A-3

The Market Adjusted Value would be:

$43,638.83 = $42,000.00 + $1,638.83

A Withdrawal Charge of 6% would apply to the Market Adjusted Value being withdrawn, less 10% of the Contract Value, as there were no prior withdrawals:

$2,366.33 = ($43,638.83 - .10 x 42,000) x .06

Thus, the amount payable on withdrawal would be:

$41,272.50 = $43,638.83 - $2,366.33

If instead of a full withdrawal, 50% of the Guarantee Period Value was withdrawn (partial withdrawal of 50%), the Market Value Adjustment would be:

$819.42 = $21,000.00 x .0390198

The Market Adjusted Value of $21,000.00 would be:

$21,819.42 = $21,000.00 + $819.42

The Withdrawal Charge of 6% would apply to the Market Adjusted Value being withdrawn, less 10% of the full Market Adjusted Value as there are no prior withdrawals:

$1,057.17 = ($21,819.42 -.1 x $42,000) x .06

Thus, the amount payable, net of Withdrawal Charges, on this partial withdrawal would be:

$20,762.25 = $21,819.42 - $1,057.17

Actual Market Value Adjustment may have a greater or lesser impact than that shown in the Examples, depending on the actual change in interest crediting rates and the timing of the withdrawal or transfer in relation to the time remaining in the Guarantee Period.

A-4

APPENDIX B
ZURICH AMERICAN LIFE INSURANCE COMPANY
DEFERRED FIXED AND VARIABLE ANNUITY IRA, ROTH IRA AND
SIMPLE IRA DISCLOSURE STATEMENT

This Disclosure Statement describes the statutory and regulatory provisions applicable to the operation of traditional Individual Retirement Annuities (IRAs), Roth Individual Retirement Annuities (Roth IRAs) and Simple Individual Retirement Annuities (SIMPLE IRAs). Internal Revenue Service regulations require that this be given to each person desiring to establish an IRA, Roth IRA or a SIMPLE IRA. Except where otherwise indicated, IRA discussion includes Simplified Employee Pension IRAs (SEP IRAs). Further information can be obtained from Zurich American Life Insurance Company (formerly Kemper Investors Life Insurance Company) and from any district office of the Internal Revenue Service. Also, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

This Disclosure Statement is for your general information and is not intended to be exhaustive or conclusive, to apply to any particular person or situation, or to be used as a substitute for qualified legal or tax advice.

Please note that the information contained herein is based on current Federal income tax law, income tax regulations, and other guidance provided by the IRS. Hence, this information is subject to change upon an amendment of the law or the issuance of further regulations or other guidance. Also, you should be aware that state tax laws may differ from Federal tax laws governing such arrangements. You should consult your tax adviser about any state tax consequences of your IRA, Roth IRA or SIMPLE IRA, whichever is applicable.

A. REVOCATION

Within seven days of the date you signed your enrollment application, you may revoke the Contract and receive back 100% of your money. To do so, write the Service Center.

Notice of revocation will be deemed mailed on the date of the postmark (or if sent by certified or registered mail, the date of the certification or registration) if it is deposited in the mail in the United States in an envelope, or other appropriate wrapper, first class postage prepaid, properly addressed.

STATUTORY REQUIREMENTS

This Contract is intended to meet the requirements of Section 408(b) of the Internal Revenue Code (Code) for use as an IRA, Section 408A of the Code for use as a Roth IRA, or of Section 408(p) of the Code for use as a SIMPLE IRA, whichever is applicable. The Contract has been approved as to form for use as an IRA, Roth IRA or a SIMPLE IRA by the Internal Revenue Service. Such approval by the Internal Revenue Service is a determination only as to form of the Contract, and does not represent a determination on the merits of the Contract.

1. The amount in your IRA, Roth IRA, and SIMPLE IRA, whichever is applicable, must be fully vested at all times and the entire interest of the owner must be nonforfeitable.

2. The Contract must be nontransferable by the owner.

3. The Contract must have flexible premiums.

B-1

4. For IRAs and SIMPLE IRAs, you must start receiving distributions on or before April 1 of the year following the year in which you reach age 70¹/2(the required beginning date)(See “Required Distributions”).

If you die before the date on which you are required to begin distributions from your Contract, any remaining interest in the Contract must be distributed to your designated beneficiary (within the meaning of Section 401(a)(9) of the Code) either (i) by December 31 of the calendar year containing the fifth anniversary of your death, or (ii) over his or her life, or over a period certain not extending beyond his or her life expectancy, commencing on or before December 31 of the calendar year immediately following the calendar year in which you die. If you die after distributions have begun but before your entire interest in your Contract is distributed, unless otherwise permitted under applicable law, any remaining interest in the Contract must be distributed to your beneficiary at least as rapidly as under the method of distribution in effect as of your date of death.

If the sole designated beneficiary is your spouse, he or she may elect to treat the Contract as his or her own IRA, or, where applicable, Roth IRA whether you die before or after the distributions have begun.

Section 401(a)(9)(A) of the Code (relating to minimum distributions required to commence at age 70¹/2), and the incidental death benefit requirements of Section 401(a) of the Code, do not apply to Roth IRAs.

5. Except in the case of a rollover contribution or a direct transfer (See “Rollovers and Direct Transfers”), or a contribution made in accordance with the terms of a Simplified Employee Pension (SEP), all contributions to an IRA, Roth and SIMPLE IRA must be cash contributions which do not exceed certain limits.

6. The Contract must be for the exclusive benefit of you and your beneficiaries.

ROLLOVERS AND DIRECT TRANSFERS FOR IRAS AND SIMPLE IRAS

1. A rollover is a tax-free transfer from one retirement program to another that you cannot deduct on your tax return. There are two kinds of tax-free rollover payments to an IRA. In one, you transfer amounts from another IRA. With the other, you transfer amounts from a qualified plan under Section 401(a) of the Code, a qualified annuity under Section 403(a) of the Code, a tax-sheltered annuity or custodial account under Section 403(b) of the Code, or a governmental plan under Section 457(b) of the Code (collectively referred to as “qualified employee benefit plans”). Tax-free rollovers can be made from a SIMPLE IRA or to a SIMPLE Individual Retirement Account under Section 408(p) of the Code. An individual can make a tax-free rollover to an IRA from a SIMPLE IRA, or vice-versa, after a two-year period has expired since the individual first participated in a SIMPLE plan.

2. You must complete the rollover by the 60th day after the day you receive the distribution from your IRA or other qualified employee benefit plan or SIMPLE IRA. The failure to satisfy this 60-day requirement may be waived by the Internal Revenue Service in certain circumstances. Amounts distributed as required minimum distributions are not eligible for treatment as a rollover.

3. A rollover distribution may be made to you only once a year. The one-year period begins on the date you receive the rollover distribution, not on the date you roll it over (reinvest it).

4. A trustee-to-trustee transfer to an IRA of funds in an IRA from one trustee or insurance company to another is not a rollover. It is a transfer that is not affected by the one-year waiting period.

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5. All or a part of the premium for this Contract used as an IRA may be paid from a rollover from an IRA or qualified employee benefit plan or from a trustee-to-trustee transfer from another IRA. All or part of the premium for this Contract used as a SIMPLE IRA may be paid from a rollover from a SIMPLE Individual Retirement Account or, to the extent permitted by law, from a direct transfer from a SIMPLE IRA.

6. A distribution that is eligible for rollover treatment from a qualified employee benefit plan will be subject to twenty percent (20%) withholding by the Internal Revenue Service even if you roll the distribution over within the 60-day rollover period. One way to avoid this withholding is to make the distribution as a direct transfer to the IRA trustee or insurance company.

CONTRIBUTION LIMITS AND ALLOWANCE OF DEDUCTION FOR IRAs

1. In general, the amount you can contribute each year to an IRA is the lesser of (1) 100% of your compensation includible in your gross income, or (2) the maximum annual contributions under Section 219(b) of the Code, including “catchup” contributions for certain individuals age 50 and older. The maximum annual contribution limit for IRA contributions is equal to $5,000 for 2011. After 2011, the limit may be indexed annually in $500 increments, except as otherwise provided by law. An individual who has attained age 50 may make additional “catch-up” IRA contributions. The maximum annual contribution limit for the individual is increased by $1,000 for 2011 and thereafter, except as otherwise provided by law. If you have more than one IRA, the limit applies to the total contributions made to your own IRAs for the year. Generally, if you work the amount that you earn is compensation. Wages, salaries, tips, professional fees, bonuses and other amounts you receive for providing personal services are compensation. If you own and operate your own business as a sole proprietor, your net earnings reduced by your deductible contributions on your behalf to self-employed retirement plans are compensation. If you are an active partner in a partnership and provide services to the partnership, your share of partnership income reduced by deductible contributions made on your behalf to qualified retirement plans is compensation. All taxable alimony and separate maintenance payments received under a decree of divorce or separate maintenance are compensation.

2. In the case of a married couple filing a joint return, up to the maximum annual contribution can be contributed to each spouse’s IRA, even if one spouse has little or no compensation. This means that the total combined contributions that can be made to both IRAs can be as much as $10,000 for the year (plus an additional $2,000 in catch-up contributions).

3. In the case of a married couple with unequal compensation who file a joint return, the limit on the deductible contributions to the IRA of the spouse with less compensation is the smaller of:

a. the maximum annual contribution, or

b. The total compensation of both spouses, reduced by any deduction allowed for contributions to IRAs of the spouse with more compensation.

The deduction for contributions to both spouses’ IRAs may be further limited if either spouse is covered by an employer retirement plan.

4. If either you or your spouse is an active participant in an employer-sponsored plan and have a certain level of income, the amount of the contribution to your IRA that is deductible is phased out, and in some cases eliminated. If you are an active participant in an employer-sponsored plan, the deductibility of your IRA contribution will be phased out, depending on your adjusted gross income, or combined adjusted gross income in the case of a joint tax return, as follows:

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Joint Returns


Taxable year beginning in:	Phase-out range
2011	$	90,000-$110,000

Single Taxpayers

Taxable year beginning in:	Phase-out range
2011	$	56,000-$66,000

The phase-out range for married individuals filing separately is $0-$10,000. If you file a joint tax return and are not an active participant in an employer-sponsored plan, but your spouse is, the amount of the deductible IRA contribution is phased out for adjusted gross income between $ 169,000 and $ 179,000.

To designate a contribution as nondeductible, you must file IRS Form 8606, Nondeductible IRAs. You may have to pay a penalty if you make nondeductible contributions to an IRA and you do not file Form 8606 with your tax return, or if you overstate the amount of nondeductible contributions on your Form 8606. If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible, and all distributions from your IRA will be taxed, unless you can show, with satisfactory evidence, that nondeductible contributions were made.

5. Contributions to your IRA for a year can be made at any time up to April 15 of the following year. If you make the contribution between January 1 and April 15, however, you may elect to treat the contribution as made either in that year or in the preceding year. You may file a tax return claiming a deduction for your IRA contribution before the contribution is actually made. You must, however, make the contribution by the due date of your return not including extensions.

6. You cannot make a contribution other than a rollover or transfer contribution to your IRA for the year in which you reach age 70¹/2 or thereafter.

7. A taxpayer may qualify for a tax credit for contributions to an IRA, depending on the taxpayer’s adjusted gross income.

SEP IRAs

1. SEP IRA rules concerning eligibility and contributions are governed by Code Section 408(k). The maximum deductible contribution for a SEP IRA is the lesser of $49,000 (indexed for cost-of-living increases after 2011) or 25% of compensation.

2. A SEP must be established and maintained by an employer (corporation, partnership, sole proprietor).

SIMPLE IRAs

1. A SIMPLE IRA must be established with your employer using a qualified salary reduction agreement.

2. You may elect to have your employer contribute to your SIMPLE IRA, under a qualified salary reduction agreement, an amount (expressed as a percentage of your compensation) not to exceed $11,500 for 2011. After 2011, the limit may be indexed annually, except as otherwise provided by law.

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An individual who has attained age 50 may make additional “catch-up” IRA contributions. The maximum annual contribution limit for the individual is increased by $2,500 for 2011 and thereafter, except as otherwise provided by law. In addition to these employee elective contributions, your employer is required to make each year either (1) a matching contribution equal to up to 3 percent, and not less than 1 percent, of your SIMPLE IRA contribution for the year, or (2) a nonelective contribution equal to 2 percent of your compensation for the year (up to $245,000 of compensation, as adjusted for inflation). No other contributions may be made to a SIMPLE IRA.

3. Employee elective contributions and employer contributions (i.e., matching contributions and nonelective contributions) to your SIMPLE IRA are excluded from your gross income.

4. To the extent an individual with a SIMPLE IRA is no longer participating in a SIMPLE plan (e.g., the individual has terminated employment), and two years have passed since the individual first participated in the plan, the individual may treat the SIMPLE IRA as an IRA.

TAX STATUS OF THE CONTRACT AND DISTRIBUTIONS FOR IRAs AND SIMPLE IRAs

1. Earnings of your IRA annuity contract are not taxed until they are distributed to you.

2. In general, taxable distributions are included in your gross income in the year you receive them.

3. Distributions under your IRA are non-taxable to the extent they represent a return of non-deductible contributions (if any). The non-taxable percentage of a distribution is determined generally by dividing your total undistributed, non-deductible IRA contributions by the value of all your IRAs (including SEPs and rollovers).

4. You cannot choose the special five-year or ten-year averaging that may apply to lump sum distributions from qualified employer plans.

REQUIRED DISTRIBUTIONS FOR IRAs AND SIMPLE IRAs

You must start receiving minimum distributions required under the Contract and Section 401(a)(9) of the Code from your IRA and SIMPLE IRA starting with the year you reach age 70¹/2 (your 70¹/2 year). Ordinarily, the required minimum distribution for a particular year must be received by December 31 of that year. However, you may delay the required minimum distribution for the year you reach age 70¹/2 until April 1 of the following year (i.e., the required beginning date).

Annuity payments which begin by April 1 of the year following your 70¹/2 year satisfy the minimum distribution requirement if they provide for non-increasing payments over your life or the lives of you and your designated beneficiary (within the meaning of Section 401(a)(9) of the Code), provided that, if installments are guaranteed, the guaranty period does not exceed the applicable life or joint life expectancy.

The applicable life expectancy is your remaining life expectancy or the remaining joint life and last survivor expectancy of you and your designated beneficiary, determined as set forth in applicable federal income tax regulations.

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If you have more than one IRA, you must determine the required minimum distribution separately for each IRA; however, you can take the actual distributions of these amounts from any one or more of your IRAs.

In addition, the after-death minimum distribution requirements described generally in section B. STATUTORY REQUIREMENTS apply to IRAs and SIMPLE IRAs.

If the actual distribution from your Contract is less than the minimum amount that should be distributed in accordance with the minimum distribution requirements mentioned above, the difference generally is an excess accumulation. There is a 50% excise tax on any excess accumulations. If the excess accumulation is due to reasonable error, and you have taken (or are taking) steps to remedy the insufficient distribution, you can request that this 50% excise tax be excused by filing with your tax return an IRS Form 5329, together with a letter of explanation and the excise tax payment.

ROTH IRAs

1. If your Contract is a special type of individual retirement plan known as a Roth IRA, it will be administered in accordance with the requirements of section 408A of the Code. (Except as otherwise indicated, references herein to an “IRA” are to an “individual retirement plan,” within the meaning of Section 7701(a)(37) of the Code, other than a Roth IRA.) Roth IRAs are treated the same as other IRAs, except as described here.

2. If your Contract is a Roth IRA, we will send you a Roth IRA endorsement to be attached to, and to amend, your Contract. The Company reserves the right to amend the Contract as necessary or advisable from time to time to comply with future changes in the Internal Revenue Code, regulations or other requirements imposed by the IRS to obtain or maintain its approval of the annuity as a Roth IRA.

3. Earnings in your Roth IRA are not taxed until they are distributed to you, and will not be taxed if they are paid as a “qualified distribution,” as described to you in section L, below.

4. The minimum distribution requirements that apply to IRAs do not apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, the after-death minimum distribution rules that apply to IRAs also apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. You may not use your Roth IRA to satisfy minimum distribution requirements for traditional IRAs. Nor may you use distributions from an IRA for required distributions from a Roth IRA.

ELIGIBILITY AND CONTRIBUTIONS FOR ROTH IRAs

1. Generally, you are eligible to establish or make a contribution to your Roth IRA only if you meet certain income limits. No deduction is allowed for contributions to your Roth IRA. Contributions to your Roth IRA may be made even after you attain age 70¹/2.

2. The maximum aggregate amount of contributions for any taxable year to all IRAs, including all Roth IRAs, maintained for your benefit (the “contribution limit”) generally is the lesser of (1) 100% of your compensation includible in gross income, or (2) the maximum annual contributions under Section 219(b) of the Code, including “catchup” contributions for certain individuals age 50 and older (as discussed in section D, above).

The contribution limit for any taxable year is reduced (but not below zero) by the amount which bears the same ratio to such amount as:

B-6

•

the excess of (i) your adjusted gross income for the taxable year, over (ii) the “applicable dollar amount,” bears to $15,000 (or $10,000 if you are married).

For this purpose, “adjusted gross income” is determined in accordance with Section 219(g)(3) of the Code and (1) excludes any amount included in gross income as a result of any rollover from, transfer from, or conversion of an IRA to a Roth IRA, and (2) is reduced by any deductible IRA contribution. In addition, the “applicable dollar amount” is equal to $ 169,000 for a married individual filing a joint return, $0 for a married individual filing a separate return, and $ 107,000 for any other individual.

A “qualified rollover contribution” (discussed in section K, below), and a non-taxable transfer from another Roth IRA, are not taken into account for purposes of determining the contribution limit.

ROLLOVERS, TRANSFERS AND CONVERSIONS TO ROTH IRAs

1. Rollovers and Transfers—A rollover may be made to a Roth IRA only if it is a “qualified rollover contribution.” A “qualified rollover contribution” is a rollover to a Roth IRA from another Roth IRA or from an IRA or other Qualified Plan, but only if such rollover contribution also meets the rollover requirements for IRAs under Section 408(d)(3). In addition, a transfer may be made to a Roth IRA directly from another Roth IRA or from an IRA.

The rollover requirements of Section 408(d)(3) are complex and should be carefully considered before you make a rollover. One of the requirements is that the amount received be paid into another IRA (or Roth IRA) within 60 days after receipt of the distribution. The failure to satisfy this 60-day requirement may be waived by the Internal Revenue Service in certain circumstances. In addition, a rollover contribution from a Roth IRA may be made by you only once a year. The one-year period begins on the date you receive the Roth IRA distribution, not on the date you roll it over (reinvest it) into another Roth IRA. If you withdraw assets from a Roth IRA, you may roll over part of the withdrawal tax-free into another Roth IRA and keep the rest of it. A portion of the amount you keep may be included in your gross income.

2. Taxation of Rollovers and Transfers to Roth IRAs—A qualified rollover contribution or transfer from a Roth IRA maintained for your benefit to another Roth IRA maintained for your benefit which meets the rollover requirements for IRAs under Section 408(d)(3) is tax-free.

In the case of a qualified rollover contribution or a transfer from an IRA maintained for your benefit to a Roth IRA maintained for your benefit, any portion of the amount rolled over or transferred which would be includible in your gross income were it not part of a qualified rollover contribution or a nontaxable transfer will be includible in your gross income. However, Code Section 72(t) (relating to the 10% penalty tax on premature distributions) will generally not apply unless the amounts rolled over or transferred are withdrawn within the five-year period beginning with the taxable year in which such contribution was made.

3. Transfers of Excess IRA Contributions to Roth IRAs—If, before the due date of your federal income tax return for any taxable year (not including extensions), you transfer, from an IRA, contributions for such taxable year (and earnings thereon) to a Roth IRA, such amounts will not be includible in gross income to the extent that no deduction was allowed with respect to such amount.

4. Taxation of Conversions of IRAs to Roth IRAs—All or part of amounts in an IRA maintained for your benefit may be converted into a Roth IRA maintained for your benefit. A conversion typically will result in the inclusion of some or all of your IRA’s value in gross income, as described above.

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A conversion of an IRA to a Roth IRA can be made without taking an actual distribution from your IRA. For example, an individual may make a conversion by notifying the IRA issuer or trustee, whichever is applicable.

UNDER SOME CIRCUMSTANCES, IT MIGHT NOT BE ADVISABLE TO ROLLOVER, TRANSFER, OR CONVERT ALL OR PART OF AN IRA TO A ROTH IRA. WHETHER YOU SHOULD DO SO WILL DEPEND ON YOUR PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED TO, SUCH FACTORS AS WHETHER YOU QUALIFY TO MAKE SUCH A ROLLOVER, TRANSFER, OR CONVERSION, YOUR FINANCIAL SITUATION, AGE, CURRENT AND FUTURE INCOME NEEDS, YEARS TO RETIREMENT, CURRENT AND FUTURE TAX RATES, YOUR ABILITY AND DESIRE TO PAY CURRENT INCOME TAXES WITH RESPECT TO AMOUNTS ROLLED OVER, TRANSFERRED, OR CONVERTED, AND WHETHER SUCH TAXES MIGHT NEED TO BE PAID WITH WITHDRAWALS FROM YOUR ROTH IRA (SEE DISCUSSION BELOW OF “NONQUALIFIED DISTRIBUTIONS”). YOU SHOULD CONSULT A QUALIFIED TAX ADVISER BEFORE ROLLING OVER, TRANSFERRING, OR CONVERTING ALL OR PART OF AN IRA TO A ROTH IRA.

5. Separate Roth IRAs—Due to the complexity of, and proposed changes to, the tax law, it may be advantageous to maintain amounts rolled over, transferred, or converted from an IRA in separate Roth IRAs from those containing regular Roth IRA contributions. For the same reason, you should consider maintaining a separate Roth IRA for each amount rolled over, transferred, or converted from an IRA. These considerations should be balanced against the additional costs you may incur from maintaining multiple Roth IRAs. You should consult your tax adviser if you intend to contribute rollover, transfer, or conversion amounts to your Contract, or if you intend to roll over or transfer amounts from your Contract to another Roth IRA maintained for your benefit.

INCOME TAX CONSEQUENCES OF ROTH IRAs

1. Qualified Distributions—Any “qualified distribution” from a Roth IRA is excludible from gross income. A “qualified distribution” is a payment or distribution which satisfies two requirements. First, the payment or distribution must be (a) made after you attain age 59¹/2, (b) made after your death, (c) attributable to your being disabled, or (d) a “qualified special purpose distribution” (i.e., a qualified first-time homebuyer distribution under Section 72(t)(2)(F) of the Code). Second, the payment or distribution must be made in a taxable year that is at least five years after (1) the first taxable year for which a contribution was made to any Roth IRA established for you, or (2) in the case of a rollover from, or a conversion of, an IRA to a Roth IRA, the taxable year in which the rollover or conversion was made if the payment or distribution is allocable (as determined in the manner set forth in guidance issued by the IRS) to the rollover contribution or conversion (or to income allocable thereto).

2. Nonqualified Distributions—A distribution from a Roth IRA which is not a qualified distribution is taxed under Section 72 (relating to annuities), except that such distribution is treated as made first from contributions to the Roth IRA to the extent that such distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate amount of contributions to the Roth IRA. For purposes of determining the amount taxed, (a) all Roth IRAs established for you will be treated as one contract, (b) all distributions during any taxable year from Roth IRAs established for you will be treated as one distribution, and (c) the value of the contract, income on the contract, and investment in the contract, if applicable, will be computed as of the close of the calendar year in which the taxable year begins.

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An additional tax of 10% is imposed on nonqualified distributions (including amounts deemed distributed as the result of a prohibited loan or use of your Roth IRA as security for a loan) made before the benefited individual has attained age 59¹/2, unless one of the exceptions discussed in Section N applies.

TAX ON EXCESS CONTRIBUTIONS

1. You must pay a 6% excise tax each year on excess contributions that remain in your Contract. Generally, an excess contribution is the amount contributed to your Contract that is more than you can contribute. The excess is taxed for the year of the excess contribution and for each year after that until you correct it.

If contributions to your IRA for a year are more than the contribution limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year.

2. You will not have to pay the 6% excise tax if you withdraw the excess amount by the date your tax return is due including extensions for the year of the contribution. You do not have to include in your gross income an excess contribution that you withdraw from your Contract before your tax return is due if the income earned on the excess was also withdrawn and no deduction was allowed for the excess contribution. You must include in your gross income the income earned on the excess contribution.

TAX ON PREMATURE DISTRIBUTIONS

There is an additional tax on premature distributions from your IRA, Roth IRA, or SIMPLE IRA, equal to 10% of the taxable amount. For premature distributions from a SIMPLE IRA made within the first two years you participate in a SIMPLE plan, the additional tax is equal to 25% of the amount of the premature distribution that must be included in gross income. Premature distributions are generally amounts you withdraw before you are age 59¹/2. However, the tax on premature distributions does not apply generally:

1. To amounts that are rolled over or transferred tax-free;

2. To a distribution that is made on or after your death, or on account of you being disabled within the meaning of Code Section 72(m)(7);

3. To a distribution that is part of a series of substantially equal periodic payments (made at least annually) over your life or your life expectancy or the joint life or joint life expectancy of you and your beneficiary; or

4. To a distribution that is used for qualified first-time homebuyer expenses, qualified higher education expenses, certain medical expenses, by an unemployed individual to pay health insurance premiums, or a qualified reservist as a qualified reservist distribution.

EXCISE TAX REPORTING

Use Form 5329, Additional Taxes Attributable to Qualified Retirement Plans (Including IRAs), Annuities, and Modified Endowment Contracts, to report the excise taxes on excess contributions, premature distributions, and excess accumulations. If you do not owe any IRA, SIMPLE IRA or Roth IRA excise taxes, you do not need Form 5329. Further information can be obtained from any district office of the Internal Revenue Service.

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BORROWING

If you borrow money against your Contract or use it as security for a loan, the Contract will lose its classification as an IRA, Roth IRA, or SIMPLE IRA, whichever is applicable, and you must include in gross income the fair market value of the Contract as of the first day of your tax year. In addition, you may be subject to the tax on premature distributions described above. (Note: This Contract does not allow borrowings against it, nor may it be assigned or pledged as collateral for a loan.)

REPORTING

We will provide you with any reports required by the Internal Revenue Service.

ESTATE TAX

Generally, the value of your IRA, including your Roth IRA, is included in your gross estate for federal estate tax purposes.

FINANCIAL DISCLOSURE

If contributions to the Contract are made by other than rollover contributions and direct transfers, the following information based on the charts shown on the next pages, which assumes you were to make a level contribution to the fixed account at the beginning of each year of $1,000 must be completed prior to your signing the enrollment application.


	Lump Sum Termination	At	Lump Sum Termination
End of Year	Value of Contract*	Age	Value of Contract^*
1		60
2		65
3		70
4
5

If contributions to the Contract are made by rollover contributions and/or direct transfers, the following information, based on the charts shown on the next page, and all of which assumes you make one contribution to the fixed account of $1,000 at the beginning of this year, must be completed prior to your signing the enrollment application.


	Lump Sum Termination	At	Lump Sum Termination
End of Year	Value of Contract*	Age	Value of Contract^*
1		60

2		65

3		70

4


^*	Includes applicable withdrawal charges as described in Item T below.

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	Lump Sum Termination	At	Lump Sum Termination
End of Year	Value of Contract*	Age	Value of Contract^*
5

FINANCIAL DISCLOSURE FOR THE SEPARATE ACCOUNT (VARIABLE ACCOUNT)

1. If on the enrollment application you indicated an allocation to a Subaccount or if you transfer Contract Value to a Subaccount, a daily charge of an amount which will equal an aggregate of 1.40% per annum will be assessed against Separate Account Value.

2. An annual records maintenance charge of $30.00 will be assessed ratably each quarter against the Separate Account, Fixed Account and Guarantee Periods.

3. Withdrawal (early annuitization) charges will be assessed based on the years elapsed since the Purchase Payments (in a given Contract Year) were received by ZALICO; under one year, 7%; over one to two years, 6%; over two to three years, 5%; over three to four years, 5%; over four to five years, 4%; over five to six years, 3%; over six to seven years, 2%; over seven years and thereafter, 0%.

4. The method used to compute and allocate the annual earnings is contained in the Prospectus under the heading “Accumulation Unit Value.”

5. The growth in value of your Contract is neither guaranteed nor projected but is based on the investment experience of the Separate Account.

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GUARANTEED LUMP SUM TERMINATION OF DEFERRED FIXED AND VARIABLE ANNUITY COMPLETELY ALLOCATED TO THE GENERAL ACCOUNT WITH 3% GUARANTEED EACH YEAR. (TERMINATION VALUES ARE BASED ON $1,000 ANNUAL CONTRIBUTIONS AT THE BEGINNING OF EACH YEAR.)


End of	Termination		End of		Termination		End of		Termination		End of		Termination
Year	Values*		Year		Values*		Year		Values*		Year		Values*
1		$937.00		14		$16,798.32		27		$40,421.63		40		$75,113.26
2		1,913.00		15		18,310.91		28		42,642.92		41		78,375.30
3		2,928.90		16		19,868.88		29		44,930.85		42		81,735.20
4		3,976.63		17		21,473.59		30		47,287.42		43		85,195.89
5		5,066.14		18		23,126.44		31		49,714.68		44		88,760.41
6		6,198.41		19		24,828.87		32		52,214.76		45		92,431.86
7		7,374.46		20		26,582.37		33		54,789.84		46		96,213.46
8		8,604.34		21		28,388.49		34		57,442.18		47		100,108.50
9		9,871.11		22		30,248.78		35		60,174.08		48		104,120.40
10		11,175.88		23		32,164.88		36		62,987.94		49		108,252.65
11		12,519.80		24		34,138.47		37		65,886.22		50		112,508.87
12		13,904.03		25		36,171.26		38		68,871.45
13		15,329.79		26		38,265.04		39		71,946.23


End of	Termination		End of		Termination		End of		Termination		End of		Termination
Year	Values*		Year		Values*		Year		Values*		Year		Values*
1		$937		14		$1,000		27		$1,000		40		$1,000
2		946		15		1,000		28		1,000		41		1,000
3		955		16		1,000		29		1,000		42		1,000
4		955		17		1,000		30		1,000		43		1,000
5		964		18		1,000		31		1,000		44		1,000
6		973		19		1,000		32		1,000		45		1,000
7		982		20		1,000		33		1,000		46		1,000
8		1,000		21		1,000		34		1,000		47		1,000
9		1,000		22		1,000		35		1,000		48		1,000
10		1,000		23		1,000		36		1,000		49		1,000
11		1,000		24		1,000		37		1,000		50		1,000
12		1,000		25		1,000		38		1,000
13		1,000		26		1,000		39		1,000


^*	Includes applicable withdrawal charges.

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APPENDIX C
CONDENSED FINANCIAL INFORMATION

The following tables of condensed financial information show accumulation unit values for each Subaccount for the period since the Subaccount started operation. An accumulation unit value is the unit we use to calculate the value of your interest in a Subaccount. The accumulation unit values shown in the tables reflect the Separate Account Annual Expenses of 1.40% listed in the “Fee Table” in this Prospectus. The accumulation unit value does not reflect the deduction of charges such as the Record Maintenance Charge that we subtract from your Contract Value by redeeming units. The data used in the tables below is obtained from the audited financial statement of the Separate Account that can be found in the SAI. Please review the condensed financial information in conjunction with the financial statements, related notes, and other financial information included in the SAI. In the tables below, no number is shown when there were fewer than 1,000 accumulation units outstanding at the end of a period.

Selected data for accumulation units outstanding as of the year ended December 31st for each period (reflects Separate Account Annual Expenses of 1.40%):



AIM Variable Insurance Funds: Invesco V.I. Utilities Subaccount (Series I Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted) ⁽¹⁾
2010		9.667		10.135		1,662
2009		8.529		9.667		1,908
2008		12.786		8.529		2,792
2007		10.748		12.786		3,997
2006		8.686		10.748		4,057
2005		7.538		8.686		3,734
2004		6.186		7.538		2,550
2003		5.340		6.186		1,996
2002		6.796		5.340		1,638
2001 *		10.000		6.796		1,004


*		Commencement of offering on May 1, 2001.



The Alger Portfolios: Alger Balanced Subaccount (Class I-2 Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted) ⁽¹⁾
2010		11.255		12.246		3,447
2009		8.830		11.255		4,038
2008		13.121		8.830		5,039
2007		11.841		13.121		7,039
2006		11.465		11.841		8,396
2005		10.722		11.465		9,551
2004		10.397		10.722		10,696
2003		8.857		10.397		10,639
2002		10.240		8.857		10,165
2001		10.588		10.240		8,205
2000		11.041		10.588		1,292
1999 *		10.000		11.041		19


*		Commencement of offering on November 1, 1999.

⁽¹⁾ The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-1



The Alger Portfolios: Alger Capital Appreciation Subaccount (Class I-2 Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted) ⁽¹⁾
2010		10.552		11.866		4,578
2009		7.081		10.552		5,052
2008		13.088		7.081		6,678
2007		9.939		13.088		9,245
2006		8.450		9.939		8,586
2005		7.487		8.450		8,648
2004		7.017		7.487		9,465
2003		5.281		8.784 *		10,008
2002		8.103		5.281		9,225
2001		9.773		8.103		9,057
2000		13.184		9.773		4,158
1999* *		10.000		13.184		49


*		The 2003 end of period Accumulation Unit value represents an average of the Accumulation Unit value and the Annuity Unit value at the end of the period. If Accumulation Unit value only had been shown, the Accumulation Unit value at the end of 2003 would have been $7.017. In future periods, only Accumulation Unit value will be shown.

**		Commencement of offering on November 1, 1999.



Credit Suisse Trust: Credit Suisse Trust- International Equity Flex III Subaccount (Trust Class Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted) ⁽¹⁾
2010		18.268		20.220		2,035
2009		12.217		18.268		2,407
2008		27.412		12.217		2,543
2007		21.476		27.412		3,829
2006		16.433		21.476		4,319
2005		13.024		16.433		4,409
2004		10.571		13.024		3,406
2003		7.502		10.571		2,847
2002		8.602		7.502		2,512
2001		9.639		8.602		1,918
2000		14.302		9.639		1,034
1999		7.994		14.302		213
1998 *		9.755		7.994		7


*		Commencement of offering on June 1, 1998.



Dreyfus Investment Portfolios: Dreyfus MidCap Stock Subaccount (Initial Share Class)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		12.743		15.973		3,677
2009		9.536		12.743		4,049
2008		16.230		9.536		6,003
2007		16.216		16.230		8,727
2006		15.260		16.216		10,467
2005		14.173		15.260		11,800
2004		12.554		14.173		11,759
2003		9.664		12.554		11,190
2002		11.199		9.664		10,436
2001		11.738		11.199		7,541
2000		10.992		11.738		1,141
1999 *		10.000		10.992		12


*		Commencement of offering on November 1, 1999.

C-2



Dreyfus Socially Responsible Growth Fund, Inc., Subaccount (Initial Share Class)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		6.883		7.793		420
2009		5.218		6.883		465
2008		8.069		5.218		565
2007		7.591		8.069		788
2006		7.049		7.591		1,264
2005		6.898		7.049		1,169
2004		6.585		6.898		1,417
2003		5.299		6.585		1,509
2002		7.563		5.299		1,546
2001		9.905		7.563		1,444
2000		11.289		9.905		600
1999*		9.941		11.289		22


*		Commencement of offering on November 1, 1999.



DWS Investments VIT Funds: DWS Equity 500 Index VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		9.296		10.515		7,267
2009		7.462		9.296		8,076
2008		12.039		7.462		10,621
2007		11.595		12.039		15,232
2006		10.177		11.595		17,666
2005		8.699		10.177		19,101
2004		7.991		8.699		25,782
2003		6.334		7.991		25,461
2002		8.270		6.334		23,118
2001		9.535		8.270		17,576
2000		10.735		9.535		4,497
1999*		10.027		10.735		633


*		Commencement of offering on September 10, 1999.



DWS Variable Series I: DWS Bond VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		9.514		10.020		1,488
2009		8.765		9.514		1,542
2008		10.679		8.765		871
2007		10.395		10.679		676
2006		10.066		10.395		298
2005*		10.000		10.066		75


*		Commencement of offering on May 2, 2005.

C-3



DWS Variable Series I: DWS Capital Growth VIP Subaccount (Successor to DWS Health Care VIP Subaccount
(Variable Series I) and DWS Technology VIP Subaccount (Variable Series II)) (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		10.024		11.538		13,997
2009		8.012		10.024		16,624
2008		12.123		8.012		17,327
2007		10.919		12.123		24,258
2006		10.201		10.919		29,857
2005		9.493		10.201		18,643
2004		8.914		9.493		5,701
2003		7.124		8.914		5,318
2002		10.201		7.124		4,949
2001		12.826		10.201		4,261
2000		14.435		12.826		1,959
1999		10.823		14.435		916
1998**		9.985		10.823		56


*		Effective May 1, 2011, DWS Health Care VIP (DWS Variable Series I) and DWS Technology VIP (DWS Variable Series II) each merged into DWS Capital Growth VIP (DWS Variable Series I), pursuant to shareholder approval on April 11, 2011.

**		Commencement of offering on June 1, 1998.



DWS Variable Series I: DWS Global Small Cap Growth VIP Subaccount (formerly DWS Global Opportunities VIP
Subaccount) (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		17.596		21.976		3,382
2009		12.039		17.596		3,731
2008		24.400		12.039		5,128
2007		22.631		24.400		7,461
2006		18.797		22.631		8,689
2005		16.127		18.797		8,850
2004		13.257		16.127		7,838
2003		9.017		13.257		7,393
2002		11.412		9.017		7,117
2001		15.347		11.412		6,536
2000		16.430		15.347		3,226
1999		10.043		16.430		509
1998**		9.911		10.043		74


*		Effective May 1, 2011, DWS Global Opportunities VIP changed its name to DWS Global Small Cap Growth VIP.

**		Commencement of offering on June 1, 1998.

C-4



DWS Variable Series I: DWS Growth & Income VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		8.277		9.338		2,674
2009		6.257		8.277		3,106
2008		10.285		6.257		4,077
2007		10.290		10.285		5,894
2006		9.182		10.290		7,235
2005		8.778		9.182		8,612
2004		8.080		8.778		5,555
2003		6.464		8.080		5,681
2002		8.527		6.464		5,647
2001		9.748		8.527		4,982
2000		10.096		9.748		2,341
1999		9.651		10.096		1,073
1998*		10.033		9.651		175


*		Commencement of offering on June 1, 1998.



DWS Variable Series I: DWS Health Care VIP Subaccount (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		13.015		13.882		2,229
2009		10.801		13.015		2,578
2008		14.262		10.801		3,921
2007		12.776		14.262		5,172
2006		12.202		12.776		6,151
2005		11.403		12.202		6,994
2004		10.551		11.403		7,279
2003		8.002		10.551		7,056
2002		10.551		8.002		6,232
2001**		10.000		10.551		4,222


*		Effective May 1, 2011, DWS Health Care VIP merged into DWS Capital Growth VIP, pursuant to shareholder approval on April 11, 2011.

**		Commencement of offering on May 1, 2001.



DWS Variable Series I: DWS International VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		9.945		9.967		3,837
2009		7.552		9.945		4,471
2008		14.789		7.552		6,444
2007		13.088		14.789		9,517
2006		10.540		13.088		10,753
2005		9.199		10.540		10,915
2004		8.005		9.199		10,684
2003		6.354		8.005		10,652
2002		7.892		6.354		10,313
2001		11.574		7.892		9,022
2000		14.990		11.574		4,655
1999		9.837		14.990		1,653
1998*		9.972		9.837		88


*		Commencement of offering on June 1, 1998.

C-5



DWS Variable Series II: DWS Balanced VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		10.971		12.035		3,718
2009		9.013		10.971		4,218
2008		12.577		9.013		5,515
2007		12.165		12.577		7,454
2006		11.189		12.165		8,791
2005		10.878		11.189		10,111
2004		10.329		10.878		10,863
2003		8.880		10.329		11,274
2002		10.615		8.880		11,368
2001		11.462		10.615		10,298
2000		11.936		11.462		4,778
1999		10.542		11.936		2,617
1998*		9.983		10.542		123


*		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS Blue Chip VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		10.811		12.130		4,693
2009		8.183		10.811		5,497
2008		13.491		8.183		7,475
2007		13.218		13.491		10,990
2006		11.590		13.218		12,986
2005		10.677		11.590		13,710
2004		9.330		10.677		14,410
2003		7.435		9.330		14,179
2002		9.680		7.435		9,733
2001		11.659		9.680		9,110
2000		12.827		11.659		4,280
1999		10.386		12.827		1,728
1998*		9.964		10.386		125


*		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS Core Fixed Income VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		11.651		12.239		2,970
2009		10.968		11.651		3,418
2008		13.786		10.968		4,232
2007		13.420		13.786		5,574
2006		13.052		13.420		5,807
2005		12.943		13.052		5,880
2004		12.556		12.943		6,170
2003		12.110		12.556		6,697
2002		11.369		12.110		6,990
2001		10.905		11.369		4,482
2000		10.062		10.905		1,114
1999		10.417		10.062		940
1998*		10.014		10.417		66


*		Commencement of offering on June 1, 1998.

C-6



DWS Variable Series II: DWS Diversified International Equity VIP Subaccount (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		10.455		11.438		3,077
2009		8.196		10.455		3,418
2008		16.236		8.196		5,438
2007		14.107		16.236		7,666
2006		11.392		14.107		7,838
2005		10.087		11.392		7,765
2004		8.650		10.087		7,008
2003		6.756		8.650		5,691
2002		7.918		6.756		4,842
2001		10.624		7.918		1,829
2000		13.549		10.624		977
1999		9.429		13.549		351
1998*		9.944		9.429		56


*		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS Dreman Small Mid Cap Value VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		17.729		21.518		4,456
2009		13.860		17.729		5,151
2008		21.110		13.860		7,809
2007		20.772		21.110		12,839
2006		16.841		20.772		15,122
2005		15.489		16.841		16,286
2004		12.462		15.489		16,463
2003		8.897		12.462		14,637
2002		10.177		8.897		12,826
2001		8.770		10.177		7,886
2000		8.547		8.770		1,281
1999		8.431		8.547		610
1998*		9.943		8.431		125


*		Commencement of offering on June 1, 1998.

C-7



DWS Variable Series II: DWS Global Thematic VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		14.314		16.044		2,422
2009		10.092		14.314		2,753
2008		19.587		10.092		3,794
2007		18.686		19.587		5,496
2006		14.559		18.686		5,030
2005		12.007		14.559		3,685
2004		10.609		12.007		2,996
2003		8.331		10.609		2,916
2002		10.029		8.331		2,745
2001		12.031		10.029		2,280
2000		12.624		12.031		855
1999		10.103		12.624		308
1998*		9.989		10.103		29


*		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS Government & Agency Securities VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		15.665		16.470		3,822
2009		14.697		15.665		4,091
2008		14.202		14.697		6,075
2007		13.593		14.202		5,132
2006		13.232		13.593		5,570
2005		13.080		13.232		6,211
2004		12.784		13.080		6,585
2003		12.676		12.784		7,918
2002		11.896		12.676		12,527
2001		11.223		11.896		7,960
2000		10.259		11.223		1,273
1999		10.332		10.259		857
1998*		10.012		10.332		77


*		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS High Income VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		13.655		15.352		4,259
2009		9.891		13.655		4,588
2008		13.186		9.891		4,730
2007		13.245		13.186		6,436
2006		12.157		13.245		8,060
2005		11.866		12.157		9,092
2004		10.703		11.866		10,449
2003		8.709		10.703		11,164
2002		8.857		8.709		8,371
2001		8.751		8.857		6,665
2000		9.717		8.751		2,803
1999		9.646		9.717		1,923
1998*		10.003		9.646		361


*		Commencement of offering on June 1, 1998.

C-8



DWS Variable Series II: DWS Large Cap Value VIP Subaccount (Successor to DWS Strategic Value VIP
Subaccount) (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		12.863		14.052		7,789
2009		10.404		12.863		9,113
2008		16.587		10.404		4,713
2007		14.866		16.587		5,986
2006		13.061		14.866		7,036
2005		12.988		13.061		8,028
2004		11.965		12.988		8,972
2003		9.150		11.965		8,446
2002		10.913		9.150		7,780
2001		10.863		10.913		6,319
2000		9.485		10.863		2,516
1999		10.712		9.485		1,851
1998**		10.029		10.712		110


*		Effective May 1, 2011, DWS Strategic Value VIP merged into DWS Large Cap Value VIP, pursuant to shareholder approval on April 11, 2011.

**		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS Mid Cap Growth VIP Subaccount (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		8.568		10.812		1,554
2009		6.072		8.568		1,658
2008		12.324		6.072		1,905
2007		11.534		12.324		2,841
2006		10.540		11.534		3,091
2005		9.290		10.540		3,549
2004		9.066		9.290		3,662
2003		6.853		9.772 **		3,913
2002		10.022		6.853		4,070
2001		12.990		10.022		3,999
2000		13.859		12.990		1,910
1999***		10.000		13.859		89


*		Effective May 1, 2011, DWS Mid Cap Growth VIP merged into DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP), pursuant to shareholder approval on April 11, 2011.

**		The 2003 end of period Accumulation Unit value represents an average of the Accumulation Unit value and the Annuity Unit value at the end of the period. If Accumulation Unit value only had been shown, the Accumulation Unit value at the end of 2003 would have been $9.066. In future periods, only Accumulation Unit value will be shown.

***		Commencement of offering on May 3, 1999.

C-9



DWS Variable Series II: DWS Money Market VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		12.132		11.966		5,223
2009		12.261		12.132		7,729
2008		12.114		12.261		14,070
2007		11.700		12.114		11,917
2006		11.337		11.700		9,082
2005		11.181		11.337		8,700
2004		11.235		11.181		8,764
2003		11.311		11.235		11,843
2002		11.315		11.311		18,002
2001		11.049		11.315		18,261
2000		10.559		11.049		3,372
1999		10.213		10.559		1,569
1998*		10.003		10.213		82


*		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS Small Mid Cap Growth VIP Subaccount (formerly DWS Small Cap Growth VIP
Subaccount) (Successor to DWS Mid Cap Growth VIP Subaccount and to DWS Turner Mid Cap Growth VIP
Subaccount) (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		6.782		8.657		4,235
2009		4.891		6.782		5,003
2008		9.822		4.891		6,535
2007		9.378		9.822		8,837
2006		9.033		9.378		10,840
2005		8.555		9.033		12,543
2004		7.813		8.555		10,299
2003		5.959		7.813		10,075
2002		9.082		5.959		8,221
2001		12.936		9.082		6,740
2000		14.691		12.936		2,896
1999		11.070		14.691		843
1998**		9.867		11.070		106


*		Effective May 1, 2011, DWS Small Cap Growth VIP changed its name to DWS Small Mid Cap Growth VIP. Also Effective May 1, 2011, DWS Mid Cap Growth VIP and DWS Turner Mid Cap Growth VIP each merged into DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP), pursuant to shareholder approval on April 11, 2011.

**		Commencement of offering on June 1, 1998.

C-10



DWS Variable Series II: DWS Strategic Income VIP Subaccount (Class A Shares)
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		16.286		17.675		2,507
2009		13.455		16.286		2,677
2008		14.790		13.455		3,425
2007		14.225		14.790		4,290
2006		13.235		14.225		3,567
2005		13.108		13.235		2,848
2004		12.239		13.108		2,294
2003		11.507		12.239		2,269
2002		10.483		11.507		2,105
2001		10.102		10.483		1,041
2000		9.986		10.102		298
1999		10.755		9.986		124
1998*		10.009		10.755		7


*		Commencement of offering on June 1, 1998.



DWS Variable Series II: DWS Strategic Value VIP Subaccount (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		11.143		12.366		11,908
2009		9.018		11.143		14,241
2008		16.929		9.018		21,151
2007		17.493		16.929		31,241
2006		14.938		17.493		37,022
2005		14.036		14.938		35,320
2004		12.479		14.036		35,325
2003		9.591		12.479		34,780
2002		11.865		9.591		32,960
2001		11.831		11.865		23,548
2000		9.192		11.831		5,275
1999		10.491		9.192		3,389
1998**		9.997		10.491		518


*		Effective May 1, 2011, DWS Strategic Value VIP merged into DWS Large Cap Value VIP, pursuant to shareholder approval on April 11, 2011.

**		Commencement of offering on June 1, 1998.

C-11



DWS Variable Series II: DWS Technology VIP Subaccount (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		8.066		9.439		4,572
2009		5.099		8.066		5,491
2008		9.614		5.099		6,909
2007		8.529		9.614		10,093
2006		8.584		8.529		12,562
2005		8.390		8.584		14,667
2004		8.347		8.390		16,401
2003		5.773		8.347		17,585
2002		9.079		5.773		24,909
2001		13.617		9.079		23,797
2000		17.605		13.617		7,183
1999**		10.000		17.605		1,112


*		Effective May 1, 2011, DWS Technology VIP (DWS Variable Series II) merged into DWS Capital Growth VIP (DWS Variable Series I), pursuant to shareholder approval on April 11, 2011.

**		Commencement of offering on May 3, 1999.



DWS Variable Series II: DWS Turner Mid Cap Growth VIP Subaccount (Class A Shares)*
					Number of accumulation
	Accumulation unit value at		Accumulation unit value at		units outstanding at end of
	beginning of period		end of period		period (000’s omitted)⁽¹⁾
2010		9.913		12.611		3,490
2009		6.701		9.913		3,818
2008		13.453		6.701		5,865
2007		10.849		13.453		7,910
2006		10.327		10.849		8,696
2005		9.369		10.327		9,411
2004		8.556		9.369		10,137
2003		5.842		8.556		9,948
2002		8.748		5.842		7,947
2001**		10.000		8.748		4,649


*		Effective May 1, 2011, DWS Turner Mid Cap Growth VIP merged into DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP), pursuant to shareholder approval on April 11, 2011.

**		Commencement of offering on May 1, 2001.

C-12

STATEMENT OF ADDITIONAL INFORMATION

May 1, 2011

INDIVIDUAL AND GROUP VARIABLE, FIXED AND MARKET VALUE
ADJUSTED DEFERRED ANNUITY CONTRACTS

SCUDDER DESTINATIONS^SM ANNUITY
and
FARMERS VARIABLE ANNUITY I

Issued By

ZURICH AMERICAN LIFE INSURANCE COMPANY
(formerly Kemper Investors Life Insurance Company)

and

ZALICO VARIABLE ANNUITY SEPARATE ACCOUNT
(formerly KILICO Variable Annuity Separate Account)

HOME OFFICE: 1400 American Lane, Schaumburg, Illinois 60196
SERVICE CENTER: Scudder Destinations^SM Service Team, PO Box, 19097, Greenville, SC
29602-9097
Phone: 1-800-449-0523 (toll-free)

Website: www.zurichamericanlifeinsurance.com (formerly www.kemperinvestors.com)

This Statement of Additional Information is not a prospectus. This Statement of Additional Information should be read in conjunction with the Prospectus for the Scudder Destinations^SM Annuity dated May 1, 2011, and with the Prospectus for the Farmers Variable Annuity I dated May 1, 2005 (the Scudder Destinations^SM Annuity and the Farmers Variable Annuity are each referred to herein as a “Contract” and together, the “Contracts”). The Prospectuses may be obtained from Zurich American Life Insurance Company (“ZALICO” or “us”) by contacting the Service Center at the address, website, or telephone number listed above.

TABLE OF CONTENTS


		Page

SPECIAL CONSIDERATIONS		2
SERVICES TO THE SEPARATE ACCOUNT		2
VOTING RIGHTS		4
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS		4
STATE REGULATION		5
LEGAL MATTERS		5
EXPERTS		5
FINANCIAL STATEMENTS		5
APPENDIX A STATE AND LOCAL GOVERNMENT PREMIUM TAX CHART	A-	1
APPENDIX F INDEX TO FINANCIAL STATEMENTS	F-	1

SPECIAL CONSIDERATIONS

We reserve the right to amend the Contract to meet the requirements of federal or state laws or regulations. We will notify you in writing of these amendments.

Your rights under a Contract may be assigned as provided by law. An assignment will not be binding upon us until we receive a written copy of the assignment. You are solely responsible for the validity or effect of any assignment. You, therefore, should consult a qualified tax adviser regarding the tax consequences, as an assignment may be a taxable event.

SERVICES TO THE SEPARATE ACCOUNT

Recordkeepers and Independent Registered Public Accounting Firm for the ZALICO Variable Annuity Separate Account

Effective September 3, 2003 (the “Closing Date”), ZALICO transferred certain of its business, as well as the capital stock of its wholly-owned subsidiaries, to its former affiliate, Federal Kemper Life Assurance Company (“FKLA”). In a contemporaneous transaction, FKLA and ZALICO entered into a coinsurance agreement under which FKLA administers the business and the records of, and 100% reinsures, certain lines of business issued by ZALICO, including certain registered variable annuity contracts that are funded through the ZALICO Variable Annuity Separate Account (the “Separate Account”) (formerly KILICO Variable Annuity Separate Account). These transfers were part of a larger transaction under which the capital stock of FKLA was sold to Bank One Insurance Holdings, Inc. (“Bank One”). On July 1, 2004, Bank One merged into JP Morgan Chase & Co., and FKLA changed its name to Chase Insurance Life and Annuity Company (“Chase Insurance”).

These acquisitions, transfers and the coinsurance agreement do not relate directly to the Contracts, although certain other contracts issued by ZALICO that are administered by Protective Life are supported by the Separate Account. Your rights and benefits and our obligations under the Contracts are not changed by these transactions and agreements.

As required by law, ZALICO is responsible for the maintenance of the books and records of the Separate Account, and it has outsourced the recordkeeping function to its third party administrator, IBM Outsourcing (see below), and Protective Life. ZALICO owns the assets of the Separate Account.

The independent registered public accounting firm for the Separate Account and ZALICO is PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, New York 10017 for the years ended December 31, 2010, 2009 and 2008. The firm has performed the annual audit of

the financial statements of the Separate Account and ZALICO for the years ended December 31, 2010, 2009 and 2008.

Third Party Administrator

ZALICO has entered into an Insurance Administrative Services Agreement (the “Agreement”) with IBM Business Transformation Outsourcing Insurance Service Corporation (“IBM Outsourcing”), a corporation organized and existing under the laws of South Carolina. The Agreement, as amended, is included as an exhibit to the Registration Statement for the Contracts. IBM Outsourcing has its principal business address at 2000 Wade Hampton Boulevard, Greenville, South Carolina 29615-1064. Under the Agreement, IBM Outsourcing, provides, at the Contact Center, significant administrative services for the Contracts and the Separate Account, including the processing of all Purchase Payments, requests for transfers, partial withdrawals, and surrenders, and the calculation of accumulation unit values for each Contract and the Separate Account.

Distribution of the Contracts

Synergy Investment Group, LLC (“Synergy”) currently serves as principal underwriter for the Contracts. Synergy’s home office is located at 8320 University Executive Park Drive, Suite 112, Charlotte, NC 28262. Synergy is not affiliated with ZALICO. Synergy is registered as a broker-dealer with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Synergy is a member of the Securities Investor Protection Corporation.

The Contracts are no longer offered for sale to the public.

The selling firms that have selling agreements with Synergy are paid, and those that had selling agreements with IBS were paid, commissions for the promotion and sale of the Contracts according to one or more schedules. The amount and timing of commissions varies depending on the selling agreement, but the maximum commission paid to selling firms is 6.75% of additional Purchase Payments, plus a trail commission option of up to 1.00% of additional Purchase Payments paid quarterly on Purchase Payments that have been held in the Contract for at least twelve months. During 2010, 2009 and 2008, ZALICO paid gross commissions on additional Purchase Payments of approximately $0.5 million, $1.9 million, and $2.4 million, respectively, to selling firms on behalf of IBS and paid trail commissions of approximately $2.7 million, $10.9 million, and $15 million, respectively, to selling firms on behalf of IBS. During 2010, ZALICO paid gross commissions on additional Purchase Payments of approximately $1.1 million to selling firms on behalf of Synergy and paid trail commissions of approximately $8.0 million to

selling firms on behalf of Synergy. Neither Synergy nor IBS retained any portion of these commissions.

Compensation accrues to Synergy at the rate of $3,500.00 per month. During 2010, ZALICO paid compensation to Synergy in the amount of $42,000.00.

During 2010, the top ten (10) selling firms received commissions from ZALICO as follows:



	Selling Firm			Commission Amount
	LINSCO/Private Ledger Financial Services			$254,129.96
	Huckin Financial Group, Inc.			$188,344.25
	Planning Corp of America			$171,805.55
	Lincoln Financial Advisors			$98,654.98
	Securities America, Inc.			$71,563.46
	WS Insurance Services LLC			$59,658.21
	HD Vest Insurance Agency LLC			$56,955.51
	NFP Securities, Inc.			$34,822.96
	Morgan Keegan & Company, Inc.			$30,882.38
	Wells Fargo Advisors LLC			$30,634.86

VOTING RIGHTS

SAFEKEEPING OF SEPARATE ACCOUNT ASSETS

We hold title to the assets of the Separate Account. The assets are kept physically segregated and held separate and apart from our general account assets and from the assets in any other separate account. We and our agents, IBM Outsourcing and Protective Life, maintain the records of all purchases and redemptions of portfolio shares held by each of the Subaccounts. Fidelity insurance coverage for the assets of the Separate Account is provided by a Form 25 Bond

issued by Liberty Mutual Insurance Company providing aggregate coverage of $9.5 million (subject to a $500,000 each loss deductible) for Zurich Holding Company of America and its subsidiaries, including ZALICO.

STATE REGULATION

ZALICO is subject to the laws of Illinois governing insurance companies and to regulation by the Illinois Department of Insurance. An annual statement in a prescribed form is filed with the Illinois Department of Insurance each year. ZALICO’s books and accounts are subject to review by the Department of Insurance at all times, and a full examination of its operations is conducted periodically. In addition, ZALICO is subject to regulation under the insurance laws of other jurisdictions in which it may operate.

LEGAL MATTERS

Legal matters with respect to our organization, our authority to issue annuity contracts and the validity of the Contract have been passed upon by Juanita M. Thomas, Esq., Senior Assistant General Counsel. Sutherland Asbill & Brennan, LLP of Washington, D.C., has provided advice on certain matters relating to the federal securities laws.

EXPERTS

FINANCIAL STATEMENTS

This Statement of Additional Information contains financial statements for ZALICO and the Separate Account. The financial statements of ZALICO should be considered primarily as bearing on our ability to meet our obligations under the Contract. The Contracts are not entitled to participate in our earnings, dividends or surplus. The financial statements for the Separate Account reflect assets attributable to the Contracts and also assets attributable to other variable annuity contracts offered by ZALICO through the Separate Account.

APPENDIX A

STATE AND LOCAL GOVERNMENT PREMIUM TAX CHART


	Rate of Tax
	Qualified			Non-Qualified
State	Plans			Plans

California*		0.50	%		2.35	%
Maine**			--		2.00	%
Nevada*			--		3.50	%
South Dakota**			--		1.25	%***
West Virginia**		1.00	%		1.00	%
Wyoming**			--		1.00	%


*		In California and Nevada, we pay premium taxes when you annuitize your Contract. We deduct the amount of the premium tax payable from your Contract Value (if you annuitize under the standard feature in your Contract) or from your GRIB Base (if you annuitize under the GRIB rider). We will take this deduction at the time of annuitization of your Contract.

**		In Maine, South Dakota, West Virginia, and Wyoming, we pay premium taxes at the time we receive a Purchase Payment from you. In those four states, we reserve the right to deduct the amount of the premium tax payable from your Contract Value at the time we receive your Purchase Payment.


***		In South Dakota, we pay a 1.25% premium tax on the first $500,000 for each Non-Qualified Plan Contract and a 0.08% premium tax on any premium amount thereafter.

A-1

APPENDIX F

INDEX TO FINANCIAL STATEMENTS

Zurich American Life Insurance Company

Report of Independent Auditors

Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus as of December 31, 2010 and 2009

Statutory Statements of Operations For the Years Ended December 31, 2010, 2009 and 2008

Statutory Statements of Changes in Capital and Surplus for the Years Ended December 31, 2010, 2009 and 2008

Statutory Statements of Cash Flows For the Years Ended December 31, 2010, 2009 and 2008

Notes to Financial Statements

Supplemental Schedule of Assets and Liabilities as of December 31, 2010 and For the Year Then Ended

Supplemental Summary Investment Schedule and Investment Risk Interrogatories as of December 31, 2010 and for the Year Then Ended

ZALICO Variable Annuity Separate Account

Report of Independent Registered Public Accounting Firm

Statement of Assets, Liabilities and Contract Owners’ Equity, December 31, 2010

Statement of Operations for the year ended December 31, 2010

Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2010

Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2009

Notes to Financial Statements

F-1

[PWC LETTERHEAD]

Report of Independent Auditors

To the Board of Directors and Stockholder of
Zurich American Life Insurance Company:

We have audited the accompanying statutory statements of admitted assets, liabilities and capital and surplus of Zurich American Life Insurance Company (the “Company”) as of December 31, 2010 and 2009, and the related statutory statements of operations, of changes in capital and surplus and of cash flows for each of the three years in the period ended December 31, 2010. 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 auditing standards generally accepted in the United States of America. 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.

As described in Note 2 to the financial statements, the Company prepared these financial statements using accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations, Division of Insurance (“IDOI”), which practices differ from accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2010 and 2009, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2010.

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, on the basis of accounting described in Note 2.

As disclosed in the notes to the financial statements, the Company has significant transactions with Zurich Financial Services and its affiliates. Because of these relationships, it is possible that the terms of the transactions are not the same as those that would result from transactions among wholly unrelated parties.

As discussed in Note 2 to the financial statements, the Company received permission from the IDOI in 1995 to reset its unassigned surplus to zero with an equal and offsetting entry to gross paid-in capital and contributed surplus; under prescribed statutory accounting practices the aforementioned reclassification would not have been recorded. As of December 31, 2009 and 2010, the permitted practice had no impact on statutory surplus.

Our audit was conducted for the purpose of forming an opinion on the basic statutory basis financial statements taken as a whole. The accompanying Supplemental Schedules of Assets and Liabilities, Summary Investment Schedule, and Investment Risks Interrogatories (collectively referred to as the “supplemental schedules”) of the Company as of December 31, 2010 and for the year then ended are presented for purposes of additional analysis and are not a required part of the basic statutory financial statements. The effects on the supplemental schedules of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. As a consequence, the supplemental schedules do not present fairly, in conformity with accounting principles generally accepted in the United States of America, such information of the Company as of December 31, 2010 and for the year then ended. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic statutory basis financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic statutory basis financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

New York, New York
April 28, 2011

Zurich American Life Insurance Company

Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
Years Ended December 31, 2010 and 2009


(in thousands of dollars)	2010			2009
Admitted Assets
Cash and invested assets
Fixed Maturities, at amortized cost (market value of $462,645 and $429,234, respectively)	$	436,763		$	420,860
Contract loans		65,909			54,404
Cash, cash equivalents and short-term investments		20,195			29,157
Other invested assets		—			17
Receivables for securities		—			150

Total cash and invested assets		522,867			504,588
Amounts recoverable from reinsurers		33,983			25,766
Other amounts receivable under reinsurance contracts		17,716			23,254
Uncollected premiums and agents’ balances in the course of collection		—			40
Federal income tax recoverable		5,781			463
Net deferred tax asset		11,860			15,749
Investment income due and accrued		5,385			6,054
Guaranty funds receivable or on deposit		1,521			1,531
Securities lending collateral		—			27,696
Receivable from separate accounts		17,687			15,774
Receivables from parent, subsidiaries and affiliates		—			31
Other assets		347			353
Separate account assets		12,590,999			12,703,614

Total admitted assets	$	13,208,146		$	13,324,913


Liabilities and Capital and Surplus
Liabilities
Life and annuity reserves		378,471			355,882
Deposit-type funds
Supplemental contracts without life contingencies		3,126			4,047
Claims and benefits payable to policyholders		304			212

Total policy liabilities		381,901			360,141
Interest maintenance reserve		972			328
General expenses due or accrued		3,740			1,558
Taxes, licenses and fees due or accrued		18,265			18,385
Asset valuation reserve		747			14
Payable to affiliates		19,870			16,569
Funds held under coinsurance		1,727			239
Commission to agents due or accrued		3,882			259
Other liabilities		1,882			8,615
Securities lending liability		—			27,696
Separate account liabilities		12,590,999			12,703,613

Total liabilities		13,023,985			13,137,417

Capital and surplus
Capital stock ($10 par value — 300,000 authorized shares; 250,000 shares issued and outstanding at 2010 and 2009)		2,500			2,500
Paid-in capital		673,845			673,845
Aggregate write-ins for special surplus funds		6,649			8,380
Unassigned deficit		(498,832	)		(497,229	)

Total capital and surplus		184,161			187,496

Total liabilities and capital and surplus	$	13,208,146		$	13,324,913

The accompanying notes are an integral part of these statutory financial statements.

Zurich American Life Insurance Company

Statutory Statements of Operations
Years Ended December 31, 2010, 2009 and 2008


(in thousands of dollars)	2010			2009			2008
Income
Premium and annuity considerations	$	(127,759	)	$	(132,031	)	$	(108,582	)
Considerations for supplemental contracts with life contingencies		38,495			73,254			50,848
Net investment income		24,605			25,263			24,127
Amortization of interest maintenance reserve		(128	)		(46	)		229
Separate accounts fees		254,862			196,480			188,707
Assumed modco reserve adjustment		26,383			46,609			51,505
Separate accounts-related income (expenses), net		922			2,393			(2,157	)
Reinsurance ceding commissions and allowances		20,659			24,057			24,891
Ceded miscellaneous fees		(117	)		65			232
Other income		(1	)		1,240			(67	)

Total income		237,921			237,284			229,733


Benefits and expenses
Death benefits		38,306			25,707			16,815
Annuity benefits		312,043			646,952			888,894
Surrender benefits		107,268			718,616			1,101
Interest and adjustments on policy or deposit-type contracts		277			4,933			(2,315	)
Payments on supplementary contracts with life contingencies		32,430			20,720			15,041
Increase in aggregate reserves for life policies and contracts		22,589			21,649			68,155
Commissions		18,011			16,487			21,982
Commissions and expense allowances on reinsurance assumed		5,191			3,635			3,710
General expenses		31,106			20,091			24,031
Insurance taxes, licenses and fees		1,252			482			696
Net transfers from separate accounts		(501,048	)		(1,398,044	)		(1,026,195	)
Reinsured fees associated with separate accounts		45,110			—			—
Net change in termination value of separate accounts		2,651			11,177			38,745
Ceded change in termination value of separate accounts		(2,625	)		(2,214	)		(9,577	)
Ceded fixed/variable expense		132,715			131,457			222,418
Other expenses		1,031			2,375			—

Total benefits and expenses		246,307			224,023			263,501

Net income (loss) from operations before federal income tax benefit and realized capital losses		(8,386	)		13,261			(33,768	)
Federal income tax benefit		(12,477	)		(6,684	)		(22,614	)

Net income (loss) from operations before realized capital losses		4,091			19,945			(11,154	)


Net realized capital losses		(27	)		(4,406	)		(4,801	)
Related federal income tax benefits		(1,227	)		(998	)		(560	)
Realized gain (loss) transferred to the interest maintenance reserve		516			(868	)		(238	)

Total realized capital gains (losses)		684			(2,540	)		(4,003	)

Net income (loss)	$	4,775		$	17,405		$	(15,157	)

The accompanying notes are an integral part of these statutory financial statements.

Zurich American Life Insurance Company

Statutory Statements of Changes in Capital and Surplus
Years Ended December 31, 2010, 2009 and 2008


			Gross
	Common		Paid-In and					Total
	Capital		Contributed		Unassigned			Capital and
(in thousands of dollars)	Stock		Surplus		Surplus			Surplus
Balances at December 31, 2007	$	2,500	$	673,845	$	(488,420	)	$	187,925
Net loss		—		—		(15,157	)		(15,157	)
Change in net unrealized capital gains and losses, net of tax		—		—		(78	)		(78	)
Change in nonadmitted assets		—		—		9,809			9,809
Change in net deferred tax asset		—		—		(10,884	)		(10,884	)
Change in asset valuation reserve		—		—		642			642
Change in surplus as a result of reinsurance		—		—		(2,357	)		(2,357	)
Interest maintenance reserve generated by transferred coinsurance assets		—		—		(3,037	)		(3,037	)

Balances at December 31, 2008		2,500		673,845		(509,482	)		166,863
Net income		—		—		17,405			17,405
Change in net unrealized capital gains and losses, net of tax		—		—		78			78
Change in nonadmitted assets		—		—		6,254			6,254
Change in net deferred tax asset		—		—		(7,803	)		(7,803	)
Change in asset valuation reserve		—		—		(14	)		(14	)
Change in surplus as a result of reinsurance		—		—		(1,611	)		(1,611	)
Interest maintenance reserve generated by transferred coinsurance assets		—		—		(2,076	)		(2,076	)
Cumulative effect of change in accounting principle:
SSAP 10R net deferred tax		—		—		8,380			8,380
SSAP 43R recovery of other than temporary impairments (net of tax)		—		—		19			19

Balances at December 31, 2009		2,500		673,845		(488,849	)		187,495
Net income		—		—		4,775			4,775
Change in nonadmitted assets		—		—		2,573			2,573
Change in net deferred tax asset		—		—		(6,927	)		(6,927	)
Change in asset valuation reserve		—		—		(733	)		(732	)
Change in surplus as a result of reinsurance		—		—		(1,321	)		(1,321	)
Interest maintenance reserve generated by transferred coinsurance assets		—		—		(1,703	)		(1,703	)

Balances at December 31, 2010	$	2,500	$	673,845	$	(492,184	)	$	184,161

The accompanying notes are an integral part of these statutory financial statements.

Zurich American Life Insurance Company

Statutory Statements of Cash Flows
Years Ended December 31, 2010, 2009 and 2008


(in thousands of dollars)	2010			2009			2008
Cash from operations
Premiums collected, net of reinsurance	$	(89,249	)	$	(58,769	)	$	(57,268	)
Net investment income		25,515			27,633			24,211
Miscellaneous income		302,710			270,844			263,111
Benefits and loss related payments		(498,450	)		(1,428,279	)		(930,884	)
Net transfers from separate accounts		501,048			1,406,591			1,055,282
Commissions, expenses paid and aggregate write-ins for deductions		(223,208	)		(188,658	)		(300,117	)
Federal and foreign income taxes recovered		8,387			25,580			42,242

Net cash provided by operations		26,753			54,942			96,577

Cash from investments
Proceeds from investments sold, matured or repaid
Bonds		106,356			79,577			44,707
Miscellaneous proceeds		150			—			—

Total investment proceeds		106,506			79,577			44,707

Cost of investments acquired
Bonds		122,510			126,600			99,360
Miscellaneous applications		—			150			—

Total investments acquired		122,510			126,750			99,360

Net decrease (increase) in contract loans		11,505			(16,208	)		25,880

Net cash used in investments		(27,509	)		(30,965	)		(80,533	)

Cash from financing and miscellaneous sources
Net deposits on deposit-type funds and other liabilities		(921	)		3,173			203
Other applications		(7,285	)		(3,638	)		(28,247	)

Net cash used in financing and miscellaneous sources		(8,206	)		(465	)		(28,044	)

Net change in cash, cash equivalents and short-term investments		(8,962	)		23,512			(11,999	)
Cash, cash equivalents and short-term investments
Beginning of year		29,157			5,645			17,644

End of year	$	20,195		$	29,157		$	5,645

The accompanying notes are an integral part of these statutory financial statements.

Zurich American Life Insurance Company

Notes to Statutory Financial Statements
December 31, 2010 and 2009

The Company and Nature of Operations

Organization and Description of Business

Zurich American Life Insurance Company (“ZALICO” or the “Company”) is a stock life insurance company founded in 1947. The Company is incorporated under the insurance laws of the State of Illinois and is licensed in the District of Columbia and all states, with the exception of New York.

The Company is a wholly owned subsidiary of Zurich American Corporation (“ZAC”), formerly Kemper Corporation, a non-operating holding company. ZAC is a direct wholly owned subsidiary of Zurich Holding Company of America, Inc. (“ZHCA”). ZHCA is an indirect wholly owned subsidiary of Zurich Financial Services Ltd. (“ZFS” or the “Parent’).

On July 6, 2010 the Company’s sole shareholder (ZAC, then Kemper Corporation) approved that the name of the Company be changed from Kemper Investors Life Insurance Company to Zurich American Life Insurance Company, and that an amendment of the Company’s Articles of Incorporation be made to effect such name change, with such amendment being subject to the approval of the Illinois Department of Financial and Professional Regulation, Division of Insurance, (“IDOI”). This change aligns the name of the Company with the Zurich Financial Services (“Zurich”) brand. The IDOI approved the Company’s amended Articles of Incorporation reflecting this name change on Aug 23, 2010 and, accordingly, amended the Company’s Certificate of Authority. All other state regulatory notifications are being made. On September 2, 2010, the Company established a new subsidiary, Zurich American Life Insurance Company of New York (“ZALICONY”), for which it is in the process of applying for a New York state insurance license.

Purchase Agreement

On May 29, 2003, Kemper Corporation (now ZAC) entered into a stock and asset purchase agreement (the “Purchase Agreement”) with Bank One Insurance Holdings, Inc. (“BOIH” or “Bank One”) which, in conjunction with then-associated and subsequent transactions, has resulted in the following:

	•		The Company ceded, through a coinsurance agreement, 100% of its general account liabilities to Protective Life Insurance Company (“PLICO”) with the exception of those relating to the DESTINATIONS product, supplemental contracts arising from the DESTINATIONS product, and business-owned life insurance (“BOLI”) contracts. These general account liabilities included all of the Company’s gross liabilities and obligations, including benefits, claims, taxes, commissions and assessments for certain types of existing individual and group life insurance policies and annuity contracts (collectively referred to as the “Reinsured Policies”). The Reinsured Policies also included certain policies written for a period of twelve months subsequent to the Closing. The Company or the reinsurer under the coinsurance agreement are accepting renewal premium for all of its products.

	•		The Company ceded on a modified coinsurance basis its separate account liabilities that are related to the Reinsured Policies. As of December 31, 2010 and 2009, the Company’s separate account reserves subject to the coinsurance agreement with PLICO were approximately $1,150,000,000 and $1,097,389,000, respectively.

	•		PLICO assumed administration of the Reinsured Policies and BOLI contracts of the Company on a long-term basis subject to the oversight of the Company. This included, but was not limited to, policy and policyholder administration, separate account administration, preparing accounting and actuarial information and certain aspects of legal compliance.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

•

Federal Kemper Life Assurance Company (“FKLA”) established a trust account (the “Security Trust Account”) for the exclusive benefit of the Company. The Security Trust Account is funded with assets equal to the general account statutory reserves adjusted for policy loans and interest maintenance reserves reinsured by FKLA, adjusted on a quarterly basis. FKLA is required to maintain the Security Trust Account until the Company’s general account statutory reserves of the Reinsured Policies are $400,000,000 or less. As of December 31, 2010 and 2009, the Company’s general account statutory reserves subject to the coinsurance agreement with FKLA were approximately $1,926,797,000 and $2,006,102,000, respectively. The balance in the Security Trust Account was approximately $1,941,151,000 and $2,064,681,000 as of December 31, 2010 and 2009, respectively.

Nature of Operations

As of the BOIH Purchase Agreement closing, the Company’s direct retained business consisted primarily of the DESTINATIONS product. The Company also ceased issuing new business with the exception of renewal business and certain policies to be written and reinsured pursuant to the coinsurance agreement with PLICO. The Company agreed that for a period of three years following the Closing Date, it would not, except under limited circumstances, issue any new BOLI policies. Nearly all of the Company’s BOLI policies are reinsured to Zurich Insurance Company, Bermuda Branch (“ZIBB”). The account values of these ceded BOLI policies are included in the separate account assets and liabilities on the balance sheet.

Synergy Investment Group, LLC (“Synergy”), an unaffiliated broker/dealer, and Investment Distributors, Inc. (“IDI”), an affiliate of PLICO, are the principal underwriters for the ZALICO separate account. BFP Securities LLC (“BFP”), an affiliate of the Company, is the primary wholesaling distributor of the Company’s BOLI products.

During 2009, the Company transferred its marketing function to Zurich Global Life North America (“GLNA”), which has responsibility for life insurance new business generation in the U.S. GLNA is identifying and implementing strategic opportunities designed to achieve profitable new business growth for the Company. Also during 2009, the Company began implementation of a target operating model for legal entity and legacy product management that transitions responsibility for these activities to center of excellence groups at affiliated companies. The transition was completed in 2010.

DESTINATIONS Product

DESTINATIONS is a registered individual and group variable, fixed and market value adjusted deferred annuity product. DESTINATIONS currently offers 30 variable subaccount investment options with various investment managers, a number of different guaranty periods, a fixed account option, dollar cost averaging, a guaranteed minimum death benefit (“GMDB”) option and a guaranteed retirement income benefit (“GRIB”) option.

The GMDB and GRIB options subject the Company to market risk as the beneficiary or contract holder may receive, due to product guarantees, benefits that exceed the investment performance associated with their account balance. The GMDB and GRIB benefit is the greatest of: i) the contract value (account value); ii) the greatest anniversary value before the exercise (annuitization date or date of death), reset up to age 80 minus previous withdrawals; or iii) purchase payments minus previous withdrawals, accumulated at 5% per annum to age 80.

The GRIB option is a rider to the DESTINATIONS base contract that was available to be purchased at the time the contract was issued. If purchased and later exercised, the GRIB option allows a policyholder to receive a payment stream that may have value in excess of what would

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

otherwise have been generated, without GRIB, by annuitization of their contract value (due to benefit guarantees associated with the GRIB option). For contracts with the GRIB option, the guaranteed value may begin to be realized after seven or more years from contract issue, depending upon issue age. The amount of excess of the GRIB value over the contract value can fluctuate on a daily basis with changes in equity market returns. As such, the ultimate amount paid by the Company, if any, is uncertain and could be significantly more or less than the net amount at risk (as disclosed in Note 8).

On November 17, 2006, the Company entered into a reinsurance agreement with Zurich Insurance Company Ltd. (“ZIC”; “ZIC Agreement”) to reinsure the net amounts at risk for GMDB and GRIB options on policies issued from May 1, 2000 through February 28, 2003. Subsequently, on December 22, 2008 the Company and ZIC entered into Amendment No.1 to the ZIC Agreement (“Amendment”). Under terms of the Amendment, the Company paid a premium to ZIC of $10,000,000 in consideration for changes in the operation of the ZIC Agreement, for the benefit of the Company, under forecast scenarios where a significant further decline in equity market levels was projected. See Note 9 for a more detailed discussion of the ZIC Agreement and Amendment.

Business Owned Life Insurance (BOLI)

From 1997 to the effective date of the Purchase Agreement, the Company marketed BOLI policies. BOLI is a form of group life insurance which enables clients to buy variable life insurance on key employees. The policies remain in force until the last insured dies or the policy is surrendered or exchanged. The policyholder has flexibility regarding premiums and the right to allocate premiums to various divisions with differing investment objectives. The policyholders may also borrow from the investment value of the policies, surrender the policies for their cash surrender values or in some cases, make partial withdrawals from the cash surrender values. Death benefits on the life of any insured are at least equal to the face amount on the individual insured provided the cash value relating to the insured is greater than zero.

ZIBB reinsures 98% of the mortality risk and 98% of the net amount at risk of the BOLI policies. ZIBB offered a stable value protection (“SVP”) option in conjunction with the BOLI policies. The SVP option allows purchasers of the option to make payments into SVP divisions in the Company’s separate accounts. These SVP divisions purchase value protection from a stable value provider which offers smooth or stabilized investment returns over a specified period of time.

Separate Account Business

The Company maintains separate account assets and liabilities, which are reported at fair value. Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts, wherein the contract holder assumes the investment risk, and guaranteed separate accounts, wherein the Company contractually guarantees either a minimum return or account value to the contract holder. Non-guaranteed separate account assets are segregated from other investments, and investment income and gains and losses accrue directly to the contract holder. Mortality, policy administration, and surrender charges to all accounts are included in the revenues of the Company. Changes in liabilities for minimum guarantees are included in the increase in aggregate reserves for life policies and contracts line item in the financial statements.

Group Term Life Insurance

During the second half of 2006, the Company began marketing and sales of a group term life insurance product (“Group Life”). Group Life is marketed through the agency force of Farmers Group, Inc. (“FGI”), an affiliated company. The Group Life product is yearly renewable term life insurance for employers to make available as a part of their employee benefits package. Group Life provides guaranteed issue in limited amounts to group members and allows for conversion to an individual term life policy when a member leaves the group.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The Company continues to sell the Group Life product introduced in 2006 and marketed through the agency force of FGI.

Group Term Life /AD&D and Group L-T Disability Insurance

During the second half of 2010, the Company began marketing and sales of its group term life insurance product (“Group Life II”) with accidental death and dismemberment (“AD&D”) rider marketed to U.S. expatriates. This was followed by the introduction of the group long-term disability (“Group L-T Disability”) product. The Group Life w/AD&D rider and the Group L-T Disability products are yearly renewable group term insurance products made available to U.S. — base companies as part of their employee benefits package. Group Life II provides guaranteed issue in limited amounts to group members and allows for conversion to an individual term life policy when a member leaves the group. Group L-T Disability provides monthly income benefit percentages up to a designated maximum amount and age upon completion of a disability elimination period.

Guaranteed Death Benefit Insurance

During the second half of 2010, the Company began marketing and sales of an individual no-lapse guarantee protection product (“NLG”) marketed to the affluent U.S. life insurance market segment. The NLG product is intended to serve the wealth transfer, estate tax planning, and business insurance needs of this market segment. The NLG is flexible premium adjustable life insurance and provides coverage guarantees, death benefit options, a policy loan feature, and three riders.

Summary of Significant Accounting Policies

Basis of Presentation

The financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations — Division of Insurance (“IDOI”).

The IDOI recognizes only Statements of Statutory Accounting Principles (“SSAP”) prescribed or permitted by the State of Illinois for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Illinois Insurance Law. The National Association of Insurance Commissioners’ (“NAIC”) Accounting Practices and Procedures Manual version effective January 1, 2001 (“NAIC AP&P”) has been adopted as a component of prescribed or permitted practices by the State of Illinois.

Statutory accounting practices differ from accounting principles generally accepted in the United States of America (“GAAP”) in the following respects:

Investments

Investments in bonds are stated at amortized cost or at values required by the NAIC. Under GAAP, bonds are carried at fair value or amortized cost based upon management’s intent as to whether bonds are available for sale or will be held until maturity.

In determining fair market value, for the majority of securities, quotes were obtained from third party sources. If quotes from these sources were not available, a broker estimate was used. Changes between cost and admitted asset investment carrying amounts are credited and charged directly to unassigned surplus rather than to a separate component of stockholder’s equity and other comprehensive income.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Asset Valuation Reserve

The asset valuation reserve (“AVR”) is determined by NAIC prescribed formulas, which establish a provision for the risk of asset defaults, and is reported as a liability with changes recorded directly to unassigned surplus. Under GAAP, no such liability is established.

Interest Maintenance Reserve

An interest maintenance reserve (“IMR”) is provided as required by the IDOI in order to defer certain realized investment gains and losses, net of tax, related to interest rate fluctuations, and to amortize such gains and losses through operating income over the remaining life of the securities sold. Any net unamortized deferred losses are nonadmitted and charged directly to unassigned surplus. No such reserve is required by GAAP.

Life Policy and Contract Reserves

Life policy and contract reserves under statutory accounting practices are based on statutory mortality, morbidity, and interest requirements without consideration of withdrawals and Company experience.

GAAP requires that policy reserves for traditional products be based upon the net level premium method utilizing management’s best estimate of mortality, interest, and withdrawals prevailing when the policies were sold; for interest sensitive products, the GAAP policy reserve is determined using the retrospective deposit method and is equal to the policy fund balance, before surrender charges.

Acquisition Costs

Under statutory accounting practices, costs of acquiring new business are charged to operations in the year such costs are incurred. Under GAAP, such costs are deferred and amortized over the premium-paying period of the policies for traditional products, or as a level percentage of gross profits for interest sensitive products.

Recognition of Revenue and Related Expenses

Under statutory accounting practices, premiums are recognized as revenues when due. For GAAP purposes, premiums for traditional life insurance products, which include those products with fixed and guaranteed premiums and benefits and consist principally of whole and term life insurance policies, are recognized as revenues when due. Revenues for universal life insurance policies and for investment products consist of policy charges for the cost of insurance, interest earned, policy administration charges, and surrender charges assessed against policyholder account balances during the year. Expenses related to these products include interest credited to policy account balances, benefit claims incurred in excess of policy account balances and commissions and expense allowances on reinsurance assumed. Revenues also include commissions and expense allowances on reinsurance ceded and reserve adjustments on reinsurance ceded. Under statutory accounting practices, deferred premiums, representing gross premiums less loading, are reported as an admitted asset. Under GAAP, uncollected premiums are stated at gross amounts and deferred premiums are reflected as a reduction of the related aggregate reserve.

Reinsurance

Reserves and reinsurance recoverable on unpaid claims on reinsured business are netted in aggregate reserves and the liability for life policy claims, respectively. Under GAAP, these reinsured amounts are reflected as an asset.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Federal Income Taxes

Deferred income taxes are provided for temporary differences between the financial statement and tax bases of assets and liabilities at the end of each year based on enacted tax rates. Net deferred tax assets are limited to their admissible amount according to a prescribed formula. Changes in deferred income tax assets and liabilities are reported as adjustments to surplus. Under GAAP, changes in deferred income taxes are included in income tax expense or benefit and are allocated to continuing operations, discontinued operations, extraordinary items and items charged directly to shareholders’ equity. Additionally, under GAAP, deferred income tax assets are only reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. There is no requirement to consider admissibility standards.

Nonadmitted Assets

Certain assets are considered nonadmitted assets for statutory purposes and any changes in such assets are credited or charged directly to unassigned surplus. There are no nonadmitted assets for GAAP purposes.

Statement of Cash Flows

The statutory basis statement of cash flows is presented as required and differs from the GAAP presentation.

Permitted Accounting Practice

In anticipation of the Zurich acquisition in 1996, the Company sold, primarily through a bulk sale, approximately $284,000,000 in real estate-related investments during 1995 as part of a strategic effort to reduce overall exposure to real estate. As a result of these sales, the Company incurred realized capital losses that were required to be transferred to the Interest Maintenance Reserve (“IMR”). However, as a result of the transfer of these realized capital losses, the IMR became negative. In connection with the sale of the real estate-related investments and the acquisition of the Company’s parent, the IDOI permitted the Company to reset the IMR to zero at December 31, 1995. This treatment permits the Company to proceed as if it had been legally reorganized through a procedure known as “quasi-reorganization”.

This procedure allows the Company a “fresh start” by resetting the negative unassigned surplus to zero and reducing gross paid-in and contributed surplus by the same amount. Although this treatment does not change the Company’s total amount of reported capital and surplus as of December 31, 2010 and 2009, it did favorably impact the 2010, 2009 and 2008 net income (loss) from operations. If the Company had not been permitted to reset the IMR to zero as of December 31, 1995, the Company’s statutory net gain from operations would have decreased by approximately $1,394,000, $1,326,000 and $1,316,000 for the years ended December 31, 2010, 2009 and 2008, respectively. Capital and surplus would have increased by like amounts through a credit to the change in nonadmitted assets and related items. If the Company had not been able to reset the negative unassigned surplus to zero, paid-in surplus and unassigned surplus (deficit) would have been approximately $729,254,000 and $(533,557,000), respectively as of December 31, 2010, and approximately $729,254,000 and ($528,829,000), respectively, as of December 31, 2009.

Changes in Accounting Principles

In September 2009, the NAIC issued SSAP No. 43R, “Loan-backed and Structured Securities” (“SSAP No. 43R”), an amendment of SSAP No. 43, “Loan-backed and Structured Securities”, replacing SSAP No. 98 “Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, an Amendment of SSAP No. 43-Loan-backed and Structured Securities”. SSAP No. 43R provides that for loan-backed and structured securities for which (i) fair value is less than cost (ii) the Company does not intend to sell the security and (iii) the Company has the intent and ability to hold the security until recovery, the Company should determine if there is a non-interest related impairment by comparing the present value of the cash flows expected to be collected to the amortized cost basis.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

If the net present value of the cash flows expected to be collected is less than amortized cost, the security is impaired, and the difference is recorded as a realized loss in net income. The new cost basis of the security is the previous amortized cost basis less the non-interest impairment recognized in net income.

If fair value is less than amortized cost and the Company (i) has the intent to sell the security, or (ii) does not have the intent and ability to retain the security until recovery of its carrying value, the security is written down to fair value with the associated realized loss reported in net income. The non-interest portion of the realized loss is recognized in the Asset Valuation Reserve (“AVR”), and the interest portion in the IMR. The fair value at the time of the impairment becomes the security’s new cost basis.

SSAP No. 43R requires that for beneficial interests in securitized financial assets that are not of high credit quality or can contractually be prepaid or otherwise settled in such a way that the reporting entity would not recover substantially all of its recorded amount, determined at acquisition, if fair value is less than amortized cost and there has been a negative change in cash flows, an other-than-temporary impairment (“OTTI”) must be taken. The amount of the impairment is based upon the criteria discussed above. The carrying value of these securities is determined using the prospective yield method.

The Company adopted SSAP No. 43R effective July 1, 2009. The cumulative effect of this change is $29,000 and is reported in the Statutory Statement of Changes in Capital and Surplus, in the amount of $19,000 net of tax.

The NAIC amended “Actuarial Guideline XLIII, CARVM for Variable Annuities". This guidance allows companies to set reserves that more accurately and appropriately reflect the risks of the variable annuities with guarantees through stochastic modeling. This guidance was effective December 31, 2009. See Note 8, Life Reserves, for further details of the impact of adoption of Actuarial Guideline XLIII.

In December 2009, the NAIC issued Statements of Statutory Accounting Principles No. 10R “Income Taxes-Revised, A Temporary Replacement of SSAP 10” (“SSAP No. 10R”). This guidance provides an increase in the admissibility limitation from 10% to 15% of surplus and an increase in the reversal/realization periods from one to three years. It requires gross deferred tax assets to be reduced by a statutory valuation allowance if it is more likely than not that some portion or all of the gross deferred tax assets will not be realized. In December 2009, the Company adopted the accounting guidance related to deferred income taxes contained in SSAP No. 10R, with impact as the result of electing the provisions of paragraph 10e relating to admitted deferred tax assets. The cumulative effect of adopting this pronouncement increased surplus by $8,380,000 at December 31, 2009 and is reported as a specifically identified change in accounting principle in the Statutory Statements of Changes in Surplus.

New Accounting Pronouncements

The Company adopted SSAP No. 100 “Fair Value Measurements”, (“SSAP 100”) effective December 31, 2010 and thereafter. SSAP 100 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements but does not change existing guidance about whether an asset or liability is carried at fair value. See Note 5 for disclosures related to SSAP No. 100.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The NAIC modified SSAP No. 9, “Subsequent Events”. This guidance establishes general standards for accounting and disclosures of events that occur subsequent to the balance sheet date, but before the issuance of the financial statements. In addition, the Company must disclose the date through which subsequent events have been evaluated, and the date the financial statements were issued or available to be issued. This guidance is effective for the year ending December 31, 2009. The adoption of this guidance did not have an impact on the Company’s financial statements. The required disclosure of the date through which subsequent events have been evaluated is provided in Note 14, Subsequent Events.

The NAIC issued SSAP No. 99, “Accounting for Debt Securities Subsequent to an Other-Than-Temporary Impairment", which provides guidance for the accounting treatment of premium or discount for a debt security subsequent to other-than-temporary impairment recognition. This guidance was effective January 1, 2009 with early adoption permitted. The Company adopted this guidance effective January 1, 2009 with a prospective application.

The NAIC approved an initiative to create a new modeling and rating process for non-agency residential mortgage-backed securities (“RMBS”), “The RMBS Initiative". For each RMBS within the scope of the guidance, the model determines the price at which the modeled expected loss equals the midpoint between the risk-based capital (“RBC”) charges for each NAIC designation, i.e. each price point that, if exceeded, changes the NAIC designation. A security’s carrying amount is based upon the initial NAIC designation, which is determined using the security’s amortized cost. A final NAIC designation is determined using the security’s carrying amount. This final NAIC designation is applicable for all statutory accounting and reporting purposes, including establishing the IMR, AVR and RBC, except for establishing the appropriate carrying value. This guidance was effective for December 31, 2009.

Use of Estimates

The preparation of financial statements in conformity with accounting practices prescribed or permitted by the IDOI requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company is liable for guaranty fund assessments related to certain unaffiliated life insurance companies that have become insolvent during the years 2010 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 expected future premium tax recoveries) that the Company believes will be assessed in the future. According to SSAP No. 35, “Guaranty Fund and Other Assessments", guaranty fund assessment (“GFA”) liabilities and estimated premium tax credits as well as the estimated GFA recoverable for the ceded portion of the future liabilities, are to be presented separately in the balance sheet. The majority of the GFA liability is ceded as a result of the Purchase Agreement.

Business Risks

The Company operates in a business environment that is subject to various risks and uncertainties, including but not limited to, mortality risk, interest rate risk and legal and regulatory changes. The Company is subject to various state and federal regulatory authorities. The potential exists for changes in laws or regulations that can result in additional, unanticipated expense to the Company. Existing federal laws and regulations affect the taxation of life insurance products and insurance companies. There can be no assurance as to whether future legislation might be enacted, or if enacted that would include provisions with possible negative effects on the Company’s life and annuity products.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Accounting Policies

Investments

Investments are valued as prescribed by the NAIC and as required by the IDOI. All security transactions are recorded on a trade date basis. Investments are recorded on the following bases:

	•		Bonds — at cost, adjusted for amortization of premium or discount. Bonds with NAIC designations of 6 are reported at the lower of amortized cost or fair value. Discount or premium on bonds is amortized using the interest method on a retrospective basis. A yield to worst amortization method is used to take into consideration any bond call or sinking fund feature.

	•		Loan-backed securities — are amortized using the interest method including anticipated prepayments at the date of purchase. Prepayment assumptions for single class and multi-class mortgage-backed/asset-backed securities were obtained from the respective managers and the prepayment windows and/or cashflows were obtained from Bloomberg. The Company has elected to use the book value as of January 1, 1994 as the cost for applying the retrospective adjustment method to securities purchased prior to that date. Loan-backed securities with evidence of deterioration of credit quality for which it is probable that the Company will be unable to collect all contractually required payments receivable are written down to the present value of expected cash flows to be received.

	•		Preferred Stocks — at lower of cost, amortized cost or fair value. Preferred stocks with NAIC designations of 1 through 3 with characteristics of debt securities are reported at cost or amortized cost. All other preferred stocks are reported at the lower of cost, amortized cost or fair value.

	•		Common stocks of non-affiliates — at fair value.

	•		Short-term investments — at cost or amortized cost.

	•		Other invested assets — these balances consist of venture capital and real estate joint venture partnerships. They are carried at cost plus equity in undistributed earnings or losses for participants, net of a valuation allowance.

	•		Contract loans are carried at the aggregate of the unpaid balance provided the unpaid balance does not exceed either cash surrender value of the policy or the policy reserves. The excess of the unpaid loan balance over the cash surrender value is nonadmitted and reflected as an unrealized capital loss.

Upon default or indication of potential default by an issuer of fixed maturity securities, other than mortgage-backed securities, the issue(s) of such issuer would be analyzed for possible write-down. Any such issue would be written down to its net realizable value during the fiscal year in which the impairment was determined to have become other than temporary. Thereafter, each issue is regularly reviewed and additional write-downs may be taken in light of later developments. Write-downs are included as part of net realized capital gains (losses). The Company recorded $0, $290,000, and $4,069,000, respectively, fixed maturity write-downs on securities other than loan -backed securities for the periods ended December 31, 2010, 2009 and 2008. All loan-backed and structured securities were reviewed to determine if there were any indications of potential for OTTI classification. Where such an indication existed, cash flow and credit support analyses were performed. If it was determined that the Company was to receive less than 100% of contractual cash flows, the OTTI impact was measured and recorded in accordance with SSAP 43R Loan-Backed and Structured Securities.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The Company recorded $2,280,000, $1,820,000 and $0, respectively, fixed maturity write-downs on loan-backed and structured securities for the periods ended December 31, 2010, 2009 and 2008.

Investment Income and Realized Gains and Losses

Investment income is recorded when earned. All investment income due and accrued amounts that are over 90 days past due, with the exception of mortgage loans in default are excluded from surplus. The Company had no investment income due and accrued that was over 90 days past due at December 31, 2010, 2009 and 2008.

Realized gains or losses on sales of investments, determined on the basis of identifiable cost on the disposition of the respective investment, which are not transferred to the IMR and write-downs are credited or charged to income, net of applicable federal income tax. Unrealized gains and losses, including changes in real estate-related reserves, are credited or charged to surplus, net of deferred tax.

Securities Lending

The Company has entered into a securities lending agreement with a lending agent. The agreement authorizes the agent to lend securities held in the Company’s portfolio to a list of authorized borrowers. Concurrent with delivery of the securities, the borrower provides the Company with cash collateral equal to at least 102% of the fair value of domestic loaned securities and 105% of the fair value of foreign loaned securities.

The securities are marked-to-market on a daily basis, and the collateral is adjusted on the next business day. The collateral is invested in overnight repurchases in U.S. governmental and Agency securities. Income earned from the security lending arrangement is shared 25% and 75% between the lending agent and the Company, respectively. Income earned by the Company was approximately $3,000, $0 and $27,000 in 2010, 2009 and 2008, respectively. There were no securities on loan as of December 31, 2010. The Company’s securities on loan as of December 31, 2009 primarily consisted of U.S. Treasury Notes, U.S. Government Agency and corporate fixed income securities and had an estimated fair value of approximately $27,081,000. The fair value of the reinvested cash collateral was approximately $27,696,000.

Income and Expenses

Revenue for annuities, variable life insurance and interest-sensitive life insurance products consists of premiums and annuity considerations, investment income and policy charges and fees. Expenses consist of benefits, changes in aggregate reserves and policy maintenance costs.

Life and interest-sensitive life insurance contract premiums are recognized as income when due, while annuity contract premiums are recognized as income when received. Expenses, including acquisition costs related to acquiring new and renewal business, such as commissions, are charged to operations as incurred.

During 2008 the Company’s third party administrator recorded considerations for supplemental contracts not involving life contingencies but did not notify the Company of such recordings in 2008 per agreed procedures. As such, because the associated increase in reserves was not recorded as an expense in the same period, the recording of these considerations served to increase the Company’s 2008 net gain from operations before federal income taxes by $3,456,000. This error in notification was discovered by the Company in late January 2009 through its reconciliations, was investigated, and in March 2009 the Company recorded the then current value for the increase in associated reserves, $3,329,000, which served to reduce the Company’s 2009 net gain from operations before federal income taxes by the same amount.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Correction of this out-of-period error from 2008 in March 2009, which the Company determined to be immaterial and is not reflected in the accompanying 2008 statutory financial statements, would have had the impact of increasing interest and adjustments on policy or deposit-type contracts, an expense, recorded in the 2008 Statutory Statement of Operations from ($2,315,000) to $1,141,000, increasing net loss from operations before federal income taxes from ($33,768,000) to ($37,224,000), decreasing federal income taxes incurred from ($22,614,000) to ($23,286,000), and increasing net loss from ($15,695,000) to ($17,941,000). Had this error been corrected in 2008, ending capital and surplus reported in the 2008 Statutory Statements of Capital and Surplus would have changed from $166,863,000 to $164,817,000.

Correction of this out-of-period error from 2008 in March 2009 had the impact of increasing interest and adjustments on policy or deposit-type contracts recorded in the 2009 Statutory Statement of Operations, an expense, from $1,605,000 to $4,933,000, decreasing net gain from operations before federal income taxes from $16,590,000 to $13,261,000, decreasing federal income taxes incurred from ($5,519,000) to ($6,684,000), and decreasing net income from $19,568,000 to $17,405,000. The correction of this error had no impact on ending capital and surplus of $187,496,000 reported in the 2009 Statement of Changes in Capital and Surplus.

Policy Liabilities and Other Policyholders’ Funds

Liabilities for policy reserves on annuity contracts are calculated based on the Commissioner’s Annuity Reserve Valuation Method (“CARVM”). Interest crediting rates under the contracts’ accumulation periods range from 2.15% to 7.00%. Guarantee periods range from one to ten years with minimum interest rate guarantees ranging from 2.0% to 4.5%.

Liabilities for life policy reserves and interest-sensitive life insurance contracts are based on statutory mortality and interest requirements without consideration of withdrawals. Liabilities for the majority of these contracts are calculated based on the 1980 Commissioner’s Standard Ordinary (“CSO”) table assuming interest rates ranging from 4.5% to 6.0%.

The Company waives deduction of deferred fractional premiums upon death of the insured and returns the portion of the final premium paid beyond the policy month of death. Surrender values promised in excess of the legally computed reserves, if any, would be included as a component of reserves.

Extra premiums are charged for policies issued on substandard lives according to underwriting classifications. Final reserves are determined by computing the mid-terminal reserve for the plan and holding an additional one half of the net valuation premium for the modal period.

Separate Accounts Business

The assets of the separate accounts represent segregated funds administered and invested by the Company for purposes of funding variable annuity and variable life insurance contracts for the exclusive benefit of variable annuity and variable life insurance contract holders. The Company receives administrative fees from the separate accounts and retains varying amounts of withdrawal charges to cover expenses in the event of early withdrawals by contract holders.

The assets and liabilities of the separate accounts are carried at the fair value of the underlying contracts. The difference between the fair values of the contracts, and their termination value, is recorded as a negative liability for transfers to separate accounts due or accrued. Changes in termination value of the contracts are recognized through the Company’s net loss from operations as a component of net transfers to (from) the separate accounts rather than directly to surplus.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The assets are invested primarily in a series of mutual funds managed by DWS Investments, and other unaffiliated mutual fund managers.

Reinsurance

In the ordinary course of business, the Company enters into reinsurance agreements to diversify risk and limit its overall financial exposure to certain blocks of annuities and to individual death claims. 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. An additional protection is the existence of a security trust. Several of the Company’s reinsurance contracts require that the reinsurer fund a trust, with the fair value of the assets at least equal to the book value of the statutory liabilities reinsured.

Federal Income Taxes

The Company has applied the NAIC Statement of Statutory Accounting Principles No. 10R, “Income taxes — Revised, A Temporary Replacement of SSAP No. 10”. Income tax incurred is recognized by applying the enacted income tax law. Deferred income taxes are provided for temporary differences between the financial statement and tax bases of assets and liabilities at the end of each year based on enacted tax rates. Changes in admitted deferred income tax assets and liabilities are recognized as adjustments to surplus. Deferred tax assets are admitted to the extent they meet specific criteria but are limited to the amount of gross deferred tax assets expected to be reversed within a limited time period and adjusted surplus. Companies that meet the risk-based capital trend-test may elect to admit additional deferred tax assets under the provisions of paragraph 10.e, which provides expanded time periods and surplus limitations. The Company qualifies for and has elected to apply the expanded provisions.

The Company records interest and penalties related to income tax contingencies as a component of income tax expense.

Nonadmitted Assets

Certain assets, designated as “nonadmitted assets”, have been excluded from the statutory statements of admitted assets, liabilities and capital and surplus through a direct charge against unassigned surplus.

Statement of Cash Flows

The Company defines cash as cash in banks and money market accounts and considers all highly liquid investments, with maturity of one year or less when purchased, to be short-term investments.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Investments

The components of investment income by type of investment for the years ended December 31, 2010, 2009 and 2008 are as follows:


(in thousands of dollars)	2010			2009			2008
Bonds	$	21,377		$	20,903		$	18,111
Preferred stocks		—			—			46
Contract loans		3,339			3,611			3,170
Short-term investments		57			89			1,027
Other		557			1,574			2,190

Gross investment income	$	25,330		$	26,177		$	24,544
Less: Investment expenses		(725	)		(915	)		(417	)

Net investment income	$	24,605		$	25,262		$	24,127

In 2010, 2009 and 2008, the Company’s investment expenses included fees of approximately $232,000, $204,000 and $157,000, respectively, to Deutsche Investment Management Americas, Inc.

In 2010, 2009 and 2008, the Company’s investment expenses included fees of approximately $112,000, $108,000 and $108,000 respectively, to Zurich Investment Services.

The Company also incurred investment fees in 2010, 2009 and 2008 of approximately $489,000, $240,000 and $140,000, respectively, to Zurich Global Investment Management (“ZGIM”), an affiliate of Zurich Financial Services.

The Company owns one low income housing tax credit (“LIHTC”) property, National Equity Fund. The number of remaining tax credits is one year and the required holding period for the LIHTC investment is four years.

Realized Gains and Losses

Realized gains and losses on sales, redemptions and impairments of investments are determined based on the actual cost of the securities.

Realized investment gains and losses for the years ended December 31, 2010, 2009 and 2008 are as follows:


(in thousands of dollars)	2010			2009			2008
Bonds	$	2,253		$	(2,296	)	$	(719	)

		2,253			(2,296	)		(719	)
Transfer to (from) interest maintenance reserve		(516	)		868			238
Add: Tax impact from net realized gains and losses		1,227			998			560

	$	2,964		$	(430	)	$	79

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Impairment losses for the years ended December 31, 2010, 2009 and 2008 are as follows:


(in thousands of dollars)	2010			2009			2008
Bonds	$	(2,280	)	$	(2,110	)	$	(4,069	)
Other		—			—			(13	)

	$	(2,280	)	$	(2,110	)	$	(4,082	)

Unrealized Gains and Losses on Fixed Maturities and Preferred Stocks

Amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of bonds and preferred stocks, as of December 31, 2010 and 2009 are as follows:


			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(in thousands of dollars)	Cost		Gains		Losses			Value
2010
Fixed maturities
U.S. government	$	50,193	$	1,051	$	(17	)	$	51,227
Other governments		1,352		66		—			1,418
Special revenue and special assessment obligations and all non-guaranteed obligations of agencies and authorities of governments and their political subdivisions		31,611		1,250		(423	)		32,438
Industrial and miscellaneous (unaffiliated)		353,606		25,935		(1,979	)		377,562

Total fixed maturities	$	436,762	$	28,302	$	(2,419	)	$	462,645


2009
Fixed maturities
U.S. government	$	39,738	$	932	$	(306	)	$	40,364
Other governments		750		29		—			779
Special revenue and special assessment obligations and all non-guaranteed obligations of agencies and authorities of governments and their political subdivisions		34,894		822		(548	)		35,168
Industrial and miscellaneous (unaffiliated)		345,477		15,389		(7,944	)		352,922

Total fixed maturities	$	420,859	$	17,172	$	(8,798	)	$	429,233

Unrealized Losses on Fixed Maturities

The Company has a security monitoring process overseen by a committee of investment and accounting professionals that, on a monthly basis, identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired. The Company believes that the prices of the securities in the sector identified in the tables below were temporarily depressed as of December 31, 2010 and 2009 due to the issuers’ continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that they will continue to do so, and management’s intent and ability to hold these securities for a period of time sufficient to allow for a recovery of fair value.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Fair value and gross unrealized losses of fixed maturities as of December 31, 2010 and 2009 were as follows:


	Unrealized Losses					Unrealized Losses
	Less Than 12 Months					Greater Than 12 Months
	Estimated		Unrealized			Estimated		Unrealized
(in thousands of dollars)	Fair Value		Losses			Fair Value		Losses
2010
Fixed maturities
U.S. government	$	9,977	$	(17	)	$	—	$	—
Special revenue and special assessment obligations and all non-guaranteed obligations of agencies and authorities of governments and their political subdivisions		7,052		(423	)		—		—
Industrial and miscellaneous (unaffiliated)		32,340		(713	)		11,322		(1,266	)

Total fixed maturities	$	49,369	$	(1,153	)	$	11,322	$	(1,266	)


2009
Fixed maturities
U.S. government	$	19,211	$	(306	)	$	—	$	—
Special revenue and special assessment obligations and all non-guaranteed obligations of agencies and authorities of governments and their political subdivisions		17,883		(548	)		—		—
Industrial and miscellaneous (unaffiliated)		29,727		(1,339	)		43,874		(6,605	)

Total fixed maturities	$	66,821	$	(2,193	)	$	43,874	$	(6,605	)

As of December 31, 2010, fixed maturities represented 100% of the Company’s total unrealized loss amount, which was comprised of 46 securities. As of December 31, 2010, there was one security with a fair value less than 80% of the security’s amortized cost for greater than 12 continuous months.

Fixed maturities in an unrealized loss position for less than 12 months were comprised of 39 securities, of which 84%, or fair value $41,511,000, were comprised of securities with fair value to amortized cost ratios at or greater than 95%. The majority of these securities are investment grade fixed maturities depressed due to changes in interest rates from the date of purchase.

Fixed maturities in an unrealized loss position for greater than 12 months as of December 31, 2010, were comprised of 7 securities with a total fair value of $11,322,000. The unrealized loss of $1,266,000 relates to industrial and miscellaneous securities. The decline in fair value for these securities is primarily attributable to changes in interest rates. A variety of data is reviewed, including the aging and severity of unrealized losses, watch lists distributed by the asset managers, deviations in market prices between months, and results of tests indicating if any fixed maturity securities with unrealized losses have a credit rating below investment grade for 12 consecutive months. Bonds, except mortgage-backed securities, classified as non-investment grade (NAIC designation 3 or below) and for which it is determined that the collection of all contractual cash flows are not probable, are written down to fair value and a loss is recognized. Mortgage-backed securities with evidence of deterioration of credit quality for which it is probable that the Company will be unable to collect all contractually required payments receivable, are written down to the present value of expected cash flows to be received.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2010.

Concentrations of Credit Risk

The Company is not exposed to any significant concentration of credit risk of a single or group non-governmental issuer. Concentration of credit risk could exist when changes in economic, industry or geographic factors similarly affect groups of counter-parties whose aggregate credit exposure is material in relation to the Company’s total exposure.

Loan-backed Securities

Prepayment assumptions for loan-backed securities were obtained from broker dealer survey values. These assumptions are consistent with the current interest rate and economic environment.

In accordance with SSAP No. 43R, effective July 1, 2009, loan-backed securities with fair value less than amortized cost and the Company (i) has the intent to sell the security, or (ii) inability or lack of intent to retain the security for a period of time sufficient to recover the amortized cost basis, the security is written down to fair value with the associated realized loss reported in net income. Loan-backed securities impaired due to intent to sell or inability or lack of intent to retain the security for a period of time sufficient to recover the amortized cost basis are summarized in the following table:


			Other-than-Temporary- Impairment Recognized in Loss
			Amortized Cost
			Basis Before
			Other-than-
			Temporary-
(in thousands of dollars)			Impairment		Interest			Non-interest		Fair Value
OTTI Recognized

a	)	Intent to sell	$	1,965	$	(1,057	)	$	—	$	908
b	)	Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis		—		—			—		—
c	)	Total	$	1,965	$	(1,057	)	$	—	$	908

Loan-backed securities with evidence of deterioration of credit quality for which it is probable that the Company will be unable to collect all contractually required payments receivable, are written down to the present value of expected cash flows to be received. Loan-backed securities impaired to their present value of projected cash flows that are still held as of December 31, 2010 consisted of the following:

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009


								Amortized				Date of
			Present		Recognized			Cost After				Financial
	Amortized Cost		Value of		Other-Than-			Other-Than-		Fair Value		Statement
(in thousands of dollars)	Before Current		Projected		Temporary-			Temporary-		at Time of		Where
Cusip	Period OTTI		Cash Flows		Impairment			Impairment		OTTI		Reported
46630JAQ2	$	1,962	$	1,419	$	(543	)	$	1,419	$	489		12/31/2009
46630JAQ2		1,419		303		(1,116	)		303		549		6/30/2010
	$	3,381	$	1,722	$	(1,659	)	$	1,722	$	1,038

In determining the impairments for loan-backed securities, a review of default rate, credit support and other key assumptions was made on the securities. Where it was determined that less than 100% of contractual cash flows would be received, the impairment was measured by discounting the projected cash flows and comparing that discounted cash flows to the amortized cost basis of the securities in accordance to SSAP 43R.

The roll-forward of the amount related to credit losses recognized in earnings were as follows:


2010
(In thousands of dollars)
Beginning balance of credit losses on debt securities	$	(1,070	)
Additions not previously recognized		(1,223	)
Reduction for securities sold during the period		1,691
Impairment on intent to sell securities		(1,057	)
Additional OTTI on previously impaired securities		—
Reductions for increases in cash flows expected to be collected		—

Ending balance for securities owned as of December 31, 2010	$	(1,659	)

Maturities of Bonds

The amortized cost and estimated fair value of bonds, by contractual maturity, at December 31, 2010 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties and because mortgage-backed and asset-backed securities provide for periodic payments throughout their life.


			Estimated
	Amortized		Fair
(in thousands of dollars)	Cost		Value
2010
Due in 1 year or less	$	16,612	$	16,798
Due after 1 year through 5 years		158,295		165,204
Due after 5 years through 10 years		64,611		70,825
Due after 10 years		49,218		53,287

		288,736		306,114
Mortgage-backed securities		148,027		156,531

	$	436,763	$	462,645

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Proceeds from sales of bonds and gross realized gains (losses) on such sales and impairments for the years ended December 31, 2010, 2009, and 2008 are as follows:


	Gross		Gross
(in thousands of dollars)	Gains		Losses			Proceeds
2010 Bonds	$	2,911	$	(2,938	)	$	106,356

2009 Bonds	$	1,351	$	(5,757	)	$	79,577

2008 Bonds	$	87	$	(4,875	)	$	44,707

Bonds with an amortized cost of approximately $3,466,000 and $3,314,000 were on deposit with regulatory authorities at December 31, 2010 and 2009, respectively, to satisfy regulatory requirements. The fair value of these securities was approximately $3,696,000 and $3,595,000 as of December 31, 2010 and 2009, respectively.

Fair Value of Financial Instruments

The Company’s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy defined by SSAP 100. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or liability’s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:

	•		Level 1: Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasury securities, money market funds, certain mortgage backed securities, and exchange traded equity and derivative securities.

	•		Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

	a)		Quoted prices for similar assets or liabilities in active markets

	b)		Quoted prices for identical or similar assets or liabilities in non-active markets

	c)		Inputs other than quoted market prices that are observable

	d)		Inputs that are derived principally from or corroborated by observable market data through correlation or other means

•

Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These measurements include circumstances in which there is little, if any, market activity for the asset or liability and reflect management’s own judgments about the assumptions a market participant would use in pricing the asset or liability.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

At the end of each reporting period, the Company evaluates whether or not an event has occurred that would transfer any of these securities between Level 1 and Level 2. This policy also applies to transfers in and out of Level 3.

Assets Measured at Fair Value

The following table provides information as of December 31, 2010 about the Company’s financial assets measured at fair value:


	Quoted
	Prices
	Active
	Markets for		Significant		Significant
	Identical		Observable		Unobservable
(in thousands of dollars)	Assets		Inputs Level		Inputs Level
Asset	Level 1		Level 2		Level 3		Total

Separate account assets	$	3,022,375	$	5,135,486	$	4,433,138	$	12,590,999

Total	$	3,022,375	$	5,135,486	$	4,433,138	$	12,590,999

The Separate Account determines the fair values of certain financial assets based on quoted market prices. All of the open-ended mutual funds are included in Level 1. The open-ended mutual funds are valued at the net asset values of the respective portfolios as of December 31, 2010. There are no restrictions on purchases or sales of these open-ended mutual funds. Some of the privately managed funds assets are categorized in Level 2 or 3 based on the criteria defined above. The bonds are classified into Level 1, 2 or 3, based on the availability of quoted prices or valuation techniques utilized. The short-term investments are included in Level 1. The investment income due and accrued amount is allocated to the same level as the associated security for which it is due. The stable value asset is categorized as Level 2.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Changes in Level 3 Assets Measured at Fair Value

The following table summarizes the changes in assets classified as Level 3 for the years ended December 31, 2010. Gains and losses reported in this table may include changes in fair value that are attributable to both observable and unobservable inputs:


			Total Gains/		Purchases/
	Beginning		(Losses) included		Issuance and Sales/			Transfer into/			Ending
(in thousands of dollars)	Fair Value		in Net Income		Settlements, net			(out) of Level 3			Fair Value

Separate account assets	$	4,447,082	$	152,009	$	(165,856	)	$	(97	) (1)	$	4,433,138


(1)		Net transfers into Level 3 are primarily due to a change in the information available to the Company when pricing the underlying securities, changing the significant inputs used in the valuation of the underlying securities to unobservable inputs, and consequently to a Level 3 classification.

Methods and Assumptions to Estimate Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of financial instruments as of December 31, 2010 and 2009:

Bonds

The estimated fair values of bonds is valued in accordance with the NAIC’s Purposes and Procedures Manual of the Securities Valuation Office (“SVO”). In those instances where fair value is not available from the SVO then fair value is based upon quoted market prices, dealer quotes, and prices obtained from independent pricing services, generally broker dealers. Unless representative trades of securities actually occurred at year end, these quotes are generally estimates of fair value based on an evaluation of appropriate factors such as trading in similar securities, yields, credit quality, coupon rate, maturity, type of issues and other market data.

Contract Loans

The carrying amounts of these items approximate fair market values because interest rates are generally variable and based on current market rates.

Cash, Cash Equivalents and Short-term Investments

The carrying amounts of these items approximate fair value.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

6.		Income Taxes

		Components of Deferred Tax Assets (“DTAs”) and Deferred Tax Liabilities (“DTLs”):


	2010
(in thousands of dollars)	Ordinary		Capital		Total

Gross deferred tax assets	$	36,978	$	1,467	$	38,445
Statutory valuation allowance adjustment		—		—		—
Adjusted gross deferred tax assets		36,978		1,467		38,445
Deferred tax liabilities		472		—		472

Net deferred tax assets	$	36,506	$	1,467	$	37,973


Deferred tax assets nonadmitted		24,647		1,467		26,114

Net admitted adjusted deferred tax assets	$	11,859	$	—	$	11,859


	2009
	Ordinary		Capital		Total

Gross deferred tax assets	$	42,985	$	2,250	$	45,235
Statutory valuation allowance adjustment		—		—		—
Adjusted gross deferred tax assets		42,985		2,250		45,235
Deferred tax liabilities		335		—		335

Net deferred tax assets	$	42,650	$	2,250	$	44,900


Deferred tax assets nonadmitted		26,901		2,250		29,151

Net admitted adjusted deferred tax assets	$	15,749	$	—	$	15,748


	Change
	Ordinary			Capital			Total

Gross deferred tax assets	$	(6,006	)	$	(783	)	$	(6,789	)
Statutory valuation allowance adjustment		—			—			—
Adjusted gross deferred tax assets		(6,006	)		(783	)		(6,789	)
Deferred tax liabilities		137			—			137

Net deferred tax assets	$	(6,143	)	$	(783	)	$	(6,926	)


Deferred tax assets nonadmitted		(2,255	)		(783	)		(3,038	)

Net admitted adjusted deferred tax assets	$	(3,888	)	$	—		$	(3,888	)

The Company has elected to admit DTAs pursuant to paragraph 10.e. for all years presented.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The Company recorded an increase in admitted DTAs as the result of its election to employ the provisions of paragraph 10.e. as follows:


	2010
(in thousands of dollars)	Ordinary		Capital		Total

Deferred tax assets admitted through potential carryback (10.e.i)	$	—	$	—	$	—
Deferred tax assets admitted through future realization (10.e.ii)		6,649		—		6,649
Deferred tax assets admitted through offset of deferred tax liability (10.e.iii)		—		—		—


	2009
	Ordinary		Capital		Total

Deferred tax assets admitted through potential carryback (10.e.i)	$	—	$	—	$	—
Deferred tax assets admitted through future realization (10.e.ii)		8,380		—		8,380
Deferred tax assets admitted through offset of deferred tax liability (10.e.iii)		—		—		—


	Change
	Ordinary			Capital		Total

Deferred tax assets admitted through potential carryback (10.e.i)	$	—		$	—	$	—
Deferred tax assets admitted through future realization (10.e.ii)		(1,731	)		—		(1,731	)
Deferred tax assets admitted through offset of deferred tax liability (10.e.iii)		—			—		—

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The SSAP No. 10R Admission calculation components are as follows:


	2010
(in thousands of dollars)	Ordinary		Capital		Total

SSAP No. 10R, Paragraph 10.a.	$	—	$	—	$	—
SSAP No. 10R, Paragraph 10.b. (the lesser of 10.b.i and 10.b.ii below)		5,211		—		5,211
SSAP No. 10R, Paragraph 10.b.i.		5,211		—		5,211
SSAP No. 10R, Paragraph 10.b.ii		—		—		17,673
SSAP No. 10R, Paragraph 10.c.		472		—		472

Total (paragraph 10.a. + 10.b. + 10.c.)	$	5,683	$	—	$	5,683


SSAP No. 10R, Paragraph 10.e.i.	$	—	$	—	$	—
SSAP No. 10R, Paragraph10.e.ii. (the lesser of 10.e.ii.a. and 10.e.ii.b. below)		11,860		—		11,860
SSAP No. 10R, Paragraph10.e.ii.a.		11,860		—		11,860
SSAP No. 10R, Paragraph10.e.ii.b.		—		—		26,510
SSAP No. 10R, Paragraph10.e.iii.		472		—		472

Total (10.e.i. + 10.e.ii. + 10.e.iii.)	$	12,332	$	—	$	12,332


Used in SSAP No. 10R, Paragraph 10.d.:
Total Adjusted Capital						178,259
Authorized Control Level						836	%


	2009
	Ordinary		Capital		Total

SSAP No. 10R, Paragraph 10.a.	$	—	$	—	$	—
SSAP No. 10R, Paragraph 10.b. (the lesser of 10.b.i and 10.b.ii below)		7,369		—		7,369
SSAP No. 10R, Paragraph 10.b.i.		7,369		—		7,369
SSAP No. 10R, Paragraph 10.b.ii		—		—		15,734
SSAP No. 10R, Paragraph 10.c.		335		—		335

Total (paragraph 10.a. + 10.b. + 10.c.)	$	7,704	$	—	$	7,704


SSAP No. 10R, Paragraph 10.e.i.	$	—	$	—	$	—
SSAP No. 10R, Paragraph10.e.ii. (the lesser of 10.e.ii.a. and 10.e.ii.b. below)		15,749		—		15,749
SSAP No. 10R, Paragraph10.e.ii.a.		15,749		—		15,749
SSAP No. 10R, Paragraph10.e.ii.b.		—		—		23,600
SSAP No. 10R, Paragraph10.e.iii.		335		—		335

Total (10.e.i. + 10.e.ii. + 10.e.iii.)	$	16,084	$	—	$	16,083


Used in SSAP No. 10R, Paragraph 10.d.:
Total Adjusted Capital						179,130
Authorized Control Level						853	%


	Change
	Ordinary			Capital		Total

SSAP No. 10R, Paragraph 10.a.	$	—		$	—	$	—
SSAP No. 10R, Paragraph 10.b. (the lesser of 10.b.i and 10.b.ii below)		(2,158	)		—		(2,158	)
SSAP No. 10R, Paragraph 10.b.i.		(2,158	)		—		(2,158	)
SSAP No. 10R, Paragraph 10.b.ii		—			—		1,939
SSAP No. 10R, Paragraph 10.c.		137			—		137

Total (paragraph 10.a. + 10.b. + 10.c.)	$	(2,021	)	$	—	$	(2,020	)


SSAP No. 10R, Paragraph 10.e.i.	$	—		$	—	$	—
SSAP No. 10R, Paragraph10.e.ii. (the lesser of 10.e.ii.a. and 10.e.ii.b. below)		(3,889	)		—		(3,889	)
SSAP No. 10R, Paragraph10.e.ii.a.		(3,889	)		—		(3,889	)
SSAP No. 10R, Paragraph10.e.ii.b.		—			—		2,909
SSAP No. 10R, Paragraph10.e.iii.		137			—		137

Total (10.e.i. + 10.e.ii. + 10.e.iii.)	$	(3,752	)	$	—	$	(3,752	)


Used in SSAP No. 10R, Paragraph 10.d.:
Total Adjusted Capital							(871	)
Authorized Control Level							-17	%

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The following table provides information about the admitted DTA, admitted assets, statutory surplus and total capital in the risk based calculation resulting from the calculation in paragraph 10a, 10b, 10c of SSAP No. 10R, and the increased amount of DTAs, admitted assets and surplus as a result of the application of paragraph 10.e. of SSAP No. 10R.


	2010
(in thousands of dollars)	Ordinary		Capital		Total

SSAP No. 10R, Paragraphs 10.a., 10.b., and 10.c.:
Admitted Deferred Tax Assets	$	5,683	$	—	$	5,683
Admitted Assets		—		—		13,201,497
Adjusted Statutory Capital and Surplus*		—		—		176,731
Total Adjusted Capital from DTAs		—		—		178,259

Increases due to SSAP No. 10R, Paragraph 10.e.
Admitted Deferred Tax Assets	$	6,649	$	—	$	6,649
Admitted Assets		6,649		—		6,649
Statutory Surplus		6,649		—		6,649


	2009
	Ordinary		Capital		Total

SSAP No. 10R, Paragraphs 10.a., 10.b., and 10.c.:
Admitted Deferred Tax Assets	$	7,704	$	—	$	7,704
Admitted Assets		—		—		13,316,534
Adjusted Statutory Capital and Surplus*		—		—		157,337
Total Adjusted Capital from DTAs		—		—		179,130

Increases due to SSAP No. 10R, Paragraph 10.e.
Admitted Deferred Tax Assets	$	8,380	$	—	$	8,380
Admitted Assets		8,380		—		8,380
Statutory Surplus		8,380		—		8,380


	Change
	Ordinary			Capital		Total

SSAP No. 10R, Paragraphs 10.a., 10.b., and 10.c.:
Admitted Deferred Tax Assets	$	(2,020	)	$	—	$	(2,020	)
Admitted Assets		—			—		(115,036	)
Adjusted Statutory Capital and Surplus*		—			—		19,394
Total Adjusted Capital from DTAs		—			—		(871	)

Increases due to SSAP No. 10R, Paragraph 10.e.
Admitted Deferred Tax Assets	$	(1,731	)	$	—	$	(1,731	)
Admitted Assets		(1,731	)		—		(1,731	)
Statutory Surplus		(1,731	)		—		(1,731	)


*		As reported on the statutory balance sheet for the most recently filed statement with the domiciliary state commissioner adjusted in accordance with SSAP No. 10R, Paragraph 10.b.ii

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:


(in thousands of dollars)	2010		2009		Change
Deferred Tax Assets:
Ordinary:
Life insurance reserves	$	12,246	$	12,876	$	(630	)
Deferred acquisition costs		20,997		26,287		(5,290	)
Nonadmitted assets		454		292		162
Compensation and benefits accrual		390		581		(191	)
Tax credit carryforward		2,834		2,834		0
Other		57		116		(59	)

Subtotal		36,978		42,986		(6,008	)
Statutory Valuation Allowance Adjustment		—		—		—
Nonadmitted Deferred Tax Assets		24,647		26,901		(2,255	)

Admitted Ordinary Deferred Tax Assets	$	12,331	$	16,085	$	(3,753	)


Capital:
Unrealized losses	$	—	$	—	$	—
Bond write-downs		1,207		1,933		(726	)
Partnerships		260		318		(57	)

Subtotal		1,467		2,251		(783	)
Statutory Valuation Allowance Adjustment		—		—		—
Nonadmitted Deferred Tax Assets		1,467		2,251		(783	)

Admitted Capital Deferred Tax Assets	$	—	$	—	$	—


Admitted Deferred Tax Assets	$	12,331	$	16,085	$	(3,753	)


(in thousands of dollars)	2010		2009		Change
Deferred Tax Liabilities:
Ordinary:
Market discount on bonds	$	471	$	335	$	136
Depreciation/amortization		1		—		1
Other		—		—		—

Total Deferred Tax Liabilities	$	472	$	335	$	137


Capital:
Investments	$	—	$	—	$	—
Other		—		—		—

Total Capital Deferred Tax Liabilities	$	—	$	—	$	—


Total Deferred Tax Liabilities	$	472	$	335	$	137


Net Admitted Deferred Tax Assets/Liabilities	$	11,859	$	15,750	$	(3,891	)

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The change in net deferred income taxes is composed of the following:


(in thousands of dollars)	2010		2009		Change
Total deferred tax assets	$	38,445	$	45,236	$	(6,791	)
Total deferred tax liabilities		472		335		137

Net deferred tax asset	$	37,973	$	44,901		(6,928	)

Tax effect of unrealized (gains) losses						—

Change in net deferred income tax (charge)/benefit					$	(6,928	)

Reconciliation of Federal Income Tax Rate to Actual Effective Rate

The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate at 35% to income before income taxes. The significant items causing this difference are as follows:


(in thousands of dollars)	2010			2009			2008
Provision computed at statutory rate	$	(2,944	)	$	3,099		$	(13,499	)
Amortization of interest maintenance reserve		45			16			(80	)
Separate accounts dividend received deduction		(1,870	)		(1,747	)		(1,061	)
Ceding commission included in surplus		(1,058	)		(1,290	)		(1,888	)
Nonadmitted assets		(163	)		591			1,060
Other		(786	)		(548	)		3,206

Total	$	(6,776	)	$	121		$	(12,262	)

Federal income tax incurred	$	(12,477	)	$	(6,684	)	$	(22,614	)
Tax on capital gains/(losses)		(1,227	)		(998	)	$	(560	)
Less: Change in net deferred income tax		6,928			7,803			10,912

Total statutory income taxes	$	(6,776	)	$	121		$	(12,262	)

As of December 31, 2010 the Company did not have any operating loss carryforwards.

The following are income taxes incurred in the current and prior years that will be available for recoupment in the event of future net losses:


	Amount
2010	$	—
2009	$	—
2008	$	—
Deposits admitted under IRC §6603	None

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The Company’s federal income tax return is consolidated with the following entities, with Zurich Holding Company of America, Inc. as the parent:


American Guarantee and Liability Insurance Company		Universal Underwriters of Texas Insurance Company
American Zurich Insurance Company		Universal Underwriters Service Corporation
Assurance Company of America		UUBVI, Limited
Colonial American Casualty & Surety Company		Vehicle Dealer Solutions, Inc.
Diversified Specialty Risk, Inc.		Zurich Agency Services, Inc.
Empire Fire and Marine Insurance Company		Zurich Alternative Asset Management, LLC
Empire Indemnity Insurance Company		Zurich American Insurance Company
Fidelity & Deposit Company of Maryland		Zurich American Insurance Company of Illinois
Maryland Casualty Company		Zurich American Corporation
Maryland Insurance Company		Zurich American Life Insurance Company of New York
Maunalua Associates, Inc.		Zurich CZI Management Holding, Ltd.
Northern Insurance Company of New York		Zurich E & S Insurance Brokerage, Inc.
South County Services Company Inc.		Zurich Finance (USA), Inc.
Steadfast Insurance Company		Zurich Global, Ltd.
The Zurich Services Corporation		Zurich Global Investment Management Inc.
Universal Underwriters Acceptance Corporation		Zurich Holding Company of America, Inc.
Universal Underwriters Insurance Company		Zurich Latin America Corporation
Universal Underwriters Insurance Services, Inc.		Zurich Realty, Inc.
Universal Underwriters Life Insurance Company		Zurich Warranty Solutions, Inc.

A written agreement sets out the method of allocating tax between the companies. In general, the allocation is based upon a separate return calculation with an immediate benefit for a taxable loss. Intercompany tax balances are settled within thirty days after the filing of the consolidated federal income tax return, the payment of an estimated payment, an additional assessment of the consolidated tax liability, a refund of the consolidated tax liability or any other reduction to the member’s apportioned tax liability in accordance with the tax sharing agreement.

The Company’s significant tax jurisdiction is U.S. Federal tax. The statutes of limitations for all tax returns through the year ended December 31, 2004 are closed. The examination of the consolidated group’s tax return for the tax years 2003 through 2004 was settled with the Appeals Division of Internal Revenue Service (“IRS”). Tax refunds related to the 2003/2004 Appeals settlement were approved by Joint Committee on Taxation and received in Q2 2010. The examination of the consolidated group’s tax returns for tax years 2005 and 2006 is currently before IRS Appeals. The 2005 and 2006 Separate account dividend received deduction disallowance attributable to the Company was fully conceded by the IRS in 2010. In October 2009, the IRS commenced its examination of tax years 2007 and 2008, which is scheduled to be completed by the end of June 2011. The Company believes the ultimate liability for the matters referred to above is not likely to have a material adverse affect on the Company’s financial position; however, it is possible the effect could be material to the Company’s results of operations for an individual future reporting period.

During the first quarter of 2011, ZHCA reached a settlement in principle with the Appeals Division of IRS with respect to tax years 2005 to 2006 and is in the process of determining additional taxes due for those years. The IRS completed its examination for the tax years 2007 and 2008, and on March 22, 2011 issued a Revenue Agent’s Report (“RAR”). ZHCA will protest certain disputed amounts by required due date and will seek resolution of the disputed tax matters through the Appeals Division of the IRS.

The Company did not accrue any interest and penalties related to income tax contingencies.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

7.		Information Concerning Parent, Subsidiaries and Affiliates

		The Company held no investments in parents, affiliates or subsidiaries as of the years ended December 31, 2010 and 2009. The Company has related party services agreements and reinsurance agreements.

		At December 31, 2010 and 2009, the Company reported the following amounts due from or to related parties:


(in thousands of dollars)	2010			2009
Zurich Insurance Company	$	—		$	31

Receivable from related party	$	—		$	31


Zurich Insurance Company — Bermuda Branch	$	(16,064	)	$	(15,068	)
Farmers New World Life Insurance Company		(247	)		(669	)
Universal Underwriters Life Insurance Company		(280	)		—
Zurich American Insurance Company		(472	)		(456	)
Centre Group Holdings (US) Limited		(989	)		(375	)
ZFUS Services LLC		(1,818	)		—

Payable to related party	$	(19,870	)	$	(16,568	)


Net payable to related party	$	(19,870	)	$	(16,537	)

For the years 2010, 2009 and 2008, the Company incurred the following amounts of expense in association with services provided by related parties:


(in thousands of dollars)	2010		2009		2008
Farmers New World Life Insurance Company	$	2,523	$	1,550	$	1,273
Centre Group Holdings (US) Limited		3,374		956		1,183
ZFUS Services LLC		13,212		168		—

	$	19,109	$	2,674	$	2,456

Services provided by affiliated companies include, but are not limited to, management, administrative and general services, data processing, financial services, investment services, investment advisory, investment accounting and financial reporting. Related party receivables and payables are settled as provided in its agreements, generally within 45 days from date of invoice.

The Company has no guarantees or undertakings for the benefit of an affiliate that would result in a material contingent exposure.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

8. Life Reserves

Reserves for Life Contracts and Deposit-Type Contracts

The Company waives deduction of deferred fractional premiums upon death of the insured and returns the portion of the final premium paid beyond the policy month of death. The Company reserves for surrender values promised in excess of the legally computed reserves.

Extra premiums are charged for policies issued on substandard lives according to underwriting classifications. Final reserves are determined by computing the mid-terminal reserve for the plan and holding, in addition, one half of the net valuation premium for the modal period.

As of December 31, 2010 and 2009, the Company had $769,000 and $663,000, respectively, of insurance in force for which the gross premiums were less than the net premiums according to the standard of valuation set by the IDOI and related reserves of $7,000 and $6,000, respectively.

The tabular interest, tabular less actual reserve released and tabular cost have been determined by formulas in accordance with the NAIC Annual Statement Instructions.

For the determination of Tabular Interest on funds not involving life contingencies for each valuation rate of interest, the tabular interest is calculated as one hundredth of the product of such valuation rate of interest times the mean of the amount of funds subject to such valuation rate of interest held at the beginning and end of the year of valuation.

Variable Annuities with Guaranteed Living Benefits

The Company’s variable annuities with guaranteed living benefits at December 31, 2010 and 2009 are as follows:


	Guaranteed Living Benefits
	Subjected		Amount of		Reinsurance
	Account		Reserve		Reserve
(in thousands of dollars)	Value		Held-Net		Credit
Benefit and Type of Risk
December 31, 2010
Guaranteed retirement income benefit (“GRIB”) (Waiting period 7, 10 or 15 years)	$	1,605,369	$	24,632	$	1,104,045
December 31, 2009
Guaranteed retirement income benefit (“GRIB”) (Waiting period 7, 10 or 15 years)	$	1,645,737	$	26,941	$	1,159,315

Note: GRIB base is greatest of account value, greatest anniversary value or net deposits accumulated at 5%.

Effective December 31, 2009, the Company adopted the Actuarial Guideline XLIII reserve basis. This change in reserve methodology was included in the Company’s Life and annuity reserves as shown on page 3 of these financial statements with no impact to the net retained reserve. The December 31, 2010 reserves for GMDB and GRIB meet the requirements of Actuarial Guideline XLIII. The Company also calculates the GMDB and GRIB reserves using the Actuarial Guideline XXXIII/Actuarial Guideline XXXIV reserve basis, and holds the higher of the two reserves basis in Exhibit 5 of the Annual Statement.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Analysis of Annuity Actuarial Reserves and Deposit Liabilities by Withdrawal Characteristics

Annuity actuarial reserves and deposit-type contract funds and other liabilities without life or disability contingencies by withdrawal characteristics as of December 31, 2010 and 2009 were as follows:


	2010						2009
				Percentage						Percentage
(in thousands of dollars)	Amount			of Total			Amount			of Total
Subject to discretionary withdrawal
With fair value adjustment	$	157,820			2.51	%	$	184,874			2.85	%
At book value less current surrender charge of 5% or more		10,793			0.17	%		20,583			0.32	%
At fair value		2,730,578			43.46	%		2,770,798			42.77	%

Total with adjustment or at market value	$	2,899,191			46.14	%	$	2,976,255			45.94	%
At book value without adjustment (minimal or no charge or adjustment)		1,704,659			27.13	%		1,736,115			26.80	%
Not subject to discretionary withdrawal		1,678,959			26.73	%		1,766,328			27.26	%

Total	$	6,282,809			100.00	%	$	6,478,698			100.00	%

Reinsurance ceded		(3,213,807	)					(3,377,588	)

Net total	$	3,069,002					$	3,101,110

Reconciliation of total annuity actuarial reserves and deposit fund liabilities as of December 31, 2010 and 2009 were as follows:


(in thousands of dollars)	2010		2009
Life and accident and health annual statement
Annuities (excluding supplementary contracts)	$	148,688	$	149,584
Supplementary contracts with life contingencies		162,362		150,734
Liability for deposit-type contracts		3,126		4,047

Total annuity and deposit-type contracts		314,176		304,365


Separate accounts annual statement
Annuities (excluding supplementary contracts)		2,747,935		2,788,876
Supplementary contracts including life contingencies		3,688		3,788
Liability for deposit-type contracts		3,203		4,081

Total separate accounts		2,754,826		2,796,745

Total annuity actuarial reserves and deposit-type contract liabilities	$	3,069,002	$	3,101,110

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

9.		Reinsurance

		The Company has assumed and ceded business using yearly renewable term contracts and coinsurance contracts. The Company remains primarily responsible to its policyholders for all future claims and policyholder benefits related to the blocks of business ceded and is not relieved of its obligations to the extent any reinsurer does not meet its obligation to the Company.

		Failure of the reinsurers to honor their obligations could result in losses to the Company; consequently, estimates are established for amounts deemed or estimated to be uncollectible. To minimize its exposure to significant losses from reinsurance insolvencies, the Company utilizes several reinsurers to minimize concentration of credit risk, and evaluates the financial condition of its reinsurers and concentration of credit risk of its reinsurers. Several reinsurance contracts require the reinsurer to maintain assets in a security trust whose market value matches or exceeds the book value of the reinsured liability.

		PLICO

		The initial ceding commission on the coinsurance agreement with PLICO was $120 million. This initial ceding commission was not transferred to the Company from PLICO, but rather was withheld from the investment assets transferred from the Company to PLICO as part of the transferred coinsurance assets. This initial ceding commission, net of tax, and the IMR related to the transferred coinsurance assets reflected in surplus are being amortized into operations. Amortization of the initial ceding commission was approximately $1.3 million, $1.6 million and $2.3 million for the years ended December 31, 2010, 2009 and 2008, respectively. Amortization of the IMR related to the transferred coinsurance assets was approximately $1.7 million, $2.1 million and $3.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.

		As part of the coinsurance agreement with PLICO (Note 1), most reinsurance agreements with outside reinsurers were novated to PLICO as part of the Purchase Agreement. As of December 31, 2010 and 2009, the Company’s separate account assets subject to the coinsurance agreement with PLICO were approximately $1.3 billion and $1.2 billion, respectively.

		FNWL

		The Company entered into a modified coinsurance agreement on December 1, 2003 with an affiliate, FNWL. FNWL is a Washington domiciled stock life insurance company. Initially, the Company assumed all existing non-qualified individual flexible payment fixed deferred (“NQ-FPDA”) and non-qualified individual single premium fixed deferred (“NQ-SPDA”) annuities from FNWL. In exchange, the Company paid an initial ceding commission of $36.5 million. No portion of the assets constituting the consideration was transferred to the Company. These assets consist principally of a portfolio of fixed income financial instruments. The values of these assets may fluctuate with changes in interest rates and other market conditions, and these fluctuations may be significant. The Company is at risk for such fluctuations. The reserve balances under this modified coinsurance agreement were approximately $665.7 million and $661.4 million as of December 31, 2010 and 2009, respectively. Subsequent new issues by FNWL of NQ-FPDA and NQ-SPDA annuities are assumed by the Company. In exchange, the Company receives all premiums and pays benefits to the policyholders relating to these contracts. The Company has a management and service agreement with FNWL to receive necessary services pursuant to this agreement.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

		FLA

		As of December 31, 2010 and 2009, the reinsurance reserve credit from FLA related to fixed-rate annuity liabilities ceded to FLA amounted to approximately $139.5 million and $146.8 million, respectively.

		Transamerica Re

		The net amount at risk of the GMDB and GRIB on certain variable annuity contracts issued between March 1, 1997 and April 30, 2000 was ceded to Transamerica Re. As of December 31, 2010 and 2009, the reinsurance reserve credit related to reinsuring the net amount at risk on these contracts amounted to approximately $176.2 million and $188.0 million, respectively.

		ZIC

		On November 17, 2006, the Company entered into a reinsurance agreement (the “ZIC Agreement”) with ZIC, an affiliate. The Company ceded 100% of the net amounts at risk for GMDB and GRIB related to the Company’s DESTINATIONS contracts issued from May 1, 2000 through February 28, 2003. In accordance with Section 131.20a of the Illinois Insurance Code (the “Code”), the Company submitted Form D-1, reporting a proposed reinsurance contract and requested approval of the contract and the Form D-1 filing under Section 174 of the Code. In connection with the Form D-1 filing, the IDOI approved the transaction on November 3, 2006, as submitted by the Company, which incorporated pro forma accounting treatment including reserve credits proposed under the reinsurance contract. In addition the IDOI approved the reserve credit calculation methodology and the accounting as prescribed.

		The Company’s most significant policy risks prior to the ZIC Agreement were the GMDB and GRIB risks. The net amount at risk for the GMDB is defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For GRIB, the net amount at risk is defined as the current guaranteed annuitization benefit, in excess of the current account balance at the balance sheet date. As a result of the ZIC Agreement, the Company ceded $779,632,000 of GMDB net amount at risk and $752,181,000 of GRIB net amount at risk at December 31, 2010 and $951,931,000 of GMDB net amount at risk and $922,341,000 of GRIB net amount at risk at December 31, 2009.

		The ceding premium paid to ZIC in exchange for reinsurance of GMDB and GRIB net amounts at risk for contracts issued after April 30, 2000 was $1,008,700,000. In addition, the ZIC Agreement called for the Company to pay interest of 5.25% on the initial ceding premium from September 1, 2006 until the effective date of the ZIC Agreement. The interest paid, in accordance with the ZIC Agreement, was $11,090,000.

		On December 22, 2008 the Company and ZIC entered into Amendment No.1 to the ZIC Agreement (“Amendment”). Under terms of the Amendment, the Company paid a premium to ZIC of $10,000,000 in consideration for changes in the operation of the ZIC Agreement, for the benefit of the Company, under forecast scenarios where a significant further decline in equity market levels was projected. Interest accrued from the effective date of the Amendment to December 23, 2008 at an annual rate of 5.25% was paid in the amount of $1,438 along with the premium on December 23, 2008.

		Pursuant to the ZIC Agreement, ZIC established a security trust account for the exclusive benefit of the Company. The Bank of New York is the trustee. The trust account is funded with assets equal to at least 102% of the statutory reserve credit assumed by ZIC. At December 31, 2010 and December 31, 2009, 102% of the statutory reserve credit assumed by ZIC was $1,259,452,000 and $1,336,199,000, respectively. The associated letters of credit and trust asset balances at

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

		December 31, 2010 and December 31, 2009, were $1,402,370,000 and $1,520,419,000, respectively.

		ZIBB

		The Company entered into a reinsurance treaty with ZIBB, an affiliate, in June 2002. A trust account (the “ZIBB Reinsurance Trust” or the “Trust”) was established as security for three reinsurance agreements which include the Second Amended and Restated Group Variable Life Program Yearly Renewable Term Reinsurance Agreement, the Second Amended and Restated Individual Variable Life Program Yearly Renewable Term Reinsurance Agreement and the Amended and Restated Group Variable Life Program 2000 Yearly Renewable Term Reinsurance Agreement. State Street Bank is the “Trustee”, and Fund Accountant and Custodian. At December 31, 2010 and December 31, 2009, reinsurance recoverables totaling approximately $271.5 million and approximately $305.9 million, respectively, were secured by the Trust, which was supported by cash and invested assets with a fair value of approximately $307.9 million and $339.5 million at December 31, 2010 and 2009, respectively.

		As of December 31, 2010, 2009 and 2008, amounts associated with reinsurance assumed from affiliated insurance companies for life and annuity products were as follows:


(in thousands of dollars)	2010		2009		2008
Premiums assumed from affiliated insurance companies	$	43,590	$	26,937	$	26,372

Benefits assumed from affiliated insurance companies	$	62,681	$	61,715	$	80,102

As of December 31, 2010, 2009 and 2008, amounts associated with reinsurance ceded to affiliated and unaffiliated insurance companies for life and annuity products were as follows:


(in thousands of dollars)	2010		2009		2008
Reserves ceded to affiliated insurance companies	$	1,249,378	$	1,323,721	$	1,369,435
Reserves ceded to unaffiliated insurance companies		2,440,524		2,557,450		2,823,148

Total reserves ceded	$	3,689,902	$	3,881,171	$	4,192,583

Premiums ceded to affiliated insurance companies	$	199,104	$	186,753	$	179,701
Premiums ceded to unaffiliated insurance companies		86,696		93,728		101,691

Total premiums ceded	$	285,800	$	280,481	$	281,392

Benefits ceded to affiliated insurance companies	$	265,294	$	361,225	$	229,250
Benefits ceded to unaffiliated insurance companies		422,733		596,179		730,897

Total benefits ceded	$	688,027	$	957,404	$	960,147

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Such amounts related to life insurance in force at December 31, 2010 and 2009 were as follows:


(in thousands of dollars)	2010		2009
Direct and assumed	$	60,135,263	$	61,457,731


Ceded to
Affiliated insurance companies	$	48,740,781	$	49,675,048
Unaffiliated insurance companies		2,006,169		2,166,212

Total ceded	$	50,746,950	$	51,841,260

10.		Capital and Surplus

		The amount of dividends that can be paid by the Company to its stockholder without prior approval of the IDOI is limited to the greater of (i) 10% of its statutory unassigned surplus or (ii) statutory net income from the preceding calendar year. A dividend paid that does not meet the above specifications is defined as an “extraordinary dividend” and requires advance approval from the IDOI. Due to the fact that statutory unassigned surplus is also negative, the Company cannot pay a regular dividend in 2011. No cash dividends were paid in 2010 or 2009.

11.		Retirement Plans and Other Postretirement Benefit Plans

		Consolidated/Holding Company Plans

		In 2004, the Company began participating in a qualified, non-contributory defined benefit pension plan, which is sponsored by an affiliated entity, Farmers Group, Inc. (“FGI”). Effective January 1, 2009 the Company transitioned to a Cash Balance Program. However, vested employees who were age 40 and over or who had 10 or more years of service as of December 31, 2008 were “grandfathered” in the previous Pension Program. This approach helps employees closer to retirement to maintain the full value of their anticipated pension benefit. Benefits under the Pension Program are based on an employee’s years of service and compensation during the last five years of employment. The FGI funding policy is to make sufficient contributions to the pension plan to fully provide for employees’ benefits at the time of retirement. Under the Cash Balance Program, FGI makes regular contributions to the employee’s account. The amount of these contributions is based on a percentage of an employee’s base pay and will vary depending on an employee’s age and length of service.

		In addition, the Company provides postretirement benefits to retired employees through a plan also sponsored by FGI.

		The Company has no legal obligation for benefits under these plans. FGI charges the affiliate, FNWL, an allocated share of such contributions based on characteristics of the population of plan participants. These charges are then included in the overhead and administrative charges paid by the Company to FNWL. The Company has no pension plan liability as of December 31, 2010 and 2009. The Company’s share of pension costs was approximately $311,000, $428,000 and $350,000 for the years ended December 31, 2010, 2009 and 2008, respectively.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

		Defined Contribution Plans

		Effective January 1, 2009 the Company transitioned from a deferred profit sharing plan to a 401(k) Savings Plan which includes a dollar-for-dollar Company match up to 6% of employees’ earned base pay. All employees, including new hires, are vested in the 401(k) Savings Plan immediately. The cost to the Company for the 401(k) Savings Plan is included in the overhead and administrative charges paid by the Company to FNWL. Additionally, the Company’s contribution to the newly adopted 401K Savings Plan totaled $143,000 and $198,000 for the year ended December 31, 2010 and 2009, respectively.

12.		Separate Accounts

		General Nature and Characteristics of Separate Accounts Business

		The assets and liabilities of the Company’s Separate Accounts represent segregated funds administered and invested by the Company for purposes of funding flexible payment, individual and group, variable annuity contracts, market value adjusted deferred annuity contracts, variable supplemental contracts and individual and group variable life insurance contracts for the exclusive benefit of variable annuity and variable life insurance contract holders.

		The Company receives fees from the Separate Accounts which consist of charges for mortality and expense risk, certain minimum guaranteed death benefits, certain guaranteed retirement benefits, record maintenance fees and other administrative charges. The Company also retains varying amounts of withdrawal charges to cover expenses in the event of early withdrawals by contract holders. The assets and liabilities of the Separate Accounts are carried at current market value, which is based on upon the closing bid price, net asset value. The negative liability for transfers to Separate Accounts due or accrued represents the Commissioners Annuity.

		The assets and liabilities of the Separate Accounts are carried at fair value, which is based upon the net asset value, at December 31, 2010 and 2009.

		The Company has marketed non-registered individual and group variable BOLI contracts and a series of individual variable life contracts. The Company received approximately $2.1 million, $0.5 million and $6.5 million of renewal premium on existing BOLI contracts during 2010, 2009 and 2008, respectively. This business impacted premiums, separate accounts fees, net transfers to separate accounts, insurance taxes, licenses and fees and income tax expense. The BOLI products also have premium tax and deferred acquisition costs (“DAC”) tax expense load charges which are deducted from the contract holder’s premiums to compensate the Company for premium taxes and DAC tax expenses incurred by the Company related to the BOLI products. No commissions are paid on BOLI product sales.

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

Separate accounts fees and miscellaneous income were comprised of the following for the years ended December 31, 2010, 2009 and 2008:


(in thousands of dollars)	2010			2009			2008
Separate accounts fees on non-BOLI variable life and annuities	$	13,569		$	15,272		$	20,650
BOLI cost of insurance charges and fees¹		197,951			184,659			167,225
BOLI tax benefits²		(845	)		(1,058	)		(1,058	)


Total separate accounts fees and miscellaneous income	$	210,675		$	198,873		$	186,817


(1)		The Company ceded approximately $199.1 million, $186.8 million and $169.7 million of such charges, as a reduction to premiums, to a Zurich affiliated company, ZIBB, during 2010, 2009 and 2008, respectively.

(2)		The Company paid approximately $0.8 million, $1.1 million and $1.1 million in DAC tax allowances to ZIBB in 2010, 2009 and 2008, respectively, for certain contracts in which the DAC tax loads received by the Company are collected over time as opposed to receiving the entire load up front.

Under statutory accounting, transfers to the separate accounts are reported net of premium and DAC tax loads. There is a corresponding offset to the premium tax load in insurance taxes, licenses and fees.

Information regarding the reserves included in the separate accounts of the Company as of December 31, 2010 were as follows:


	Nonindexed		Nonindexed
	Guarantee		Guarantee		Nonguaranteed
	Less Than/		More		Separate
(in thousands of dollars)	Equal to 4%		Than 4%		Accounts		Total
Premiums, considerations or deposits for year ended December 31, 2010	$	241	$	—	$	48,928	$	49,169

Reserves at December 31, 2010	$	16,417	$	938	$	12,546,101	$	12,563,456


For accounts with assets at:
Market value	$	16,417	$	938	$	12,546,101	$	12,563,456

Total reserves	$	16,417	$	938	$	12,546,101	$	12,563,456


By withdrawal characteristics:
With market value adjustment	$	16,417	$	938	$	—	$	17,355
At market value		—		—		12,546,101		12,546,101

Total	$	16,417	$	938	$	12,546,101	$	12,563,456

Zurich American Life Insurance Company
Notes to Statutory Financial Statements
December 31, 2010 and 2009

The following is a reconciliation of net transfers from the Company’s separate accounts for the years ended December 31, 2010, 2009 and 2008:


(in thousands of dollars)	2010			2009			2008
Transfers as reported in the summary of operations of the separate accounts annual statement:
Transfers to separate accounts	$	112,140		$	111,727		$	160,784
Transfers from separate accounts		(548,403	)		(1,450,570	)		(1,139,512	)

Net transfers from separate accounts	$	(436,263	)	$	(1,338,843	)	$	(978,728	)

Reconciling adjustments
Experience rated refunds reinvested in separate accounts		(55,816	)		(43,320	)		(12,700	)
Change in termination value of separate accounts		(2,651	)		(11,177	)		(38,745	)
Separate accounts trading gain (loss)		37			69			(890	)
SVP Surrender		(1,039	)		(5,419	)		—
Transfers required to support benefits		(2,780	)		(4,385	)		(2,172	)
Terminated policy refunds		255			1,530			2,858
Funding of MVA Settlement		(1,233	)		4,591			—
Ceded transfers		(1,558	)		—			4,299
Other		—			(1,090	)		(117	)


Net transfers from separate accounts as reported in the statement of operations	$	(501,048	)	$	(1,398,044	)	$	(1,026,195	)

13.		Commitments and Contingencies

		The Company is subject to lawsuits arising from the normal course of its business activities. These actions are in various stages of discovery and development, and some seek punitive as well as compensatory damages. In the opinion of management, the Company has not engaged in any conduct that should warrant the award of any material punitive or compensatory damages. Acting on the advice of counsel, the Company intends to defend vigorously its position in each case, and management believes that, while it is not possible to predict the outcome of such matters with absolute certainty, ultimate disposition of these proceedings should not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

		In 1997, the Company entered into an agreement with a third party to guaranty certain indemnity obligations of an investment property, including environmental claims over a period of 20 years and income tax liability claims over a period of 7 years. The maximum liability exposure under this guaranty would not exceed $4,000,000. The Company was fully insured for losses and liabilities related to the potential environmental claims for a period of 10 years. The insurance expired in 2007. Additionally, KFC Portfolio Corp, an affiliated company, has agreed to guaranty and indemnify the Company from all liabilities and costs incurred related to this transaction. While the Company currently has not experienced any claims, including environmental claims or threatened environmental claims related to this transaction, it is reasonably possible that the results of ongoing environmental studies or other factors could alter this expectation and may require recording of a liability and cause the Company future cash outlays. The extent or amount of such events, if any, cannot be estimated with certainty at this time. However, management expects this to have no material impact on the results of operations, financial position or liquidity for the years ended December 31, 2010, 2009 and 2008.

Zurich American Life Insurance Company

Supplemental Schedule of Assets and Liabilities
December 31, 2010

The following is a summary of certain financial data included in exhibits and schedules subjected to audit procedures by independent accountants and utilized by actuaries in the determination of reserves.


	2010
Investment income earned
U. S. government bonds	$	904,381
Other bonds (unaffiliated)		20,472,496
Contract loans		3,339,273
Cash, cash equivalents and short-term investments		56,275
Other invested assets		(16,893	)
Aggregate write-ins for investment income		573,975

Gross investment income	$	25,329,507


	2010
Bonds and short-term investments, by class and maturity
Bonds by maturity — statement value
Due within 1 year or less	$	57,896,797
Over 1 year through 5 years		242,050,260
Over 5 years through 10 years		97,359,847
Over 10 years through 20 years		7,207,099
Over 20 years		45,908,343

Total by maturity	$	450,422,346


Bonds by class — statement value
Class 1	$	378,759,815
Class 2		57,323,648
Class 3		4,086,341
Class 4		6,286,933
Class 5		3,965,421
Class 6		188

Total by class	$	450,422,346

Total bonds publicly traded	$	411,251,580

Total bonds privately traded	$	39,170,766

Short-term investments — book value	$	13,659,361

Cash on deposit	$	6,535,422

Zurich American Life Insurance Company
Supplemental Schedule of Assets and Liabilities
December 31, 2010


Life insurance in force
Industrial	$	—

Ordinary	$	—

Credit life	$	—

Group life	$	9,387,995,000

Amount of additional accidental death benefits in force under ordinary policies	$	200,000

Supplemental contracts in force
Ordinary — not involving life contingencies
Amount on deposit	$	—

Income payable	$	14,937,060

Ordinary — involving life contingencies
Income payable	$	46,336,244

Group — not involving life contingencies
Amount on deposit	$	—

Income payable	$	—

Group — involving life contingencies
Income payable	$	—

Annuities
Ordinary
Immediate — amount of income payable	$	—

Deferred — fully paid — account balance	$	256,547,861

Deferred — not fully paid — account balance	$	2,648,037,713

Group
Amount of income payable	$	—

Fully paid — account balance	$	—

Not fully paid — account balance	$	1,632,860,569

Deposit funds and dividend accumulations
Deposit funds — account balance	$	21,101,134

Dividend accumulations — account balance	$	—

Zurich American Life Insurance Company

Supplemental Summary Investment Schedule
December 31, 2010

The Company’s gross investment holdings as filed with the 2010 Annual Statement are $522,867,120.


						Admitted Assets as
	Gross					Reported in the
	Investment Holdings					Annual Statement
Investment Categories	Amount		Percentage			Amount		Percentage
2010
Bonds
U.S. treasury securities	$	35,551,314		6.80	%	$	35,551,314		6.80	%
U.S. government agency obligations
Issued by U.S. government sponsored agencies		9,710,283		1.86	%		9,710,283		1.86	%
Foreign government (including Canada, excluding mortgage-backed securities)		1,352,252		0.26	%		1,352,252		0.26	%
Securities issued by states, territories and possessions and political subdivisions in the U.S.		1,729,448		0.33	%		1,729,448		0.33	%
Political subdivisions of state, territories and possessions general obligations		4,033,599		0.77	%		4,033,599		0.77	%
Revenue and assessment obligations		7,053,000		1.35	%		7,053,000		1.35	%
Mortgage-backed securities
Pass-through securities
Guaranteed by GNMA		2,179,659		0.42	%		2,179,659		0.42	%
Issued by FNMA and FHLMC		6,010,724		1.15	%		6,010,724		1.15	%
CMOs and REMICs
Issued by FNMA and FHLMC		12,566,110		2.40	%		12,566,110		2.40	%
Alll other privately issued		127,270,953		24.34	%		127,270,953		24.34	%
Other debt and other fixed income securities (excluding short-term)
Unaffiliated domestic securities (includes credit tenant loans rated by the SVO)		187,222,049		35.81	%		187,222,049		35.81	%
Unaffiliated foreign securities		42,083,600		8.05	%		42,083,600		8.05	%
Contract loans		65,909,086		12.61	%		65,909,086		12.61	%
Cash, cash equivalents and short-term investments		20,194,782		3.86	%		20,194,782		3.86	%
Other invested assets		261		0.00	%		261		0.00	%

Total invested assets	$	522,867,120		100.00	%	$	522,867,120		100.00	%

Zurich American Life Insurance Company

Supplemental Investment Risks Interrogatories
December 31, 2010

The Company’s total admitted assets, excluding separate account assets, as filed in the 2010 Annual Statement were $617,147,175.

The Company’s 10 largest exposures to a single issuer/borrower/investment, excluding U.S. government, U.S. government agency securities and those U.S. government money market funds listed in the Appendix to the NAIC SVO Purposes
and Procedures Manual as exempt, property occupied by the Company and policy loans are as follows:


			Percentage
			of Total
			Admitted
Investments	Amount		Assets
Credit Suisse Group AG	$	17,813,323		2.89	%
FGCI POOL# E86435		16,441,237		2.66	%
Morgan Stanley Prime Money Market		13,659,360		2.21	%
Bear Stearns Commercial Mortgage		11,888,715		1.93	%
LB-UBS Commercial Mortgage Trust		11,012,088		1.78	%
Wachovia Bank Commercial Mortgage		10,066,118		1.63	%
Greenwich Capital Commercial Finance		8,585,856		1.39	%
General Electric Co		8,383,047		1.36	%
JP Morgan Chase Commercial Mortgage		8,039,058		1.30	%
Citigroup Inc		7,962,833		1.29	%

The amounts and percentages of the Company’s total admitted assets held in bonds and preferred stocks by NAIC rating are as follows:


	Bonds						Preferred Stocks
	Amount		Percentage				Amount		Percentage
NAIC — 1	$	378,759,815		61.37	%	P/RP-1	$	—		0.00	%
NAIC — 2		57,323,648		9.29	%	P/RP-2		—		0.00	%
NAIC — 3		4,086,341		0.66	%	P/RP-3		—		0.00	%
NAIC — 4		6,286,933		1.02	%	P/RP-4		—		0.00	%
NAIC — 5		3,965,421		0.64	%	P/RP-5		—		0.00	%
NAIC — 6		188		0.00	%	P/RP-6		—		0.00	%

	$	450,422,346					$	—

Zurich American Life Insurance Company
Supplemental Investment Risks Interrogatories
December 31, 2010

The Company holds admitted assets in foreign investments of $36,840,833 or 5.97% of total admitted assets.

The amounts and percentages of the Company’s total admitted assets held in aggregate foreign investment exposures categorized by NAIC sovereign rating are as follows:


			Percentage of
			Total Admitted
	Amount		Assets
Countries rated NAIC — 1	$	36,840,833		5.97	%
Countries rated NAIC — 2		—		0.00	%
Countries rated NAIC — 3 or below		—		0.00	%

The Company’s two largest foreign investment exposures to a single country, categorized by the country’s NAIC sovereign rating:


			Percentage of
			Total Admitted
	Amount		Assets
Countries Rated NAIC — 1:
Great Britain	$	9,443,896		1.53	%
Luxembourg		5,305,423		0.86	%

Questions 7 through 9 are not applicable as the Company does not have unhedged foreign currency exposure.

The Company’s 10 largest non-sovereign foreign issues and related percentages of total admitted assets are listed below:


2010				Percentage
NAIC				Total
Rating		Amount		Assets
1Z	BARCLAYS PLC	$	2,643,180		0.43	%
1Z	CODELCO INC		2,497,069		0.40	%
1FE	ANZ NATL BANK INTL LTD		2,398,017		0.39	%
1FE	UBS AG STAMFORD CT		2,083,206		0.34	%
1FE	ROYAL BK OF SCOTLAND		1,961,141		0.32	%
1FE	BHP BILLITON FINANCE		1,870,117		0.30	%
2FE	HBOS PLC		1,744,180		0.28	%
1Z	CREDIT SUISSE NEW YORK		1,633,819		0.26	%
1FE	ENEL FINANCE INTERNATION		1,498,603		0.24	%
1FE	TELEFONCIA SA		1,472,092		0.24	%

The Company does have Canadian investments of $6,595,020 or 1.07% of total admitted assets, which is below the threshold of 2.5%.

Zurich American Life Insurance Company
Supplemental Investment Risks Interrogatories
December 31, 2010

Question 12 is not applicable as the Company does not hold any investments with contractual sales restrictions.

Question 13 is not applicable as the Company does not hold any equity interests.

Question 14 is not applicable as the Company does not hold any investments in nonaffiliated, privately placed equity securities.

Question 15 is not applicable as the Company does not hold any investments in general partnership interests.

Questions 16 and 17 are not applicable as the Company does not hold any mortgage loans.

Question 18 is not applicable as the Company does not hold any real estate investments.

Question 19 is not applicable as the Company does not hold any investments in mezzanine real estate loans.

Question 20, the Company holds the following amounts in securities lending arrangements as of:


			Percentage of
			Total Admitted
Date	Amount		Assets
March 31, 2010 (unaudited)	$	862,762	Not Applicable
June 30, 2010 (unaudited)		—	Not Applicable
September 30, 2010 (unaudited)		—	Not Applicable
December 31, 2010		—		0.00	%

Question 21 is not applicable as the Company does not hold any warrants not attached to other financial instruments, options, caps or floors.

Questions 22 and 23 are not applicable as the Company holds no investments in collars, swaps, forwards, or future contracts.

[PWC Letterhead]

Report of Independent Registered Public Accounting Firm

To the Contract Owners of ZALICO Variable Annuity Separate Account
and the Board of Directors of Zurich American Life Insurance Company

In our opinion, the accompanying statement of assets, liabilities and contract owners’ equity and the related statements of operations and of changes in contract owners’ equity present fairly, in all material respects, the financial position of each of the subaccounts listed in Note 1 of the ZALICO Variable Annuity Separate Account at December 31, 2010, and the results of each of their operations and the changes in each of their contract owners’ equity for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of Zurich American Life Insurance Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of fund shares owned at December 31, 2010 by correspondence with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

New York, New York
April 28, 2011

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity
December 31, 2010


																	American Century
																	Variable Portfolios,
	Alger Portfolios																Inc.
									Alger		Alger		Alger		Alger		American
	Alger		Alger		Alger Capital		Alger Capital		Large Cap		Mid Cap		Mid Cap		Small Cap		Century VP Income
	Balanced O		Balanced S		Appreciation O		Appreciation S		Growth I-2		Growth I-2		Growth S		Growth I-2		& Growth
	Subaccount		Subaccount (a)		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	42,236,701		—		54,320,980		1,536		11,341,797		13,497,680		13,164		8,563,941		10,419,584
Dividends and other receivables		—		—		—		—		—		—		—		—		—


Total assets		42,236,701		—		54,320,980		1,536		11,341,797		13,497,680		13,164		8,563,941		10,419,584

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		259		—		—		—		—		—		—		—		—


Contract owners’ equity	$	42,236,442		—		54,320,980		1,536		11,341,797		13,497,680		13,164		8,563,941		10,419,584


Accumulation period	$	42,219,613		—		54,320,978		1,536		11,324,692		13,497,680		13,164		8,549,601		10,418,866
Annuity period		16,828		—		1		—		17,105		—		—		14,339		718


Total Contract Owners’ Equity	$	42,236,442		—		54,320,980		1,536		11,341,797		13,497,680		13,164		8,563,941		10,419,584


Units Outstanding		3,448,862		—		4,577,704		83		208,811		383,795		844		172,886		1,449,828


Shares Owned in each Portfolio		3,637,959		—		1,041,430		30		259,657		1,058,642		1,067		267,206		1,722,245


Fair Value per Share	$	11.61		—		52.16		51.04		43.68		12.75		12.34		32.05		6.05


(a)		Cessation of operations as of November 23, 2010, Alger Balanced Portfolio Class S. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity
December 31, 2010


											Dreyfus				The Dreyfus
	American Century						Credit Suisse				Investment				Socially Responsible
	Variable Portfolios, Inc.						Trust				Portfolios				Growth Fund, Inc.
	American		American		American		Credit Suisse		Credit Suisse		Dreyfus		Dreyfus				Dreyfus Socially
	Century VP Income		Century VP		Century VP		Trust International		Trust International		I.P. MidCap		I.P. MidCap		Dreyfus Socially		Responsible Growth
	& Growth II		Value		Value II		Equity Flex II		Equity Flex III		Stock A		Stock SC		Responsible Growth A		SC
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	8,917		20,808,685		3,919		—		43,926,844		58,739,382		2,010,062		5,724,278		2,028
Dividends and other receivables		—		—		—		—		—		—		—		—		—


Total assets		8,917		20,808,685		3,919		—		43,926,844		58,739,382		2,010,062		5,724,278		2,028

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		—		—		—		—		638		—		—		—

Contract owners’ equity	$	8,917		20,808,685		3,919		—		43,926,844		58,738,744		2,010,062		5,724,278		2,028


Accumulation period	$	8,917		20,765,372		3,919		—		43,907,334		58,729,730		2,010,062		5,724,278		2,028
Annuity period		—		43,313		—		—		19,510		9,014		—		—		—


Total Contract Owners’ Equity	$	8,917		20,808,685		3,919		—		43,926,844		58,738,744		2,010,062		5,724,278		2,028


Units Outstanding		693		2,020,986		272		—		2,176,109		3,677,366		126,956		507,993		160

Shares Owned in each Portfolio		1,474		3,550,970		669		—		6,685,973		4,460,090		152,740		191,447		68

Fair Value per Share	$	6.05		5.86		5.86		—		6.57		13.17		13.16		29.90		29.71

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity
December 31, 2010


	DWS
	Variable Series I
							DWS		DWS
	DWS		DWS		DWS		Global		Global		DWS		DWS		DWS		DWS
	Bond		Capital		Capital		Opportunities		Opportunities		Growth & Income		Growth & Income		Health Care		Health Care
	VIP		Growth VIP A		Growth VIP B		VIP A		VIP B		VIP A		VIP B		VIP A		VIP B
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	24,437,674		229,376,794		176,898		74,320,458		3,557		30,926,698		106,869		30,941,936		11,550
Dividends and other receivables		—		—		—		—		—		—		—		—		—


Total assets		24,437,674		229,376,794		176,898		74,320,458		3,557		30,926,698		106,869		30,941,936		11,550

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		6,998		—		—		—		—		—		9		—


Contract owners’ equity	$	24,437,674		229,369,796		176,898		74,320,458		3,557		30,926,698		106,869		30,941,928		11,550


Accumulation period	$	24,436,527		228,507,685		176,898		74,320,458		3,557		30,889,266		106,869		30,941,736		11,550
Annuity period		1,148		862,111		—		—		—		37,431		—		192		—


Total Contract Owners’ Equity	$	24,437,674		229,369,796		176,898		74,320,458		3,557		30,926,698		106,869		30,941,928		11,550


Units Outstanding		2,608,674		17,222,300		12,475		3,381,940		165		3,206,489		8,426		2,228,996		655

Shares Owned in each Portfolio		4,317,610		11,708,872		9,067		5,204,514		254		4,090,833		14,155		2,728,566		1,049

Fair Value per Share	$	5.66		19.59		19.51		14.28		14.03		7.56		7.55		11.34		11.01

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2010


	DWS				DWS
	Variable Series I				Variable Series II
															DWS
	DWS		DWS		DWS		DWS		DWS		DWS		DWS		Diversified		DWS
	International		International		Balanced		Blue Chip		Blue Chip		Core Fixed		Davis Venture		International Equity		Dreman Small Mid
	VIP A		VIP B		VIP		VIP A		VIP B		Income VIP A		Value VIP		VIP		Cap Value VIP A
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	42,166,920		71,620		180,809,182		58,274,262		166,590		47,896,149		—		59,066,342		132,029,494
Dividends and other receivables		—		—		—		—		—		208		—		—		—


Total assets		42,166,920		71,620		180,809,182		58,274,262		166,590		47,896,356		—		59,066,342		132,029,494

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		2,253		—		1,491		2,110		—		—		—		6		1,517


Contract owners’ equity	$	42,164,667		71,620		180,807,691		58,272,151		166,590		47,896,356		—		59,066,335		132,027,978


Accumulation period	$	42,099,450		71,620		179,194,651		58,224,136		166,590		47,811,221		—		58,960,584		131,887,226
Annuity period		65,217		—		1,613,040		48,016		—		85,135		—		105,752		140,751


Total Contract Owners’ Equity	$	42,164,667		71,620		180,807,691		58,272,151		166,590		47,896,356		—		59,066,335		132,027,978


Units Outstanding		4,135,335		5,486		24,051,653		5,581,706		11,664		11,343,078		—		13,620,379		17,119,399

Shares Owned in each Portfolio		5,129,796		8,713		8,170,320		5,471,762		15,598		5,473,846		—		7,310,191		10,813,226

Fair Value per Share	$	8.22		8.22		22.13		10.65		10.68		8.75		—		8.08		12.21

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2010


	DWS
	Variable Series II
							DWS		DWS
	DWS		DWS		DWS		Government &		Government &		DWS		DWS		DWS		DWS
	Dreman Small Mid		Global		Global		Agency Securities VIP		Agency Securities VIP		High Income		High Income		Janus Growth &		Large Cap
	Cap Value VIP B		Thematic VIP A		Thematic VIP B		A		B		VIP A		VIP B		Income VIP		Value VIP A
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	235,392		38,862,156		39,713		87,300,242		208,559		119,021,930		144,160		—		131,101,667
Dividends and other receivables		—		—		—		1,637		—		—		—		—		—


Total assets		235,392		38,862,156		39,713		87,301,879		208,559		119,021,930		144,160		—		131,101,667

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		151		—		—		—		361		—		—		8,803

Contract owners’ equity	$	235,392		38,862,005		39,713		87,301,879		208,559		119,021,569		144,160		—		131,092,864


Accumulation period	$	235,392		38,858,490		39,713		86,557,811		208,559		118,357,372		144,160		—		130,791,068
Annuity period		—		3,515		—		744,068		—		664,197		—		—		301,796

Total Contract Owners’ Equity	$	235,392		38,862,005		39,713		87,301,879		208,559		119,021,569		144,160		—		131,092,864


Units Outstanding		11,666		2,422,143		2,347		12,819,801		16,798		12,443,455		8,577		—		16,958,065

Shares Owned in each Portfolio		19,294		4,187,732		4,275		6,725,751		16,105		17,249,555		20,802		—		11,110,311

Fair Value per Share	$	12.20		9.28		9.29		12.98		12.95		6.90		6.93		—		11.80

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2010


	DWS
	Variable Series II
	DWS		DWS		DWS		DWS		DWS						DWS		DWS
	Large Cap		Mid Cap		Money Market		Small Cap Growth		Strategic		DWS		DWS		Technology		Technology
	Value VIP B		Growth VIP		VIP		VIP		Income VIP		Strategic Value VIP A		Strategic Value VIP B		VIP A		VIP B
	Subaccount		Subaccount		Subaccount (b)		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	169,630		16,831,006		94,048,655		59,138,426		44,962,277		147,904,599		152,542		46,276,132		15,771
Dividends and other receivables		—		—		—		—		—		—		—		—		—


Total assets		169,630		16,831,006		94,048,655		59,138,426		44,962,277		147,904,599		152,542		46,276,132		15,771

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		—		383		179		1,059		5,948		—		733		—


Contract owners’ equity	$	169,630		16,831,006		94,048,272		59,138,246		44,961,218		147,898,651		152,542		46,275,399		15,771


Accumulation period	$	169,630		16,831,006		93,804,060		59,080,550		44,863,589		147,798,304		152,542		46,259,022		15,771
Annuity period		—		—		244,211		57,696		97,629		100,347		—		16,378		—

Total Contract Owners’ Equity	$	169,630		16,831,006		94,048,272		59,138,246		44,961,218		147,898,651		152,542		46,275,399		15,771


Units Outstanding		12,864		1,555,860		20,485,047		15,249,794		2,785,117		11,960,608		13,311		7,780,964		1,125

Shares Owned in each Portfolio		14,363		1,351,888		94,048,655		4,269,922		3,759,388		18,192,448		18,717		4,222,275		1,482

Fair Value per Share	$	11.81		12.45		1.00		13.85		11.96		8.13		8.15		10.96		10.64


(b)		Effective December 17, 2010, DWS Money Market VIP Subaccount merged with Franklin Zero Coupon 2010. Previous to this date effective November 23, 2010, Subaccount merged with Alger Balanced Portfolio CL S. Previous to this date effective April 23, 2010, Subaccount merged with JPMorgan Insurance Trust Balanced.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2010


	DWS		DWS				Fidelity
	Variable Series II		Investments VIT Funds				Variable Insurance Products Funds
	DWS		DWS		DWS		Fidelity		Fidelity		Fidelity		Fidelity		Fidelity		Fidelity
	Turner Mid Cap		Equity 500		Equity 500		VIP		VIP		VIP		VIP		VIP		VIP
	Growth VIP		Index VIP A		Index VIP B2		Asset Manager		Contrafund		Contrafund 2		Equity Income		Equity Income 2		Growth
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	44,025,360		76,429,234		18,235		5,278,454		70,697,782		16,836		27,267,245		5,781		25,168,154
Dividends and other receivables		—		—		—		—		—		—		—		—		—


Total assets		44,025,360		76,429,234		18,235		5,278,454		70,697,782		16,836		27,267,245		5,781		25,168,154

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		32		901		—		—		—		—		—		—		—


Contract owners’ equity	$	44,025,328		76,428,333		18,235		5,278,454		70,697,782		16,836		27,267,245		5,781		25,168,154

Accumulation period	$	44,024,765		76,412,132		18,235		5,253,419		70,541,968		16,836		27,240,328		5,781		25,144,354
Annuity period		563		16,201		—		25,035		155,814		—		26,918		—		23,800


Total Contract Owners’ Equity	$	44,025,328		76,428,333		18,235		5,278,454		70,697,782		16,836		27,267,245		5,781		25,168,154


Units Outstanding		3,490,690		7,268,242		1,799		172,024		1,687,941		985		776,241		447		497,735

Shares Owned in each Portfolio		4,496,972		5,803,283		1,387		363,030		2,960,544		717		1,433,609		308		678,570

Fair Value per Share	$	9.79		13.17		13.15		14.54		23.88		23.49		19.02		18.75		37.09

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity
December 31, 2010


																	Franklin Templeton
	Fidelity				Franklin Templeton												Variable Insurance
	Variable Insurance Products Funds				Variable Insurance Products Trust												Products Trust
	Fidelity		Fidelity		Franklin		Franklin		Franklin		Franklin		Franklin		Mutual		Mutual
	VIP		VIP		Rising Dividends		Small Cap Value		Strategic Income		U.S.		Zero Coupon		Global Discovery		Shares
	Index 500		Index 500 SC		Securities		Securities		Securities		Government		2010		Securities		Securities
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount (c)		Subaccount		Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	59,068,067		3,698,741		6,633,312		6,367,489		10,961,360		4,403,283		—		22,545,566		6,847,492
Dividends and other receivables		—		—		—		—		—		—		—		—		—

Total assets		59,068,067		3,698,741		6,633,312		6,367,489		10,961,360		4,403,283		—		22,545,566		6,847,492

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		—		—		—		—		—		—		—		—

Contract owners’ equity	$	59,068,067		3,698,741		6,633,312		6,367,489		10,961,360		4,403,283		—		22,545,566		6,847,492


Accumulation period	$	58,910,831		3,698,741		6,612,007		6,367,489		10,955,351		4,403,283		—		22,536,869		6,837,548
Annuity period		157,236		—		21,305		—		6,010		—		—		8,698		9,945

Total Contract Owners’ Equity	$	59,068,067		3,698,741		6,633,312		6,367,489		10,961,360		4,403,283		—		22,545,566		6,847,492


Units Outstanding		392,293		26,097		442,763		310,603		699,669		351,890		—		1,069,950		466,521

Shares Owned in each Portfolio		446,167		28,168		352,461		391,845		861,742		335,872		—		1,084,443		429,310

Fair Value per Share	$	132.39		131.31		18.82		16.25		12.72		13.11		—		20.79		15.95


(c)		Cessation of operations as of December 17, 2010, Franklin Zero Coupon 2010. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity
December 31, 2010


	Franklin Templeton		ING		ING
	Variable Insurance		Global Resources		Investors										Janus
	Products Trust		Trust		Trust		Invesco Variable Insurance Funds (d)								Aspen Series
					ING JPMorgan		Invesco		Invesco		Invesco				Janus		Janus
	Templeton Developing		ING Global Resources		Emerging Markets		Financial Services		Global		Global		Invesco		Aspen		Aspen Enterprise -
	Markets Securities		Trust		Equity		Fund		Health Care		Real Estate		Utilities		Balanced		Institutional
	Subaccount		Subaccount		Subaccount		Subaccount (e)		Subaccount (f)		Subaccount (g)		Subaccount (h)		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	8,701,033		10,788,423		10,799,911		945,252		1,574,995		6,789,957		19,943,471		76,092,291		47,048,479
Dividends and other receivables		—		—		—		—		—		—		—		—		—

Total assets		8,701,033		10,788,423		10,799,911		945,252		1,574,995		6,789,957		19,943,471		76,092,291		47,048,479

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		—		—		—		—		—		633		—		—

Contract owners’ equity	$	8,701,033		10,788,423		10,799,911		945,252		1,574,995		6,789,957		19,942,838		76,092,291		47,048,479


Accumulation period	$	8,616,972		10,783,429		10,687,499		945,252		1,574,995		6,789,014		19,931,687		75,547,713		47,002,747
Annuity period		84,061		4,994		112,412		—		—		943		11,151		544,579		45,732

Total Contract Owners’ Equity	$	8,701,033		10,788,423		10,799,911		945,252		1,574,995		6,789,957		19,942,838		76,092,291		47,048,479


Units Outstanding		262,452		797,856		410,250		142,544		111,169		316,699		1,823,497		1,801,300		1,178,022

Shares Owned in each Portfolio		770,003		501,787		471,200		168,194		94,255		499,997		1,341,188		2,688,774		1,215,095

Fair Value per Share	$	11.30		21.50		22.92		5.62		16.71		13.58		14.87		28.30		38.72


(d)		Effective April 30, 2010, the AIM Variable Insurance Funds name changed to Invesco Variable Insurance Funds.

(e)		Effective April 30, 2010, name changed from AIM V.I. Financial Services Subaccount.

(f)		Effective April 30, 2010, name changed from AIM V.I. Global Health Care Subaccount.

(g)		Effective April 30, 2010, name changed from AIM V.I. Global Real Estate Subaccount.

(h)		Effective April 30, 2010, name changed from AIM V.I. Utilities Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2010


	Janus												JPMorgan
	Aspen Series												Insurance Trust
	Janus		Janus		Janus				Janus		Janus		JPMorgan		JPMorgan		JPMorgan
	Aspen		Aspen Janus -		Aspen Perkins		Janus Aspen Perkins		Aspen Worldwide		Aspen Worldwide -		Insurance Trust		Insurance Trust		Insurance Trust
	Forty		Institutional		Mid Cap Value		Small Company Value		Institutional		Service		Balanced		Core Bond		Equity Index
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount		Subaccount (i)		Subaccount		Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	1,205,840		28,348,659		5,063,419		—		47,841,928		3		—		1,683,174		349,960
Dividends and other receivables		—		—		—		—		—		—		—		—		—

Total assets		1,205,840		28,348,659		5,063,419		—		47,841,928		3		—		1,683,174		349,960

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		—		—		—		—		—		—		—		—

Contract owners’ equity	$	1,205,840		28,348,659		5,063,419		—		47,841,928		3		—		1,683,174		349,960


Accumulation period	$	1,205,840		28,252,323		5,063,419		—		47,750,093		3		—		1,683,174		349,960
Annuity period		—		96,336		—		—		91,836		—		—		—		—

Total Contract Owners’ Equity	$	1,205,840		28,348,659		5,063,419		—		47,841,928		3		—		1,683,174		349,960


Units Outstanding		91,164		1,086,131		234,843		—		1,485,843		—		—		130,762		29,833

Shares Owned in each Portfolio		33,739		1,168,535		321,691		—		1,587,850		—		—		145,856		32,018

Fair Value per Share	$	35.74		24.26		15.74		—		30.13		—		—		11.54		10.93


(i)		Cessation of operations as of April 23, 2010, JPMorgan Insurance Trust Balanced. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity
December 31, 2010


									JPMorgan
	Insurance Trust
	JPMorgan		JPMorgan		JPMorgan		JPMorgan		JPMorgan Insurance		JPMorgan		JPMorgan				JPMorgan
	Insurance Trust		Insurance Trust		Insurance Trust		Insurance Trust		Trust Mid Cap		Insurance Trust		Insurance Trust Small		JPMorgan Insurance		International
	Government Bond		International Equity		Intrepid Growth		Intrepid Mid Cap		Growth		Mid Cap Value		Cap Core		Trust U.S. Equity		Equity
	Subaccount		Subaccount		Subaccount		Subaccount		Subaccount (j)		Subaccount		Subaccount		Subaccount		Subaccount
ASSETS

Investments in underlying portfolio funds, at fair value	$	—		10,247,276		2,111		3,318,820		997,218		7,869,056		4,797,348		439,475		—
Dividends and other receivables		—		—		—		—		—		—		—		—		—

Total assets		—		10,247,276		2,111		3,318,820		997,218		7,869,056		4,797,348		439,475		—
LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—		—		—		—		—		—		—		—		—

Contract owners’ equity	$	—		10,247,276		2,111		3,318,820		997,218		7,869,056		4,797,348		439,475		—


Accumulation period	$	—		10,247,276		2,111		3,318,820		997,218		7,869,055		4,786,222		439,475		—
Annuity period		—		—		—		—		—		1		11,126		—		—

Total Contract Owners’ Equity	$	—		10,247,276		2,111		3,318,820		997,218		7,869,056		4,797,348		439,475		—


Units Outstanding		—		574,058		185		230,250		65,505		559,958		250,165		33,881		—

Shares Owned in each Portfolio		—		1,004,635		140		212,472		58,972		1,157,214		320,893		28,010		—

Fair Value per Share	$	—		10.20		15.11		15.62		16.91		6.80		14.95		15.69		—


(j)		Effective December 17, 2010, name changed from JPMorgan Insurance Trust Diversified Mid Cap Growth Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity
December 31, 2010


																		Oppenheimer
			JPMorgan							Oppenheimer								Variable Account
		Series Trust II				Variable Account Funds												Funds
										Oppenheimer								Oppenheimer
	JPMorgan			JPMorgan		Oppenheimer		Oppenheimer		Global Strategic		Oppenheimer		Oppenheimer		Oppenheimer		Small-MidCap
	MidCap			Small		Capital		Global		Income Fund		High		Main		Main Street		Growth
	Value			Company		Appreciation		Securities		VA Service		Income		Street		Small Cap		Fund VA Series
	Subaccount			Subaccount		Subaccount		Subaccount		Subaccount (k)		Subaccount		Subaccount		Subaccount		Subaccount (l)
ASSETS

Investments in underlying portfolio funds, at fair value	$	—			—		2,383,137		27,102,578		10,061,327		736,349		5,702,698		7,722,501		685,951
Dividends and other receivables		—			—		—		—		—		—		—		—		—

Total assets		—			—		2,383,137		27,102,578		10,061,327		736,349		5,702,698		7,722,501		685,951
LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities — other payables		—			—		—		—		—		—		—		—		—

Contract owners’ equity	$	—			—		2,383,137		27,102,578		10,061,327		736,349		5,702,698		7,722,501		685,951


Accumulation period	$	—			—		2,382,999		27,097,429		10,061,327		736,349		5,702,698		7,722,501		685,951
Annuity period		—			—		138		5,150		—		—		—		1		—

Total Contract Owners’ Equity	$	—			—		2,383,137		27,102,578		10,061,327		736,349		5,702,698		7,722,501		685,951


Units Outstanding		—			—		181,049		1,297,530		673,633		196,373		413,223		401,412		50,367

Shares Owned in each Portfolio		—			—		59,593		902,216		1,771,360		344,088		275,360		441,286		15,089

Fair Value per Share	$	—			—		39.99		30.04		5.68		2.14		20.71		17.50		45.46


(k)		Effective April 30, 2010, name changed from Oppenheimer Strategic Bond Subaccount.

(l)		Effective April 30, 2010, name changed from Oppenheimer Mid Cap Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Operations
For the year ended December 31, 2010


																									American Century
																									Variable Portfolios,
	Alger Portfolios																								Inc.
													Alger			Alger			Alger			Alger			American
	Alger			Alger			Alger Capital			Alger Capital			Large Cap			Mid Cap			Mid Cap			Small Cap			Century VP Income
	Balanced O			Balanced S			Appreciation O			Appreciation S			Growth I-2			Growth I-2			Growth S			Growth I-2			& Growth
	Subaccount			Subaccount (a)			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
REVENUE
Dividend income	$	1,091,193			998			203,633			3			83,612			—			—			—			154,219

EXPENSES
Mortality and expense risk charges		615,258			793			731,563			79			155,437			176,869			226			109,956			142,474


Net investment income (loss)	$	475,936			205			(527,929	)		(76	)		(71,825	)		(176,869	)		(226	)		(109,956	)		11,746


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	(1,543,441	)		2,020			1,878,448			728			352,718			(2,101,827	)		(34	)		591,375			(825,175	)
Capital gain distributions		—			—			—			—			—			—			—			—			—

Net realized gain (loss) on investments		(1,543,441	)		2,020			1,878,448			728			352,718			(2,101,827	)		(34	)		591,375			(825,175	)

Change in unrealized appreciation (depreciation) of investments		4,655,964			(1,886	)		4,564,542			247			947,407			4,350,810			2,134			1,251,931			1,998,524


Net realized and unrealized gain (loss) on investments	$	3,112,523			133			6,442,990			976			1,300,125			2,248,983			2,101			1,843,306			1,173,348


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	3,588,459			338			5,915,061			900			1,228,301			2,072,114			1,875			1,733,350			1,185,094


(a)		Cessation of operations as of November 23, 2010, Alger Balanced Portfolio Class S. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


															Dreyfus						The Dreyfus
	American Century									Credit Suisse					Investment						Socially Responsible
	Variable Portfolios, Inc.									Trust					Portfolios						Growth Fund, Inc.
	American			American			American			Credit Suisse		Credit Suisse			Dreyfus			Dreyfus						Dreyfus Socially
	Century VP Income			Century VP			Century VP			Trust International		Trust International			I.P. MidCap			I.P. MidCap			Dreyfus Socially			Responsible Growth
	& Growth II			Value			Value II			Equity Flex II		Equity Flex III			Stock A			Stock SC			Responsible Growth A			SC
	Subaccount			Subaccount			Subaccount			Subaccount		Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
REVENUE
Dividend income	$	103			436,378			74			—		41,653			519,758			13,357			48,548			11

EXPENSES
Mortality and expense risk charges		137			237,980			60			—		610,835			752,080			24,770			78,684			32

Net investment income (loss)	$	(33	)		198,398			14			—		(569,182	)		(232,322	)		(11,413	)		(30,136	)		(21	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	13			(4,889,898	)		(24	)		—		(843,827	)		(5,007,041	)		(311,940	)		123,633			2
Capital gain distributions		—			—			—			—		—			—			—			—			—

Net realized gain (loss) on investments		13			(4,889,898	)		(24	)		—		(843,827	)		(5,007,041	)		(311,940	)		123,633			2

Change in unrealized appreciation (depreciation) of investments		972			6,474,590			403			—		5,514,222			17,225,220			667,080			571,637			245


Net realized and unrealized gain (loss) on investments	$	986			1,584,692			379			—		4,670,394			12,218,179			355,140			695,270			246


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	952			1,783,089			393			—		4,101,212			11,985,857			343,727			665,134			225

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


													DWS
	Variable Series I
										DWS			DWS
	DWS			DWS			DWS			Global			Global			DWS			DWS			DWS			DWS
	Bond			Capital			Capital			Opportunities			Opportunities			Growth & Income			Growth & Income			Health Care			Health Care
	VIP			Growth VIP A			Growth VIP B			VIP A			VIP B			VIP A			VIP B			VIP A			VIP B
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
REVENUE
Dividend income	$	1,083,585			2,034,271			924			265,805			3			504,101			1,477			—			—

EXPENSES
Mortality and expense risk charges		353,315			3,121,197			3,067			937,702			73			426,709			1,960			455,178			215


Net investment income (loss)	$	730,271			(1,086,926	)		(2,144	)		(671,896	)		(71	)		77,392			(484	)		(455,178	)		(215	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	(713,319	)		(713,341	)		(517	)		(1,327,532	)		(30	)		(1,686,012	)		(2,311	)		(1,109,323	)		103
Capital gain distributions		—			—			—			—			—			—			—			2,234,286			796

Net realized gain (loss) on investments		(713,319	)		(713,341	)		(517	)		(1,327,532	)		(30	)		(1,686,012	)		(2,311	)		1,124,963			899

Change in unrealized appreciation (depreciation) of investments		1,295,982			32,412,552			25,100			16,823,104			773			5,146,965			14,457			1,254,568			(77	)


Net realized and unrealized gain (loss) on investments	$	582,663			31,699,211			24,583			15,495,572			743			3,460,953			12,146			2,379,531			821


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	1,312,933			30,612,285			22,439			14,823,676			672			3,538,346			11,662			1,924,353			606

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2010


	DWS						DWS
	Variable Series I						Variable Series II
																				DWS
	DWS			DWS			DWS		DWS			DWS			DWS			DWS		Diversified			DWS
	International			International			Balanced		Blue Chip			Blue Chip			Core Fixed			Davis Venture		International Equity			Dreman Small Mid
	VIP A			VIP B			VIP		VIP A			VIP B			Income VIP A			Value VIP		VIP			Cap Value VIP A
	Subaccount			Subaccount			Subaccount		Subaccount			Subaccount			Subaccount			Subaccount		Subaccount			Subaccount
REVENUE
Dividend income	$	955,605			1,335			5,712,133		854,443			1,920			3,150,415			—		1,290,372			1,602,932

EXPENSES
Mortality and expense risk charges		614,328			1,388			2,449,340		817,466			3,091			736,945			—		777,149			1,709,291


Net investment income (loss)	$	341,277			(52	)		3,262,793		36,977			(1,170	)		2,413,470			—		513,222			(106,359	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	(2,500,902	)		(2,391	)		1,632,443		(6,074,750	)		(1,461	)		(7,744,969	)		—		(9,228,353	)		(5,211,311	)
Capital gain distributions		—			—			—		—			—			—			—		—			—

Net realized gain (loss) on investments		(2,500,902	)		(2,391	)		1,632,443		(6,074,750	)		(1,461	)		(7,744,969	)		—		(9,228,353	)		(5,211,311	)

Change in unrealized appreciation (depreciation) of investments		1,809,833			2,083			11,632,735		12,394,087			19,765			7,943,839			—		13,584,603			29,075,981


Net realized and unrealized gain (loss) on investments	$	(691,070	)		(308	)		13,265,177		6,319,337			18,305			198,870			—		4,356,250			23,864,670


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(349,792	)		(360	)		16,527,970		6,356,314			17,134			2,612,340			—		4,869,472			23,758,311

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2010


	DWS
	Variable Series II
										DWS			DWS
	DWS			DWS			DWS			Government &			Government &		DWS			DWS			DWS		DWS
	Dreman Small Mid			Global			Global			Agency Securities VIP			Agency Securities VIP		High Income			High Income			Janus Growth &		Large Cap
	Cap Value VIP B			Thematic VIP A			Thematic VIP B			A			B		VIP A			VIP B			Income VIP		Value VIP A
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount		Subaccount			Subaccount			Subaccount		Subaccount
REVENUE
Dividend income	$	1,986			362,668			198			4,159,671			9,151		9,143,778			11,524			—		2,678,408

EXPENSES
Mortality and expense risk charges		4,195			527,381			614			1,295,967			3,859		1,565,295			2,853			—		1,842,653

Net investment income (loss)	$	(2,209	)		(164,713	)		(415	)		2,863,704			5,291		7,578,483			8,670			—		835,755


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	(21,867	)		(6,552,668	)		(412	)		2,422,191			827		(931,905	)		(5,587	)		—		(4,108,882	)
Capital gain distributions		—			—			—			—			—		—			—			—		—

Net realized gain (loss) on investments		(21,867	)		(6,552,668	)		(412	)		2,422,191			827		(931,905	)		(5,587	)		—		(4,108,882	)

Change in unrealized appreciation (depreciation) of investments		66,138			10,844,182			4,832			(599,907	)		2,679		6,807,205			12,722			—		14,427,100


Net realized and unrealized gain (loss) on investments	$	44,271			4,291,514			4,420			1,822,284			3,505		5,875,300			7,135			—		10,318,218


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	42,062			4,126,801			4,004			4,685,988			8,797		13,453,783			15,805			—		11,153,973

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


	DWS
	Variable Series II
	DWS			DWS			DWS			DWS			DWS								DWS			DWS
	Large Cap			Mid Cap			Money Market			Small Cap Growth			Strategic		DWS			DWS			Technology			Technology
	Value VIP B			Growth VIP			VIP			VIP			Income VIP		Strategic Value VIP A			Strategic Value VIP B			VIP A			VIP B
	Subaccount			Subaccount			Subaccount (b)			Subaccount			Subaccount		Subaccount			Subaccount			Subaccount			Subaccount
REVENUE
Dividend income	$	2,906			—			11,076			—			2,901,720		2,966,774			2,748			18,428			—

EXPENSES
Mortality and expense risk charges		3,119			204,069			1,595,176			746,355			633,682		2,120,370			3,186			634,402			417

Net investment income (loss)	$	(213	)		(204,069	)		(1,584,100	)		(746,355	)		2,268,038		846,404			(438	)		(615,974	)		(417	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	(14,630	)		(214,355	)		—			442,125			238,415		(21,780,279	)		(35,849	)		1,281,736			150
Capital gain distributions		—			—			—			—			—		—			—			—			—

Net realized gain (loss) on investments		(14,630	)		(214,355	)		—			442,125			238,415		(21,780,279	)		(35,849	)		1,281,736			150

Change in unrealized appreciation (depreciation) of investments		28,459			3,760,777			—			13,424,591			1,144,239		35,705,709			50,053			5,930,796			3,408


Net realized and unrealized gain (loss) on investments	$	13,829			3,546,423			—			13,866,716			1,382,653		13,925,430			14,204			7,212,532			3,557


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	13,616			3,342,354			(1,584,100	)		13,120,361			3,650,691		14,771,834			13,767			6,596,559			3,140


(b)		Effective December 17, 2010, DWS Money Market VIP Subaccount merged with Franklin Zero Coupon 2010. Previous to this date effective November 23, 2010, Subaccount merged with Alger Balanced Portfolio CL S. Previous to this date effective April 23, 2010, Subaccount merged with JPMorgan Insurance Trust Balanced.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


	DWS			DWS												Fidelity
	Variable Series II			Investments VIT Funds						Variable Insurance Products Funds
	DWS			DWS			DWS			Fidelity			Fidelity			Fidelity			Fidelity			Fidelity			Fidelity
	Turner Mid Cap			Equity 500			Equity 500			VIP			VIP			VIP			VIP			VIP			VIP
	Growth VIP			Index VIP A			Index VIP B2			Asset Manager			Contrafund			Contrafund 2			Equity Income			Equity Income 2			Growth
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
REVENUE
Dividend income	$	5,815			1,406,990			284			85,307			810,000			156			466,825			86			62,219

EXPENSES
Mortality and expense risk charges		544,163			1,050,976			350			70,038			902,831			253			359,418			88			318,442


Net investment income (loss)	$	(538,348	)		356,014			(66	)		15,268			(92,831	)		(97	)		107,407			(1	)		(256,223	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	(2,592,413	)		(1,112,192	)		(468	)		(65,732	)		(2,704,576	)		40			(1,540,608	)		(22	)		1,007,261
Capital gain distributions		—			—			—			25,624			29,406			7			—			—			76,364

Net realized gain (loss) on investments		(2,592,413	)		(1,112,192	)		(468	)		(40,108	)		(2,675,170	)		47			(1,540,608	)		(22	)		1,083,625

Change in unrealized appreciation (depreciation) of investments		12,602,383			9,796,696			2,524			639,022			12,474,690			2,243			4,762,032			689			3,823,082


Net realized and unrealized gain (loss) on investments	$	10,009,970			8,684,504			2,057			598,914			9,799,519			2,289			3,221,424			667			4,906,707


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	9,471,622			9,040,518			1,990			614,182			9,706,688			2,193			3,328,831			665			4,650,484

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


																						Franklin Templeton
	Fidelity					Franklin Templeton																Variable Insurance
	Variable Insurance Products Funds					Variable Insurance Products Trust																Products Trust
	Fidelity		Fidelity			Franklin			Franklin			Franklin		Franklin		Franklin			Mutual			Mutual
	VIP		VIP			Rising Dividends			Small Cap Value			Strategic Income		U.S.		Zero Coupon			Global Discovery			Shares
	Index 500		Index 500 SC			Securities			Securities			Securities		Government		2010			Securities			Securities
	Subaccount		Subaccount			Subaccount			Subaccount			Subaccount		Subaccount		Subaccount (c)			Subaccount			Subaccount
REVENUE

Dividend income	$	1,075,273		59,474			99,309			41,845			505,582		157,306		577,248			276,506			98,878

EXPENSES

Mortality and expense risk charges		774,066		55,507			82,830			73,848			147,471		64,021		81,051			294,431			88,889


Net investment income (loss)	$	301,208		3,967			16,479			(32,003	)		358,111		93,284		496,198			(17,925	)		9,989


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	1,784,150		(86,949	)		(132,743	)		(409,693	)		78,326		84,082		(868,305	)		239,662			(636,066	)

Capital gain distributions		1,114,507		72,017			—			—			—		—		260,207			—			—

Net realized gain (loss) on investments		2,898,657		(14,932	)		(132,743	)		(409,693	)		78,326		84,082		(608,098	)		239,662			(636,066	)

Change in unrealized appreciation (depreciation) of investments		3,961,486		440,074			1,192,891			1,705,466			520,837		8,526		34,564			1,965,290			1,222,699


Net realized and unrealized gain (loss) on investments	$	6,860,144		425,142			1,060,148			1,295,773			599,163		92,608		(573,534	)		2,204,952			586,632


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	7,161,351		429,109			1,076,627			1,263,770			957,274		185,892		(77,336	)		2,187,027			596,621


(c)		Cessation of operations as of December 17, 2010, Franklin Zero Coupon 2010. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


	Franklin Templeton			ING			ING
	Variable Insurance			Global Resources			Investors															Janus
	Products Trust			Trust			Trust			Invesco Variable Insurance Funds (d)												Aspen Series
							ING JPMorgan			Invesco			Invesco			Invesco						Janus		Janus
	Templeton Developing			ING Global Resources			Emerging Markets			Financial Services			Global			Global			Invesco			Aspen		Aspen Enterprise -
	Markets Securities			Trust			Equity			Fund			Health Care			Real Estate			Utilities			Balanced		Institutional
	Subaccount			Subaccount			Subaccount			Subaccount (e)			Subaccount (f)			Subaccount (g)			Subaccount (h)			Subaccount		Subaccount
REVENUE

Dividend income	$	125,610			89,851			74,270			944			—			322,006			724,459			2,148,147		28,697

EXPENSES

Mortality and expense risk charges		108,493			125,147			133,166			11,658			22,298			88,591			284,956			1,035,408		585,000


Net investment income (loss)	$	17,118			(35,296	)		(58,896	)		(10,715	)		(22,298	)		233,415			439,503			1,112,738		(556,303	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	(545,051	)		(579,732	)		679,950			68,569			(143,164	)		(1,887,662	)		(3,368,449	)		2,648,444		3,026,222

Capital gain distributions		—			—			563,257			—			—			—			—			—		—

Net realized gain (loss) on investments		(545,051	)		(579,732	)		1,243,208			68,569			(143,164	)		(1,887,662	)		(3,368,449	)		2,648,444		3,026,222

Change in unrealized appreciation (depreciation) of investments		1,710,372			2,354,484			539,295			(26,597	)		221,355			2,616,179			3,779,768			1,316,116		6,877,511


Net realized and unrealized gain (loss) on investments	$	1,165,321			1,774,751			1,782,502			41,972			78,190			728,517			411,319			3,964,561		9,903,733


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	1,182,439			1,739,455			1,723,606			31,258			55,893			961,932			850,822			5,077,299		9,347,430


(d)		Effective April 30, 2010, the AIM Variable Insurance Funds name changed to Invesco Variable Insurance Funds.

(e)		Effective April 30, 2010, name changed from AIM V.I. Financial Services Subaccount.

(f)		Effective April 30, 2010, name changed from AIM V.I. Global Health Care Subaccount.

(g)		Effective April 30, 2010, name changed from AIM V.I. Global Real Estate Subaccount.

(h)		Effective April 30, 2010, name changed from AIM V.I. Utilities Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


	Janus																	JPMorgan
	Aspen Series																	Insurance Trust
	Janus			Janus			Janus					Janus			Janus			JPMorgan			JPMorgan		JPMorgan
	Aspen			Aspen Janus -			Aspen Perkins			Janus Aspen Perkins		Aspen Worldwide			Aspen Worldwide -			Insurance Trust			Insurance Trust		Insurance Trust
	Forty			Institutional			Mid Cap Value			Small Company Value		Institutional			Service			Balanced			Core Bond		Equity Index
	Subaccount			Subaccount			Subaccount			Subaccount		Subaccount			Subaccount			Subaccount (i)			Subaccount		Subaccount
REVENUE

Dividend income	$	4,108			297,317			24,456			—		277,936			4			—			55,081		2,126

EXPENSES

Mortality and expense risk charges		17,309			380,450			66,897			—		630,213			14			321			23,114		2,168


Net investment income (loss)	$	(13,201	)		(83,132	)		(42,442	)		—		(352,278	)		(10	)		(321	)		31,967		(41	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	27,577			1,259,140			(176,021	)		—		858,505			(36	)		3,824			16,328		7,344

Capital gain distributions		—			—			—			—		—			—			—			—		—

Net realized gain (loss) on investments		27,577			1,259,140			(176,021	)		—		858,505			(36	)		3,824			16,328		7,344

Change in unrealized appreciation (depreciation) of investments		46,466			2,143,444			855,811			—		5,590,300			56			703			58,978		20,724


Net realized and unrealized gain (loss) on investments	$	74,043			3,402,583			679,789			—		6,448,805			20			4,527			75,306		28,069


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	60,842			3,319,451			637,347			—		6,096,528			10			4,206			107,273		28,027


(i)		Cessation of operations as of April 23, 2010, JPMorgan Insurance Trust Balanced. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


	JPMorgan
	Insurance Trust
	JPMorgan		JPMorgan			JPMorgan			JPMorgan			JPMorgan Insurance			JPMorgan			JPMorgan						JPMorgan
	Insurance Trust		Insurance Trust			Insurance Trust			Insurance Trust			Trust Mid Cap			Insurance Trust			Insurance Trust Small			JPMorgan Insurance			International
	Government Bond		International Equity			Intrepid Growth			Intrepid Mid Cap			Growth			Mid Cap Value			Cap Core			Trust U.S. Equity			Equity
	Subaccount		Subaccount			Subaccount			Subaccount			Subaccount (j)			Subaccount			Subaccount			Subaccount			Subaccount
REVENUE

Dividend income	$	—		25,899			158			41,898			—			93,681			—			5,446			—

EXPENSES

Mortality and expense risk charges		—		141,816			149			42,156			12,687			100,910			62,591			6,681			—


Net investment income (loss)	$	—		(115,917	)		9			(258	)		(12,687	)		(7,229	)		(62,591	)		(1,234	)		—


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	—		(555,718	)		(456	)		(225,565	)		(78,080	)		(37,984	)		(186,440	)		(70,816	)		—

Capital gain distributions		—		—			—			—			—			—			—			—			—

Net realized gain (loss) on investments		—		(555,718	)		(456	)		(225,565	)		(78,080	)		(37,984	)		(186,440	)		(70,816	)		—

Change in unrealized appreciation (depreciation) of investments		—		1,147,606			(119	)		726,499			298,490			1,566,446			1,249,737			123,322			—


Net realized and unrealized gain (loss) on investments	$	—		591,888			(575	)		500,934			220,409			1,528,463			1,063,297			52,506			—


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	—		475,971			(566	)		500,675			207,722			1,521,234			1,000,706			51,272			—


(j)		Effective December 17, 2010, name changed from JPMorgan Insurance Trust Diversified Mid Cap Growth Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Operations
For the year ended December 31, 2010


																							Oppenheimer
	JPMorgan				Oppenheimer																		Variable Account
	Series Trust II				Variable Account Funds																		Funds
											Oppenheimer												Oppenheimer
	JPMorgan		JPMorgan		Oppenheimer			Oppenheimer			Global Strategic			Oppenheimer			Oppenheimer			Oppenheimer			Small-MidCap
	MidCap		Small		Capital			Global			Income Fund			High			Main			Main Street			Growth
	Value		Company		Appreciation			Securities			VA Service			Income			Street			Small Cap			Fund VA Series
	Subaccount		Subaccount		Subaccount			Subaccount			Subaccount (k)			Subaccount			Subaccount			Subaccount			Subaccount (l)
REVENUE

Dividend income	$	—		—		—			340,604			735,753			54,685			51,135			31,196			—

EXPENSES

Mortality and expense risk charges		—		—		34,470			358,173			126,718			10,869			76,464			101,783			7,355


Net investment income (loss)	$	—		—		(34,470	)		(17,568	)		609,036			43,815			(25,328	)		(70,588	)		(7,355	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

Net realized gain (loss) on sale of investments	$	—		—		(72,584	)		(1,356,704	)		(83,364	)		(438,674	)		(292,963	)		(416,753	)		(61,036	)

Capital gain distributions		—		—		—			—			—			—			—			—			—

Net realized gain (loss) on investments		—		—		(72,584	)		(1,356,704	)		(83,364	)		(438,674	)		(292,963	)		(416,753	)		(61,036	)

Change in unrealized appreciation (depreciation) of investments		—		—		268,524			4,830,405			592,587			488,352			1,038,365			1,885,730			197,175


Net realized and unrealized gain (loss) on investments	$	—		—		195,940			3,473,701			509,222			49,679			745,402			1,468,977			136,140


Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	—		—		161,470			3,456,133			1,118,258			93,494			720,074			1,398,389			128,785


(k)		Effective April 30, 2010, name changed from Oppenheimer Strategic Bond Subaccount.

(l)		Effective April 30, 2010, name changed from Oppenheimer Mid Cap Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


																									American Century
																									Variable Portfolios,
	Alger Portfolios																								Inc.
													Alger			Alger			Alger			Alger			American
	Alger			Alger			Alger Capital			Alger Capital			Large Cap			Mid Cap			Mid Cap			Small Cap			Century VP Income
	Balanced O			Balanced S			Appreciation O			Appreciation S			Growth I-2			Growth I-2			Growth S			Growth I-2			& Growth
	Subaccount			Subaccount (a)			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	475,936			205			(527,929	)		(76	)		(71,825	)		(176,869	)		(226	)		(109,956	)		11,746

Net realized gain (loss) on investments		(1,543,441	)		2,020			1,878,448			728			352,718			(2,101,827	)		(34	)		591,375			(825,175	)

Change in unrealized appreciation (depreciation) of investments		4,655,964			(1,886	)		4,564,542			247			947,407			4,350,810			2,134			1,251,931			1,998,524


Net increase (decrease) in contract owners’ equity resulting from operations		3,588,459			338			5,915,061			900			1,228,301			2,072,114			1,875			1,733,350			1,185,094


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		298,220			—			1,299,689			—			362,833			443,596			25			276,566			291,495
Net transfer (to) from affiliate and subaccounts		(1,310,362	)		(48,578	)		(908,806	)		(746	)		(549,177	)		(695,547	)		—			(622,314	)		(634,612	)
Payments for redemptions		(5,713,928	)		(8,058	)		(5,170,351	)		—			(1,280,640	)		(1,474,867	)		—			(1,207,599	)		(1,432,234	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(101,257	)		—			(121,333	)		—			—			—			—			—			—
Annuity payout reserve adjustment		(1,406	)		—			—			—			(2	)		—			—			(4	)		(1	)


Net increase (decrease) from contract owners’ equity transactions		(6,828,733	)		(56,636	)		(4,900,800	)		(746	)		(1,466,986	)		(1,726,819	)		25			(1,553,351	)		(1,775,352	)


Total increase (decrease) in contract owners’ equity		(3,240,274	)		(56,298	)		1,014,261			154			(238,685	)		345,295			1,900			179,999			(590,258	)


CONTRACT OWNERS’ EQUITY

Beginning of period		45,476,716			56,298			53,306,719			1,382			11,580,482			13,152,385			11,264			8,383,941			11,009,842


End of period	$	42,236,442			—			54,320,980			1,536			11,341,797			13,497,680			13,164			8,563,941			10,419,584

(a) Cessation of operations as of November 23, 2010, Alger Balanced Portfolio Class S. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


															Dreyfus						The Dreyfus
	American Century									Credit Suisse					Investment						Socially Responsible
	Variable Portfolios, Inc.									Trust					Portfolios						Growth Fund, Inc.
	American			American			American			Credit Suisse		Credit Suisse			Dreyfus			Dreyfus						Dreyfus Socially
	Century VP Income			Century VP			Century VP			Trust International		Trust International			I.P. MidCap			I.P. MidCap			Dreyfus Socially			Responsible Growth
	& Growth II			Value			Value II			Equity Flex II		Equity Flex III			Stock A			Stock SC			Responsible Growth A			SC
	Subaccount			Subaccount			Subaccount			Subaccount		Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	(33	)		198,398			14			—		(569,182	)		(232,322	)		(11,413	)		(30,136	)		(21	)

Net realized gain (loss) on investments		13			(4,889,898	)		(24	)		—		(843,827	)		(5,007,041	)		(311,940	)		123,633			2

Change in unrealized appreciation (depreciation) of investments		972			6,474,590			403			—		5,514,222			17,225,220			667,080			571,637			245


Net increase (decrease) in contract owners’ equity resulting from operations		952			1,783,089			393			—		4,101,212			11,985,857			343,727			665,134			225


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		—			894,772			—			—		1,076,089			638,183			63,087			153,389			—
Net transfer (to) from affiliate and subaccounts		—			4,606,631			—			—		(3,392,683	)		195,163			428,238			(104,105	)		55
Payments for redemptions		—			(2,253,560	)		—			—		(5,115,511	)		(5,556,850	)		(219,757	)		(696,305	)		—
Guaranteed retirement income benefit, maintenance fees, and other fees		—			—			—			—		(93,792	)		(127,311	)		—			(7,385	)		—
Annuity payout reserve adjustment		—			16			—			—		60			(668	)		—			—			—


Net increase (decrease) from contract owners’ equity transactions		—			3,247,859			—			—		(7,525,838	)		(4,851,484	)		271,568			(654,406	)		55


Total increase (decrease) in contract owners’ equity		952			5,030,949			393			—		(3,424,626	)		7,134,373			615,295			10,728			280


CONTRACT OWNERS’ EQUITY

Beginning of period		7,964			15,777,736			3,525			—		47,351,470			51,604,371			1,394,767			5,713,550			1,748


End of period	$	8,917			20,808,685			3,919			—		43,926,844			58,738,744			2,010,062			5,724,278			2,028

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	DWS
	Variable Series I
										DWS			DWS
	DWS			DWS			DWS			Global			Global			DWS			DWS			DWS			DWS
	Bond			Capital			Capital			Opportunities			Opportunities			Growth & Income			Growth & Income			Health Care			Health Care
	VIP			Growth VIP A			Growth VIP B			VIP A			VIP B			VIP A			VIP B			VIP A			VIP B
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	730,271			(1,086,926	)		(2,144	)		(671,896	)		(71	)		77,392			(484	)		(455,178	)		(215	)

Net realized gain (loss) on investments		(713,319	)		(713,341	)		(517	)		(1,327,532	)		(30	)		(1,686,012	)		(2,311	)		1,124,963			899

Change in unrealized appreciation (depreciation) of investments		1,295,982			32,412,552			25,100			16,823,104			773			5,146,965			14,457			1,254,568			(77	)


Net increase (decrease) in contract owners’ equity resulting from operations		1,312,933			30,612,285			22,439			14,823,676			672			3,538,346			11,662			1,924,353			606


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		321,752			2,138,524			—			1,476,302			—			250,057			2,473			700,056			—
Net transfer (to) from affiliate and subaccounts		1,325,695			(11,063,254	)		(7,849	)		(908,638	)		—			(1,249,188	)		(856	)		(1,672,006	)		—
Payments for redemptions		(3,589,119	)		(24,898,250	)		(3,220	)		(6,559,951	)		—			(3,234,136	)		(14,568	)		(3,483,361	)		(750	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(36,775	)		(361,387	)		—			(156,846	)		—			(55,534	)		—			(75,388	)		—
Annuity payout reserve adjustment		1			(35,255	)		—			(267	)		—			(335	)		—			(27	)		—


Net increase (decrease) from contract owners’ equity transactions		(1,978,447	)		(34,219,622	)		(11,070	)		(6,149,400	)		—			(4,289,136	)		(12,951	)		(4,530,726	)		(750	)


Total increase (decrease) in contract owners’ equity		(665,513	)		(3,607,337	)		11,370			8,674,276			672			(750,790	)		(1,289	)		(2,606,373	)		(144	)


CONTRACT OWNERS’ EQUITY

Beginning of period		25,103,188			232,977,134			165,528			65,646,182			2,885			31,677,487			108,158			33,548,300			11,694


End of period	$	24,437,674			229,369,796			176,898			74,320,458			3,557			30,926,698			106,869			30,941,928			11,550

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	DWS															DWS
	Variable Series I															Variable Series II
																					DWS
	DWS			DWS			DWS			DWS			DWS			DWS			DWS		Diversified			DWS
	International			International			Balanced			Blue Chip			Blue Chip			Core Fixed			Davis Venture		International Equity			Dreman Small Mid
	VIP A			VIP B			VIP			VIP A			VIP B			Income VIP A			Value VIP		VIP			Cap Value VIP A
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount		Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	341,277			(52	)		3,262,793			36,977			(1,170	)		2,413,470			—		513,222			(106,359	)

Net realized gain (loss) on investments		(2,500,902	)		(2,391	)		1,632,443			(6,074,750	)		(1,461	)		(7,744,969	)		—		(9,228,353	)		(5,211,311	)

Change in unrealized appreciation (depreciation) of investments		1,809,833			2,083			11,632,735			12,394,087			19,765			7,943,839			—		13,584,603			29,075,981


Net increase (decrease) in contract owners’ equity resulting from operations		(349,792	)		(360	)		16,527,970			6,356,314			17,134			2,612,340			—		4,869,472			23,758,311


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		430,714			—			1,139,298			456,832			—			409,666			—		434,765			1,988,430
Net transfer (to) from affiliate and subaccounts		(1,987,840	)		2,568			(1,575,280	)		(2,342,907	)		(1,129	)		1,588,890			—		(447,433	)		(5,656,011	)
Payments for redemptions		(5,135,436	)		(7,998	)		(20,046,147	)		(6,840,413	)		(13,379	)		(8,444,205	)		—		(5,997,858	)		(12,679,754	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(90,812	)		—			(96,672	)		(125,350	)		—			(94,475	)		—		(78,013	)		(212,802	)
Annuity payout reserve adjustment		(757	)		—			(1,260	)		(1,614	)		—			14,805			—		1,587			(1,347	)


Net increase (decrease) from contract owners’ equity transactions		(6,784,132	)		(5,430	)		(20,580,062	)		(8,853,451	)		(14,508	)		(6,525,319	)		—		(6,086,952	)		(16,561,483	)


Total increase (decrease) in contract owners’ equity		(7,133,924	)		(5,790	)		(4,052,091	)		(2,497,138	)		2,627			(3,912,979	)		—		(1,217,481	)		7,196,828


CONTRACT OWNERS’ EQUITY

Beginning of period		49,298,591			77,410			184,859,782			60,769,289			163,963			51,809,335			—		60,283,816			124,831,149


End of period	$	42,164,667			71,620			180,807,691			58,272,151			166,590			47,896,356			—		59,066,335			132,027,978

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	DWS
	Variable Series II
										DWS			DWS
	DWS			DWS			DWS			Government &			Government &			DWS			DWS			DWS		DWS
	Dreman Small Mid			Global			Global			Agency Securities VIP			Agency Securities VIP			High Income			High Income			Janus Growth &		Large Cap
	Cap Value VIP B			Thematic VIP A			Thematic VIP B			A			B			VIP A			VIP B			Income VIP		Value VIP A
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount		Subaccount
OPERATIONS

Net investment income (loss)	$	(2,209	)		(164,713	)		(415	)		2,863,704			5,291			7,578,483			8,670			—		835,755

Net realized gain (loss) on investments		(21,867	)		(6,552,668	)		(412	)		2,422,191			827			(931,905	)		(5,587	)		—		(4,108,882	)

Change in unrealized appreciation (depreciation) of investments		66,138			10,844,182			4,832			(599,907	)		2,679			6,807,205			12,722			—		14,427,100


Net increase (decrease) in contract owners’ equity resulting from operations		42,062			4,126,801			4,004			4,685,988			8,797			13,453,783			15,805			—		11,153,973


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		—			758,866			3,297			699,613			5,769			809,350			—			—		1,828,945
Net transfer (to) from affiliate and subaccounts		(7,466	)		(1,375,763	)		(1	)		6,692,491			2,432			780,787			(8,849	)		—		(7,078,622	)
Payments for redemptions		(13,087	)		(3,975,663	)		—			(14,291,058	)		(12,154	)		(12,957,565	)		(13,402	)		—		(13,764,406	)
Guaranteed retirement income benefit, maintenance fees, and other fees		—			(87,648	)		—			(156,144	)		—			(147,642	)		—			—		(258,007	)
Annuity payout reserve adjustment		—			(431	)		—			5,591			—			10,476			—			—		(5,712	)


Net increase (decrease) from contract owners’ equity transactions		(20,553	)		(4,680,639	)		3,296			(7,049,507	)		(3,952	)		(11,504,594	)		(22,250	)		—		(19,277,804	)


Total increase (decrease) in contract owners’ equity		21,509			(553,838	)		7,300			(2,363,519	)		4,845			1,949,189			(6,445	)		—		(8,123,831	)


CONTRACT OWNERS’ EQUITY

Beginning of period		213,882			39,415,843			32,413			89,665,398			203,715			117,072,380			150,605			—		139,216,695

End of period	$	235,392			38,862,005			39,713			87,301,879			208,559			119,021,569			144,160			—		131,092,864

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	DWS
	Variable Series II
	DWS			DWS			DWS			DWS			DWS									DWS			DWS
	Large Cap			Mid Cap			Money Market			Small Cap Growth			Strategic			DWS			DWS			Technology			Technology
	Value VIP B			Growth VIP			VIP			VIP			Income VIP			Strategic Value VIP A			Strategic Value VIP B			VIP A			VIP B
	Subaccount			Subaccount			Subaccount (b)			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	(213	)		(204,069	)		(1,584,100	)		(746,355	)		2,268,038			846,404			(438	)		(615,974	)		(417	)

Net realized gain (loss) on investments		(14,630	)		(214,355	)		—			442,125			238,415			(21,780,279	)		(35,849	)		1,281,736			150

Change in unrealized appreciation (depreciation) of investments		28,459			3,760,777			—			13,424,591			1,144,239			35,705,709			50,053			5,930,796			3,408


Net increase (decrease) in contract owners’ equity resulting from operations		13,616			3,342,354			(1,584,100	)		13,120,361			3,650,691			14,771,834			13,767			6,596,559			3,140


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		—			116,766			2,180,906			961,366			236,098			1,783,652			—			701,823			—
Net transfer (to) from affiliate and subaccounts		(767	)		630,187			15,866,342			(2,039,868	)		2,454,673			(11,122,963	)		64			(3,912,164	)		(11,152	)
Payments for redemptions		(21,206	)		(1,460,405	)		(50,486,824	)		(6,260,498	)		(5,476,646	)		(16,527,325	)		(31,853	)		(4,431,697	)		(719	)
Guaranteed retirement income benefit, maintenance fees, and other fees		—			(33,206	)		(179,947	)		(78,591	)		(106,497	)		(342,564	)		—			(96,102	)		—
Annuity payout reserve adjustment		—			—			(25,338	)		(153	)		308			(7,221	)		—			(1,254	)		—


Net increase (decrease) from contract owners’ equity transactions		(21,973	)		(746,658	)		(32,644,861	)		(7,417,743	)		(2,892,065	)		(26,216,421	)		(31,789	)		(7,739,393	)		(11,871	)


Total increase (decrease) in contract owners’ equity		(8,357	)		2,595,696			(34,228,961	)		5,702,618			758,627			(11,444,586	)		(18,023	)		(1,142,835	)		(8,731	)


CONTRACT OWNERS’ EQUITY

Beginning of period		177,987			14,235,310			128,277,232			53,435,628			44,202,592			159,343,237			170,565			47,418,234			24,501

End of period	$	169,630			16,831,006			94,048,272			59,138,246			44,961,218			147,898,651			152,542			46,275,399			15,771


(b)		Effective December 17, 2010, DWS Money Market VIP Subaccount merged with Franklin Zero Coupon 2010. Previous to this date effective November 23, 2010, Subaccount merged with Alger Balanced Portfolio CL S. Previous to this date effective April 23, 2010, Subaccount merged with JPMorgan Insurance Trust Balanced.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	DWS			DWS						Fidelity
	Variable Series II			Investments VIT Funds						Variable Insurance Products Funds
	DWS			DWS			DWS			Fidelity			Fidelity			Fidelity			Fidelity			Fidelity			Fidelity
	Turner Mid Cap			Equity 500			Equity 500			VIP			VIP			VIP			VIP			VIP			VIP
	Growth VIP			Index VIP A			Index VIP B2			Asset Manager			Contrafund			Contrafund 2			Equity Income			Equity Income 2			Growth
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	(538,348	)		356,014			(66	)		15,268			(92,831	)		(97	)		107,407			(1	)		(256,223	)

Net realized gain (loss) on investments		(2,592,413	)		(1,112,192	)		(468	)		(40,108	)		(2,675,170	)		47			(1,540,608	)		(22	)		1,083,625

Change in unrealized appreciation (depreciation) of investments		12,602,383			9,796,696			2,524			639,022			12,474,690			2,243			4,762,032			689			3,823,082


Net increase (decrease) in contract owners’ equity resulting from operations		9,471,622			9,040,518			1,990			614,182			9,706,688			2,193			3,328,831			665			4,650,484


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		1,211,584			720,495			—			88,386			1,753,896			—			747,105			—			606,603
Net transfer (to) from affiliate and subaccounts		(1,270,071	)		(869,170	)		188			(141,600	)		(4,382,132	)		—			(1,211,199	)		—			(2,462,750	)
Payments for redemptions		(3,152,467	)		(7,379,761	)		(2,531	)		(769,139	)		(7,644,987	)		—			(3,489,946	)		—			(2,905,212	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(93,505	)		(174,332	)		—			—			—			—			—			—			—
Annuity payout reserve adjustment		(940	)		(741	)		—			651			1,625			—			258			—			75


Net increase (decrease) from contract owners’ equity transactions		(3,305,399	)		(7,703,508	)		(2,344	)		(821,701	)		(10,271,598	)		—			(3,953,782	)		—			(4,761,284	)


Total increase (decrease) in contract owners’ equity		6,166,223			1,337,010			(353	)		(207,519	)		(564,910	)		2,193			(624,951	)		665			(110,800	)


CONTRACT OWNERS’ EQUITY

Beginning of period		37,859,105			75,091,323			18,588			5,485,972			71,262,692			14,643			27,892,197			5,116			25,278,954

End of period	$	44,025,328			76,428,333			18,235			5,278,454			70,697,782			16,836			27,267,245			5,781			25,168,154

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


																									Franklin Templeton
	Fidelity						Franklin Templeton																		Variable Insurance
	Variable Insurance Products Funds						Variable Insurance Products Trust																		Products Trust
	Fidelity			Fidelity			Franklin			Franklin			Franklin			Franklin			Franklin			Mutual			Mutual
	VIP			VIP			Rising Dividends			Small Cap Value			Strategic Income			U.S.			Zero Coupon			Global Discovery			Shares
	Index 500			Index 500 SC			Securities			Securities			Securities			Government			2010			Securities			Securities
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount (c)			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	301,208			3,967			16,479			(32,003	)		358,111			93,284			496,198			(17,925	)		9,989

Net realized gain (loss) on investments		2,898,657			(14,932	)		(132,743	)		(409,693	)		78,326			84,082			(608,098	)		239,662			(636,066	)

Change in unrealized appreciation (depreciation) of investments		3,961,486			440,074			1,192,891			1,705,466			520,837			8,526			34,564			1,965,290			1,222,699


Net increase (decrease) in contract owners’ equity resulting from operations		7,161,351			429,109			1,076,627			1,263,770			957,274			185,892			(77,336	)		2,187,027			596,621


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		1,455,473			61,922			159,891			199,727			360,478			138,680			143,803			728,157			258,957
Net transfer (to) from affiliate and subaccounts		(1,740,654	)		(627,068	)		411,246			714,680			1,703,622			109,952			(6,121,759	)		316,005			357,589
Payments for redemptions		(6,937,960	)		(361,711	)		(806,555	)		(511,663	)		(2,086,413	)		(703,074	)		(1,154,248	)		(2,989,815	)		(1,000,185	)
Guaranteed retirement income benefit, maintenance fees, and other fees		—			—			—			—			—			—			—			—			—
Annuity payout reserve adjustment		(3,920	)		—			290			—			184			—			—			235			(21	)


Net increase (decrease) from contract owners’ equity transactions		(7,227,061	)		(926,857	)		(235,128	)		402,743			(22,129	)		(454,442	)		(7,132,204	)		(1,945,417	)		(383,661	)


Total increase (decrease) in contract owners’ equity		(65,710	)		(497,748	)		841,499			1,666,513			935,145			(268,550	)		(7,209,540	)		241,610			212,960


CONTRACT OWNERS’ EQUITY

Beginning of period		59,133,776			4,196,489			5,791,813			4,700,975			10,026,216			4,671,833			7,209,540			22,303,957			6,634,532

End of period	$	59,068,067			3,698,741			6,633,312			6,367,489			10,961,360			4,403,283			—			22,545,566			6,847,492


(c)		Cessation of operations as of December 17, 2010, Franklin Zero Coupon 2010. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	Franklin Templeton			ING			ING
	Variable Insurance			Global Resources			Investors															Janus
	Products Trust			Trust			Trust			Invesco Variable Insurance Funds (d)												Aspen Series
							ING JPMorgan			Invesco			Invesco			Invesco						Janus			Janus
	Templeton Developing			ING Global Resources			Emerging Markets			Financial Services			Global			Global			Invesco			Aspen			Aspen Enterprise -
	Markets Securities			Trust			Equity			Fund			Health Care			Real Estate			Utilities			Balanced			Institutional
	Subaccount			Subaccount			Subaccount			Subaccount (e)			Subaccount (f)			Subaccount (g)			Subaccount (h)			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	17,118			(35,296	)		(58,896	)		(10,715	)		(22,298	)		233,415			439,503			1,112,738			(556,303	)

Net realized gain (loss) on investments		(545,051	)		(579,732	)		1,243,208			68,569			(143,164	)		(1,887,662	)		(3,368,449	)		2,648,444			3,026,222

Change in unrealized appreciation (depreciation) of investments		1,710,372			2,354,484			539,295			(26,597	)		221,355			2,616,179			3,779,768			1,316,116			6,877,511


Net increase (decrease) in contract owners’ equity resulting from operations		1,182,439			1,739,455			1,723,606			31,258			55,893			961,932			850,822			5,077,299			9,347,430


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		196,647			262,719			141,080			56,706			43,115			227,979			318,171			1,869,002			931,676
Net transfer (to) from affiliate and subaccounts		189,348			(76,814	)		(129,006	)		255,652			(30,449	)		(307,703	)		(852,850	)		(732,558	)		(622,084	)
Payments for redemptions		(788,039	)		(1,018,347	)		(1,362,103	)		(122,156	)		(179,429	)		(831,422	)		(2,508,062	)		(10,019,170	)		(5,426,809	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(6	)		—			—			—			—			—			(39,399	)		—			—
Annuity payout reserve adjustment		265			(25	)		493			—			—			(5	)		(437	)		20,408			208


Net increase (decrease) from contract owners’ equity transactions		(401,786	)		(832,467	)		(1,349,537	)		190,202			(166,763	)		(911,151	)		(3,082,576	)		(8,862,317	)		(5,117,010	)


Total increase (decrease) in contract owners’ equity		780,653			906,988			374,069			221,460			(110,870	)		50,780			(2,231,754	)		(3,785,018	)		4,230,420


CONTRACT OWNERS’ EQUITY

Beginning of period		7,920,380			9,881,435			10,425,842			723,792			1,685,866			6,739,176			22,174,592			79,877,309			42,818,059


End of period	$	8,701,033			10,788,423			10,799,911			945,252			1,574,995			6,789,957			19,942,838			76,092,291			47,048,479


(d)		Effective April 30, 2010, the AIM Variable Insurance Funds name changed to Invesco Variable Insurance Funds.

(e)		Effective April 30, 2010, name changed from AIM V.I. Financial Services Subaccount.

(f)		Effective April 30, 2010, name changed from AIM V.I. Global Health Care Subaccount.

(g)		Effective April 30, 2010, name changed from AIM V.I. Global Real Estate Subaccount

(h)		Effective April 30, 2010, name changed from AIM V.I. Utilities Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	Janus																	JPMorgan
	Aspen Series																	Insurance Trust
	Janus			Janus			Janus					Janus			Janus			JPMorgan			JPMorgan			JPMorgan
	Aspen			Aspen Janus -			Aspen Perkins			Janus Aspen Perkins		Aspen Worldwide			Aspen Worldwide -			Insurance Trust			Insurance Trust			Insurance Trust
	Forty			Institutional			Mid Cap Value			Small Company Value		Institutional			Service			Balanced			Core Bond			Equity Index
	Subaccount			Subaccount			Subaccount			Subaccount		Subaccount			Subaccount			Subaccount (i)			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	(13,201	)		(83,132	)		(42,442	)		—		(352,278	)		(10	)		(321	)		31,967			(41	)

Net realized gain (loss) on investments		27,577			1,259,140			(176,021	)		—		858,505			(36	)		3,824			16,328			7,344

Change in unrealized appreciation (depreciation) of investments		46,466			2,143,444			855,811			—		5,590,300			56			703			58,978			20,724


Net increase (decrease) in contract owners’ equity resulting from operations		60,842			3,319,451			637,347			—		6,096,528			10			4,206			107,273			28,027


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		4,906			595,789			129,612			—		1,124,814			—			—			12,321			2,402
Net transfer (to) from affiliate and subaccounts		9,641			(683,946	)		(87,311	)		—		(1,261,866	)		—			(68,158	)		326,272			204,092
Payments for redemptions		(65,126	)		(3,567,910	)		(480,601	)		—		(5,095,975	)		(1,095	)		—			(199,009	)		(6,570	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(1,462	)		—			—			—		—			—			—			—			—
Annuity payout reserve adjustment		—			7,116			—			—		1,580			—			—			—			—


Net increase (decrease) from contract owners’ equity transactions		(52,041	)		(3,648,952	)		(438,300	)		—		(5,231,447	)		(1,095	)		(68,158	)		139,584			199,924


Total increase (decrease) in contract owners’ equity		8,801			(329,501	)		199,047			—		865,081			(1,085	)		(63,952	)		246,856			227,951


CONTRACT OWNERS’ EQUITY

Beginning of period		1,197,039			28,678,159			4,864,372			—		46,976,847			1,087			63,952			1,436,317			122,009


End of period	$	1,205,840			28,348,659			5,063,419			—		47,841,928			3			—			1,683,174			349,960


(i)		Cessation of operations as of April 23, 2010, JPMorgan Insurance Trust Balanced. Subaccount merged with DWS Money Market VIP.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	JPMorgan
	Insurance Trust
	JPMorgan		JPMorgan			JPMorgan			JPMorgan			JPMorgan Insurance			JPMorgan			JPMorgan						JPMorgan
	Insurance Trust		Insurance Trust			Insurance Trust			Insurance Trust			Trust Mid Cap			Insurance Trust			Insurance Trust Small			JPMorgan Insurance			International
	Government Bond		International Equity			Intrepid Growth			Intrepid Mid Cap			Growth			Mid Cap Value			Cap Core			Trust U.S. Equity			Equity
	Subaccount		Subaccount			Subaccount			Subaccount			Subaccount (j)			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	—		(115,917	)		9			(258	)		(12,687	)		(7,229	)		(62,591	)		(1,234	)		—

Net realized gain (loss) on investments		—		(555,718	)		(456	)		(225,565	)		(78,080	)		(37,984	)		(186,440	)		(70,816	)		—

Change in unrealized appreciation (depreciation) of investments		—		1,147,606			(119	)		726,499			298,490			1,566,446			1,249,737			123,322			—


Net increase (decrease) in contract owners’ equity resulting from operations		—		475,971			(566	)		500,675			207,722			1,521,234			1,000,706			51,272			—


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		—		346,022			—			75,324			44,218			173,969			138,048			16,154			—
Net transfer (to) from affiliate and subaccounts		—		(690,308	)		—			(77,439	)		56,733			(769,373	)		(270,956	)		(10,646	)		—
Payments for redemptions		—		(1,517,781	)		(13,867	)		(336,674	)		(92,667	)		(787,722	)		(575,657	)		(98,393	)		—
Guaranteed retirement income benefit, maintenance fees, and other fees		—		—			—			—			—			—			—			—			—
Annuity payout reserve adjustment		—		1			—			—			—			—			33			—			—


Net increase (decrease) from contract owners’ equity transactions		—		(1,862,065	)		(13,867	)		(338,789	)		8,283			(1,383,127	)		(708,532	)		(92,885	)		—

Total increase (decrease) in contract owners’ equity		—		(1,386,094	)		(14,433	)		161,887			216,006			138,108			292,174			(41,613	)		—


CONTRACT OWNERS’ EQUITY

Beginning of period		—		11,633,370			16,544			3,156,933			781,212			7,730,949			4,505,174			481,088			—

End of period	$	—		10,247,276			2,111			3,318,820			997,218			7,869,056			4,797,348			439,475			—


(j)		Effective December 17, 2010, name changed from JPMorgan Insurance Trust Diversified Mid Cap Growth Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


																							Oppenheimer
	JPMorgan										Oppenheimer												Variable Account
	Series Trust II										Variable Account Funds												Funds
											Oppenheimer												Oppenheimer
	JPMorgan		JPMorgan		Oppenheimer			Oppenheimer			Global Strategic			Oppenheimer			Oppenheimer			Oppenheimer			Small-MidCap
	MidCap		Small		Capital			Global			Income Fund			High			Main			Main Street			Growth
	Value		Company		Appreciation			Securities			VA Service			Income			Street			Small Cap			Fund VA Series
	Subaccount		Subaccount		Subaccount			Subaccount			Subaccount (k)			Subaccount			Subaccount			Subaccount			Subaccount (l)
OPERATIONS

Net investment income (loss)	$	—		—		(34,470	)		(17,568	)		609,036			43,815			(25,328	)		(70,588	)		(7,355	)

Net realized gain (loss) on investments		—		—		(72,584	)		(1,356,704	)		(83,364	)		(438,674	)		(292,963	)		(416,753	)		(61,036	)

Change in unrealized appreciation (depreciation) of investments		—		—		268,524			4,830,405			592,587			488,352			1,038,365			1,885,730			197,175


Net increase (decrease) in contract owners’ equity resulting from operations		—		—		161,470			3,456,133			1,118,258			93,494			720,074			1,398,389			128,785

CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		—		—		81,064			740,931			336,124			33,616			150,061			279,094			25,196
Net transfer (to) from affiliate and subaccounts		—		—		(525,137	)		(2,157,482	)		1,771,987			(220,674	)		(251,143	)		(432,886	)		119,207
Payments for redemptions		—		—		(333,026	)		(3,365,617	)		(1,810,499	)		(58,755	)		(825,195	)		(922,670	)		(120,676	)
Guaranteed retirement income benefit, maintenance fees, and other fees		—		—		—			—			—			—			—			—			—
Annuity payout reserve adjustment		—		—		—			42			—			—			—			—			—


Net increase (decrease) from contract owners’ equity transactions		—		—		(777,098	)		(4,782,126	)		297,612			(245,814	)		(926,277	)		(1,076,462	)		23,727


Total increase (decrease) in contract owners’ equity		—		—		(615,628	)		(1,325,993	)		1,415,870			(152,319	)		(206,203	)		321,927			152,511


CONTRACT OWNERS’ EQUITY

Beginning of period		—		—		2,998,764			28,428,572			8,645,456			888,668			5,908,902			7,400,574			533,440

End of period	$	—		—		2,383,137			27,102,578			10,061,327			736,349			5,702,698			7,722,501			685,951


(k)		Effective April 30, 2010, name changed from Oppenheimer Strategic Bond Subaccount.

(l)		Effective April 30, 2010, name changed from Oppenheimer Mid Cap Subaccount.

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2010


	PIMCO
	Variable Insurance Trust
	PIMCO			PIMCO
	Foreign			Low
	Bond			Duration
	Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	500			265
Net realized gain (loss) on investments		3,469			666
Change in unrealized appreciation (depreciation) of investments		4,334			4,157


Net increase (decrease) in contract owners’ equity resulting from operations		8,303			5,088

CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		1,266			72
Net transfer (to) from affiliate and subaccounts		(186	)		3,011
Payments for redemptions		(7,695	)		(9,486	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(145	)		(200	)
Annuity payout reserve adjustment		—			—


Net increase (decrease) from contract owners’ equity transactions		(6,760	)		(6,603	)

Total increase (decrease) in contract owners’ equity		1,543			(1,515	)

CONTRACT OWNERS’ EQUITY

Beginning of period		123,650			139,660

End of period	$	125,192			138,146

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	AIM Variable Insurance Funds												Alger Portfolios
				AIM V.I.			AIM V.I.			AIM															Alger
	AIM V.I.			Global			Global			V.I.			Alger			Alger			Alger Capital			Alger Capital			Large Cap
	Financial Services Fund			Health Care			Real Estate			Utilities			Balanced O			Balanced S			Appreciation O			Appreciation S			Growth I-2
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	8,998			(16,739	)		(76,203	)		673,504			828,183			826			(650,003	)		(23	)		(63,623	)

Net realized gain (loss) on investments		(908,750	)		(440,865	)		(2,167,019	)		(7,453,597	)		(3,364,970	)		(2,071	)		2,630,934			(6	)		(253,467	)

Change in unrealized appreciation (depreciation) of investments		1,175,884			829,011			3,806,739			9,070,054			13,214,375			13,031			16,380,105			475			3,925,210


Net increase (decrease) in contract owners’ equity resulting from operations		276,132			371,407			1,563,517			2,289,961			10,677,588			11,786			18,361,036			446			3,608,120


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		59,184			147,064			319,252			405,189			132,354			—			1,683,141			—			456,226
Net transfer (to) from affiliate and subaccounts		(77,592	)		(348,860	)		(438,802	)		(3,880,769	)		(976,986	)		25,199			(4,164,088	)		—			(174,255	)
Payments for redemptions		(338,468	)		(248,260	)		(609,790	)		(4,763,310	)		(8,770,024	)		(6,396	)		(9,728,128	)		(3	)		(1,185,455	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(116	)		(738	)		(3,039	)		(51,537	)		(123,168	)		—			(133,713	)		—			(9,434	)
Annuity payout reserve adjustment		—			—			24			(1,430	)		(9,210	)		—			—			—			(1,769	)


Net increase (decrease) from contract owners’ equity transactions		(356,992	)		(450,794	)		(732,355	)		(8,291,857	)		(9,747,034	)		18,803			(12,342,788	)		(3	)		(914,688	)


Total increase (decrease) in contract owners’ equity		(80,860	)		(79,387	)		831,162			(6,001,896	)		930,554			30,589			6,018,248			443			2,693,433


CONTRACT OWNERS’ EQUITY

Beginning of period		804,652			1,765,253			5,908,014			28,176,488			44,546,162			25,709			47,288,471			939			8,887,050

End of period	$	723,792			1,685,866			6,739,176			22,174,592			45,476,716			56,298			53,306,719			1,382			11,580,482

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


										American Century												Credit Suisse
	Alger Portfolios									Variable Portfolios, Inc.												Trust
										American			American												Credit Suisse
	Alger			Alger			Alger			Century VP			Century VP			American			American			Credit Suisse			Trust
	Mid Cap			Mid Cap			Small Cap			Income			Income			Century VP			Century VP			Trust International			International
	Growth I-2			Growth S			Growth I-2			& Growth			& Growth II			Value			Value II			Equity Flex II			Equity Flex III
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	(147,777	)		(181	)		(85,740	)		368,990			184			662,213			110			64,807			407,415

Net realized gain (loss) on investments		(3,375,155	)		(78	)		48,662			(1,326,258	)		(6	)		(2,607,497	)		(33	)		(4,014,198	)		(26,219,153	)

Change in unrealized appreciation (depreciation) of investments		7,945,332			3,865			2,437,079			2,546,225			909			4,349,364			453			5,486,657			39,544,247


Net increase (decrease) in contract owners’ equity resulting from operations		4,422,400			3,606			2,400,001			1,588,956			1,087			2,404,080			530			1,537,266			13,732,508


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		514,543			475			323,056			466,349			—			691,296			—			236,515			548,205
Net transfer (to) from affiliate and subaccounts		(69,741	)		—			1,279,519			(727,371	)		—			(1,147,483	)		—			(7,490,272	)		7,154,350
Payments for redemptions		(1,618,639	)		—			(784,745	)		(1,498,475	)		—			(2,179,607	)		—			(1,628,691	)		(7,657,307	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(6,909	)		—			(4,248	)		(7,526	)		—			(9,130	)		—			(14,276	)		(96,134	)
Annuity payout reserve adjustment		—			—			(6	)		(60	)		—			(17,611	)		—			—			39


Net increase (decrease) from contract owners’ equity transactions		(1,180,746	)		475			813,576			(1,767,084	)		—			(2,662,536	)		—			(8,896,724	)		(50,846	)


Total increase (decrease) in contract owners’ equity		3,241,654			4,081			3,213,577			(178,127	)		1,087			(258,456	)		530			(7,359,458	)		13,681,662


CONTRACT OWNERS’ EQUITY

Beginning of period		9,910,731			7,183			5,170,364			11,187,970			6,877			16,036,192			2,995			7,359,459			33,669,808

End of period	$	13,152,385			11,264			8,383,941			11,009,842			7,964			15,777,736			3,525			—			47,351,470

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	Dreyfus						The Dreyfus
	Investment						Socially Responsible						DWS
	Portfolios						Growth Fund, Inc.						Variable Series I
																						DWS			DWS
	Dreyfus			Dreyfus			Dreyfus Socially			Dreyfus Socially			DWS			DWS			DWS			Global			Global
	I.P. MidCap			I.P. MidCap			Responsible			Responsible			Bond			Capital			Capital			Opportunities			Opportunities
	Stock A			Stock SC			Growth A			Growth SC			VIP			Growth VIP A			Growth VIP B			VIP A			VIP B
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	76,066			(5,434	)		(18,218	)		(16	)		1,321,345			(354,629	)		(1,713	)		200,154			(11	)

Net realized gain (loss) on investments		(21,194,626	)		(287,146	)		(76,334	)		(3	)		(1,762,677	)		(13,271,419	)		5,938			(4,414,011	)		(49	)

Change in unrealized appreciation (depreciation) of investments		35,200,778			660,666			1,538,104			431			2,226,922			63,855,715			58,978			26,062,866			957


Net increase (decrease) in contract owners’ equity resulting from operations		14,082,218			368,086			1,443,551			412			1,785,590			50,229,667			63,203			21,849,009			897


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		407,533			74,449			115,832			—			802,951			3,103,578			1,200			1,146,622			—
Net transfer (to) from affiliate and subaccounts		(9,279,792	)		(30,068	)		(79,074	)		55			8,928,612			19,598,108			105			(5,187,136	)		—
Payments for redemptions		(10,718,791	)		(143,122	)		(761,788	)		(2	)		(5,138,271	)		(38,107,668	)		(231,169	)		(13,730,588	)		(16	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(139,002	)		—			(11,831	)		—			(37,257	)		(495,581	)		—			(166,358	)		—
Annuity payout reserve adjustment		(1,056	)		—			8			—			(5,834	)		(21,045	)		—			(2,965	)		—


Net increase (decrease) from contract owners’ equity transactions		(19,731,108	)		(98,741	)		(736,853	)		53			4,550,201			(15,922,607	)		(229,864	)		(17,940,425	)		(16	)


Total increase (decrease) in contract owners’ equity		(5,648,890	)		269,345			706,699			465			6,335,791			34,307,060			(166,661	)		3,908,584			881


CONTRACT OWNERS’ EQUITY

Beginning of period		57,253,261			1,125,422			5,006,851			1,283			18,767,396			198,670,074			332,189			61,737,598			2,004

End of period	$	51,604,371			1,394,767			5,713,550			1,748			25,103,188			232,977,134			165,528			65,646,182			2,885

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	DWS
	Variable Series I																		DWS Variable Series II
	DWS			DWS			DWS			DWS			DWS			DWS			DWS			DWS			DWS
	Growth & Income			Growth & Income			Health Care			Health Care			International			International			Balanced			Blue Chip			Blue Chip
	VIP A			VIP B			VIP A			VIP B			VIP A			VIP B			VIP			VIP A			VIP B
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	221,454			17			5,379			(94	)		1,514,595			1,511			4,479,966			380,469			(482	)

Net realized gain (loss) on investments		(5,672,515	)		(1,778	)		(1,560,543	)		308			(5,506,889	)		(2,314	)		(4,470,668	)		(9,763,644	)		(2,603	)

Change in unrealized appreciation (depreciation) of investments		13,463,805			28,190			7,428,672			1,837			16,265,700			19,494			34,574,077			24,841,999			43,049


Net increase (decrease) in contract owners’ equity resulting from operations		8,012,744			26,429			5,873,508			2,051			12,273,405			18,691			34,583,375			15,458,824			39,964


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		196,260			2,378			532,084			—			734,586			—			1,688,137			194,855			—
Net transfer (to) from affiliate and subaccounts		(1,856,586	)		1,302			(7,437,389	)		—			(6,779,335	)		316			(4,665,350	)		(6,935,821	)		(2,473	)
Payments for redemptions		(5,755,450	)		(4,887	)		(7,681,110	)		(1,696	)		(9,908,089	)		(13,526	)		(23,869,781	)		(10,158,571	)		(6,960	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(70,667	)		—			(95,060	)		—			(116,938	)		—			(216,863	)		(157,182	)		—
Annuity payout reserve adjustment		(3,965	)		—			(340	)		—			(3,851	)		—			(112,548	)		(3,269	)		—


Net increase (decrease) from contract owners’ equity transactions		(7,490,408	)		(1,207	)		(14,681,814	)		(1,696	)		(16,073,628	)		(13,210	)		(27,176,404	)		(17,059,988	)		(9,433	)


Total increase (decrease) in contract owners’ equity		522,336			25,222			(8,808,306	)		355			(3,800,222	)		5,481			7,406,971			(1,601,163	)		30,531


CONTRACT OWNERS’ EQUITY

Beginning of period		31,155,151			82,936			42,356,606			11,339			53,098,813			71,929			177,452,812			62,370,452			133,432

End of period	$	31,677,487			108,158			33,548,300			11,694			49,298,591			77,410			184,859,782			60,769,289			163,963

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	DWS
	Variable Series II
							DWS															DWS			DWS
	DWS			DWS			Diversified			DWS			DWS			DWS			DWS			Government &			Government &
	Core Fixed			Davis Venture			International Equity			Dreman Small Mid			Dreman Small Mid			Global			Global			Agency Securities VIP			Agency Securities VIP
	Income VIP A			Value VIP			VIP			Cap Value VIP A			Cap Value VIP B			Thematic VIP A			Thematic VIP B			A			B
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	4,076,745			1,777,981			2,944,400			801,410			(343	)		80,484			(83	)		3,851,167			6,612

Net realized gain (loss) on investments		(6,262,029	)		(45,967,518	)		(26,478,125	)		(68,034,126	)		(21,466	)		(21,134,497	)		(9,486	)		1,169,638			693

Change in unrealized appreciation (depreciation) of investments		5,511,983			39,869,505			36,604,743			93,931,856			68,829			33,159,955			18,564			1,833,125			5,231


Net increase (decrease) in contract owners’ equity resulting from operations		3,326,699			(4,320,032	)		13,071,017			26,699,140			47,020			12,105,941			8,995			6,853,930			12,536


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		504,402			292,808			618,672			2,124,391			667			785,683			3,170			639,187			5,548
Net transfer (to) from affiliate and subaccounts		4,159,722			(85,145,852	)		(8,850,318	)		(17,576,808	)		(20,525	)		(4,225,794	)		(105	)		(10,142,432	)		176
Payments for redemptions		(15,316,529	)		(7,673,557	)		(10,986,872	)		(24,218,775	)		—			(7,448,622	)		(8,729	)		(22,844,594	)		(60,935	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(117,870	)		(49,399	)		(107,149	)		(250,673	)		—			(97,083	)		—			(213,924	)		—
Annuity payout reserve adjustment		(12,261	)		(5,026	)		(7,400	)		(10,672	)		—			(917	)		—			(8,781	)		—


Net increase (decrease) from contract owners’ equity transactions		(10,782,536	)		(92,581,026	)		(19,333,067	)		(39,932,537	)		(19,858	)		(10,986,733	)		(5,665	)		(32,570,545	)		(55,212	)


Total increase (decrease) in contract owners’ equity		(7,455,837	)		(96,901,058	)		(6,262,050	)		(13,233,397	)		27,162			1,119,208			3,330			(25,716,614	)		(42,676	)


CONTRACT OWNERS’ EQUITY

Beginning of period		59,265,172			96,901,058			66,545,866			138,064,546			186,720			38,296,635			29,083			115,382,012			246,390

End of period	$	51,809,335			—			60,283,816			124,831,149			213,882			39,415,843			32,413			89,665,398			203,715

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	DWS
	Variable Series II
	DWS			DWS			DWS			DWS			DWS			DWS			DWS			DWS			DWS
	High Income			High Income			Janus Growth &			Large Cap			Large Cap			Mid Cap			Money Market			Small Cap Growth			Strategic
	VIP A			VIP B			Income VIP			Value VIP A			Value VIP B			Growth VIP			VIP			VIP			Income VIP
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	9,548,843			13,249			905,590			67,500			(1,861	)		(172,619	)		(1,696,408	)		(622,898	)		1,722,810

Net realized gain (loss) on investments		(11,539,177	)		(15,728	)		(16,780,108	)		(19,718,913	)		(42,793	)		(1,199,715	)		—			(4,882,949	)		(1,704,750	)

Change in unrealized appreciation (depreciation) of investments		35,745,526			46,158			17,845,015			48,256,163			(7,520	)		5,626,239			—			20,715,730			8,345,741


Net increase (decrease) in contract owners’ equity resulting from operations		33,755,192			43,679			1,970,498			28,604,750			(52,174	)		4,253,906			(1,696,408	)		15,209,883			8,363,802


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		1,482,979			1,200			237,975			1,763,248			—			413,572			3,838,237			1,089,571			158,048
Net transfer (to) from affiliate and subaccounts		8,668,561			(6,433	)		(49,006,704	)		62,145,451			308,843			(73,259	)		81,830,898			(2,411,093	)		179,432
Payments for redemptions		(16,870,811	)		(22,554	)		(3,723,716	)		(22,077,335	)		(145,904	)		(1,911,706	)		(175,087,456	)		(7,665,182	)		(11,062,598	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(167,539	)		—			(30,641	)		(282,675	)		—			(38,253	)		(405,132	)		(104,195	)		(112,227	)
Annuity payout reserve adjustment		(31,019	)		—			(2,399	)		(15,379	)		—			—			(1,108	)		(1,299	)		(2,371	)


Net increase (decrease) from contract owners’ equity transactions		(6,917,830	)		(27,787	)		(52,525,485	)		41,533,310			162,939			(1,609,644	)		(89,824,561	)		(9,092,197	)		(10,839,716	)


Total increase (decrease) in contract owners’ equity		26,837,362			15,892			(50,554,987	)		70,138,061			110,765			2,644,261			(91,520,969	)		6,117,686			(2,475,915	)


CONTRACT OWNERS’ EQUITY

Beginning of period		90,235,018			134,713			50,554,987			69,078,634			67,222			11,591,049			219,798,201			47,317,943			46,678,507

End of period	$	117,072,380			150,605			—			139,216,695			177,987			14,235,310			128,277,232			53,435,628			44,202,592

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


																						Fidelity			Fidelity
	DWS															DWS						Variable Insurance			Variable Insurance
	Variable Series II															Investments VIT Funds						Products Funds			Products Funds
	DWS			DWS			DWS			DWS			DWS			DWS			DWS			Fidelity			Fidelity
	Strategic			Strategic			Technology			Technology			Turner Mid Cap			Equity 500			Equity 500			VIP			VIP
	Value VIP A			Value VIP B			VIP A			VIP B			Growth VIP			Index VIP A			Index VIP B2			Asset Manager			Contrafund
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	5,464,464			4,236			(556,242	)		(377	)		(486,015	)		1,080,053			114			52,747			58,736

Net realized gain (loss) on investments		(38,201,342	)		(49,126	)		199,334			(433	)		(15,328,468	)		(10,231,400	)		(179	)		(275,911	)		(4,719,381	)

Change in unrealized appreciation (depreciation) of investments		63,749,432			75,479			18,671,822			13,019			29,047,054			24,474,757			3,598			1,492,619			22,788,949


Net increase (decrease) in contract owners’ equity resulting from operations		31,012,554			30,589			18,314,914			12,209			13,232,571			15,323,410			3,533			1,269,455			18,128,304


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		1,425,676			—			583,984			1,200			1,846,151			1,322,861			—			140,287			2,462,026
Net transfer (to) from affiliate and subaccounts		(28,348,207	)		(18,768	)		(1,067,163	)		(4,086	)		(6,696,843	)		(3,161,354	)		181			(288,982	)		(166,574	)
Payments for redemptions		(35,615,834	)		(7,385	)		(7,294,539	)		(18	)		(9,740,253	)		(17,484,281	)		(21	)		(648,505	)		(7,196,409	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(446,294	)		—			(121,312	)		—			(94,845	)		(200,250	)		—			(4,048	)		(33,540	)
Annuity payout reserve adjustment		(19,836	)		—			(1,855	)		—			(1,677	)		(8,208	)		—			1,862			(131,318	)


Net increase (decrease) from contract owners’ equity transactions		(63,004,494	)		(26,153	)		(7,900,885	)		(2,904	)		(14,687,467	)		(19,531,232	)		160			(799,386	)		(5,065,815	)


Total increase (decrease) in contract owners’ equity		(31,991,940	)		4,436			10,414,029			9,305			(1,454,896	)		(4,207,822	)		3,693			470,069			13,062,489


CONTRACT OWNERS’ EQUITY

Beginning of period		191,335,177			166,129			37,004,205			15,197			39,314,001			79,299,145			14,895			5,015,903			58,200,203

End of period	$	159,343,237			170,565			47,418,234			24,501			37,859,105			75,091,323			18,588			5,485,972			71,262,692

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	Fidelity																		Franklin Templeton
	Variable Insurance Products Funds																		Variable Insurance Products Trust
	Fidelity			Fidelity			Fidelity			Fidelity			Fidelity			Fidelity			Franklin			Franklin			Franklin
	VIP			VIP			VIP			VIP			VIP			VIP			Rising Dividends			Small Cap Value			Strategic Income
	Contrafund 2			Equity Income			Equity Income 2			Growth			Index 500			Index 500 SC			Securities			Securities			Securities
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	(59	)		229,548			20			(186,055	)		658,131			24,451			7,411			13,567			527,284

Net realized gain (loss) on investments		(6	)		(2,193,302	)		(21	)		(665,689	)		986,600			(152,694	)		(421,637	)		(692,887	)		(287,092	)

Change in unrealized appreciation (depreciation) of investments		3,714			8,331,208			1,111			5,914,552			10,581,802			904,601			1,196,399			1,692,668			1,571,627


Net increase (decrease) in contract owners’ equity resulting from operations		3,650			6,367,454			1,110			5,062,808			12,226,533			776,358			782,172			1,013,348			1,811,818


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		—			894,151			—			826,035			1,821,537			93,691			220,832			218,425			405,898
Net transfer (to) from affiliate and subaccounts		—			(1,730,577	)		—			240,713			(1,971,495	)		(107,601	)		(179,369	)		(419,209	)		2,402,650
Payments for redemptions		—			(3,405,586	)		—			(2,280,830	)		(5,969,517	)		(443,348	)		(679,797	)		(431,440	)		(1,548,383	)
Guaranteed retirement income benefit, maintenance fees, and other fees		—			(16,560	)		—			(23,701	)		(50,537	)		—			(2,177	)		(1,856	)		(2,533	)
Annuity payout reserve adjustment		—			550			—			(98,300	)		(388,605	)		—			(286	)		—			(65	)


Net increase (decrease) from contract owners’ equity transactions		—			(4,258,023	)		—			(1,336,083	)		(6,558,617	)		(457,258	)		(640,797	)		(634,080	)		1,257,567


Total increase (decrease) in contract owners’ equity		3,650			2,109,431			1,110			3,726,725			5,667,916			319,100			141,376			379,268			3,069,385


CONTRACT OWNERS’ EQUITY

Beginning of period		10,993			25,782,765			4,006			21,552,229			53,465,860			3,877,389			5,650,438			4,321,707			6,956,831

End of period	$	14,643			27,892,197			5,116			25,278,954			59,133,776			4,196,489			5,791,813			4,700,975			10,026,216

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


																ING			ING
	Franklin Templeton															Global Resources			Investors			Janus
	Variable Insurance Products Trust															Trust			Trust			Aspen Series
	Franklin			Franklin			Mutual			Mutual									ING JPMorgan			Janus			Janus
	U.S.			Zero Coupon			Global Discovery			Shares			Templeton Developing			ING Global Resources			Emerging Markets			Aspen			Aspen Enterprise -
	Government			2010			Securities			Securities			Markets Securities			Trust			Equity			Balanced			Institutional
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	131,466			249,218			(30,378	)		35,938			155,672			(86,443	)		25,544			1,249,667			(472,575	)

Net realized gain (loss) on investments		59,427			116,223			453,403			(1,164,420	)		(987,611	)		(929,365	)		120,693			4,307,912			1,346,664

Change in unrealized appreciation (depreciation) of investments		(97,616	)		(473,250	)		3,645,079			2,409,552			3,831,406			3,745,474			4,080,520			10,499,104			12,482,610


Net increase (decrease) in contract owners’ equity resulting from operations		93,276			(107,809	)		4,068,104			1,281,070			2,999,467			2,729,666			4,226,758			16,056,684			13,356,700


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		211,670			264,314			939,962			330,988			227,043			294,261			223,176			2,227,325			1,109,687
Net transfer (to) from affiliate and subaccounts		971,288			(1,403,091	)		(130,497	)		(311,361	)		887,046			(744,071	)		608,809			(2,402,837	)		(1,162,597	)
Payments for redemptions		(1,175,681	)		(1,260,687	)		(2,524,745	)		(646,472	)		(667,712	)		(866,577	)		(875,931	)		(8,707,062	)		(3,604,994	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(1,682	)		(4,120	)		(6,939	)		(2,688	)		(2,192	)		(4,027	)		(3,652	)		(44,311	)		(40,078	)
Annuity payout reserve adjustment		(37	)		(26	)		(161	)		(69	)		187			(16,503	)		(27,521	)		(2,015	)		167


Net increase (decrease) from contract owners’ equity transactions		5,558			(2,403,610	)		(1,722,380	)		(629,603	)		444,372			(1,336,915	)		(75,119	)		(8,928,901	)		(3,697,816	)


Total increase (decrease) in contract owners’ equity		98,834			(2,511,419	)		2,345,724			651,467			3,443,839			1,392,751			4,151,639			7,127,783			9,658,884


CONTRACT OWNERS’ EQUITY

Beginning of period		4,572,999			9,720,959			19,958,232			5,983,065			4,476,541			8,488,685			6,274,203			72,749,526			33,159,175

End of period	$	4,671,833			7,209,540			22,303,957			6,634,532			7,920,380			9,881,435			10,425,842			79,877,309			42,818,059

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	Janus																		JPMorgan
	Aspen Series																		Insurance Trust
	Janus			Janus			Janus						Janus			Janus			JPMorgan			JPMorgan			JPMorgan Insurance
	Aspen			Aspen Janus -			Aspen Perkins			Janus Aspen Perkins			Aspen Worldwide -			Aspen Worldwide -			Insurance Trust			Insurance Trust			Trust Diversified Mid
	Forty			Institutional			Mid Cap Value			Small Company Value			Institutional			Service			Balanced			Core Bond			Cap Growth
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	(13,940	)		(187,498	)		(42,812	)		(17,300	)		51,395			(5	)		656			(5,267	)		(8,817	)

Net realized gain (loss) on investments		1,839			240,250			(367,321	)		(3,578,686	)		(392,812	)		(3	)		(736	)		(860	)		(170,962	)

Change in unrealized appreciation (depreciation) of investments		389,294			7,451,945			1,590,412			3,320,130			13,023,613			289			7,130			46,182			394,952


Net increase (decrease) in contract owners’ equity resulting from operations		377,192			7,504,698			1,180,280			(275,856	)		12,682,195			281			7,050			40,055			215,173


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		5,536			759,355			171,773			78,651			1,417,938			—			—			14,426			34,489
Net transfer (to) from affiliate and subaccounts		(24,888	)		(879,012	)		(79,356	)		(4,376,703	)		(1,082,854	)		—			36,005			1,417,118			(67,996	)
Payments for redemptions		(62,771	)		(2,246,326	)		(458,059	)		(152,035	)		(4,138,452	)		(1	)		(1,748	)		(83,027	)		(83,153	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(2,673	)		(30,068	)		(2,161	)		(605	)		(43,428	)		—			(8	)		(121	)		(236	)
Annuity payout reserve adjustment		—			(32,655	)		—			—			(93,338	)		—			—			—			—


Net increase (decrease) from contract owners’ equity transactions		(84,797	)		(2,428,706	)		(367,804	)		(4,450,692	)		(3,940,135	)		(1	)		34,249			1,348,395			(116,897	)


Total increase (decrease) in contract owners’ equity		292,396			5,075,992			812,476			(4,726,548	)		8,742,060			280			41,299			1,388,451			98,276


CONTRACT OWNERS’ EQUITY

Beginning of period		904,643			23,602,167			4,051,896			4,726,549			38,234,787			807			22,653			47,866			682,936

End of period	$	1,197,039			28,678,159			4,864,372			—			46,976,847			1,087			63,952			1,436,317			781,212

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	JPMorgan
	Insurance Trust
	JPMorgan			JPMorgan			JPMorgan			JPMorgan			JPMorgan			JPMorgan			JPMorgan						JPMorgan
	Insurance Trust			Insurance Trust			Insurance Trust			Insurance Trust			Insurance Trust			Insurance Trust			Insurance Trust Small			JPMorgan Insurance			International
	Equity Index			Government Bond			International Equity			Intrepid Growth			Intrepid Mid Cap			Mid Cap Value			Cap Core			Trust U.S. Equity			Equity
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	1,948			35,666			65,912			(98	)		7,282			(50,225	)		(29,900	)		7,157			420,900

Net realized gain (loss) on investments		(40,554	)		12,309			(599,357	)		(90	)		(405,463	)		(485,531	)		(657,669	)		(62,913	)		(169,474	)

Change in unrealized appreciation (depreciation) of investments		63,225			(21,958	)		(3,237,907	)		4,230			1,213,005			(946,284	)		(888,819	)		185,933			6,538,322


Net increase (decrease) in contract owners’ equity resulting from operations		24,619			26,016			(3,771,352	)		4,042			814,824			(1,482,040	)		(1,576,388	)		130,177			6,789,748


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		2,606			818			296,786			—			171,397			169,420			112,521			12,907			161,296
Net transfer (to) from affiliate and subaccounts		2,387			(672,152	)		16,405,732			—			(196,346	)		8,989,853			6,293,090			(35,383	)		(17,358,051	)
Payments for redemptions		(92,250	)		(3,055	)		(1,310,348	)		—			(337,447	)		(637,422	)		(328,670	)		(97,529	)		(400,532	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(67	)		(13	)		(5,235	)		—			(740	)		(2,368	)		(2,293	)		(380	)		(1,457	)
Annuity payout reserve adjustment		—			—			17,785			—			—			173			6,914			(62	)		(7,045	)


Net increase (decrease) from contract owners’ equity transactions		(87,324	)		(674,402	)		15,404,721			—			(363,137	)		8,519,656			6,081,562			(120,447	)		(17,605,790	)


Total increase (decrease) in contract owners’ equity		(62,705	)		(648,385	)		11,633,369			4,042			451,687			7,037,616			4,505,175			9,730			(10,816,041	)


CONTRACT OWNERS’ EQUITY

Beginning of period		184,714			648,385			1			12,501			2,705,246			693,333			(1	)		471,358			10,815,951

End of period	$	122,009			—			11,633,370			16,544			3,156,933			7,730,983			4,505,174			481,088			—

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	JPMorgan						Oppenheimer
	Series Trust II						Variable Account Funds
	JPMorgan			JPMorgan			Oppenheimer			Oppenheimer			Oppenheimer			Oppenheimer			Oppenheimer			Oppenheimer			Oppenheimer
	MidCap			Small			Capital			Global			High			Main			Main Street			MidCap			Strategic
	Value			Company			Appreciation			Securities			Income			Street			Small Cap			Fund			Bond
	Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	122,442			6,839			(33,798	)		164,099			(7,518	)		19,436			(44,669	)		(6,039	)		(91,227	)

Net realized gain (loss) on investments		(355,482	)		(171,212	)		(162,070	)		(1,651,201	)		(914,704	)		(717,928	)		(729,069	)		(85,810	)		(357,545	)

Change in unrealized appreciation (depreciation) of investments		3,248,416			2,528,142			1,080,475			9,260,624			1,048,518			1,977,972			2,828,751			211,979			1,742,331


Net increase (decrease) in contract owners’ equity resulting from operations		3,015,376			2,363,768			884,607			7,773,523			126,297			1,279,479			2,055,014			120,130			1,293,559


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		79,251			60,913			110,102			1,290,782			31,066			234,519			344,545			30,524			411,966
Net transfer (to) from affiliate and subaccounts		(9,512,063	)		(6,911,908	)		269,081			(929,532	)		368,939			(654,999	)		(426,290	)		82,198			(146,070	)
Payments for redemptions		(146,508	)		(107,418	)		(379,527	)		(3,628,209	)		(86,841	)		(881,611	)		(960,397	)		(70,399	)		(1,827,896	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(426	)		(651	)		(1,465	)		(10,413	)		(261	)		(3,754	)		(4,128	)		—			(2,792	)
Annuity payout reserve adjustment		(218	)		(20,025	)		2			(134	)		—			—			(16	)		—			(26	)


Net increase (decrease) from contract owners’ equity transactions		(9,579,964	)		(6,979,089	)		(1,807	)		(3,277,505	)		312,904			(1,305,846	)		(1,046,286	)		42,324			(1,564,818	)


Total increase (decrease) in contract owners’ equity		(6,564,588	)		(4,615,321	)		882,800			4,496,017			439,200			(26,367	)		1,008,728			162,454			(271,259	)


CONTRACT OWNERS’ EQUITY

Beginning of period		6,564,622			4,615,321			2,115,964			23,932,554			449,468			5,935,268			6,391,846			370,986			8,916,715

End of period	$	—			—			2,998,764			28,428,572			888,668			5,908,902			7,400,574			533,440			8,645,456

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
Statement of Changes in Contract Owners’ Equity
For the year ended December 31, 2009


	PIMCO
	Variable Insurance Trust
	PIMCO			PIMCO
	Foreign			Low
	Bond			Duration
	Subaccount			Subaccount
OPERATIONS

Net investment income (loss)	$	2,374			2,790

Net realized gain (loss) on investments		10,567			6,145

Change in unrealized appreciation (depreciation) of investments		2,196			5,349


Net increase (decrease) in contract owners’ equity resulting from operations		15,137			14,283


CONTRACT OWNERS’ EQUITY TRANSACTIONS

Proceeds from sales		1,416			72
Net transfer (to) from affiliate and subaccounts		2,364			2,983
Payments for redemptions		(21,546	)		—
Guaranteed retirement income benefit, maintenance fees, and other fees		(220	)		(221	)
Annuity payout reserve adjustment		—			—


Net increase (decrease) from contract owners’ equity transactions		(17,986	)		2,834


Total increase (decrease) in contract owners’ equity		(2,848	)		17,117


CONTRACT OWNERS’ EQUITY

Beginning of period		126,498			122,543

End of period	$	123,650			139,660

See accompanying notes to financial statements

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

1) Organization:

ZALICO Variable Annuity Separate Account (the “Separate Account”), formerly known as KILICO Variable Annuity Separate Account is a unit investment trust registered under the Investment Company Act of 1940, as amended, was established by Zurich American Life Insurance Company (“ZALICO” or the “Company”). ZALICO is a stock life insurance company founded in 1947. The Company is incorporated under the insurance laws of the State of Illinois and is licensed in the District of Columbia and all states, with the exception of New York.

The Company is a wholly owned subsidiary of Zurich American Corporation (“Zurich”), a non-operating holding company, formerly known as Kemper Corporation. Zurich is a direct wholly owned subsidiary of Zurich Holding Company of America, Inc. (“ZHCA”). ZHCA is an indirect wholly owned subsidiary of Zurich Financial Services (“ZFS” or the “Parent”).

On July 6, 2010 the Company’s sole shareholder (Zurich, then Kemper Corporation) approved that the name of the Company be changed from Kemper Investors Life Insurance Company to Zurich American Life Insurance Company, and that an amendment of the Company’s Articles of Incorporation be made to effect such name change, with such amendment being subject to the approval of the Illinois Department of Financial and Professional Regulation, Division of Insurance, (“IDOI”). This change aligns the name of the Company with Zurich Financial Services brand. The IDOI approved the Company’s amended Articles of Incorporation reflecting this name change on Aug 23, 2010 and, accordingly, amended the Company’s Certificate of Authority. All other state regulatory notifications are being made.

Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from ZALICO’s other assets and liabilities. The portion of the Separate Account’s assets applicable to the variable annuity contracts is not chargeable with liabilities arising out of any other business ZALICO may conduct.

The Separate Account is used to fund contracts or certificates (collectively referred to as “Contracts”) for Zurich Advantage III periodic and flexible payment variable annuity contracts (“Zurich Advantage III”), Zurich Passport individual and group variable, fixed and market value adjusted deferred annuity contracts (“Zurich Passport”), Scudder Destinations individual and group variable, fixed and market value adjusted deferred annuity contracts (“Scudder Destinations”), Farmers Variable Annuity I individual and group variable, fixed and market value adjusted deferred annuity contracts (“Farmers Variable Annuity I”), Zurich Preferred individual and group variable and market value adjusted deferred annuity contracts (“Zurich Preferred”), Zurich Preferred Plus individual and group variable and market value adjusted deferred annuity contracts (“Zurich Preferred Plus”), Zurich ZS4 individual and group variable and market value adjusted deferred annuity contracts (“Zurich ZS4”) and Zurich Archway individual and group variable and market value adjusted deferred annuity contracts (“Zurich Archway”). The Separate Account is divided into a total of ninety-nine subaccounts with various subaccount options available to contract owners depending upon their respective Contracts. During the year ended December 31, 2010, assets were invested in ninety-nine of the subaccount options.

The Zurich Advantage III contracts have sixty subaccount options available to contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the American Century Variable Portfolios, Inc., the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the DWS Variable Series I, the DWS Variable Series II, the Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the ING Global Resources Trust, the ING Investors Trust, the ING VP Natural Resources Trust, the Invesco Variable Insurance Funds, the Janus Aspen Series, the JPMorgan Insurance Trust, the JPMorgan Series Trust II and the Oppenheimer Variable Account Funds, all of which are open-end management investment companies.

The Zurich Passport contracts have thirteen subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the DWS Variable Series II, an open-end management investment company.

The Scudder Destinations contracts have twenty-nine subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the DWS Variable Series I, the DWS Variable Series II, the DWS Investments VIT Funds, and the Invesco Variable Insurance Funds, all of which are open-end management investment companies.

The Farmers Variable Annuity I contracts have twelve subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the DWS Variable Series I, the DWS Variable Series II, the Franklin Templeton Variable Insurance Products Trust, the Janus Aspen Series and the PIMCO Variable Insurance Trust, all of which are open-end management investment companies.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(1) Organization: (continued)

The Zurich Preferred contracts have fifty-five subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the American Century Variable Portfolios, Inc., the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the DWS Variable Series I, the DWS Variable Series II, the Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the Invesco Variable Insurance Funds, the Janus Aspen Series, the JPMorgan Insurance Trust, the JPMorgan Series Trust II and the Oppenheimer Variable Account Funds, all of which are open-end management investment companies.

The Zurich Preferred Plus contracts have fifty-five subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the American Century Variable Portfolios, Inc., the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the DWS Variable Series I, the DWS Variable Series II, the Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, Invesco Variable Insurance Funds, the Janus Aspen Series, the JPMorgan Insurance Trust, the JPMorgan Series Trust II and the Oppenheimer Variable Account Funds, all of which are open-end management investment companies.

The Zurich ZS4 contracts have twenty-seven subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the DWS Variable Series I, the DWS Variable Series II, the DWS Investments VIT Funds, and the Invesco Variable Insurance Funds, all of which are open-end management investment companies.

The Zurich Archway contracts have fifty-four subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the American Century Variable Portfolios, Inc., the Credit Suisse Trust, the Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the DWS Variable Series I, the DWS Variable Series II, the Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the Invesco Variable Insurance Funds, the Janus Aspen Series, the JPMorgan Insurance Trust, the JPMorgan Series Trust II and the Oppenheimer Variable Account Funds, all of which are open-end management investment companies.

At December 31, 2010, the Separate Account was comprised of one hundred and ten subaccounts as follows:


Alger Balanced ‘O’		DWS Capital Growth VIP ‘B’
Alger Balanced ‘S’ (a)		DWS Core Fixed Income VIP ‘A’
Alger Capital Appreciation ‘O’		DWS Davis Venture Value VIP (a)
Alger Capital Appreciation ‘S’		DWS Diversified International Equity VIP
Alger Large Cap Growth ‘I-2’		DWS Dreman Small Mid Cap Value VIP ‘A’
Alger Mid Cap Growth ‘O’		DWS Dreman Small Mid Cap Value VIP ‘B’
Alger Mid Cap Growth ‘S’		DWS Equity 500 Index VIP ‘A’
Alger Small Cap Growth ‘I-2’		DWS Equity 500 Index VIP ‘B2’
American Century VP Income & Growth		DWS Global Opportunities VIP ‘A’
American Century VP Income & Growth II		DWS Global Opportunities VIP ‘B’
American Century VP Value		DWS Global Thematic VIP ‘A’
American Century VP Value II		DWS Global Thematic VIP ‘B’
Credit Suisse Trust International Equity Flex II (a)		DWS Government & Agency Securities VIP ‘A’
Credit Suisse Trust International Equity Flex III		DWS Government & Agency Securities VIP ‘B’
Dreyfus I.P. MidCap Stock ‘A’		DWS Growth & Income VIP ‘A’
Dreyfus I.P. MidCap Stock ‘SC’		DWS Growth & Income VIP ‘B’
Dreyfus Socially Responsible Growth ‘A’		DWS Health Care VIP ‘A’
Dreyfus Socially Responsible Growth ‘SC’		DWS Health Care VIP ‘B’
DWS Balanced VIP		DWS High Income VIP ‘A’
DWS Blue Chip VIP ‘A’		DWS High Income VIP ‘B’
DWS Blue Chip VIP ‘B’		DWS International VIP ‘A’
DWS Bond VIP		DWS International VIP ‘B’
DWS Capital Growth VIP ‘A’		DWS Janus Growth & Income VIP (a)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements


(1) Organization: (continued)

DWS Large Cap Value VIP ‘A’		Invesco V.I. Utilities
DWS Large Cap Value VIP ‘B’		Janus Aspen Balanced
DWS Mid Cap Growth VIP		Janus Aspen Enterprise — Institutional
DWS Money Market VIP ‘A’		Janus Aspen Forty
DWS Small Cap Growth VIP		Janus Aspen Janus — Institutional
DWS Strategic Income VIP		Janus Aspen Perkins Mid Cap Value
DWS Strategic Value VIP ‘A’		Janus Aspen Perkins Small Cap Value (a)
DWS Strategic Value VIP ‘B’		Janus Aspen Worldwide — Institutional
DWS Technology VIP ‘A’		Janus Aspen Worldwide — Service
DWS Technology VIP ‘B’		JPMorgan Insurance Trust Balanced (a)
DWS Turner Mid Cap Growth VIP		JPMorgan Insurance Trust Core Bond
Fidelity VIP Asset Manager		JPMorgan Insurance Trust Equity Index
Fidelity VIP Contrafund		JPMorgan Insurance Trust Government Bond (a)
Fidelity VIP Contrafund ‘2’		JPMorgan Insurance Trust International Equity
Fidelity VIP Equity Income		JPMorgan Insurance Trust Intrepid Growth
Fidelity VIP Equity Income ‘2’		JPMorgan Insurance Trust Intrepid Mid Cap
Fidelity VIP Growth		JPMorgan Insurance Trust Mid Cap Growth
Fidelity VIP Index 500		JPMorgan Insurance Trust Mid Cap Value
Fidelity VIP Index 500 ‘SC’		JPMorgan Insurance Trust Small Cap Core
Franklin Rising Dividends Securities		JPMorgan Insurance Trust U.S. Equity
Franklin Small Cap Value Securities		JPMorgan International Equity (a)
Franklin Strategic Income Securities		JPMorgan Mid Cap Value (a)
Franklin U.S. Government		JPMorgan Small Cap Value (a)
Franklin Zero Coupon 2010 (a)		Oppenheimer Capital Appreciation
Mutual Global Discovery Securities		Oppenheimer Global Securities
Mutual Shares Securities		Oppenheimer Global Strategic Income Fund VA Series
Templeton Developing Markets Securities		Oppenheimer High Income
ING Global Resources Trust		Oppenheimer Main Street
ING JPMorgan Emerging Markets Equity		Oppenheimer Main Street Small Cap
Invesco Financial Services Fund		Oppenheimer Small-MidCap Growth Fund VA Series
Invesco Global Health Care		PIMCO Foreign Bond
Invesco Global Real Estate		PIMCO Low Duration


(a)		Subaccounts are closed and not available.

See respective contract Prospectus of each product for further description and benefits.

(2) Significant Accounting Policies:

Investments

Investments are made in the various portfolios in accordance with selections made by the contract owners. Such investments are made at the net asset value per share, reported by the respective portfolios.

Security transactions and investment income

Security transactions are generally accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded as income on the ex-dividend date. Realized gains and losses from sales of investment shares are generally reported on a first in, first out (FIFO) cost basis. Capital gain distributions are included in realized gains (losses) on investments.

Accumulation unit valuation

On each day the New York Stock Exchange (the “Exchange”) is open for trading, the accumulation unit value is determined as of the earlier of 3:00 p.m. (CST) or the close of the Exchange by dividing the total value of each subaccount’s investments and other assets, less liabilities, by the number of accumulation units outstanding in the respective subaccount.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(2) Significant Accounting Policies: (continued)

Federal income taxes

The results of the operations of the Separate Account are included in the federal income tax return of ZALICO. Under the provisions of the contracts, ZALICO has the right to charge the Separate Account for federal income tax attributable to the Separate Account. No charge has been made against the Separate Account for such tax. Management will periodically review the contract in the event of changes in tax law. Accordingly, a charge may be made in future years for any federal income taxes that would be attributable to the contracts.

Net transfers (to) from affiliate or subaccounts

Net transfers (to) from affiliate or subaccounts include transfers of all or part of the contract owners’ interest to or from another eligible subaccount or to the general account of ZALICO.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets or liabilities at the date of the financial statements. As a result, actual results reported as revenue and expenses could differ from the estimates reported in the accompanying financial statements.

Risks and Uncertainties

The Separate Account provides for various investment options in any combination of the available open-end management investment companies. Generally, all investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in risks in the near term could materially affect investment balances, the amounts reported in the Statement of Assets, Liabilities and Contract Owners’ Equity and the amounts reported in the Statement of Changes in Contract Owners’ Equity.

Annuity Payouts

Net assets allocated to contracts in the annuity payout period are computed according to the 1983a Individual Annuitant Mortality Table with projections. Unless the annuitant elects otherwise, the assumed investment return is 2.5% for most products (i.e. Destinations, Farmers Variable Annuity, Archway, ZS4, Preferred, Preferred Plus, most Advantage III policies), or 4.0% for Passport and some Advantage III contracts. The mortality risk is fully borne by ZALICO and may result in additional amounts being transferred into the Separate Account by ZALICO to cover greater longevity of annuitants than expected. Conversely, if amounts allocated exceed amounts required, transfers may be made to the insurance company.

Accounting Pronouncements Recently Adopted

Accounting Standard Update (“ASU” or “Update”) No. 2010-06 — Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements.

In January of 2010, Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06 — Fair Value Measurements and Disclosures — Improving Disclosure about Fair Value Measurements. This Update provides amendments to Subtopic 820-10 that requires the following new disclosures: 1) A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; 2) In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). In addition, this Update provides amendments to clarify existing fair value measurement disclosures with respect to the required level of detail (i.e. class of assets and liabilities) and inputs and valuation techniques used for Level 2 and Level 3 investments. This Update became effective for the Separate Account in 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for the fiscal years beginning after December 15, 2010. This Update did not have an impact on the Separate Account’s financial statements.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(2) Significant Accounting Policies: (continued)

ASU No. 2009-17 — Consolidations — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.

In December of 2009, FASB issued ASU No. 2009-17 which incorporates FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”) into the ASC. SFAS No. 167 was issued by the Board on June 12, 2009. This Update provides guidance for determining whether variable interest entities should be consolidated, and the Separate Account has a scope exemption which is provided for in this pronouncement. The adoption of this Update did not have an impact on the Separate Account’s financial statements.

Fair Value Measurements

The Separate Account determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosure Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Separate Account has categorized its financial instruments based on the priority of the inputs to the valuation technique, into the three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the Statement of Assets, Liabilities and Contract Owners’ Equity are categorized as follows:

	•		Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.

	•		Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

	a)		Quoted prices for similar assets or liabilities in active markets

	b)		Quoted prices for identical or similar assets or liabilities in non-active markets

	c)		Inputs other than quoted market prices that are observable

	d)		Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

•

Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Determination of Fair Values

The valuation methodologies used to determine the fair values of assets and liabilities under the FASB guidance referenced in the Fair Value Measurements and Disclosure Topic reflect market participation assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Separate Account determines the fair values of certain financial assets based on quoted market prices. All of the investments in the subaccounts of the Separate Account are classified as Level 1 in the fair value hierarchy and consist of open-end management investment companies. Participants may, without restriction, transact at the daily net asset value (“NAV”) of the investment companies The NAV represents the daily per share value of the portfolio of investments of the mutual funds, at which sufficient volumes of transactions occur.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(3) Purchases and Sales of Investments:

The cost of purchases and proceeds from sales of investments, excluding distributions received and reinvested, for the year ended December 31, 2010, are as follows:


	Purchases		Sales
The Alger Portfolios:
Alger Balanced -Class O	$	2,390,339	$	8,743,136
Alger Balanced -Class S		998		57,429
Alger Capital Appreciation- Class O		3,639,510		9,068,239
Alger Capital Appreciation- Class S		7,241		8,063
Alger Large Cap Growth- Class I-2		746,046		2,284,857
Alger Mid Cap Growth-Class I-2		702,905		2,606,593
Alger Mid Cap Growth-Class S		24		225
Alger Small Cap Growth- Class I-2		1,004,914		2,668,221

American Century Variable Portfolios, Inc.:
American Century VP Income and Growth		340,412		2,104,018
American Century VP Income and Growth II		103		136
American Century VP Value		22,819,647		19,373,390
American Century VP Value II		74		60

Credit Suisse Trust:
Credit Suisse Trust International Equity Flex III		3,980,679		12,075,699

Dreyfus Investment Portfolios:
Dreyfus I.P. MidCap Stock A		4,060,891		9,144,697
Dreyfus I.P. MidCap Stock SC		1,095,590		835,435

The Dreyfus Socially Responsible Growth Fund, Inc.:
Dreyfus Socially Responsible Growth A		397,995		1,082,537
Dreyfus Socially Responsible Growth SC		64		30

DWS Variable Series I:
DWS Bond VIP		4,968,671		6,216,847
DWS Capital Growth VIP A		2,619,174		37,925,722
DWS Capital Growth VIP B		1,964		15,178
DWS Global Opportunities VIP A		4,551,097		11,372,393
DWS Global Opportunities VIP B		3		74
DWS Growth & Income VIP A		1,740,828		5,952,572
DWS Growth & Income VIP B		3,809		17,244
DWS Health Care VIP A		4,053,961		6,805,579
DWS Health Care VIP B		796		965
DWS International VIP A		1,870,000		8,312,855
DWS International VIP B		4,743		10,225

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(3) Purchases and Sales of Investments: (continued)


	Purchases		Sales
DWS Variable Series II:
DWS Balanced VIP	$	7,547,883	$	24,865,152
DWS Blue Chip VIP A		2,416,093		11,232,567
DWS Blue Chip VIP B		3,851		19,529
DWS Core Fixed Income VIP A		20,487,170		24,599,019
DWS Diversified International Equity VIP		4,552,027		10,125,757
DWS Dreman Small Mid Cap Value VIP A		6,199,026		22,866,868
DWS Dreman Small Mid Cap Value VIP B		9,676		32,438
DWS Global Thematic VIP A		2,530,029		7,375,381
DWS Global Thematic VIP B		3,376		495
DWS Government & Agency Securities VIP A		38,217,797		42,403,600
DWS Government & Agency Securities VIP B		16,834		15,495
DWS High Income VIP A		64,342,881		68,268,992
DWS High Income VIP B		13,696		27,276
DWS Large Cap Value VIP A		3,931,481		22,373,530
DWS Large Cap Value VIP B		5,592		27,778
DWS Mid Cap Growth VIP		2,703,579		3,654,306
DWS Money Market VIP		56,512,946		90,741,907
DWS Small Cap Growth VIP		2,909,775		11,073,873
DWS Strategic Income VIP		9,000,039		9,624,066
DWS Strategic Value VIP A		3,607,653		28,977,670
DWS Strategic Value VIP B		5,292		37,519
DWS Technology VIP A		3,669,148		12,024,515
DWS Technology VIP B		7,236		19,524
DWS Turner Mid Cap Growth VIP		2,820,660		6,664,407

DWS Investments VIT Funds:
DWS Equity 500 Index VIP A		6,409,047		13,756,541
DWS Equity 500 Index VIP B2		576		2,986

Fidelity Variable Insurance Products Funds:
Fidelity VIP Asset Manager		361,075		1,141,884
Fidelity VIP Contrafund		1,826,965		12,161,988
Fidelity VIP Contrafund 2		163		253
Fidelity VIP Equity Income		1,002,236		4,848,611
Fidelity VIP Equity Income 2		86		87
Fidelity VIP Growth		1,058,511		5,999,654
Fidelity VIP Index 500		2,671,360		8,482,706
Fidelity VIP Index SC 500		175,176		1,026,049

Franklin Templeton Variable Insurance Products Trust:
Franklin Rising Dividends Securities		1,076,578		1,295,227
Franklin Small Cap Value Securities		1,539,023		1,168,283
Franklin Strategic Income Securities		2,976,089		2,640,107

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(3) Purchases and Sales of Investments: (continued)


	Purchases		Sales
Franklin Templeton Variable Insurance Products Trust:
Franklin U.S. Government	$	1,308,603	$	1,669,761
Franklin Zero Coupon 2010		999,341		7,375,140
Mutual Global Discovery Securities		1,802,085		3,765,427
Mutual Shares Securities		1,619,326		1,992,998
Templeton Developing Markets Securities		1,267,253		1,651,921

ING Global Resources Trust
ING Global Resources Trust		1,158,050		2,025,813

ING Investors Trust:
ING JPMorgan Emerging Markets Equity		1,397,244		2,242,420

Invesco Variable Insurance Funds:
Invesco Financial Services Fund		582,720		403,233
Invesco Global Health Care		151,372		340,433
Invesco Global Real Estate		855,961		1,533,697
Invesco Utilities		2,089,751		4,732,824

Janus Aspen Series:
Janus Aspen Balanced		3,549,691		11,299,270
Janus Aspen Enterprise — Institutional		727,144		6,400,457
Janus Aspen Forty		22,971		88,213
Janus Aspen Janus — Institutional		607,915		4,339,999
Janus Aspen Perkins Mid Cap Value		822,938		1,303,680
Janus Aspen Worldwide — Institutional		548,420		6,132,145
Janus Aspen Worldwide — Service		4		1,109

JPMorgan Insurance Trust:
JPMorgan Insurance Trust Balanced		15,477		83,956
JPMorgan Insurance Trust Core Bond		505,699		334,148
JPMorgan Insurance Trust Equity Index		244,422		44,539
JPMorgan Insurance Trust International Equity		196,721		2,174,703
JPMorgan Insurance Trust Intrepid Growth		158		14,016
JPMorgan Insurance Trust Intrepid Mid Cap		411,155		750,202
JPMorgan Insurance Trust Mid Cap Growth		398,542		402,946
JPMorgan Insurance Trust Mid Cap Value		455,675		1,846,031
JPMorgan Insurance Trust Small Cap Core		539,488		1,310,611
JPMorgan Insurance Trust U.S. Equity		190,996		285,115

Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation		229,873		1,041,440
Oppenheimer Global Securities		1,172,599		5,972,293
Oppenheimer Global Strategic Income VA Series		3,316,719		2,410,071

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(4) Expenses and Related Party Transactions:

The following is a summary of Separate Account expense charges which are assessed either as a direct reduction in unit values or through a redemption of units for all contracts contained within the Separate Account:


Contract Charges		Range
Mortality and Expense Risk Charge
Each Subaccount is assessed a daily asset charge for mortality and expense risks through a reduction in unit values. The mortality and expense risk charge covers certain insurance benefits available under the contracts and certain expenses the Company expects to incur. It also covers the risk that charges will not be sufficient to cover costs associated with the contracts and to provide contractual benefits.		0-1.25%

Administration Charge
Each Subaccount is assessed a daily administration charge through a reduction in unit values. This charge reimburses us for expenses incurred for administering the Contracts. These expenses include Owner inquiries, changes in allocations, Owner reports, Contract maintenance costs, and data processing costs. The administrative charge covers the average anticipated administrative expenses incurred while the Contracts are in force.		0-.50%

Records Maintenance Charge
An annual Records Maintenance Charge is assessed during the Accumulation Period through the redemption of units and is assessed equally among all Subaccounts in which the Contract Holder has an interest. The charge is assessed at the end of each Contract year, on Contract surrender and upon annuitization. However, the Separate Account does not deduct the Records Maintenance Charge for Contracts with Contract Value of at least $50,000 on the assessment date. This charge reimburses the Separate Account for the expenses of establishing and maintaining Contract records.		0-$30

Withdrawal Charge
Withdrawal Charges are applicable only during the first seven Contribution Years following each purchase payment. When a withdrawal is requested in good order, and a Withdrawal Charge applies, the Contract Value is reduced by the amount of the Withdrawal Charge through the redemption of units. This charge is subject to certain exceptions. The Withdrawal Charge compensate the Company for Contract distribution expenses, which include the payment of commissions and other promotion and acquisition expenses.		0-8%

Optional Benefit Fees
Optional benefits may be elected by contractholders. These benefits include death benefits and living benefits through the purchase of riders, such as Guaranteed Retirement Income Benefit Rider (“GRIB”), Guaranteed Minimum Death Benefit Rider (“GMDB”), Earnings Based Death Benefit Rider (“EBDB”), Safeguard Enhanced Death Benefit Rider and/or Safeguard Plus Enhanced Death Benefit Rider. The fees for such benefits are deducted monthly and assessed through redemption of units. These fees are calculated on an “Asset Base” basis.		0.15-0.35%

Transfer Charge
The Company currently allows unlimited transfers without charge. The Company reserves the right to assess a transfer fee for the thirteenth and each subsequent transfer during a Contract Year. The charge would be assessed through the redemption of units.		0-$25

Investment Management Fees and other expenses
In some cases, the value of the net assets of each Subaccount is reduced by the Investment Management, 12b-1 fees and service fees and other expenses incurred by the corresponding portfolio in which the Subaccount invests. These fees and expenses are paid indirectly by the Contract Holder through the reduction of unit values.		0-0.25%

Redemption Fees
A Fund or Portfolio may assess a redemption fee on Subaccount assets that are redeemed out of the Fund or Portfolio in connection with a withdrawal or transfer. Each Fund or Portfolio determines the amount of the redemption fee and when the fee is imposed. The redemption fee is retained by or paid to the Fund or Portfolio and is not retained by the Company. The redemption fee is deducted from the Contract Value through the redemption of units.		0-2%

Applicable State Premium Taxes
Certain state and local governments impose a premium tax on Purchase Payments which, depending on the state, is paid by the Company at the time a Purchase Payment is received from the Contract Holder or at the time the Contract is annuitized. If the Contract Holder lives in a state where premium taxes are paid at the time a Purchase Payment is received, the Company reserves the right to deduct the amount of the premium tax payable from the Contract Value at the time the Purchase Payment is received. If the Contract Holder lives in a state where premium taxes are paid at time of annuitization, the amount of the premium tax payable will be deducted from the Contract Value.		0-3.5%

Synergy Investment Group, LLC (“Synergy”), an unaffiliated broker/dealer, and Investment Distributors, Inc. (“IDI”), an affiliate of PLICO, are the principal underwriters for the ZALICO separate account. Synergy serves as the principal underwriter for the Scudder Destinations and Farmers Variable Annuity I contracts. IDI serves as the principal underwriter for the remainder of the variable annuity contracts funded through the separate account. BFP Securities LLC, an affiliate of the Company, is also the primary wholesaling distributor of the Company’s BOLI products.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding:

The changes in units outstanding for the years ended December 31, 2010 and 2009 were as follows:


					Net Increase /
	Units Issued		Units Redeemed		(Decrease)
The Alger Portfolios:
Alger Balanced O
2010		301,902		893,726		(591,824	)
2009		670,628		1,674,800		(1,004,172	)
Alger Balanced S
2010		—		4,670		(4,670	)
2009		2,581		607		1,974
Alger Capital Appreciation O
2010		829,395		1,303,350		(473,955	)
2009		1,267,123		2,893,443		(1,626,320	)
Alger Capital Appreciation S
2010		473		474		(1	)
2009		—		—		—
Alger Large Cap Growth I-2
2010		24,648		54,208		(29,560	)
2009		46,479		73,677		(27,198	)
Alger Mid Cap Growth I-2
2010		46,235		102,606		(56,371	)
2009		92,478		147,937		(55,459	)
Alger Mid Cap Growth S
2010		2		2		—
2009		46		2		44
Alger Small Cap Growth I-2
2010		40,181		85,375		(45,194	)
2009		99,457		66,406		33,051

American Century Variable Portfolios, Inc.:
American Century VP Income & Growth
2010		109,634		386,912		(277,278	)
2009		193,038		512,351		(319,313	)
American Century VP Income & Growth II
2010		—		—		—
2009		—		—		—
American Century VP Value
2010		2,468,350		2,167,498		300,852
2009		237,732		589,395		(351,663	)
American Century VP Value II
2010		—		—		—
2009		—		—		—

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


					Net Increase /
	Units Issued		Units Redeemed		(Decrease)
Credit Suisse Trust:
Credit Suisse Trust International Equity Flex II
2010		—		—		—
2009		—		1,192,719		(1,192,719	)
Credit Suisse Trust International Equity Flex III
2010		557,559		978,042		(420,483	)
2009		1,221,919		1,386,895		(164,976	)

Dreyfus Investment Portfolios:
Dreyfus I.P. MidCap Stock A
2010		564,511		936,642		(372,131	)
2009		480,319		2,434,820		(1,954,501	)
Dreyfus I.P. MidCap Stock SC
2010		80,861		63,879		16,982
2009		22,029		30,579		(8,550	)

The Dreyfus Socially Responsible Growth Fund, Inc:
The Dreyfus Socially Responsible Growth A
2010		55,795		115,029		(59,234	)
2009		76,132		184,685		(108,553	)
The Dreyfus Socially Responsible Growth SC
2010		5		—		5
2009		6		—		6

DWS Variable Series I:
DWS Bond VIP
2010		660,551		887,664		(227,113	)
2009		1,638,071		1,175,864		462,207
DWS Capital Growth VIP A
2010		762,687		3,804,274		(3,041,587	)
2009		7,242,333		8,424,963		(1,182,630	)
DWS Capital Growth VIP B
2010		90		942		(852	)
2009		412		20,307		(19,895	)
DWS Global Opportunities VIP A
2010		618,434		967,283		(348,849	)
2009		723,078		2,120,454		(1,397,376	)
DWS Global Opportunities VIP B
2010		—		1		(1	)
2009		—		1		(1	)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


			Units		Net Increase /
	Units Issued		Redeemed		(Decrease)
DWS Variable Series I: (continued)
DWS Growth & Income VIP A
2010		298,305		799,767		(501,462	)
2009		473,961		1,595,439		(1,121,478	)
DWS Growth & Income VIP B
2010		304		1,441		(1,137	)
2009		552		615		(63	)
DWS Health Care VIP A
2010		298,090		646,726		(348,636	)
2009		315,709		1,659,655		(1,343,946	)
DWS Health Care VIP B
2010		—		45		(45	)
2009		—		111		(111	)
DWS International VIP A
2010		417,555		1,121,282		(703,727	)
2009		702,993		2,752,657		(2,049,664	)
DWS International VIP B
2010		309		716		(407	)
2009		152		1,407		(1,255	)

DWS Variable Series II:
DWS Balanced VIP
2010		702,014		3,739,005		(3,036,991	)
2009		1,223,661		5,839,060		(4,615,399	)
DWS Blue Chip VIP A
2010		455,547		1,367,752		(912,205	)
2009		747,051		2,910,361		(2,163,310	)
DWS Blue Chip VIP B
2010		167		1,283		(1,116	)
2009		33		860		(827	)
DWS Core Fixed Income VIP A
2010		3,701,741		4,878,788		(1,177,047	)
2009		3,872,245		5,939,399		(2,067,154	)
DWS Davis Venture Value VIP
2010		—		—		—
2009		562		11,803,333		(11,802,771	)
DWS Diversified International Equity VIP
2010		994,786		2,659,564		(1,664,778	)
2009		1,298,595		4,979,949		(3,681,354	)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


					Net Increase /
	Units Issued		Units Redeemed		(Decrease)
DWS Variable Series II: (continued)
DWS Dreman Small Mid Cap Value VIP A
2010		1,722,220		4,001,299		(2,279,079	)
2009		2,148,467		6,824,182		(4,675,715	)
DWS Dreman Small Mid Cap Value VIP B
2010		481		1,573		(1,092	)
2009		221		1,582		(1,361	)
DWS Global Thematic VIP A
2010		404,407		735,873		(331,466	)
2009		552,615		1,593,743		(1,041,128	)
DWS Global Thematic VIP B
2010		215		—		215
2009		274		848		(574	)
DWS Government & Agency Securities VIP A
2010		3,538,234		4,781,760		(1,243,526	)
2009		2,992,957		5,733,482		(2,740,525	)
DWS Government & Agency Securities VIP B
2010		735		1,054		(319	)
2009		962		5,779		(4,817	)
DWS High Income VIP A
2010		5,609,636		7,242,330		(1,632,694	)
2009		4,506,753		5,629,812		(1,123,059	)
DWS High Income VIP B
2010		145		1,551		(1,406	)
2009		169		2,422		(2,253	)
DWS Janus Growth & Income VIP
2010		—		—		—
2009		—		8,715,133		(8,715,133	)
DWS Large Cap Value VIP A
2010		1,278,428		3,613,707		(2,335,279	)
2009		9,035,764		5,976,564		3,059,200
DWS Large Cap Value VIP B
2010		225		2,018		(1,793	)
2009		20,754		12,897		7,857
DWS Mid Cap Growth VIP
2010		420,164		524,830		(104,666	)
2009		506,130		753,601		(247,471	)
DWS Money Market VIP
2010		16,394,118		20,061,285		(3,667,167	)
2009		17,524,757		30,756,924		(13,232,167	)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


					Net Increase /
	Units Issued		Units Redeemed		(Decrease)
DWS Variable Series II: (continued)
DWS Small Cap Growth VIP
2010		1,563,231		3,516,507		(1,953,276	)
2009		2,286,270		4,954,927		(2,668,657	)
DWS Strategic Income VIP
2010		688,564		846,435		(157,871	)
2009		1,068,032		1,872,246		(804,214	)
DWS Strategic Value VIP A
2010		773,361		3,112,889		(2,339,528	)
2009		1,436,051		8,352,676		(6,916,625	)
DWS Strategic Value VIP B
2010		279		3,370		(3,091	)
2009		783		3,916		(3,133	)
DWS Technology VIP A
2010		2,456,018		3,932,205		(1,476,187	)
2009		3,266,293		4,297,724		(1,031,431	)
DWS Technology VIP B
2010		636		1,521		(885	)
2009		149		96		53
DWS Turner Mid Cap Growth VIP
2010		611,720		940,032		(328,312	)
2009		930,659		2,978,261		(2,047,602	)

DWS Investments VIT Funds:
DWS Equity 500 Index VIP A
2010		1,019,310		1,829,186		(809,876	)
2009		2,571,534		5,120,772		(2,549,238	)
DWS Equity 500 Index VIP B2
2010		37		303		(266	)
2009		46		27		19

Fidelity Variable Insurance Products Funds:
Fidelity VIP Asset Manager
2010		13,711		43,386		(29,675	)
2009		18,907		52,251		(33,344	)
Fidelity VIP Contrafund
2010		151,317		432,661		(281,344	)
2009		413,019		611,563		(198,544	)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


					Net Increase /
	Units Issued		Units Redeemed		(Decrease)
Fidelity Variable Insurance Products Funds: (continued)
Fidelity VIP Contrafund 2
2010		—		—		—
2009		—		—		—
Fidelity VIP Equity Income
2010		55,932		181,665		(125,733	)
2009		94,151		266,877		(172,726	)
Fidelity VIP Equity Income 2
2010		—		—		—
2009		—		—		—
Fidelity VIP Growth
2010		50,345		164,602		(114,257	)
2009		159,025		217,350		(58,325	)
Fidelity VIP Index 500
2010		25,289		82,986		(57,697	)
2009		62,332		121,222		(58,890	)
Fidelity VIP Index 500 SC
2010		1,262		5,890		(4,628	)
2009		4,132		8,383		(4,251	)

Franklin Templeton Variable Insurance Products Trust:
Franklin Rising Dividends Securities
2010		95,654		113,269		(17,615	)
2009		89,075		148,606		(59,531	)
Franklin Small Cap Value Securities
2010		106,673		85,791		20,882
2009		66,868		116,772		(49,904	)
Franklin Strategic Income Securities
2010		227,077		227,503		(426	)
2009		413,740		315,987		97,753
Franklin U.S. Government
2010		116,618		152,638		(36,020	)
2009		261,682		260,346		1,336
Franklin Zero Coupon 2010
2010		41,760		662,059		(620,299	)
2009		100,703		307,283		(206,580	)
Mutual Global Discovery Securities
2010		170,797		270,323		(99,526	)
2009		233,308		337,428		(104,120	)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


					Net Increase /
	Units Issued		Units Redeemed		(Decrease)
Franklin Templeton Variable Insurance Products Trust: (continued)
Mutual Shares Securities
2010		150,017		179,034		(29,017	)
2009		171,004		231,169		(60,165	)
Templeton Developing Markets Securities
2010		64,040		78,667		(14,627	)
2009		97,197		86,502		10,695

ING Global Resources Trust:
ING Global Resources Trust
2010		150,499		230,188		(79,689	)
2009		152,278		298,096		(145,818	)

ING Investors Trust:
ING JPMorgan Emerging Markets Equity
2010		51,427		112,819		(61,392	)
2009		97,387		107,722		(10,335	)

Invesco Variable Insurance Funds:
Invesco Financial Services Fund
2010		93,359		69,708		23,651
2009		159,936		207,779		(47,843	)
Invesco Global Health Care
2010		14,776		27,277		(12,501	)
2009		33,348		72,802		(39,454	)
Invesco Global Real Estate
2010		44,183		92,174		(47,991	)
2009		59,117		109,310		(50,193	)
Invesco Utilities
2010		258,536		546,715		(288,179	)
2009		489,390		1,440,236		(950,846	)

Janus Aspen Series:
Janus Aspen Balanced
2010		143,642		364,960		(221,318	)
2009		178,736		444,291		(265,555	)
Janus Aspen Enterprise — Institutional
2010		67,944		220,116		(152,172	)
2009		103,764		246,192		(142,428	)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


					Net Increase /
	Units Issued		Units Redeemed		(Decrease)
Janus Aspen Series: (continued)
Janus Aspen Forty
2010		2,376		6,486		(4,110	)
2009		2,121		10,756		(8,635	)
Janus Aspen Janus — Institutional
2010		61,366		217,391		(156,025	)
2009		82,331		217,247		(134,916	)
Janus Aspen Perkins Mid Cap Value
2010		55,909		77,863		(21,954	)
2009		95,595		119,893		(24,298	)
Janus Aspen Perkins Small Company Value
2010		—		—		—
2009		26,527		448,183		(421,656	)
Janus Aspen Worldwide — Institutional
2010		72,177		256,032		(183,855	)
2009		124,514		303,200		(178,686	)
Janus Aspen Worldwide — Service
2010		—		103		(103	)
2009		—		—		—

JPMorgan Insurance Trust:
JPMorgan Insurance Trust Balanced
2010		1,375		7,109		(5,734	)
2009		3,411		163		3,248
JPMorgan Insurance Trust Core Bond
2010		38,782		28,058		10,724
2009		176,458		60,686		115,772
JPMorgan Insurance Trust Equity Index
2010		22,252		4,065		18,187
2009		3,039		13,430		(10,391	)
JPMorgan Insurance Trust Government Bond
2010		—		—		—
2009		6,795		59,865		(53,070	)
JPMorgan Insurance Trust International Equity
2010		50,541		165,029		(114,488	)
2009		1,603,217		914,671		688,546
JPMorgan Insurance Trust Intrepid Growth
2010		—		1,471		(1,471	)
2009		—		—		—

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)


			Units		Net Increase /
	Units Issued		Redeemed		(Decrease)
JPMorgan Insurance Trust: (continued)
JPMorgan Insurance Trust Intrepid Mid Cap
2010		38,220		66,150		(27,930	)
2009		28,245		66,353		(38,108	)
JPMorgan Insurance Trust Mid Cap Growth
2010		35,540		33,705		1,835
2009		27,502		42,605		(15,103	)
JPMorgan Insurance Trust Mid Cap Value
2010		54,761		165,395		(110,634	)
2009		1,423,632		828,916		594,716
JPMorgan Insurance Trust Small Cap Core
2010		45,559		90,337		(44,778	)
2009		744,476		449,533		294,943
JPMorgan Insurance Trust U.S. Equity
2010		17,538		25,241		(7,703	)
2009		6,349		18,535		(12,186	)

JPMorgan Series Trust II:
JPMorgan International Equity
2010		—		—		—
2009		30,391		882,520		(852,129	)
JPMorgan MidCap Value
2010		—		—		—
2009		17,818		556,083		(538,265	)
JPMorgan Small Company
2010		—		—		—
2009		22,765		389,370		(366,605	)

Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation
2010		30,250		95,457		(65,207	)
2009		85,694		85,907		(213	)
Oppenheimer Global Securities
2010		139,996		396,777		(256,781	)
2009		277,306		520,785		(243,479	)
Oppenheimer Global Strategic Income VA Series
2010		237,438		218,997		18,441
2009		189,843		324,394		(134,551	)

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights:

A summary of the units outstanding, unit fair values, net assets for variable annuity contracts, net investment income ratios, the expense ratios, excluding expenses of the underlying funds, and total returns for each of the five years in the period ended December 31, 2010, were as follows.


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
Alger Portfolios: (5)
Alger Balanced O (6)
2010		3,449	$	12.246	$	12.246	$	42,236		2.49	%		1.40	%		1.40	%		8.81	%		8.81	%
2009		4,041		11.255		11.255		45,477		3.20	%		1.40	%		1.40	%		27.46	%		27.46	%
2008		5,045		8.830		8.830		44,546		2.80	%		1.40	%		1.40	%		-32.71	%		-32.71	%
2007		7,050		13.121		13.121		92,499		2.14	%		1.40	%		1.40	%		10.81	%		10.81	%
2006		8,412		11.465		11.465		99,604		1.53	%		1.40	%		1.40	%		3.28	%		3.28	%
Alger Balanced S (6)
2010 (7)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		5		11.753		12.059		56		3.88	%		1.70	%		2.05	%		25.92	%		26.35	%
2008		3		9.334		9.544		26		N/A			1.70	%		2.05	%		-33.27	%		-33.04	%
2007		3		13.987		14.253		45		N/A			1.70	%		2.05	%		12.18	%		12.56	%
2006		7		12.181		12.327		82		N/A			1.70	%		2.05	%		2.37	%		2.72	%
Alger Capital Appreciation O (8)
2010		4,578		11.866		11.866		54,321		0.38	%		1.40	%		1.40	%		12.45	%		12.45	%
2009		5,052		10.552		10.552		53,307		N/A			1.40	%		1.40	%		49.02	%		49.02	%
2008		6,678		7.081		7.081		47,288		N/A			1.40	%		1.40	%		-45.90	%		-45.90	%
2007		9,245		13.088		13.088		121,007		0.06	%		1.40	%		1.40	%		31.68	%		31.68	%
2006		8,585		8.450		8.450		85,346		0.03	%		1.40	%		1.40	%		17.62	%		17.62	%
Alger Capital Appreciation S (8)
2010		—		18.262		18.802		2		0.19	%		1.70	%		2.05	%		11.35	%		11.73	%
2009		—		16.401		16.828		1		N/A			1.70	%		2.05	%		47.66	%		48.17	%
2008		—		11.107		11.357		1		N/A			1.70	%		2.05	%		-46.37	%		-46.18	%
2007		—		20.709		21.102		3		0.20	%		1.70	%		2.05	%		30.51	%		30.96	%
2006		1		13.612		13.775		19		N/A			1.70	%		2.05	%		16.58	%		16.58	%
Alger Large Cap Growth I-2 (9)
2010		209		40.998		57.935		11,342		0.73	%		1.00	%		2.25	%		10.89	%		12.26	%
2009		238		36.970		51.606		11,580		0.61	%		1.00	%		2.25	%		44.33	%		46.11	%
2008		266		25.616		35.319		8,887		0.23	%		1.00	%		2.25	%		-47.34	%		-46.69	%
2007		293		48.646		66.251		18,402		0.33	%		1.00	%		2.25	%		17.29	%		18.75	%
2006		355		40.329		53.587		18,865		0.13	%		1.00	%		2.25	%		2.19	%		4.11	%
Alger Mid Cap Growth O (10)
2010		384		32.696		36.610		13,498		N/A			1.00	%		2.25	%		16.76	%		18.20	%
2009		440		28.003		30.973		13,152		N/A			1.00	%		2.25	%		48.37	%		50.20	%
2008		495		18.874		20.620		9,911		0.17	%		1.00	%		2.25	%		-59.28	%		-58.77	%
2007		572		46.347		50.013		27,876		N/A			1.00	%		2.25	%		28.65	%		30.25	%
2006		602		33.443		35.210		22,574		N/A			1.00	%		2.25	%		7.72	%		9.05	%
Alger Mid Cap Growth S (10)
2010		1		15.150		15.597		13		N/A			1.70	%		2.05	%		16.50	%		16.90	%
2009		1		13.004		13.343		11		N/A			1.70	%		2.05	%		48.27	%		48.78	%
2008		1		8.770		8.968		7		N/A			1.70	%		2.05	%		-59.31	%		-59.17	%
2007		1		21.554		21.963		17		N/A			1.70	%		2.05	%		28.62	%		29.07	%
2006		1		15.641		15.829		13		N/A			1.70	%		2.05	%		7.13	%		7.50	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
Alger Portfolios: (5) (continued)
Alger Small Cap Growth I-2 (11)
2010		173	$	20.930	$	56.472	$	8,564		N/A			1.00	%		2.25	%		22.43	%		24.05	%
2009		218		17.095		45.522		8,384		N/A			1.00	%		2.25	%		42.17	%		44.07	%
2008		185		12.024		31.598		5,170		N/A			1.00	%		2.25	%		-47.78	%		-47.13	%
2007		182		23.026		59.766		9,698		N/A			1.00	%		2.25	%		14.58	%		16.07	%
2006		185		20.097		51.489		8,534		N/A			1.00	%		2.25	%		16.43	%		18.83	%

American Century Variable Portfolios, Inc.:
American Century VP Income & Growth
2010		1,450		6.645		7.423		10,420		1.44	%		1.00	%		2.25	%		11.64	%		13.02	%
2009		1,727		5.953		6.568		11,010		4.57	%		1.00	%		2.25	%		15.50	%		16.93	%
2008		2,046		5.154		5.617		11,188		2.16	%		1.00	%		2.25	%		-36.03	%		-35.24	%
2007		2,932		8.057		8.674		24,831		2.01	%		1.00	%		2.25	%		-2.28	%		-1.06	%
2006		3,975		7.185		7.562		34,156		1.87	%		1.00	%		2.25	%		14.52	%		15.93	%
American Century VP Income & Growth II
2010		1		12.495		12.864		9		1.23	%		1.70	%		2.05	%		11.57	%		11.96	%
2009		1		11.199		11.490		8		4.05	%		1.70	%		2.05	%		15.41	%		15.81	%
2008		1		9.703		9.922		7		1.78	%		1.70	%		2.05	%		-36.04	%		-35.82	%
2007		1		15.172		15.460		11		1.64	%		1.70	%		2.05	%		-2.44	%		-2.11	%
2006		1		13.659		13.823		11		1.51	%		1.70	%		2.05	%		13.86	%		14.25	%
American Century VP Value
2010		2,021		9.122		10.707		20,809		2.39	%		1.00	%		2.25	%		10.93	%		12.30	%
2009		1,720		8.223		9.534		15,778		5.38	%		1.00	%		2.25	%		17.23	%		18.68	%
2008		2,072		7.015		8.034		16,036		2.54	%		1.00	%		2.25	%		-28.39	%		-27.50	%
2007		2,614		9.796		11.081		28,023		1.72	%		1.00	%		2.25	%		-7.24	%		-6.08	%
2006		3,043		9.099		10.043		34,797		1.36	%		1.00	%		2.25	%		16.05	%		17.48	%
American Century VP Value II
2010		—		14.014		14.428		4		2.00	%		1.70	%		2.05	%		10.77	%		11.15	%
2009		—		12.652		12.981		4		4.96	%		1.70	%		2.05	%		17.32	%		17.72	%
2008		—		10.784		11.027		3		2.31	%		1.70	%		2.05	%		-28.28	%		-28.03	%
2007		—		15.036		15.322		4		2.44	%		1.70	%		2.05	%		-7.22	%		-6.90	%
2006		1		14.029		14.197		24		1.27	%		1.70	%		2.05	%		15.52	%		15.92	%

Credit Suisse Trust:
Credit Suisse Trust International Equity Flex II
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (12)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		1,193		6.170		8.786		7,359		1.63	%		1.40	%		2.05	%		-47.83	%		-47.49	%
2007		2,070		11.751		16.782		24,325		N/A			1.40	%		2.05	%		-5.90	%		-5.29	%
2006		2,383		12.407		17.773		29,574		N/A			1.40	%		2.05	%		10.94	%		11.65	%
Credit Suisse Trust International Equity Flex III (13)
2010		2,176		18.159		22.796		43,927		0.09	%		1.00	%		2.25	%		9.76	%		11.12	%
2009		2,596		16.543		20.656		47,351		2.23	%		1.00	%		2.25	%		48.28	%		50.12	%
2008		2,762		11.157		13.855		33,670		1.92	%		1.00	%		2.25	%		-55.80	%		-55.25	%
2007		4,089		25.242		31.179		111,926		1.45	%		1.00	%		2.25	%		26.58	%		28.15	%
2006		4,547		19.942		24.500		97,524		0.53	%		1.00	%		2.25	%		29.55	%		31.21	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
Dreyfus Investment Portfolios:
Dreyfus I.P. MidCap Stock A
2010		3,677	$	15.973	$	15.973	$	58,739		0.94	%		1.40	%		1.40	%		25.34	%		25.34	%
2009		4,049		12.743		12.743		51,604		1.43	%		1.40	%		1.40	%		33.64	%		33.64	%
2008		6,004		9.536		9.536		58,261		1.04	%		1.40	%		1.40	%		-41.25	%		-41.25	%
2007		8,728		16.230		16.230		143,605		0.44	%		1.40	%		1.40	%		0.09	%		0.09	%
2006		10,607		13.429		15.418		172,015		0.39	%		1.00	%		2.25	%		4.85	%		6.61	%
Dreyfus I.P. MidCap Stock SC
2010		127		14.792		16.384		2,010		0.78	%		1.00	%		2.25	%		24.15	%		25.69	%
2009		110		11.891		13.035		1,395		0.95	%		1.00	%		2.25	%		32.35	%		33.99	%
2008		119		8.967		9.729		117		8.06	%		1.00	%		2.25	%		-41.76	%		-41.04	%
2007		135		15.366		16.499		230		2.88	%		1.00	%		2.25	%		-0.86	%		0.38	%
2006		19		14.659		14.835		299		1.54	%		1.70	%		2.05	%		5.52	%		5.88	%

The Dreyfus Socially Responsible Growth Fund, Inc.:
Dreyfus Socially Responsible Growth A
2010		508		7.793		28.958		5,724		0.85	%		1.00	%		2.25	%		12.29	%		13.68	%
2009		567		6.883		25.473		5,714		0.94	%		1.00	%		2.25	%		30.81	%		32.43	%
2008		676		5.218		19.235		5,007		0.81	%		1.00	%		2.25	%		-35.87	%		-35.07	%
2007		906		8.069		29.627		9,740		0.51	%		1.00	%		2.25	%		5.40	%		6.71	%
2006		1,388		7.049		25.677		12,962		0.10	%		1.00	%		2.25	%		6.19	%		8.12	%
Dreyfus Socially Responsible Growth SC
2010		—		12.323		12.687		2		0.60	%		1.70	%		2.05	%		12.25	%		12.63	%
2009		—		10.978		11.264		2		0.60	%		1.70	%		2.05	%		30.76	%		31.21	%
2008		—		8.396		8.585		1		0.52	%		1.70	%		2.05	%		-35.90	%		-35.68	%
2007		—		13.098		13.346		3		0.14	%		1.70	%		2.05	%		5.32	%		5.69	%
2006		3		11.647		11.786		32		N/A			1.70	%		2.05	%		6.77	%		7.14	%

Dreyfus Variable Investment Fund:
Dreyfus VIF Small Company Stock
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007 (14)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2006		47		14.271		17.501		815		N/A			1.00	%		2.25	%		7.92	%		9.85	%

DWS Variable Series I: (15)
DWS Bond VIP
2010		2,609		7.578		12.782		24,438		4.37	%		1.00	%		2.25	%		4.44	%		5.73	%
2009		2,836		7.255		12.137		25,103		7.39	%		1.00	%		2.25	%		7.65	%		38.47	%
2008		2,373		6.740		11.181		18,767		6.26	%		1.00	%		2.25	%		-18.60	%		-17.59	%
2007		2,888		8.280		13.623		27,128		4.11	%		1.00	%		2.25	%		1.87	%		3.14	%
2006		2,187		8.128		13.260		19,656		2.14	%		1.00	%		2.25	%		2.42	%		3.68	%
DWS Capital Growth VIP A
2010		17,222		11.538		24.158		229,370		0.88	%		1.00	%		2.25	%		14.14	%		15.55	%
2009 (16)		20,264		10.024		20.906		232,977		1.17	%		1.00	%		2.25	%		24.08	%		25.61	%
2008		21,447		8.012		16.643		198,670		1.17	%		1.00	%		2.25	%		-34.46	%		-33.65	%
2007		29,000		12.123		25.082		397,489		0.63	%		1.00	%		2.25	%		10.10	%		11.47	%
2006 (17)		35,506		10.201		20.940		436,463		0.41	%		1.00	%		2.25	%		5.50	%		7.46	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
DWS Variable Series I: (15) (continued)
DWS Capital Growth VIP B
2010		12	$	13.987	$	14.401	$	177		0.54	%		1.70	%		2.05	%		14.00	%		14.39	%
2009 (16)		13		12.270		12.589		166		1.47	%		1.70	%		2.05	%		23.95	%		24.37	%
2008		33		9.900		10.122		332		0.67	%		1.70	%		2.05	%		-34.55	%		-34.32	%
2007		35		15.125		15.413		530		0.29	%		1.70	%		2.05	%		9.91	%		10.29	%
2006 (17)		56		12.982		13.138		772		0.16	%		1.70	%		2.05	%		6.00	%		6.37	%
DWS Global Opportunities VIP A (18)
2010		3,382		21.976		21.976		74,320		0.38	%		1.40	%		1.40	%		24.89	%		24.89	%
2009		3,731		17.596		17.596		65,646		1.61	%		1.40	%		1.40	%		46.16	%		46.16	%
2008		5,128		12.039		12.039		61,738		0.29	%		1.40	%		1.40	%		-50.66	%		-50.66	%
2007		7,462		24.400		24.400		182,071		1.28	%		1.40	%		1.40	%		7.81	%		7.81	%
2006		8,691		18.797		18.797		196,688		1.00	%		1.40	%		1.40	%		20.40	%		20.40	%
DWS Global Opportunities VIP B (18)
2010		—		21.305		21.934		4		0.08	%		1.70	%		2.05	%		23.85	%		24.27	%
2009		—		17.202		17.650		3		1.36	%		1.70	%		2.05	%		44.69	%		45.19	%
2008		—		11.889		12.156		2		N/A			1.70	%		2.05	%		-51.17	%		-51.00	%
2007		—		24.345		24.808		7		1.39	%		1.70	%		2.05	%		6.72	%		7.09	%
2006		1		19.100		19.329		13		0.58	%		1.70	%		2.05	%		19.44	%		19.85	%
DWS Growth & Income VIP A
2010		3,206		9.338		11.578		30,927		1.61	%		1.00	%		2.05	%		12.10	%		13.26	%
2009		3,707		8.277		10.223		31,677		1.98	%		1.00	%		2.05	%		31.45	%		34.87	%
2008		4,829		6.257		7.697		31,155		2.14	%		1.00	%		2.05	%		-39.55	%		-38.92	%
2007		6,915		10.285		12.602		71,600		1.28	%		1.00	%		2.05	%		-0.69	%		0.35	%
2006		8,327		9.182		11.162		87,917		0.97	%		1.00	%		2.05	%		11.35	%		12.50	%
DWS Growth & Income VIP B
2010		8		12.449		12.817		107		1.37	%		1.70	%		2.05	%		11.83	%		12.21	%
2009		10		11.133		11.422		108		1.80	%		1.70	%		2.05	%		30.95	%		31.40	%
2008		10		8.501		8.693		83		1.70	%		1.70	%		2.05	%		-39.53	%		-39.32	%
2007		10		14.059		14.326		138		0.83	%		1.70	%		2.05	%		-1.04	%		-0.70	%
2006		14		12.798		12.952		208		0.58	%		1.70	%		2.05	%		11.01	%		11.39	%
DWS Health Care VIP A (19)
2010		2,229		13.882		13.882		30,942		N/A			1.40	%		1.40	%		6.66	%		6.66	%
2009		2,578		13.015		13.015		33,548		1.28	%		1.40	%		1.40	%		20.50	%		20.50	%
2008		3,922		10.801		10.801		42,357		0.35	%		1.40	%		1.40	%		-24.27	%		-24.27	%
2007		5,172		14.262		14.262		73,767		N/A			1.40	%		1.40	%		11.63	%		11.63	%
2006		6,152		12.202		12.202		78,603		N/A			1.40	%		1.40	%		4.70	%		4.70	%
DWS Health Care VIP B (19)
2010		1		17.425		17.940		12		N/A			1.70	%		2.05	%		5.52	%		5.88	%
2009		1		16.513		16.943		12		1.01	%		1.70	%		2.05	%		19.36	%		19.77	%
2008		1		13.835		14.147		11		N/A			1.70	%		2.05	%		-25.04	%		-24.78	%
2007		1		18.457		18.807		16		N/A			1.70	%		2.05	%		10.60	%		10.98	%
2006		3		16.099		16.293		45		N/A			1.70	%		2.05	%		3.65	%		4.01	%
DWS International VIP A
2010		4,135		9.967		14.032		42,165		2.09	%		1.00	%		2.25	%		-0.61	%		0.62	%
2009		4,839		9.945		13.946		49,299		4.23	%		1.00	%		2.25	%		30.58	%		32.20	%
2008		6,889		7.552		10.550		53,129		1.50	%		1.00	%		2.25	%		-49.36	%		-48.73	%
2007		10,049		14.789		20.575		151,122		2.56	%		1.00	%		2.25	%		12.05	%		13.45	%
2006		11,394		10.540		14.578		151,767		1.85	%		1.00	%		2.25	%		22.13	%		24.67	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
DWS Variable Series I: (15) (continued)
DWS International VIP B
2010		5	$	12.913	$	13.295	$	72		1.79	%		1.70	%		2.05	%		-0.70	%		-0.36	%
2009		6		13.004		13.343		77		3.85	%		1.70	%		2.05	%		30.22	%		30.66	%
2008		7		9.987		10.211		72		1.02	%		1.70	%		2.05	%		-49.29	%		-49.12	%
2007		6		19.694		20.068		128		2.15	%		1.70	%		2.05	%		11.95	%		12.33	%
2006		7		14.311		14.483		129		1.60	%		1.70	%		2.05	%		22.93	%		23.35	%

DWS Variable Series II: (15)
DWS Balanced VIP (20)
2010		24,052		2.227		12.457		180,808		3.12	%		1.00	%		2.25	%		8.78	%		10.12	%
2009		27,088		2.027		10.971		184,860		3.73	%		1.00	%		2.25	%		20.72	%		22.21	%
2008		31,704		1.663		9.388		177,453		4.22	%		1.00	%		2.25	%		-29.10	%		-28.05	%
2007		38,891		2.317		13.196		303,165		3.37	%		1.00	%		2.25	%		2.32	%		3.80	%
2006		46,425		2.238		12.852		345,141		2.53	%		1.00	%		2.25	%		7.29	%		9.15	%
DWS Blue Chip VIP A
2010		5,582		1.479		12.130		58,272		1.44	%		1.25	%		1.40	%		12.20	%		12.37	%
2009		6,493		1.316		10.811		60,769		1.91	%		1.25	%		1.40	%		32.12	%		32.32	%
2008		8,657		0.995		8.183		62,370		1.92	%		1.25	%		1.40	%		-39.35	%		-39.26	%
2007		12,533		1.637		13.491		150,847		1.13	%		1.25	%		1.40	%		2.06	%		2.22	%
2006		15,304		1.402		11.590		175,423		0.90	%		1.25	%		1.40	%		14.05	%		14.22	%
DWS Blue Chip VIP B
2010		12		14.166		14.584		167		1.16	%		1.70	%		2.05	%		11.27	%		11.65	%
2009		13		12.731		13.063		164		1.52	%		1.70	%		2.05	%		30.78	%		31.23	%
2008		14		9.735		9.954		133		1.44	%		1.70	%		2.05	%		-39.72	%		-39.51	%
2007		15		16.149		16.455		241		0.77	%		1.70	%		2.05	%		1.07	%		1.42	%
2006		19		14.155		14.325		313		0.49	%		1.70	%		2.05	%		12.88	%		13.27	%
DWS Core Fixed Income VIP A (21)
2010		11,343		1.133		12.239		47,896		6.32	%		1.00	%		2.25	%		1.73	%		5.46	%
2009		12,520		1.088		11.651		51,809		8.71	%		1.00	%		2.25	%		4.73	%		6.65	%
2008		14,587		1.033		10.968		59,265		8.47	%		1.00	%		2.25	%		-21.32	%		-20.13	%
2007		20,126		1.309		13.786		99,451		4.26	%		1.00	%		2.25	%		1.65	%		3.13	%
2006		19,071		1.285		13.420		98,142		3.33	%		1.00	%		2.25	%		1.72	%		3.23	%
DWS Davis Venture Value VIP
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (22)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		11,803		8.207		9.702		96,901		1.65	%		1.40	%		2.05	%		-41.97	%		-41.06	%
2007		17,010		13.924		16.662		236,921		0.72	%		1.40	%		2.05	%		2.04	%		3.01	%
2006		18,456		13.517		16.273		249,555		0.63	%		1.40	%		2.05	%		12.05	%		13.26	%
DWS Diversified International Equity VIP (23)
2010		13,620		2.108		14.871		59,066		2.16	%		1.00	%		2.05	%		8.70	%		9.83	%
2009		15,285		1.939		10.455		60,284		5.87	%		1.00	%		2.05	%		26.76	%		28.08	%
2008		18,966		1.530		10.701		66,546		1.10	%		1.00	%		2.05	%		-50.09	%		-49.32	%
2007		23,672		3.050		21.368		175,919		2.69	%		1.00	%		2.05	%		13.85	%		15.55	%
2006		25,826		2.667		18.703		160,747		1.99	%		1.00	%		2.05	%		22.55	%		24.32	%
DWS Dreman Small Mid Cap Value VIP A (24)
2010		17,119		2.565		23.832		132,028		1.25	%		1.00	%		2.25	%		20.36	%		21.85	%
2009		19,398		2.127		19.606		124,831		1.82	%		1.00	%		2.25	%		26.85	%		28.42	%
2008		24,074		1.673		15.305		138,065		1.87	%		1.00	%		2.25	%		-34.89	%		-34.08	%
2007		32,070		2.565		23.275		324,747		1.05	%		1.00	%		2.25	%		0.78	%		2.03	%
2006		37,143		2.072		18.514		374,258		0.82	%		1.00	%		2.25	%		21.66	%		23.83	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
DWS Variable Series II: (15) (continued)
DWS Dreman Small Mid Cap Value VIP B (24)
2010		12	$	19.938	$	22.397	$	235		0.88	%		1.70	%		2.05	%		20.20	%		20.61	%
2009		13		16.587		18.569		214		1.60	%		1.70	%		2.05	%		26.68	%		27.12	%
2008		14		13.093		14.608		187		1.33	%		1.70	%		2.05	%		-35.01	%		-34.79	%
2007		15		20.146		22.399		307		0.65	%		1.70	%		2.05	%		0.59	%		0.94	%
2006		19		16.403		16.600		389		0.38	%		1.70	%		2.05	%		22.10	%		22.52	%
DWS Global Thematic VIP A (25)
2010		2,422		16.044		16.044		38,862		0.93	%		1.40	%		1.40	%		12.09	%		12.09	%
2009		2,754		14.314		14.314		39,416		1.49	%		1.40	%		1.40	%		41.84	%		41.84	%
2008		3,795		10.092		10.092		38,297		1.72	%		1.40	%		1.40	%		-48.48	%		-48.48	%
2007		5,497		19.587		19.587		107,675		0.66	%		1.40	%		1.40	%		4.82	%		4.82	%
2006		5,031		14.559		14.559		94,005		0.51	%		1.40	%		1.40	%		28.35	%		28.35	%
DWS Global Thematic VIP B (25)
2010		2		16.575		17.065		40		0.55	%		1.70	%		2.05	%		10.97	%		11.35	%
2009		2		14.936		15.325		32		1.36	%		1.70	%		2.05	%		40.36	%		40.84	%
2008		3		10.642		10.881		29		1.45	%		1.70	%		2.05	%		-48.92	%		-48.75	%
2007		2		20.835		21.231		35		0.32	%		1.70	%		2.05	%		3.71	%		4.06	%
2006		3		15.812		16.002		53		0.18	%		1.70	%		2.05	%		27.06	%		27.49	%
DWS Government & Agency Securities VIP A
2010		12,820		1.564		16.470		87,302		4.70	%		1.00	%		2.25	%		4.27	%		5.56	%
2009		14,063		1.500		15.665		89,665		5.13	%		1.00	%		2.25	%		3.11	%		7.01	%
2008		16,804		1.419		14.697		115,382		4.97	%		1.00	%		2.25	%		2.63	%		6.98	%
2007		17,111		1.383		14.202		100,962		5.02	%		1.00	%		2.25	%		3.61	%		4.90	%
2006		19,756		1.310		13.232		107,394		3.94	%		1.00	%		2.25	%		1.66	%		3.13	%
DWS Government & Agency Securities VIP B
2010		17		12.213		12.574		209		4.44	%		1.70	%		2.05	%		4.10	%		4.46	%
2009		17		11.731		12.037		204		4.73	%		1.70	%		2.05	%		5.53	%		5.90	%
2008		22		11.116		11.366		246		4.75	%		1.70	%		2.05	%		2.42	%		2.77	%
2007		21		10.854		11.060		231		4.65	%		1.70	%		2.05	%		3.39	%		3.75	%
2006		27		10.326		10.450		290		3.67	%		1.70	%		2.05	%		1.66	%		2.01	%
DWS High Income VIP A
2010		12,443		1.294		16.067		119,022		7.75	%		1.00	%		2.25	%		11.49	%		12.87	%
2009		14,076		1.161		14.291		117,072		10.56	%		1.00	%		2.25	%		36.91	%		44.49	%
2008		15,199		0.848		10.352		90,235		11.98	%		1.00	%		2.25	%		-25.61	%		-24.69	%
2007		18,561		1.140		13.801		150,259		8.52	%		1.00	%		2.25	%		-1.28	%		-0.05	%
2006		23,350		1.069		14.007		188,042		7.81	%		1.00	%		2.25	%		7.90	%		9.38	%
DWS High Income VIP B
2010		9		16.667		17.160		144		7.82	%		1.70	%		2.05	%		11.36	%		11.74	%
2009		10		14.967		15.357		151		11.18	%		1.70	%		2.05	%		36.84	%		37.31	%
2008		12		10.938		11.184		135		13.03	%		1.70	%		2.05	%		-25.65	%		-25.39	%
2007		18		14.712		14.991		262		8.52	%		1.70	%		2.05	%		-1.49	%		-1.15	%
2006		28		13.840		14.006		428		7.26	%		1.70	%		2.05	%		7.91	%		8.28	%
DWS Janus Growth & Income VIP
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (26)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		8,715		5.801		12.112		50,555		1.26	%		1.40	%		2.05	%		-42.11	%		-19.46	%
2007		12,233		10.020		15.037		122,577		0.60	%		1.40	%		2.05	%		4.07	%		5.11	%
2006		14,783		9.532		14.399		140,945		0.64	%		1.40	%		2.05	%		5.82	%		6.94	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
DWS Variable Series II: (15) (continued)
DWS Large Cap Value VIP A
2010		16,958	$	2.186	$	14.052	$	131,093		1.98	%		1.00	%		2.05	%		8.55	%		9.67	%
2009		19,293		2.014		12.863		139,217		1.59	%		1.00	%		2.05	%		22.85	%		24.13	%
2008		16,234		1.639		10.404		69,079		2.27	%		1.00	%		2.05	%		-37.68	%		-37.03	%
2007		19,729		2.630		16.587		137,245		1.77	%		1.00	%		2.05	%		10.86	%		12.02	%
2006		23,204		2.098		13.061		144,668		1.57	%		1.00	%		2.05	%		13.10	%		14.27	%
DWS Large Cap Value VIP B
2010		13		12.976		13.360		170		1.67	%		1.70	%		2.05	%		8.31	%		8.68	%
2009		15		11.980		12.292		178		1.33	%		1.70	%		2.05	%		22.35	%		22.77	%
2008		7		9.792		10.012		67		1.79	%		1.70	%		2.05	%		-37.92	%		-37.71	%
2007		7		15.773		16.072		113		1.50	%		1.70	%		2.05	%		10.49	%		10.87	%
2006		12		12.671		12.823		168		1.10	%		1.70	%		2.05	%		12.66	%		13.05	%
DWS Mid Cap Growth VIP
2010		1,556		10.812		14.862		16,831		N/A			1.40	%		2.05	%		25.39	%		26.19	%
2009		1,661		8.568		11.812		14,235		N/A			1.40	%		2.05	%		40.80	%		41.28	%
2008		1,908		6.072		8.361		11,591		N/A			1.40	%		2.05	%		-51.27	%		-50.73	%
2007		2,844		12.324		17.097		35,059		N/A			1.40	%		2.05	%		5.74	%		6.86	%
2006		3,096		11.534		16.113		35,729		N/A			1.40	%		2.05	%		8.33	%		9.43	%
DWS Money Market VIP
2010 (27)		20,485		0.989		19.121		94,048		0.01	%		1.00	%		2.25	%		-2.19	%		0.02	%
2009 (28)		24,152		1.011		14.254		128,277		0.37	%		1.00	%		2.25	%		-1.87	%		0.34	%
2008 (29)		37,384		1.030		14.207		219,798		2.70	%		1.00	%		2.25	%		0.37	%		2.63	%
2007		31,600		1.027		13.842		189,703		4.84	%		1.00	%		2.25	%		2.66	%		5.00	%
2006 (30)		26,641		1.000		13.183		146,351		5.05	%		1.00	%		2.25	%		2.36	%		4.66	%
DWS Small Cap Growth VIP
2010		15,250		1.120		13.562		59,138		N/A			1.00	%		2.25	%		26.59	%		28.16	%
2009		17,203		0.885		6.980		53,436		N/A			1.00	%		2.25	%		37.51	%		42.72	%
2008		19,872		0.643		7.715		47,318		N/A			1.00	%		2.25	%		-50.62	%		-49.87	%
2007		24,131		1.303		15.392		122,143		N/A			1.00	%		2.25	%		3.67	%		5.14	%
2006		29,292		1.254		14.796		142,349		N/A			1.00	%		2.25	%		2.16	%		4.23	%
DWS Strategic Income VIP
2010		2,785		1.871		17.675		44,961		6.51	%		1.25	%		2.05	%		7.84	%		8.69	%
2009		2,943		1.721		16.286		44,203		5.14	%		1.25	%		2.05	%		21.04	%		21.22	%
2008		3,747		1.420		13.455		46,678		7.20	%		1.25	%		2.05	%		-9.02	%		-8.36	%
2007		4,690		1.558		14.790		64,242		5.82	%		1.25	%		2.05	%		2.95	%		4.13	%
2006		3,932		1.497		14.225		51,496		4.15	%		1.25	%		2.05	%		6.57	%		7.64	%
DWS Strategic Value VIP A (31)
2010		11,961		12.166		12.366		147,899		1.93	%		1.40	%		1.40	%		10.97	%		10.97	%
2009		14,300		10.963		11.143		159,343		4.39	%		1.40	%		1.40	%		21.57	%		23.57	%
2008		21,217		9.018		9.018		191,335		3.40	%		1.40	%		1.40	%		-46.73	%		-45.85	%
2007		31,308		16.655		16.929		530,007		1.53	%		1.40	%		1.40	%		-3.23	%		-3.23	%
2006 (32)		37,105		14.697		14.938		649,052		1.85	%		1.40	%		1.40	%		17.10	%		17.10	%
DWS Strategic Value VIP B (31)
2010		13		11.304		11.638		153		1.70	%		1.70	%		2.05	%		9.88	%		10.26	%
2009		16		10.287		10.555		171		4.23	%		1.70	%		2.05	%		22.43	%		22.85	%
2008		20		8.403		8.592		166		2.78	%		1.70	%		2.05	%		-47.25	%		-47.06	%
2007		31		15.928		16.230		505		0.61	%		1.70	%		2.05	%		-4.16	%		-3.83	%
2006 (32)		45		14.347		14.519		760		1.38	%		1.70	%		2.05	%		15.84	%		16.24	%

ZALICO Variable Annuity Separate Account of
Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
DWS Variable Series II: (15) (continued)
DWS Technology VIP A (33)
2010		7,781	$	0.892	$	9.439	$	46,275		0.04	%		1.00	%		2.25	%		16.05	%		17.49	%
2009		9,257		0.768		8.066		47,418		N/A			1.00	%		2.25	%		56.89	%		58.83	%
2008		10,288		0.490		5.099		37,004		N/A			1.00	%		2.25	%		-47.41	%		-46.75	%
2007		13,857		0.931		9.614		100,765		N/A			1.00	%		2.25	%		11.77	%		13.16	%
2006		16,509		0.846		13.658		110,626		N/A			1.00	%		2.25	%		-2.22	%		-0.24	%
DWS Technology VIP B (33)
2010		1		13.993		14.407		16		N/A			1.70	%		2.05	%		15.59	%		15.99	%
2009		2		12.106		12.421		25		N/A			1.70	%		2.05	%		56.72	%		57.26	%
2008		2		7.725		7.898		15		N/A			1.70	%		2.05	%		-47.52	%		-47.34	%
2007		2		14.719		14.998		30		N/A			1.70	%		2.05	%		11.54	%		11.92	%
2006		4		13.408		13.569		51		N/A			1.70	%		2.05	%		-1.58	%		-1.24	%
DWS Turner Mid Cap Growth VIP
2010		3,491		12.611		19.145		44,025		0.01	%		1.40	%		2.05	%		26.42	%		27.22	%
2009		3,819		9.913		15.092		37,859		N/A			1.40	%		2.05	%		-34.89	%		47.59	%
2008		5,867		10.001		15.224		39,314		N/A			1.40	%		2.05	%		-51.54	%		13.16	%
2007		7,913		13.453		21.029		106,465		N/A			1.40	%		2.05	%		22.60	%		24.01	%
2006		8,700		10.849		17.093		94,399		N/A			1.40	%		2.05	%		4.08	%		5.05	%

DWS Investments VIT Funds: (15)
DWS Equity 500 Index VIP A
2010		7,268		10.515		10.515		76,428		1.86	%		1.40	%		1.40	%		13.12	%		13.12	%
2009		8,078		9.296		9.296		75,091		2.68	%		1.40	%		1.40	%		24.58	%		24.58	%
2008		10,627		7.462		7.462		79,299		2.73	%		1.40	%		1.40	%		-38.02	%		-38.02	%
2007		15,244		12.039		12.039		183,529		1.54	%		1.40	%		1.40	%		3.83	%		3.83	%
2006		17,689		10.177		10.177		205,018		1.14	%		1.40	%		1.40	%		13.93	%		13.93	%
DWS Equity 500 Index VIP B2
2010		2		9.968		10.151		18		1.54	%		1.70	%		2.05	%		12.00	%		12.38	%
2009		2		8.900		9.032		19		2.33	%		1.70	%		2.05	%		23.26	%		23.69	%
2008		2		7.220		7.302		15		1.33	%		1.70	%		2.05	%		-38.62	%		-38.41	%
2007		5		11.763		11.856		63		1.46	%		1.70	%		2.05	%		2.73	%		3.09	%
2006		3		10.143		10.153		115		0.92	%		1.70	%		2.05	%		12.90	%		13.28	%
DWS RREEF Real Estate Securities VIP (34)
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008 (35)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007		2		19.118		19.427		33		N/A			1.70	%		2.05	%		-18.03	%		-17.74	%
2006		2		23.323		23.618		47		N/A			1.70	%		2.05	%		34.38	%		34.84	%

Fidelity Variable Insurance Products Fund:
Fidelity VIP Asset Manager
2010		172		28.631		32.019		5,278		1.58	%		1.00	%		2.05	%		11.97	%		13.13	%
2009		202		25.570		28.301		5,486		2.27	%		1.00	%		2.05	%		26.52	%		27.83	%
2008		235		20.210		22.139		5,016		2.68	%		1.00	%		2.05	%		-30.15	%		-29.42	%
2007		265		28.935		31.370		8,022		6.03	%		1.00	%		2.05	%		13.17	%		14.35	%
2006		311		25.567		27.432		8,293		2.84	%		1.00	%		2.05	%		5.17	%		6.26	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
Fidelity Variable Insurance Products Fund: (continued)
Fidelity VIP Contrafund
2010		1,688	$	30.749	$	44.415	$	70,698		1.14	%		1.00	%		2.25	%		14.64	%		16.06	%
2009		1,969		26.822		38.270		71,263		1.33	%		1.00	%		2.25	%		32.72	%		34.37	%
2008		2,168		20.209		28.482		58,200		0.96	%		1.00	%		2.25	%		-43.78	%		-43.08	%
2007		2,513		35.948		50.042		119,129		0.96	%		1.00	%		2.25	%		14.99	%		16.42	%
2006		2,788		28.610		38.859		113,977		1.29	%		1.00	%		2.25	%		9.27	%		10.61	%
Fidelity VIP Contrafund 2
2010		1		16.603		17.094		17		0.99	%		1.70	%		2.05	%		14.58	%		14.97	%
2009		1		14.490		14.867		15		1.14	%		1.70	%		2.05	%		32.75	%		33.20	%
2008		1		10.916		11.161		11		0.83	%		1.70	%		2.05	%		-43.84	%		-43.65	%
2007		1		19.438		19.808		20		0.04	%		1.70	%		2.05	%		14.93	%		15.33	%
2006		2		15.559		15.746		35		0.98	%		1.70	%		2.05	%		8.70	%		9.07	%
Fidelity VIP Equity Income
2010		776		24.667		38.183		27,267		1.69	%		1.00	%		2.25	%		12.62	%		14.01	%
2009		902		21.903		33.491		27,892		2.09	%		1.00	%		2.25	%		27.34	%		28.92	%
2008		1,075		17.200		25.978		25,783		2.30	%		1.00	%		2.25	%		-43.92	%		-43.22	%
2007		1,365		30.671		45.755		57,697		1.93	%		1.00	%		2.25	%		-0.72	%		0.52	%
2006		1,547		26.278		38.249		65,408		3.26	%		1.00	%		2.25	%		17.56	%		19.01	%
Fidelity VIP Equity Income 2
2010		—		12.560		12.932		6		1.59	%		1.70	%		2.05	%		12.61	%		13.00	%
2009		—		11.154		11.444		5		2.03	%		1.70	%		2.05	%		27.27	%		27.71	%
2008		—		8.764		8.961		4		2.43	%		1.70	%		2.05	%		-43.96	%		-43.77	%
2007		—		15.639		15.936		7		0.04	%		1.70	%		2.05	%		-0.77	%		-0.43	%
2006		—		13.470		13.631		7		2.92	%		1.70	%		2.05	%		17.01	%		17.41	%
Fidelity VIP Growth
2010		498		12.727		54.150		25,168		0.25	%		1.00	%		2.25	%		21.38	%		22.94	%
2009		612		10.486		44.044		25,279		0.42	%		1.00	%		2.25	%		25.39	%		27.02	%
2008		670		8.362		34.676		21,552		0.81	%		1.00	%		2.25	%		-48.37	%		-47.69	%
2007		768		16.196		66.292		47,306		0.81	%		1.00	%		2.25	%		24.10	%		25.70	%
2006		845		13.051		52.737		42,027		0.40	%		1.00	%		2.25	%		3.81	%		5.79	%
Fidelity VIP Index 500
2010		392		146.024		163.306		59,068		1.82	%		1.00	%		2.05	%		12.71	%		13.88	%
2009		450		129.552		143.395		59,134		2.38	%		1.00	%		2.05	%		24.06	%		25.35	%
2008		509		104.425		114.393		53,466		2.10	%		1.00	%		2.05	%		-38.27	%		-37.62	%
2007		590		169.154		183.390		101,561		3.70	%		1.00	%		2.05	%		3.31	%		4.39	%
2006		812		134.054		153.315		122,752		1.73	%		1.00	%		2.25	%		12.90	%		14.59	%
Fidelity VIP Index 500 SC
2010		26		13.140		145.457		3,699		1.51	%		1.25	%		2.25	%		12.21	%		13.31	%
2009		31		11.688		128.367		4,196		1.95	%		1.25	%		2.25	%		23.52	%		24.74	%
2008		35		9.444		102.906		3,877		1.67	%		1.25	%		2.25	%		-38.54	%		-37.94	%
2007		44		15.336		165.805		7,091		1.81	%		1.25	%		2.25	%		2.85	%		3.88	%
2006		—		13.220		13.379		10,253		1.47	%		1.25	%		2.25	%		12.57	%		12.95	%

Franklin Templeton Variable Insurance Products Trust:
Franklin Rising Dividends Securities
2010		443		13.986		15.370		6,633		1.60	%		1.00	%		2.25	%		17.99	%		19.45	%
2009		460		11.854		12.867		5,792		1.38	%		1.00	%		2.25	%		14.76	%		16.18	%
2008		520		10.329		11.075		5,650		1.85	%		1.00	%		2.25	%		-28.71	%		-27.82	%
2007		701		14.488		15.344		10,599		2.55	%		1.00	%		2.25	%		-4.84	%		-3.66	%
2006		860		14.011		15.927		13,524		0.98	%		1.00	%		2.25	%		14.07	%		15.97	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							NetAssets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
Franklin Templeton Variable Insurance Products Trust: (continued)
Franklin Small Cap Value Securities
2010		311	$	19.172	$	21.069	$	6,367		0.76	%		1.00	%		2.25	%		25.40	%		26.95	%
2009		290		15.288		16.596		4,701		1.55	%		1.00	%		2.25	%		26.31	%		27.88	%
2008		340		12.103		12.978		4,322		1.32	%		1.00	%		2.25	%		-34.49	%		-33.68	%
2007		328		18.477		19.569		6,313		0.70	%		1.00	%		2.25	%		-4.54	%		-3.35	%
2006		310		17.293		20.248		6,211		0.65	%		1.00	%		2.25	%		14.02	%		15.83	%
Franklin Strategic Income Securities
2010		700		14.656		16.106		10,961		4.82	%		1.00	%		2.25	%		8.47	%		9.82	%
2009		700		13.511		14.666		10,026		7.55	%		1.00	%		2.25	%		22.98	%		24.50	%
2008		602		10.986		11.780		6,957		8.65	%		1.00	%		2.25	%		-13.19	%		-12.12	%
2007		735		12.655		13.404		9,688		5.19	%		1.00	%		2.25	%		3.57	%		4.86	%
2006		604		12.219		12.783		7,642		2.53	%		1.00	%		2.25	%		5.87	%		7.18	%
Franklin U.S. Government
2010		352		11.669		12.824		4,403		3.47	%		1.00	%		2.25	%		2.97	%		4.24	%
2009		388		11.333		12.302		4,672		4.33	%		1.00	%		2.25	%		0.83	%		2.07	%
2008		387		11.240		12.052		4,573		4.72	%		1.00	%		2.25	%		5.22	%		6.52	%
2007		263		10.682		11.314		2,921		4.88	%		1.00	%		2.25	%		4.25	%		5.55	%
2006		206		10.247		10.719		2,166		4.20	%		1.00	%		2.25	%		1.73	%		2.99	%
Franklin Zero Coupon 2010
2010 (36)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		620		10.950		11.886		7,210		4.29	%		1.00	%		2.25	%		-2.05	%		-0.84	%
2008		827		11.179		11.987		9,721		4.50	%		1.00	%		2.25	%		4.87	%		6.17	%
2007		900		10.660		11.290		10,008		6.11	%		1.00	%		2.25	%		6.01	%		7.33	%
2006		1,810		10.056		10.596		18,802		3.83	%		1.00	%		2.25	%		0.15	%		1.38	%
Mutual Global Discovery Securities (37)
2010		1,070		19.656		21.601		22,546		1.23	%		1.00	%		2.25	%		9.50	%		10.85	%
2009		1,169		17.951		19.486		22,304		1.14	%		1.00	%		2.25	%		20.60	%		22.09	%
2008		1,274		14.885		15.960		19,958		2.24	%		1.00	%		2.25	%		-30.03	%		-29.16	%
2007		1,448		21.273		22.531		32,125		1.50	%		1.00	%		2.25	%		9.37	%		10.74	%
2006		1,356		18.158		20.347		27,250		1.04	%		1.00	%		2.25	%		20.26	%		21.84	%
Mutual Shares Securities
2010		467		13.719		15.076		6,847		1.47	%		1.00	%		2.25	%		8.75	%		10.09	%
2009		496		12.615		13.694		6,635		1.84	%		1.00	%		2.25	%		23.27	%		24.80	%
2008		556		10.233		10.973		5,983		3.24	%		1.00	%		2.25	%		-38.50	%		-37.73	%
2007		526		16.638		17.622		9,125		1.54	%		1.00	%		2.25	%		1.19	%		2.45	%
2006		434		15.558		17.200		7,374		1.23	%		1.00	%		2.25	%		15.62	%		17.21	%
Templeton Developing Markets Securities
2010		262		30.049		34.068		8,701		1.51	%		1.00	%		2.25	%		15.00	%		16.42	%
2009		277		25.913		29.262		7,920		3.73	%		1.00	%		2.25	%		68.80	%		70.88	%
2008		266		15.224		17.124		4,477		2.71	%		1.00	%		2.25	%		-53.75	%		-53.17	%
2007		374		32.643		36.570		13,472		2.36	%		1.00	%		2.25	%		25.94	%		27.50	%
2006		427		23.841		28.682		12,078		1.22	%		1.00	%		2.25	%		25.28	%		26.82	%

ING Global Resources Trust:
ING Global Resources Trust
2010		798		13.131		13.681		10,788		0.87	%		1.00	%		2.05	%		19.20	%		20.44	%
2009		878		11.015		11.359		9,881		0.30	%		1.00	%		2.05	%		34.75	%		36.15	%
2008		1,023		8.175		8.343		8,489		1.90	%		1.00	%		2.05	%		-42.19	%		-41.59	%
2007 (38)		1,265		14.140		14.283		18,012		0.02	%		1.00	%		2.05	%		37.98	%		39.36	%
2006		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
ING Investors Trust:
ING JPMorgan Emerging Markets Equity
2010		410	$	25.353	$	26.722	$	10,800		0.70	%		1.00	%		2.05	%		18.21	%		19.44	%
2009		472		21.448		22.373		10,426		1.54	%		1.00	%		2.05	%		68.56	%		70.31	%
2008		482		12.724		13.136		6,274		2.68	%		1.00	%		2.05	%		-52.14	%		-51.64	%
2007		583		26.584		27.162		15,741		1.15	%		1.00	%		2.05	%		36.00	%		37.43	%
2006		621		19.546		19.765		12,228		0.62	%		1.00	%		2.05	%		33.45	%		34.84	%

ING VP Natural Resources Trust:
ING VP Natural Resources Trust
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007 (39)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2006		485		29.293		31.521		14,768		N/A			1.00	%		2.05	%		19.29	%		20.53	%

Invesco Variable Insurance Funds (40)
Invesco V.I. Financial Services Fund (41)
2010		143		6.180		6.792		945		0.11	%		1.00	%		2.25	%		7.89	%		9.22	%
2009		119		5.728		6.219		724		2.62	%		1.00	%		2.25	%		24.62	%		26.17	%
2008		167		4.596		4.929		805		4.84	%		1.00	%		2.25	%		-60.34	%		-59.85	%
2007		67		11.590		12.134		807		2.08	%		1.00	%		2.25	%		-23.94	%		-23.18	%
2006		52		14.088		15.940		825		1.59	%		1.00	%		2.25	%		13.81	%		15.29	%
Invesco V.I. Global Health Care (42)
2010		111		13.241		14.552		1,575		N/A			1.00	%		2.25	%		2.98	%		4.25	%
2009		124		12.858		13.958		1,686		0.29	%		1.00	%		2.25	%		24.87	%		26.41	%
2008		163		10.298		11.042		1,765		N/A			1.00	%		2.25	%		-30.19	%		-29.33	%
2007		173		14.752		15.445		2,654		N/A			1.00	%		2.25	%		9.38	%		10.47	%
2006		187		12.962		14.109		2,607		N/A			1.00	%		2.25	%		2.52	%		4.20	%
Invesco V.I. Global Real Estate (43)
2010		317		20.014		21.995		6,790		4.76	%		1.00	%		2.25	%		14.93	%		16.35	%
2009		365		17.414		18.904		6,739		N/A			1.00	%		2.25	%		28.63	%		30.22	%
2008		415		13.538		14.516		5,908		5.16	%		1.00	%		2.25	%		-45.87	%		-45.20	%
2007		566		25.009		26.487		14,760		5.10	%		1.00	%		2.25	%		-7.63	%		-6.48	%
2006		767		24.220		28.323		21,471		1.24	%		1.00	%		2.25	%		39.47	%		41.19	%
Invesco V.I. Utilities (44)
2010		1,823		10.135		19.759		19,943		3.44	%		1.00	%		2.25	%		3.96	%		5.25	%
2009		2,111		9.667		18.774		22,175		3.92	%		1.00	%		2.25	%		12.40	%		13.79	%
2008		3,062		8.529		16.499		28,176		2.47	%		1.00	%		2.25	%		-33.85	%		-33.03	%
2007		4,322		12.786		24.634		58,941		1.98	%		1.00	%		2.25	%		17.98	%		19.44	%
2006		4,299		10.748		20.624		48,524		3.41	%		1.00	%		2.25	%		22.71	%		24.22	%

Janus Aspen Series:
Janus Aspen Balanced
2010		1,801		15.388		44.563		76,092		2.75	%		1.00	%		2.25	%		5.95	%		7.31	%
2009		2,023		14.524		41.526		79,877		2.89	%		1.00	%		2.25	%		23.06	%		24.64	%
2008		2,288		11.802		33.317		72,750		2.69	%		1.00	%		2.25	%		-17.75	%		-16.67	%
2007		2,598		14.349		39.983		99,395		2.50	%		1.00	%		2.25	%		8.06	%		9.44	%
2006		3,026		13.278		36.536		106,171		2.11	%		1.00	%		2.25	%		7.87	%		9.63	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
Janus Aspen Series: (continued)
Janus Aspen Enterprise Institutional (45)
2010		1,178	$	20.605	$	42.093	$	47,048		0.06	%		1.00	%		2.25	%		23.00	%		24.60	%
2009		1,330		16.752		33.782		42,818		N/A			1.00	%		2.25	%		41.54	%		43.39	%
2008		1,473		11.835		23.559		33,159		0.26	%		1.00	%		2.25	%		-44.99	%		-44.28	%
2007		1,702		21.514		42.281		68,855		0.22	%		1.00	%		2.25	%		19.28	%		20.83	%
2006		1,697		18.036		34.994		57,352		N/A			1.00	%		2.25	%		10.56	%		12.49	%
Janus Aspen Forty (46)
2010		91		13.227		13.227		1,206		0.34	%		1.40	%		1.40	%		5.28	%		5.28	%
2009		95		12.564		12.564		1,197		N/A			1.40	%		1.40	%		44.31	%		44.31	%
2008		104		8.706		8.706		905		0.15	%		1.40	%		1.40	%		-44.93	%		-44.93	%
2007		111		15.808		15.808		1,753		0.35	%		1.40	%		1.40	%		35.09	%		35.09	%
2006		140		11.702		11.702		1,643		0.36	%		1.40	%		1.40	%		7.84	%		7.84	%
Janus Aspen Janus Institutional (47)
2010		1,086		13.244		27.360		28,349		1.04	%		1.00	%		2.25	%		11.96	%		13.38	%
2009		1,242		11.829		24.130		28,678		0.51	%		1.00	%		2.25	%		33.28	%		35.00	%
2008		1,377		8.875		17.874		23,602		0.74	%		1.00	%		2.25	%		-41.08	%		-40.32	%
2007		1,560		15.063		29.949		44,950		0.71	%		1.00	%		2.25	%		12.48	%		13.95	%
2006		1,822		13.392		26.283		46,182		0.46	%		1.00	%		2.25	%		8.11	%		10.28	%
Janus Aspen Perkins Mid Cap Value
2010		235		20.118		22.108		5,063		0.49	%		1.00	%		2.25	%		12.83	%		14.22	%
2009		257		17.831		19.356		4,864		0.34	%		1.00	%		2.25	%		29.99	%		31.60	%
2008		281		13.716		14.707		4,052		0.42	%		1.00	%		2.25	%		-29.49	%		-28.61	%
2007		298		19.452		20.602		6,052		1.24	%		1.00	%		2.25	%		4.80	%		6.11	%
2006		632		16.407		19.416		12,115		3.91	%		1.00	%		2.25	%		12.31	%		13.93	%
Janus Aspen Perkins Small Company Value
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (48)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		422		10.703		11.476		4,727		N/A			1.00	%		2.25	%		-37.33	%		-36.55	%
2007		547		17.078		18.088		9,704		0.92	%		1.00	%		2.25	%		-8.19	%		-7.05	%
2006		360		15.736		19.459		6,899		N/A			1.00	%		2.25	%		18.84	%		20.67	%
Janus Aspen Worldwide Institutional (49)
2010		1,486		27.179		33.789		47,842		0.59	%		1.00	%		2.25	%		13.29	%		14.69	%
2009		1,670		23.991		29.461		46,977		1.36	%		1.00	%		2.25	%		34.67	%		36.34	%
2008		1,848		17.815		21.609		38,235		1.20	%		1.00	%		2.25	%		-45.88	%		-45.21	%
2007		2,097		32.919		39.441		79,571		0.79	%		1.00	%		2.25	%		7.20	%		8.54	%
2006		2,446		25.562		31.049		85,789		1.66	%		1.00	%		2.25	%		15.61	%		17.04	%
Janus Aspen Worldwide Service (49)
2010		—		11.786		12.134		—		0.78	%		1.70	%		2.05	%		13.20	%		13.59	%
2009		—		10.412		10.683		1		1.24	%		1.70	%		2.05	%		34.64	%		35.11	%
2008		—		7.733		7.907		1		1.05	%		1.70	%		2.05	%		-45.92	%		-45.73	%
2007		—		14.298		14.570		1		0.67	%		1.70	%		2.05	%		7.15	%		7.53	%
2006		2		11.613		11.752		21		1.59	%		1.70	%		2.05	%		14.91	%		15.30	%

JPMorgan Insurance Trust: (50)
JPMorgan Insurance Trust Balanced (51)
2010 (52)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		6		10.645		11.296		64		2.30	%		1.25	%		2.25	%		21.72	%		22.92	%
2008		2		8.746		9.190		23		7.23	%		1.25	%		2.25	%		-25.98	%		-25.24	%
2007		5		11.815		12.293		60		1.74	%		1.25	%		2.25	%		3.79	%		4.82	%
2006		5		11.384		11.728		55		6.59	%		1.25	%		2.25	%		8.46	%		9.61	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							NetAssets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
JPMorgan Insurance Trust: (50) (continued)
JPMorgan Insurance Trust Core Bond (53)
2010		131	$	11.209	$	12.687	$	1,683		3.53	%		1.25	%		2.25	%		-3.40	%		7.41	%
2009 (54)		120		11.433		12.133		1,436		1.08	%		1.25	%		2.25	%		7.23	%		8.29	%
2008		4		10.662		11.203		48		2.47	%		1.25	%		2.25	%		-0.92	%		0.06	%
2007		3		10.761		11.197		33		4.65	%		1.25	%		2.25	%		3.95	%		4.99	%
2006		—		10.352		10.665		10		N/A			1.25	%		2.25	%		1.85	%		2.85	%
JPMorgan Insurance Trust Equity Index (55)
2010		30		11.086		12.089		350		0.90	%		1.00	%		2.25	%		11.89	%		13.28	%
2009		12		9.908		10.672		122		2.61	%		1.00	%		2.25	%		23.66	%		25.19	%
2008		22		8.013		8.525		185		1.73	%		1.00	%		2.25	%		-38.59	%		-37.83	%
2007		12		13.048		13.712		162		1.41	%		1.00	%		2.25	%		2.77	%		4.05	%
2006		9		12.696		13.179		121		0.98	%		1.00	%		2.25	%		12.48	%		14.28	%
JPMorgan Insurance Trust Government Bond
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (56)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		53		11.760		12.357		648		5.67	%		1.25	%		2.25	%		7.61	%		8.67	%
2007		15		10.929		11.371		163		5.42	%		1.25	%		2.25	%		5.11	%		6.16	%
2006		13		10.397		10.712		132		9.00	%		1.25	%		2.25	%		1.20	%		2.20	%
JPMorgan Insurance Trust International Equity
2010		574		16.728		18.383		10,247		0.24	%		1.00	%		2.25	%		4.80	%		6.10	%
2009 (57)		689		15.961		17.327		11,633		2.87	%		1.00	%		2.25	%		38.53	%		39.71	%
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2006		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
JPMorgan Insurance Trust Intrepid Growth (58)
2010		—		10.852		11.629		2		1.69	%		1.25	%		2.25	%		13.55	%		14.67	%
2009		2		9.557		10.142		17		N/A			1.25	%		2.25	%		31.36	%		32.66	%
2008		2		7.275		7.645		12		N/A			1.25	%		2.25	%		-40.56	%		-39.97	%
2007		—		12.239		12.735		—		N/A			1.25	%		2.25	%		9.08	%		10.16	%
2006		—		11.220		11.560		—		N/A			1.25	%		2.25	%		2.60	%		4.08	%
JPMorgan Insurance Trust Intrepid Mid Cap (59)
2010		230		13.516		14.738		3,319		1.29	%		1.00	%		2.25	%		16.90	%		18.34	%
2009		258		11.562		12.454		3,157		1.47	%		1.00	%		2.25	%		32.68	%		34.32	%
2008		296		8.715		9.272		2,705		0.59	%		1.00	%		2.25	%		-40.17	%		-39.42	%
2007		339		14.564		15.306		5,123		0.65	%		1.00	%		2.25	%		0.59	%		1.84	%
2006		361		14.479		15.029		5,375		0.54	%		1.00	%		2.25	%		11.21	%		12.99	%
JPMorgan Insurance Trust Mid Cap Growth (60)
2010		66		14.267		15.557		997		N/A			1.00	%		2.25	%		22.87	%		24.39	%
2009		64		11.611		12.507		781		N/A			1.00	%		2.25	%		39.89	%		41.62	%
2008		79		8.300		8.831		683		N/A			1.00	%		2.25	%		-45.03	%		-44.34	%
2007		83		15.098		15.867		1,301		N/A			1.00	%		2.25	%		14.65	%		16.07	%
2006		67		13.169		13.670		904		N/A			1.00	%		2.25	%		8.60	%		10.29	%
JPMorgan Insurance Trust Mid Cap Value (61)
2010		560		13.176		14.367		7,869		1.20	%		1.00	%		2.25	%		20.74	%		22.23	%
2009		671		10.912		11.754		7,731		0.40	%		1.00	%		2.25	%		25.08	%		26.63	%
2008		76		8.724		9.282		693		1.51	%		1.00	%		2.25	%		-36.91	%		-36.12	%
2007		99		13.828		14.532		1,425		2.10	%		1.00	%		2.25	%		-1.32	%		-0.09	%
2006		132		14.012		14.544		1,913		0.80	%		1.00	%		2.25	%		13.88	%		15.57	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
JPMorgan Insurance Trust: (50) (continued)
JPMorgan Insurance Trust Small Cap Core
2010		250	$	16.040	$	20.009	$	4,797		N/A			1.00	%		2.25	%		24.33	%		25.87	%
2009 (62)		295		12.876		15.897		4,505		0.44	%		1.00	%		2.25	%		27.16	%		30.78	%
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2006		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
JPMorgan Insurance Trust U.S. Equity (63)
2010		34		12.151		13.250		439		1.18	%		1.00	%		2.25	%		11.08	%		12.45	%
2009		42		10.939		11.783		481		N/A			1.00	%		2.25	%		30.74	%		32.36	%
2008		54		8.367		8.902		471		N/A			1.00	%		2.25	%		-36.24	%		-35.45	%
2007		89		13.122		13.790		1,217		1.35	%		1.00	%		2.25	%		8.01	%		9.35	%
2006		176		12.149		12.611		2,200		0.67	%		1.00	%		2.25	%		13.37	%		15.00	%

JPMorgan Series Trust II:
JPMorgan International Equity
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (64)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		852		12.097		12.971		10,816		1.82	%		1.00	%		2.25	%		-42.65	%		-41.93	%
2007		1,152		21.092		22.339		25,246		1.24	%		1.00	%		2.25	%		6.91	%		8.24	%
2006		1,780		17.848		20.638		36,195		1.04	%		1.00	%		2.25	%		18.81	%		20.83	%
JPMorgan Mid Cap Value
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (65)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		538		11.581		12.418		6,565		1.11	%		1.00	%		2.25	%		-34.68	%		-33.87	%
2007		700		17.731		18.779		12,949		0.97	%		1.00	%		2.25	%		0.19	%		1.43	%
2006		717		16.236		18.513		13,127		0.68	%		1.00	%		2.25	%		13.96	%		15.69	%
JPMorgan Small Company
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009 (66)		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		367		10.720		13.098		4,615		0.19	%		1.00	%		2.25	%		-33.49	%		-32.66	%
2007		421		16.085		19.451		7,925		0.01	%		1.00	%		2.25	%		-7.76	%		-6.61	%
2006		515		17.403		20.827		10,415		N/A			1.00	%		2.25	%		11.78	%		13.87	%

Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation
2010		181		12.280		13.496		2,383		N/A			1.00	%		2.25	%		6.74	%		8.06	%
2009		246		11.504		12.489		2,999		N/A			1.00	%		2.25	%		40.98	%		42.72	%
2008		246		8.160		8.750		2,116		N/A			1.00	%		2.25	%		-46.86	%		-46.20	%
2007		271		15.356		16.264		4,339		N/A			1.00	%		2.25	%		11.34	%		12.73	%
2006		311		12.654		14.428		4,428		0.18	%		1.00	%		2.25	%		4.91	%		6.62	%
Oppenheimer Global Securities
2010		1,298		19.553		21.487		27,103		1.23	%		1.00	%		2.25	%		13.16	%		14.56	%
2009		1,554		17.279		18.757		28,429		1.86	%		1.00	%		2.25	%		36.29	%		37.97	%
2008		1,798		12.678		13.594		23,933		1.34	%		1.00	%		2.25	%		-41.65	%		-40.92	%
2007		2,170		21.727		23.011		49,069		1.05	%		1.00	%		2.25	%		3.73	%		5.03	%
2006		1,792		18.166		21.910		38,746		0.83	%		1.00	%		2.25	%		14.42	%		16.20	%

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)


	At December 31,								For the year ended December 31,
							Net Assets		Investment
	Units		Unit Fair Value				(1)		Income			Expense Ratio (3)						Total Return (4)
	(000s)		Lowest		Highest		(000s)		Ratio (2)			Lowest			Highest			Lowest			Highest
Oppenheimer Variable Account Funds: (continued)
Oppenheimer Global Strategic Income VA Service (67)
2010		674	$	13.961	$	15.342	$	10,061		7.87	%		1.00	%		2.25	%		12.25	%		13.64	%
2009		655		12.437		13.501		8,645		0.25	%		1.00	%		2.25	%		15.80	%		17.24	%
2008		790		10.740		11.516		8,917		6.25	%		1.00	%		2.25	%		-16.37	%		-15.33	%
2007		699		12.842		13.602		9,350		3.10	%		1.00	%		2.25	%		7.13	%		8.46	%
2006		614		11.988		12.540		7,604		6.02	%		1.00	%		2.25	%		4.88	%		6.17	%
Oppenheimer High Income
2010		196		3.507		3.855		736		6.73	%		1.00	%		2.25	%		11.92	%		13.31	%
2009		269		3.134		3.402		889		N/A			1.00	%		2.25	%		23.18	%		24.70	%
2008		168		2.544		2.728		449		8.90	%		1.00	%		2.25	%		-79.05	%		-78.79	%
2007		231		12.141		12.859		2,923		7.04	%		1.00	%		2.25	%		-2.67	%		-1.46	%
2006		211		12.474		13.049		2,732		6.43	%		1.00	%		2.25	%		6.83	%		8.15	%
Oppenheimer Main Street
2010		413		12.922		14.201		5,703		0.88	%		1.00	%		2.25	%		13.28	%		14.68	%
2009		489		11.408		12.383		5,909		1.60	%		1.00	%		2.25	%		25.18	%		26.73	%
2008		621		9.113		9.772		5,935		1.31	%		1.00	%		2.25	%		-39.98	%		-39.23	%
2007		795		15.183		16.081		12,555		1.02	%		1.00	%		2.25	%		1.85	%		3.11	%
2006		1,231		14.027		15.595		18,921		0.94	%		1.00	%		2.25	%		11.94	%		13.63	%
Oppenheimer Main Street Small Cap
2010		401		18.018		19.801		7,723		0.41	%		1.00	%		2.25	%		20.35	%		21.84	%
2009		467		14.971		16.252		7,401		0.64	%		1.00	%		2.25	%		33.87	%		35.53	%
2008		545		11.183		11.992		6,392		0.28	%		1.00	%		2.25	%		-39.37	%		-38.62	%
2007		728		18.446		19.536		13,975		0.15	%		1.00	%		2.25	%		-3.57	%		-2.37	%
2006		619		16.294		20.011		12,222		0.02	%		1.00	%		2.25	%		11.57	%		13.53	%
Oppenheimer Small MidCap Growth (68)
2010		50		12.712		13.970		686		N/A			1.00	%		2.25	%		24.37	%		25.90	%
2009		49		10.221		11.096		533		N/A			1.00	%		2.25	%		29.35	%		30.95	%
2008		45		7.902		8.473		371		N/A			1.00	%		2.25	%		-50.33	%		-49.72	%
2007		52		15.910		16.850		859		N/A			1.00	%		2.25	%		3.69	%		4.98	%
2006		63		13.225		16.051		993		N/A			1.00	%		2.25	%		-0.06	%		1.69	%

PIMCO Variable Insurance Trust:
PIMCO Foreign Bond
2010		8		15.587		15.587		125		1.85	%		1.40	%		1.40	%		6.99	%		6.99	%
2009		8		14.569		14.569		124		3.20	%		1.40	%		1.40	%		14.00	%		14.00	%
2008		10		12.779		12.779		126		3.51	%		1.40	%		1.40	%		-3.75	%		-3.75	%
2007		12		13.277		13.277		159		2.93	%		1.40	%		1.40	%		2.19	%		2.19	%
2006		14		12.992		12.992		182		3.16	%		1.40	%		1.40	%		0.78	%		0.78	%
PIMCO Low Duration
2010		9		14.990		14.990		138		1.58	%		1.40	%		1.40	%		3.84	%		3.84	%
2009		10		14.437		14.437		140		3.80	%		1.40	%		1.40	%		11.76	%		11.76	%
2008		9		12.918		12.918		123		4.41	%		1.40	%		1.40	%		-1.80	%		-1.80	%
2007		11		13.154		13.154		149		4.91	%		1.40	%		1.40	%		5.87	%		5.87	%
2006		10		12.425		12.425		136		4.38	%		1.40	%		1.40	%		2.54	%		2.54	%


(1)		Net Assets equals Contract Owners’ Equity.

(2)		This ratio represents dividends recorded by the subaccount from the underlying mutual fund divided by the average net assets. This ratio excludes the Expense Ratio. N/A is noted if the fund did not pay any dividends.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

(3) This ratio represents the annualized contract expenses of the separate account, resulting in a direct reduction of unit values, consisting primarily of mortality and expense charges. Charges that require redemption of contract owner units are excluded.

(4) Total return is calculated using the beginning and ending unit value (before rounding for this presentation), which reflects the changes in the underlying fund values and reductions related to the Expense Ratio, for the period indicated. The Archway product has total returns outside the ranges provided that do not correspond to the minimum or maximum expense ratio. This product invests in shares at the fund level that typically experience additional expenses. This can result in a lower subaccount total return than another product with a higher rider expense ratio.

(5) Effective September 23, 2009, name was changed from Alger American Funds to Alger Portfolios.

(6) Effective September 23, 2009, name was changed from Alger American Balanced Subaccount.

(7) For the period (cessation of operations): January 1, 2010 to November 23, 2010 — Alger Balanced S Class. Subaccount merged with DWS Money Market VIP Subaccount.

(8) Effective September 23, 2009, name was changed from Alger American Capital Appreciation Subaccount to Alger Capital Appreciation Subaccount. Previous to this date, effective May 1, 2008, name was changed from Alger American Leveraged AllCap Subaccount.

(9) Effective September 23, 2009, name was changed from Alger American Large Cap Growth Subaccount to Alger Large Cap Growth Subaccount. Previous to this date, effective May 1, 2008, name was changed from Alger American Growth Subaccount.

(10) Effective September 23, 2009, name was changed from Alger American Mid Cap Growth Subaccount.

(11) Effective September 23, 2009, name was changed from Alger American Small Cap Growth Subaccount to Alger Small Cap Growth Subaccount. Previous to this date, effective May 1, 2008, name was changed from Alger American Small Capitalization Subaccount.

(12) Effective December 11, 2009, Credit Suisse Trust International Equity Flex II merged with Credit Suisse Trust International Equity Flex III. Previous to this date effective May 1, 2009, name was changed from Credit Suisse Trust Global Small Cap Subaccount to Credit Suisse Trust International Equity Flex II Subaccount.

(13) Effective December 11, 2009, Credit Suisse Trust International Equity Flex III merged with Credit Suisse Trust International Equity Flex II. Previous to this date, effective May 1, 2009, name was changed from Credit Suisse Trust Emerging Markets Subaccount.

(14) For the period (cessation of operations): January 2, 2007 to April 30, 2007- Dreyfus VIF Small Company Stock. Subaccount merged with DWS Money Market VIP Subaccount.

(15) Effective February 6, 2006, Scudder Investments changed its name to DWS Scudder, and the Scudder Funds have been renamed DWS funds.

(16) Effective April 27, 2009, DWS Capital Growth VIP Subaccount acquired DWS Janus Growth Income VIP Subaccount.

(17) Effective December 8, 2006, DWS Capital Growth VIP Subaccount acquired DWS Janus Growth Opportunities VIP, DWS Legg Mason Aggressive Growth VIP and DWS Oak Strategic Equity VIP Subaccounts.

(18) Effective February 6, 2006, name was changed from Scudder Global Discovery Subaccount.

(19) Effective February 6, 2006, name was changed from Scudder Health Sciences Subaccount.

(20) Effective February 6, 2006, name was changed from Scudder Total Return Subaccount.

(21) Effective February 6, 2006, name was changed from Scudder Fixed Income Subaccount.

(22) For the period (cessation of operations): January 1, 2009 to April 27, 2009- DWS Davis Venture Value VIP Subaccount . Subaccount merged with DWSII Large Cap Value VIP Subaccount.

(23) Effective May 1, 2009, name was changed from DWS International Select Equity VIP Subaccount.

(24) Effective November 3, 2006, name was changed from DWS Dreman Small Cap Value Subaccount.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

(25) Effective February 6, 2006, name was changed from Scudder Global Blue Chip Subaccount.

(26) For the period (cessation of operations): January 1, 2009 to April 27, 2009- DWS Janus Growth & Income VIP Subaccount. Subaccount merged with DWS Capital Growth VIP Subaccount.

(27) Effective December 17, 2010, DWS Money Market VIP Subaccount acquired Franklin Zero Coupon 2010 Subaccount. Previous to this date, effective November 23, 2010 DWS Money Market VIP Subaccount acquired Alger Balanced Portfolio Class S Subaccount. Previous to this date, effective April 23, 2010, DWS Money Market VIP Subaccount acquired JPMorgan Insurance Trust Balanced Portfolio Subaccount.

(28) Effective May 1, 2009, DWS Money Market VIP Subaccount acquired DWS Janus Aspen Small Company Value Subaccount.

(29) Effective April 25, 2008, DWS Money Market VIP Subaccount acquired DWS RREEF Real Estate Securities VIP Subaccount.

(30) Effective November 3, 2006, DWS Money Market VIP Subaccount acquired DWS Variable Series I’s Money Market VIP Subaccount.

(31) Effective June 1,2009, name was changed from DWS Dreman High Return Equity VIP Subaccount.

(32) Effective September 15, 2006, DWS Dreman High Return Equity VIP Subaccount acquired DWS Dreman Financial Services VIP and DWS MFS Strategic Value Subaccounts.

(33) Effective February 6, 2006, name was changed from Scudder Technology Growth Subaccount.

(34) Effective February 6, 2006, name was changed from Scudder Real Estate Securities Subaccount.

(35) For the period (cessation of operations): January 1, 2008 to April 25, 2008 DWS RREEF Real Estate Securities VIP Subaccount. Subaccount merged with DWS Money Market VIP Subaccount.

(36) For the period (cessation of operations): January 1, 2010 to December 17, 2010 Franklin Zero Coupon 2010 Subaccount. Subaccount merged with DWS Money Market VIP Subaccount.

(37) Effective May 1, 2009, name was changed from Mutual Discovery Securities Subaccount.

(38) For the period (commencement of operations): January 12, 2007 to December 31, 2007 – ING Global Resources Subaccount. Subaccount acquired ING VP Natural Resources Trust Subaccount.

(39) For the period (cessation of operations): January 1, 2007 to January 12, 2007- ING VP Natural Resources Trust Subaccount. Subaccount merged with ING Global Resources Subaccount.

(40) Effective April 30, 2010, AIM Variable Insurance Funds changed its name to Invesco Variable Insurance Funds.

(41) Effective April 30, 2010, name was changed from AIM V.I. Financial Services Fund Subaccount.

(42) Effective April 30, 2010, name was changed from AIM V.I. Global Health Care Subaccount.

(43) Effective April 30, 2010, name was changed from AIM V.I. Global Real Estate Subaccount.

(44) Effective April 30, 2010, name was changed from AIM V.I. Utilities Subaccount.

(45) Effective May 1, 2009, name was changed from Janus Aspen Mid Cap Growth Subaccount.

(46) Effective May 1, 2005, name was changed from Janus Aspen Capital Appreciation Subaccount.

(47) Effective May 1, 2009, name was changed from Janus Aspen Large Cap Growth Subaccount.

(48) For the period (cessation of operations): January 1, 2009 to May 1, 2009 Janus Aspen Perkins Small Company Value Subaccount. Subaccount merged with DWS Money Market VIP Subaccount.

(49) Effective May 1, 2009, name was changed from Janus Aspen Worldwide Growth Subaccount.

ZALICO Variable Annuity Separate Account
of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

(50) Effective May 1, 2006, name was changed from JPMorgan Investment Trust Subaccount to JPMorgan Insurance Trust Subaccount.

(51) Effective May 1, 2006, name was changed from JPMorgan Investment Trust Balanced Subaccount to JPMorgan Insurance Trust Balanced Subaccount. Previous to this date, effective May 1, 2005, name was changed from One Group Investment Trust Balanced Subaccount.

(52) For the period (cessation of operations): January 1, 2010 to April 23, 2010 JPMorgan Insurance Trust Balanced Subaccount. Subaccount merged with DWS Money Market VIP Subaccount.

(53) Effective May 1, 2006, name was changed from JPMorgan Investment Trust Bond Subaccount to JPMorgan Insurance Trust Core Bond Subaccount.

(54) Effective May 1, 2009, JP Morgan Insurance Trust Core Bond Subaccount merged with JP Morgan Insurance Trust Government Bond Subaccount.

(55) Effective May 1, 2006, name was changed from JPMorgan Investment Trust Equity Index Subaccount to JPMorgan Insurance Trust Equity Index Subaccount. Previous to this date, effective May 1, 2005, name was changed from One Group Investment Trust Equity Index Subaccount.

(56) For the period (cessation of operations): January 1, 2009 to May 1, 2009 — JP Morgan Insurance Trust Government Bond. Fund merged with JP Morgan Insurance Trust Core Bond Subaccount. Previous to this date, effective May 1, 2006, name was changed from JPMorgan Investment Trust Government Bond Subaccount to JPMorgan Insurance Trust Government Bond Subaccount.

(57) For the period (commencement of operations): May 1, 2009 to December 31, 2009 — JPMorgan Insurance Trust International Equity Subaccount.

(58) Effective December 8, 2006, name was changed from JPMorgan Insurance Trust Large Cap Growth Subaccount to JPMorgan Insurance Trust Intrepid Growth Subaccount. Previous to this date, effective May 1, 2006, name was changed from JPMorgan Investment Trust Large Cap Growth Subaccount.

(59) Effective May 1, 2006, name was changed from JPMorgan Investment Trust Diversified Mid Cap Subaccount to JPMorgan Insurance Trust Intrepid Mid Cap Subaccount.

(60) Effective December 17, 2010, name was changed from JPMorgan Insurance Trust Diversified Mid Cap Growth Subaccount to JPMorgan Insurance Trust Mid Cap Growth Subaccount. Previous to this date, effective May 1, 2006, name was changed from JPMorgan Investment Trust Diversified Mid Cap Growth Subaccount to JPMorgan Insurance Trust Diversified Mid Cap Growth Subaccount.

(61) Effective May 1, 2009, JPMorgan Insurance Trust Mid Cap Value Subaccount merged with JPMorgan Mid Cap Value subaccount. On the same date, name was changed from JP Morgan Insurance Trust Diversified Mid Cap Value Subaccount. Previous to this date effective May 1, 2006, name was changed from JPMorgan Investment Trust Mid Cap Value Subaccount.

(62) For the period (commencement of operations): May 1, 2009 to December 31, 2009 — JPMorgan Insurance Trust Small Cap Core Subaccount.

(63) Effective May 1, 2009, name was changed from JP Morgan Insurance Trust Diversified Equity Subaccount. Previous to this date, effective May 1, 2006, name was changed from JPMorgan Investment Trust Diversified Equity Subaccount to JPMorgan Insurance Trust Diversified Equity Subaccount.

(64) For the period (cessation of operations): January 1, 2009 to May 1, 2009 — JPMorgan International Equity Subaccount. Fund merged with JPMorgan Insurance Trust International Equity Subaccount.

(65) For the period (cessation of operations): January 1, 2009 to May 1, 2009 — JPMorgan MidCap Value Subaccount. Fund merged with JPMorgan Insurance Trust Mid Cap Value Subaccount.

(66) For the period (cessation of operations): January 1, 2009 to May 1, 2009 — JPMorgan Small Company Subaccount. Fund merged with JPMorgan Insurance Trust Small Cap Core Subaccount.

(67) Effective April 30, 2010, name was changed from Oppenheimer Strategic Bond Fund Subaccount.

(68) Effective April 30, 2010, name was changed from Oppenheimer Mid Cap Fund Subaccount to Oppenheimer Small-MidCap Growth Fund VA Series Subaccount. Previous to this date, effective May 1, 2006, name was changed from Oppenheimer Aggressive Growth Subaccount.

(7) Subsequent Events:

The Separate Account has evaluated the effects of events subsequent to December 31, 2010, and through the financial statement issuance date. All accounting and disclosure requirements related to subsequent events are included in our financial statements.

PART C

OTHER INFORMATION

Item 24. Financial Statement and Exhibits

(a) Financial Statements included in Part B:

All required financial statements are included in Part B of this registration statement.

(b) Exhibits:

1.1		A copy of resolution of the Board of Directors of Kemper Investors Life Insurance Company dated September 13, 1977. ⁴

1.2		A copy of Record of Action of Kemper Investors Life Insurance Company dated May 29, 1981. ¹⁹

2.		Not Applicable.

3.1		Distribution Agreement between Investors Brokerage Services, Inc. and Kemper Investors Life Insurance Company. ³

3.2		Addendum to Selling Group Agreement of Kemper Financial Services, Inc. ¹

3.3		Selling Group Agreement of Investors Brokerage Services, Inc. ²

3.4		Principal Underwriter Agreement, dated February 3, 2009, By and Between Kemper Investors Life Insurance Company and Synergy Investment Group, LLC. ²²

3.5		Amendment of Distribution Agreement, dated April 1, 2010, By and Between Investors Brokerage Services, Inc. and Kemper Investors Life Insurance Company. ²³

3.6		Assignment of Selling Agreements, dated April 1, 2010, By and Between Investors Brokerage Services, Inc. and Synergy Investment Group, LLC.²³

4.1		Form of Group Variable, Fixed and Market Value Adjusted Annuity Contract. ⁷

4.2		Form of Certificate to Group Variable, Fixed and Market Value Adjusted Annuity Contract. ⁷

4.3		Form of Individual Variable, Fixed and Market Value Adjusted Annuity Contract. ⁷

4.4		Endorsement to Group Variable, Fixed and Market Value Adjusted Annuity Contract. ¹⁶

4.5		Endorsement to Certificate to Group Variable, Fixed and Market Value Adjusted Annuity Contract.¹⁶

4.6		Endorsement to Individual Variable, Fixed and Market Value Adjusted Annuity Contract.¹⁶

4.7		403(b) Qualified Plan Supplemental Rider. ²³

C-1

4.8		403(b) Qualified Plan Supplemental Group Contract Rider. ²³

4.9		403(b) Qualified Plan Supplemental Certificate Rider. ²³

5.		Form of Application. ⁷

6.1		Kemper Investors Life Insurance Company Articles of Incorporation and By-laws. ³

6.2		Zurich American Life Insurance Company Amended Articles of Incorporation and By-laws. ²⁴

7.1		Coinsurance Agreement between Kemper Investors Life Insurance Company and Federal Kemper Life Assurance Company, dated May 29, 2003. ¹⁵

7.2		MVA Agreement and First Amendment to Coinsurance Agreement between Kemper Investors Life Insurance Company and Chase Insurance Life and Annuity Company, f/k/a/ Federal Kemper Life Assurance Company. ¹⁶

7.3		Automatic Annuity Reinsurance Agreement effective May 1, 1998 (redacted). ¹⁸

7.4(a)		Variable Annuity Reinsurance Contract Issued to Kemper Investors Life Insurance Company effective November 17, 2006 (redacted). ¹⁹

7.4(b)		Amendment No. 1 to Variable Annuity Reinsurance Contract, dated December 15, 2008, By and Between Kemper Investors Life Insurance Company and Zurich Insurance Company. ²²

8.1(a)		Fund Participation Agreement among Kemper Investors Life Insurance Company, Janus Aspen Series and Janus Capital Corporation. ²

8.1(b)		Service Agreement between Kemper Investors Life Insurance Company and Janus Capital Corporation. ⁵

8.1(c)		Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company, Janus Aspen Series, Janus Capital Management LLC, and Janus Distributors LLC.²⁴

8.1(d)		Form of Amendment No. 8 to Fund Participation Agreement By and Between Zurich American Life Insurance Company, Janus Aspen Series, and Janus Capital Management LLC (formerly Janus Capital Corporation).²⁴

8.2(a)		Participation Agreement By and Among Kemper Investors Life Insurance Company and Warburg, Pincus Trust and Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset Management, Inc.) and Credit Suisse Asset Management Securities, Inc. (f/k/a Counsellors Securities Inc.). ⁸

8.2(b)		Service Agreement between Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset Management, Inc.) and Federal Kemper Life Assurance Company and Kemper Investors Life Insurance Company. ⁶

8.2(c)		Restatement of Participation Agreement among Counsellors Securities Inc., Warburg Pincus Asset Management, Inc. and/or the Warburg Pincus Funds and Kemper Investors Life Insurance Company. ¹⁰

C-2

8.2(d)		Rule 22c-2 Shareholder Information Agreement, dated October 16, 2007, By and Between Kemper Investors Life Insurance Company and Credit Suisse Asset Management Securities, Inc. ²²

8.3(a)		Fund Participation Agreement among Kemper Investors Life Insurance Company, Kemper Investors Fund (now known as DWS Variable Series II), Zurich Kemper Investments, Inc., and Kemper Distributors, Inc., dated January 1, 1999. ⁸

8.3(b)		Supplement to Participation Agreement among Kemper Investors Life Insurance Company, DWS Variable Series II (formerly Kemper Investors Fund), Deutsche Investment Management Americas Inc. (formerly Zurich Kemper Investments, Inc.), and DWS Scudder Distributors, Inc (formerly Kemper Distributors, Inc.).¹⁹

8.3(c)		Supplement to Participation Agreement among Kemper Investors Life Insurance Company, DWS Variable Series II, Deutsche Investment Management Americas Inc., and DWS Scudder Distributors, Inc.²⁰

8.3(d)		Administrative Services Agreement, dated November 5, 1997, By and Between Kemper Investors Life Insurance Company and Zurich Kemper Investments, Inc. ²¹

8.3(e)		Amendment to November 5, 1997 Services Agreement, dated March 4, 2008, By and Between Kemper Investors Life Insurance Company and Deutsche Investment Management Americas Inc. ²²

8.3(f)		Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and DWS Scudder Distributors, Inc. ²²

8.3(g)		Amendment to Participation Agreement Dated as of January 1, 1997, Between DWS Variable Series II, Deutsche Investment Management Americas Inc., DWS Investments Distributors, Inc. (formerly, DWS Scudder Distributors, Inc.), and Zurich American Life Insurance Company, dated April 11, 2011. ²⁴

8.3(h)		Supplement to Participation Agreement Dated January 1, 1997, Among Zurich American Life Insurance Company, DWS Variable Series II, Deutsche Investment Management Americas Inc., and DWS Investments Distributors, Inc., dated April 29, 2011. ²⁴

8.4(a)		Participation Agreement between Kemper Investors Life Insurance Company and Scudder Variable Life Investment Fund (now known as DWS Variable Series I), dated June 26, 1998. ⁹

8.4(b)		Participating Contract and Policy Agreement between Kemper Investors Life Insurance Company and Scudder Kemper Investments, Inc. ⁹

8.4(c)		Indemnification Agreement between Kemper Investors Life Insurance Company and Scudder Kemper Investments, Inc. ⁹

8.4(d)		Amendment to Participation Agreement between Scudder Variable Series I and Kemper Investors Life Insurance Company. ¹⁶

8.4(e)		Supplement for Participation Agreement Dated as of June 26, 1998, dated August 1, 2008, By and Between Kemper Investors Life Insurance Company and DWS Variable Series I (formerly Scudder Variable Series I). ²²

C-3

8.4(f)		Amendment to June 26, 1998 Indemnification Agreement, dated August 28, 2008, By and Between Kemper Investors Life Insurance Company and Deutsche Investment Management Americas, Inc. (formerly Scudder Kemper Investments, Inc.).²²

8.4(g)		Amendment to Participation Agreement Dated as of June 26, 1998, Between Zurich American Life Insurance Company and DWS Variable Series I (formerly, Scudder Variable Life Investment Fund and Scudder Variable Series I), dated April 11, 2011. ²⁴

8.5(a)		Participation Agreement Among Kemper Investors Life Insurance Company, PIMCO Variable Insurance Trust, and PIMCO Funds Distributors LLC. ⁹

8.5(b)		Services Agreement between Pacific Investment Management Company and Kemper Investors Life Insurance Company. ⁹

8.5(c)		Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and Allianz Global Investors Distributors LLC. ²⁴

8.5(d)		Form of Novation of and Amendment to Participation Agreement, By and Among Allianz Global Investors Distributors LLC, PIMCO Investments LLC, PIMCO Variable Insurance Trust, and Zurich American Life Insurance Company. ²⁴

8.5(e)		Form of Amendment to Participation Agreement Dated January 5, 1999, By and Among Zurich American Life Insurance Company, PIMCO Variable Insurance Trust, and Allianz Global Investors Distributors LLC (formerly PIMCO Funds Distributors, LLC). ²⁴

8.6(a)		Participation Agreement Among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Kemper Investors Life Insurance Company. ¹¹

8.6(b)		Shareholder Information Agreement, Franklin Templeton Variable Insurance Products Trust, dated April 16, 2007, By and Among Kemper Investors Life Insurance Company and Franklin/Templeton Distributors, Inc. ²⁴

8.7(a)		Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. ¹¹

8.7(b)		November 1, 1999 Amendment to Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. ¹²

8.7(c)		Administrative Services Agreement by and between The Dreyfus Corporation and Kemper Investors Life Insurance Company (redacted). ¹⁰

8.7(d)		November 1, 1999 Amendment to Administrative Services Agreement by and between The Dreyfus Corporation and Kemper Investors Life Insurance Company (redacted). ¹⁰

8.7(e)		Supplemental Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and Dreyfus Service Corporation. ²²

8.7(f)		Amendment No. 2 to Fund Participation Agreement Dated April 27, 1999, Between Zurich American Life Insurance Company, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus Investment Portfolios, Dreyfus Variable Investment Fund, and Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund), dated April 8, 2011.²⁴

8.8(a)		Fund Participation Agreement by and among The Alger American Fund, Kemper Investors Life Insurance Company and Fred Alger & Company Incorporated. ¹²

C-4

8.8(b)		Service Agreement between Fred Alger Management, Inc. and Kemper Investors Life Insurance Company (redacted). ¹²

8.8(c)		Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and Fred Alger & Company, Incorporated. ²²

8.8(d)		Amendment No. 1 to Participation Agreement Dated May 1, 1999, Between Zurich American Life Insurance Company, The Alger Portfolios (formerly The Alger American Fund), and Fred Alger & Company Incorporated, dated April 1, 2011. ²⁴

8.9(a)		Fund Participation Agreement, dated April 30, 2004, by and among Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc. ²⁴

8.9(b)		Administrative Services Agreement, dated July 1, 2005, Between Kemper Investors Life Insurance Company and AIM Advisors, Inc. ²⁴

8.9(c)		AIM Funds Intermediary Agreement Regarding Compliance with SEC Rule 22c-2, dated April 11, 2007, By and Between Kemper Investors Life Insurance Company and AIM Investment Services, Inc. ²²

8.9(d)		Amendment No. 1 to the Participation Agreement Dated April 30, 2004, Between Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc., dated May 28, 2008. ²⁴

8.9(e)		Amendment No. 2 to the Participation Agreement Dated April 30, 2004, Between Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc., dated April 30, 2010. ²⁴

8.9(f)		Form of Amendment No. 3 to Participation Agreement Dated April 30, 2004, Between Zurich American Life Insurance Company, AIM Variable Insurance Funds (Invesco Variable Insurance Funds), and Invesco Distributors, Inc.²⁴

8.10(a)		Insurance Administrative Services Agreement, dated September 7, 2004, between Kemper Investors Life Insurance Company and Liberty Insurance Services Corporation (now known as IBM Business Transformation Outsourcing Insurance Service Corporation). ¹³

8.10(b)		Amendment No. 1 to The Insurance Administrative Services Agreement, dated April 26, 2005, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation (formerly Liberty Insurance Services Corporation). ²¹

8.10(c)		Amendment No. 2 to The Insurance Administrative Services Agreement, dated May 16, 2006, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. ²¹

8.10(d)		Amendment No. 3 to The Insurance Administrative Services Agreement, dated August 23, 2006, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. ²¹

C-5

8.10(e)		Amendment No. 4 to Third-Party Insurance Administrative Services Agreement, dated February 22, 2007, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. ²¹

8.10(f)		Redacted Amendment No. 5 to Third-Party Insurance Administrative Services Agreement, dated June 1, 2008, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. ²¹

8.10(g)		Amendment No. 6 to Third-Party Insurance Administrative Services Agreement, dated May 15, 2009, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. ²³

8.10(h)		Amendment No. 7 to Third-Party Insurance Administrative Services Agreement, dated February 22, 2010, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. ²³

8.11(a)		Fund Participation Agreement by and among Kemper Investors Life Insurance Company, Deutsche Asset Management VIT Funds (now known as DWS Investments VIT Funds), and Deutsche Asset Management, Inc. ¹⁷

8.11(b)		Administrative Services Agreement between Kemper Investors Life Insurance Company and Deutsche Asset Management, Inc. (redacted). ¹⁷

8.11(c)		Amendment to administrative services agreement between Kemper Investors Life Insurance Company and Deutsche Asset Management, Inc. ¹⁸

8.11(d)		Amendment to Fund Participation Agreement Dated as of October 21, 2001, By and Among Kemper Investors Life Insurance Company, Scudder Investments VIT Funds (formerly Deutsche Asset Management VIT Funds), and Deutsche Asset Management, Inc., dated August 1, 2005. ²⁴

8.11(e)		Amendment to Fund Participation Agreement Dated as of October 22, 2001, Between Zurich American Life Insurance Company, DWS Investments VIT Funds (formerly, Deutsche Asset Management VIT Funds and Scudder Investments VIT Funds), and Deutsche Investment Management Americas Inc. (formerly, Deutsche Asset Management, Inc.), dated April 11, 2011. ²⁴

9.		Opinion and Consent of Juanita M. Thomas, Esq. ²⁴

10.(a)		Consent of independent registered public accounting firm. ²⁴

10.(b)		Consent of Sutherland Asbill & Brennan LLP. ²⁴

11.		Not Applicable.

12.		Not Applicable

13.		Schedules for Computation of Performance Calculations. ⁴

14.		Not Applicable.

C-6

15.		Powers of Attorney for Kevin T. Hogan, Nicolas A. Burnet, Richard J. Hauser, Barry S. Paul, Linda L. Swanson, Patricia Aprill, Marcia Scheiner, and Jeffrey S. Horton. ²³

15.(a)		Powers of Attorney for Simon Lodge and David Dietz. ²⁴

17.1		Schedule III: Supplementary Insurance Information (years ended December 31, 2004, 2003 and 2002). ¹³

17.2		Schedule IV: Reinsurance (year ended December 31, 2004, 2003 and 2002). ¹³

17.3		Schedule V: Valuation and qualifying accounts (year ended December 31, 2004, 2003 and 2002). ¹³


¹		Incorporated by reference to Post-Effective Amendment No. 22 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 27, 1995.

²		Incorporated by reference to Post-Effective Amendment No. 23 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about September 14, 1995.

³		Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 for Kemper Investors Life Insurance Company (File No. 333-02491) filed on or about April 12, 1996.

⁴		Incorporated by reference to the Registration Statement on Form N-4 for the Registrant (File No. 333-22375) filed on or about February 26, 1997.

⁵		Incorporated by reference to Post-Effective Amendment No. 25 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 28, 1997.

⁶		Incorporated by reference to Post-Effective Amendment No. 4 to the Registration Statement on Form S-6 (File No. 33-79808) filed on or about April 30, 1997.

⁷		Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-22375) filed on or about November 3, 1997.

⁸		Incorporated by reference to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-22389) filed on or about April 8, 1998.

⁹		Incorporated by reference to Amendment No. 5 to the Registration Statement on Form S-1 (File No. 333-22389) filed on or about April 20, 1999.

¹⁰		Incorporated by reference to Post-Effective Amendment No. 6 to the Registration Statement on Form N-4 (File No. 333-22375) filed on or about September 14, 1999.

¹¹		Incorporated by reference to Post-Effective Amendment No. 28 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 28, 1999.

¹²		Incorporated by reference to Amendment No. 6 to the Registration Statement on Form S-1 (File No. 333-22389) filed on or about April 17, 2000.

¹³		Incorporated by reference to Form 10-K for Kemper Investors Life Insurance Company for fiscal year ended December 31, 2004 filed on or about March 30, 2005.

C-7


¹⁴		Incorporated by reference to Post-Effective Amendment No. 14 to the Registration Statement on Form N-4 (File No. 333-22375) filed on or about April 28, 2004.

¹⁵		Incorporated by reference to exhibits filed with Form 10-Q for Kemper Investors Life Insurance Company (now Zurich American Life Insurance Company) (File No. 033-43462) for the quarterly period ended June 30, 2003 filed on or about August 14, 2003.

¹⁶		Incorporated by reference to Amendment No. 6 to the Registration Statement on Form N-4 (File No. 333-22375) filed on April 28, 2005.

¹⁷		Incorporated by reference to Amendment No. 3 to the Registration Statement on Form S-6 (File No. 333-88845) filed on April 30, 2002.

¹⁸		Incorporated by reference to Post-Effective Amendment No. 17 to the Registration Statement on Form N-4 (File No. 333-22375) filed on or about May 1, 2006.

¹⁹		Incorporated by reference to Post-Effective Amendment No. 18 to the Registration Statement on Form N-4 (File No. 333-22375) filed on April 27, 2007.

²⁰		Incorporated by reference to Post-Effective Amendment No. 19 to the Registration Statement on Form N-4 (File No. 333-22375) filed on April 29, 2008.

²¹		Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-148489) filed on August 8, 2008.

²²		Incorporated by reference to Post-Effective Amendment No. 20 to the Registration Statement on Form N-4 (File No. 333-22375) filed on April 29, 2009.

²³		Incorporated by reference to Post-Effective Amendment No. 21 to the Registration Statement on Form N-4 (File No. 333-22375) filed on April 30, 2010.

²⁴		Filed herewith.

Item 25. Directors and Officers of Zurich American Life Insurance Company (“ZALICO”)

The directors and officers of ZALICO are listed below together with their current positions.


Name		Office with ZALICO
David Dietz³		President and Chief Executive Officer
Richard Grilli⁴		Senior Vice President and Chief Operating Officer
Simon Lodge³		Senior Vice President and Chief Financial Officer
Barry S. Paul²		Director and Assistant Treasurer
Richard J. Hauser²		Director and Assistant Treasurer
Nicolas A. Burnet⁵		Director
Michael Rohwetter³		Vice President and Chief Investment Officer
David M. Lorenz¹		Vice President and Chief Compliance Officer
Richard Persaud⁴		Vice President and Chief Risk Officer
Ali Rifai³		Senior Vice President, General Counsel and Corporate Secretary
Jeffrey S. Horton³		Senior Vice President-Finance and Treasurer

C-8



Catherine Ehrlich³		Vice President, Chief Life Actuary and “Appointed Actuary”
Sherif Zakhary³		Vice President
Dennis Roberts⁶		Vice President
Michael DeStasi⁴		Assistant Vice President and Controller
Dawn Cummings-Fritz²		Assistant Vice President
Margaret Labno²		Assistant Vice President
David Dampman⁷		Assistant Secretary
Craig Toffolo³		Assistant Secretary
Ryan Gibbons²		Assistant Secretary
Mary Lyn DeNiro³		Assistant Secretary
Jon Nagel³		Assistant Secretary
Michael Smiley³		Assistant Secretary

Juanita M. Thomas, Esq.³serves as the Chief Compliance Officer for the Registrant.


¹		The principal business address is 3003 77^th Avenue, SE, Mercer Island, WA 98040.

²		The principal business address is 1400 American Lane, Schaumburg, IL 60196.

³		The principal business address is 105 E. 17^th Street, New York, NY 10003.

⁴		The principal business address is One Liberty Plaza, 165 Broadway, New York, NY 10006.

⁵		The principal business address is Mythenquai 2, 8022, Zurich, Switzerland.

⁶		The principal business address is 200 Sam Houston Parkway, Suite 1300, Houston, TX 77042.

⁷		The principal business address is 7045 College Blvd., Overland Park, KS 66211.

Item 26. Persons Controlled by or Under Common Control with the Insurance Company or Registrant

Organizations Affiliated with Zurich U.S. Insurance Group


Company	Domiciled	Ownership	%
Allied Zurich Holdings Limited	CI	Zurich Financial Services Ltd		100.00
Allied Zurich Limited UK	UK	Zurich Financial Services Ltd		100.00
American Guarantee and Liability Insurance Company	NY	Zurich American Insurance Company		100.00
American Zurich Insurance Company	IL	Steadfast Insurance Company		100.00
Assurance Company of America	NY	Maryland Casualty Company		100.00
BFP Securities LLC	DE	Benefit Finance Partners, LLC		100.00
Benefit Finance Partners, LLC	DE	Zurich Benefit Finance LLC		50.00
Centre Financial Services Holdings Limited	BDA	Centre Group Holdings Limited		100.00
Centre Group Holdings (U.S.) Limited	DE	Centre Solutions (Bermuda) Limited		100.00
Centre Group Holdings Limited	BDA	CMSH Limited		100.00
Centre Insurance Company	DE	Centre Solutions (U.S.) Limited		100.00
Centre Life Insurance Company	MA	Centre Solutions (U.S.) Limited		100.00
Centre Reinsurance (U.S.) Limited	BDA	Centre Group Holdings (U.S.) Limited		100.00
Centre Solutions (Bermuda) Limited	BDA	Centre Group Holdings Limited		100.00
Centre Solutions (U.S.) Limited	BDA	Centre Group Holdings (U.S.) Limited		100.00
CMSH Limited	BDA	Zurich Insurance Company Ltd		100.00
Colonial American Casualty & Surety Co.	MD	Fidelity & Deposit Company of Maryland		100.00
Crown Management Services Limited	DE	CMSH Limited		100.00
Delta Wetlands Property	IL	KLMLP 2, LLC		90.00
Delta Wetlands Property	IL	KLMLP 3, LLC		10.00
Disability Management Services, Inc.	CT	Centre Group Holdings (U.S.) Limited		40.00
Empire Fire & Marine Insurance Company	NE	Zurich American Insurance Company		100.00

C-9


Company	Domiciled	Ownership	%
Empire Indemnity Insurance Company	OK	Zurich American Insurance Company		100.00
Farmers Group, Inc.	NV	Zurich Insurance Company Ltd.		87.90
Farmers Group, Inc.	NV	Zurich Financial Services Ltd.		10.38
Farmers Group, Inc.	NV	Zurich RegCaps II, V and VI		1.73
Farmers New World Life Insurance Company	WA	Farmers Group, Inc.		100.00
Farmers Reinsurance Company	CA	Farmers Group, Inc.		100.00
Farmers Services Corporation	NV	Farmers Group, Inc.		100.00
Farmers Services, LLC	DE	ZFUS Services, LLC		100.00
Farmers Value Added, Inc.	NV	Farmers Group, Inc.		100.00
Fidelity & Deposit Company of Maryland	MD	Zurich American Insurance Company		100.00
F.I.G. Holding Company	CA	Fire Underwriters Association		70.00
F.I.G. Holding Company	CA	Truck Underwriters Association		30.00
FIG Leasing Company, Inc.	CA	Farmers Group, Inc.		95.20
FIG Leasing Company, Inc.	CA	Fire Underwriters Association		1.70
FIG Leasing Company, Inc.	CA	Truck Underwriters Association		3.10
Fire Underwriters Association	CA	Farmers Group, Inc.		100.00
Zurich American Corporation	DE	Zurich Holding Company of America, Inc.		100.00
Zurich American Life Insurance Company	IL	Zurich American Corporation		100.00
KLMLP, L.P.	DE	Zurich American Corporation		75.00
KLMLP 2, LLC	DE	KLMLP, L.P.		100.00
KLMLP 3, LLC	DE	KLMLP 2, LLC		100.00
L&L Park 80 Investors LLC	DE	ZI Park 80 West LLC		100.00
Leschi Life Assurance Company	SC	Farmers New World Life Insurance Company		100.00
Maryland Casualty Company	MD	Zurich American Insurance Company		100.00
Maunalua Associates, Inc.	HI	Zurich American Corporation		100.00
MI Administrators, LLC	DE	FIG Leasing Company, Inc.		100.00
Northern Insurance Company of New York	NY	Maryland Casualty Company		100.00
Orange Stone Holdings	IRE	CMSH Limited		100.00
Orange Stone Reinsurance	IRE	Crown Management Services Limited		100.00
Prematic Service Corporation (CA)	CA	Farmers Group, Inc.		38.00
Prematic Service Corporation (CA)	CA	Fire Underwriters Association		9.00
Prematic Service Corporation (CA)	CA	Truck Underwriters Association		53.00
Prematic Service Corporation (NV)	NV	Prematic Service Corporation (CA)		100.00
South County Services Company, Inc.	NY	Sterling Forest LLC		100.00
Steadfast Insurance Company	DE	Zurich American Insurance Company		100.00
Steadfast Santa Clarita Holding LLC	DE	Steadfast Insurance Company		100.00
Sterling Forest LLC	DE	Zurich American Insurance Company		100.00
Truck Underwriters Association	CA	Farmers Group, Inc.		100.00
Universal Underwriters Acceptance Corporation	KS	Zurich Holding Company of America, Inc.		100.00
UUBVI, Limited	BVI	Universal Underwriters Service Corporation		99.99
Universal Underwriters Insurance Company	KS	Zurich American Insurance Company		100.00
Universal Underwriters Insurance Services, Inc.	MA	Zurich Holding Company of America, Inc.		100.00
Universal Underwriters Life Insurance Company	KS	Universal Underwriters Insurance Company		100.00
Universal Underwriters of Texas Insurance Company	TX	Universal Underwriters Insurance Company		100.00
Universal Underwriters Service Corporation	MO	Zurich Holding Company of America, Inc.		100.00
Vehicle Dealer Solutions, Inc.	FL	The Zurich Services Corporation		100.00
WVGRR Properties, LLC	DE	Farmers New World Life Insurance Company		100.00
ZFS Finance (USA) LLC IV	DE	Zurich Holding Company of America, Inc.		100.00
ZFS Finance (USA) LLC V	DE	Zurich Holding Company of America, Inc.		100.00
ZFS Finance (USA) LLC I	DE	Zurich Holding Company of America, Inc.		100.00
ZFS Finance (USA) LLC II	DE	Zurich Holding Company of America, Inc.		100.00
ZFS Finance (USA) LLC III	DE	Zurich Holding Company of America, Inc.		100.00
ZFUS Services, LLC	DE	Zurich Holding Company of America, Inc.		100.00
ZI Park 80 West LLC	DE	Zurich American Insurance Company		100.00
ZNA Services, LLC	DE	ZFUS Services, LLC		100.00

C-10


Company	Domiciled	Ownership	%
ZKS Real Estate Partners, LLC	DE	Zurich American Corporation		41.67
ZSFH LLC	DE	Zurich Holding Company of America, Inc.		100.00
Zurich Agency Services, Inc.	TX	Maryland Casualty Company		100.00
Zurich Alternative Asset Management, LLC	DE	Zurich Holding Company of America, Inc.		100.00
Zurich American Insurance Company	NY	Zurich Holding Company of America, Inc.		100.00
Zurich American Insurance Company of Illinois	IL	American Zurich Insurance Company		100.00
Zurich American Life Insurance Company of New York	NY	Zurich American Life Insurance Company		100.00
Zurich Benefit Finance LLC	DE	Zurich Holding Company of America, Inc.		100.00
Zurich CZI Management Holding Ltd.	DE	Zurich Global Investment Management Inc.		100.00
Zurich E&S Insurance Brokerage, Inc.	CA	Zurich American Insurance Company		100.00
Zurich Finance (USA), Inc.	DE	Zurich Holding Company of America. Inc.		100.00
Zurich Global Investment Management Inc.	DE	Zurich Holding Company of America, Inc.		100.00
Zurich Global, Ltd.	BDA	Zurich Holding Company of America, Inc.		100.00
Zurich Holding Company of America, Inc.	DE	Zurich Insurance Company Ltd		99.87
Zurich Holding Company of America, Inc.	DE	Crown Management Services Limited		00.13
Zurich Insurance Company Ltd	Switzerland	Zurich Financial Services Ltd		100.00
Zurich International (Bermuda) Ltd.	BDA	Zurich Insurance Company Ltd		100.00
Zurich Investment Management AG	Switzerland	Prematic Service Corporation (NV)		80.00
Zurich Investment Management AG	Switzerland	Zurich Financial Services Ltd		20.00
Zurich Realty, Inc.	MD	The Zurich Services Corporation		100
The Zurich Services Corporation	IL	Zurich Holding Company of America, Inc.		100.00
Zurich Warranty Solutions, Inc.	IL	American Zurich Insurance Company		100.00
Zurich Latin America Corporation	DE	The Zurich Services Corporation		100.00

Organizations Affiliated with Farmers Insurance Group


Company	Domiciled	Ownership	%
20^th Century Insurance Services, Inc.	NV	21^st Century Insurance Group		100.00
21^st Century Casualty Company	CA	21^st Century Insurance Group		100.00
21^st Century Insurance and Financial Services, Inc.	DE	Farmers Insurance Exchange		80.00
21^st Century Insurance and Financial Services, Inc.	DE	Fire Insurance Exchange		10.00
21^st Century Insurance and Financial Services, Inc.	DE	Truck Insurance Exchange		10.00
21^st Century Insurance Company	CA	21^st Century Insurance Group		100.00
21^st Century Insurance Company of the Southwest	TX	21^st Century Insurance Group		100.00
21^st Century Insurance Group	DE	Farmers Insurance Exchange		80.00
21^st Century Insurance Group	DE	Fire Insurance Exchange		10.00
21^st Century Insurance Group	DE	Truck Insurance Exchange		10.00
50^th State Risk Management Services, Inc.	HI	Hawaii Insurance Consultants, Ltd.		100.00
21^st Century Advantage Insurance Company	MN	21^st Century North America Insurance Company		100.00
21^st Century Auto Insurance Company of New Jersey	NJ	21^st Century Centennial Insurance Company		100.00
21^st Century Centennial Insurance Company	PA	Farmers Insurance Exchange		80.00
21^st Century Centennial Insurance Company	PA	Fire Insurance Exchange		10.00
21^st Century Centennial Insurance Company	PA	Truck Insurance Exchange		10.00
21^st Century Indemnity Insurance Company	PA	21^st Century Premier Insurance Company		100.00
21^st Century National Insurance Company, Inc.	NY	21^st Century Security Insurance Company		100.00
21^st Century Preferred Insurance Company	PA	21^st Century Centennial Insurance Company		100.00
21^st Century Premier Insurance Company	PA	21^st Century Centennial Insurance Company		100.00
American Federation Insurance Company	MI	Foremost Insurance Company Grand Rapids, Michigan		100.00
21^st Century North America Insurance Company	NY	Farmers Insurance Exchange		80.00
21^st Century North America Insurance Company	NY	Fire Insurance Exchange		10.00
21^st Century North America Insurance Company	NY	Truck Insurance Exchange		10.00
21^st Century Superior Insurance Company.	CA	21^st Century North America Insurance Company		100.00
21^st Century Assurance Company	DE	Farmers Insurance Exchange		80.00
21^st Century Assurance Company	DE	Fire Insurance Exchange		10.00

C-11


Company	Domiciled	Ownership	%
21^st Century Assurance Company	DE	Truck Insurance Exchange		10.00
21^st Century Pinnacle Insurance Company	NJ	21^st Century North America Insurance Company		100.00
21^st Century Pacific Insurance Company	CO	Farmers Insurance Exchange		80.00
21^st Century Pacific Insurance Company	CO	Fire Insurance Exchange		10.00
21^st Century Pacific Insurance Company	CO	Truck Insurance Exchange		10.00
American Pacific Insurance Company, Inc.	HI	Farmers Insurance Hawaii, Inc.		100.00
APEX Adjustment Bureau, Inc.	FL	Bristol West Holdings, Inc.		100.00
Bayview Adjustment Bureau, Inc.	CA	Bristol West Holdings, Inc.		100.00
Bristol West Casualty Insurance Company	OH	Coast National Insurance Company		100.00
Bristol West Holdings, Inc.	DE	Farmers Insurance Exchange		42
Bristol West Holdings, Inc.	DE	Fire Insurance Exchange		3.75
Bristol West Holdings, Inc.	DE	Mid-Century Insurance Company		47.50
Bristol West Holdings, Inc.	DE	Truck Insurance Exchange		6.75
Bristol West Insurance Company	OH	Coast National Insurance Company		100.00
Bristol West Insurance Services of California, Inc.	CA	Bristol West Holdings, Inc.		100.00
Bristol West Insurance Services of Georgia, Inc.	GA	Bristol West Holdings, Inc.		100.00
Bristol West Insurance Services of Pennsylvania, Inc.	PA	Bristol West Holdings, Inc.		100.00
Bristol West Insurance Services of Texas, Inc.	TX	Bristol West Holdings, Inc.		100.00
Bristol West Insurance Services, Inc. of Florida	FL	Bristol West Holdings, Inc.		100.00
Bristol West Preferred Insurance Company	MI	Bristol West Holdings, Inc.		100.00
BWIS of Nevada, Inc.	NV	Bristol West Holdings, Inc.		100.00
Civic Property & Casualty Co.	CA	Fire Insurance Exchange		80.00
Civic Property & Casualty Co.	CA	Truck Insurance Exchange		20.00
Coast National General Agency, Inc.	TX	Bristol West Holdings, Inc.		100.00
Coast National Holding Company	CA	Bristol West Holdings, Inc.		100.00
Coast National Insurance Company	CA	Coast National Holding Company		100.00
Exact Property & Casualty Co.	CA	Fire Insurance Exchange		80.00
Exact Property & Casualty Co.	CA	Truck Insurance Exchange		20.00
Farmers Financial Solutions, LLC	NV	FFS Holding, LLC		100.00
Farmers Group, Inc.	NV	Zurich Insurance Company Ltd.		87.90
Farmers Group, Inc.	NV	Zurich Financial Services Ltd.		10.38
Farmers Group, Inc.	NV	Zurich RegCaps II, V and VI		1.73
Farmers Insurance Co. of Arizona	AZ	Farmers Insurance Exchange		70.00
Farmers Insurance Co. of Arizona	AZ	Truck Insurance Exchange		20.00
Farmers Insurance Co. of Arizona	AZ	Fire Insurance Exchange		10.00
Farmers Insurance Co. of Idaho	ID	Farmers Insurance Exchange		80.00
Farmers Insurance Co. of Idaho	ID	Truck Insurance Exchange		13.30
Farmers Insurance Co. of Idaho	ID	Fire Insurance Exchange		06.70
Farmers Insurance Co. of Oregon	OR	Farmers Insurance Exchange		80.00
Farmers Insurance Co. of Oregon	OR	Truck Insurance Exchange		20.00
Farmers Insurance Co. of Washington	WA	Fire Insurance Exchange		80.00
Farmers Insurance Co. of Washington	WA	Truck Insurance Exchange		20.00
Farmers Insurance Co., Inc.	KS	Farmers Insurance Exchange		90.00
Farmers Insurance Co., Inc.	KS	Fire Insurance Exchange		10.00
Farmers Insurance Exchange	CA	Interinsurance Exchange
Farmers Insurance Hawaii, Inc.	HI	Farmers Insurance Exchange		80.00
Farmers Insurance Hawaii, Inc.	HI	Fire Insurance Exchange		10.00
Farmers Insurance Hawaii, Inc.	HI	Truck Insurance Exchange		10.00
Farmers Insurance of Columbus, Inc.	OH	Farmers Insurance Exchange		100.00
Farmers New Century Insurance Company	IL	Illinois Farmers Insurance Co.		100.00
Farmers Reinsurance Company	CA	Farmers Group, Inc.		100.00
Farmers Services Corporation	NV	Farmers Group, Inc.		100.00
Farmers Services Insurance Agency	CA	Truck Insurance Exchange		100.00
Farmers Texas County Mutual Insurance Company	TX	County Mutual Company
Farmers Value Added, Inc.	NV	Farmers Group, Inc.		100.00
FCOA, LLC	DE	Foremost Insurance Company Grand Rapids, MI		100.00

C-12


Company	Domiciled	Ownership	%
FFS Holding, LLC	NV	Mid Century Ins. Co.		100.00
F.I.G. Holding Company	CA	Fire Underwriters Association		70.00
F.I.G. Holding Company	CA	Truck Underwriters Association		30.00
FIG Leasing Company, Inc.	CA	Farmers Group, Inc.		95.20
FIG Leasing Company, Inc.	CA	Truck Underwriters Association		3.10
FIG Leasing Company, Inc.	CA	Fire Underwriters Association		1.70
Fire Insurance Exchange	CA	Interinsurance Exchange
Fire Underwriters Association	CA	Farmers Group, Inc.		100.00
Foremost Affiliated Insurance Services, Inc.	MI	FCOA, LLC		100.00
Foremost County Mutual Insurance Company	TX	County Mutual Company
Foremost Express Insurance Agency, Inc.	MI	FCOA, LLC		100.00
Foremost Financial Services Corporation	DE	FCOA, LLC		100.00
Foremost Home Services Corporation	MI	FCOA, LLC		100.00
Foremost Insurance Company Grand Rapids, Michigan	MI	Farmers Insurance Exchange		80.00
Foremost Insurance Company Grand Rapids, Michigan	MI	Fire Insurance Exchange		10.00
Foremost Insurance Company Grand Rapids, Michigan	MI	Truck Insurance Exchange		10.00
Foremost Lloyds of Texas	TX	Lloyds Company
Foremost Property and Casualty Insurance Company	MI	Foremost Insurance Company Grand Rapids, Michigan		100.00
Foremost Signature Insurance Company	MI	Foremost Insurance Company Grand Rapids, Michigan		100.00
GP, LLC	DE	Bristol West Holdings, Inc.		100.00
Hawaii Insurance Consultants, Ltd.	HI	Farmers Insurance Exchange		80.00
Hawaii Insurance Consultants, Ltd.	HI	Fire Insurance Exchange		10.00
Hawaii Insurance Consultants, Ltd.	HI	Truck Insurance Exchange		10.00
i21 Insurance Services	CA	21^st Century Insurance Group		100.00
Illinois Farmers Insurance Co.	IL	Farmers Insurance Exchange		100.00
Insurance Data Systems, G.P.	FL	GP, LLC		0.10
Insurance Data Systems, G.P.	FL	Bristol West Holdings, Inc.		99.90
Knight Agency, Inc.	KY	Foremost Affiliated Insurance Services, Inc.		100.00
Leschi Life Assurance Company	SC	Farmers New World Life Insurance Company		100.00
MI Administrators, LLC	DE	FIG Leasing Company, Inc.		100.00
Mid Century Insurance Company	CA	Farmers Insurance Exchange		80.00
Mid Century Insurance Company	CA	Fire Insurance Exchange		12.50
Mid Century Insurance Company	CA	Truck Insurance Exchange		07.50
Mid Century Insurance Company of Texas	TX	Farmers Insurance Exchange		100.00
Neighborhood Spirit Property & Casualty Co.	CA	Fire Insurance Exchange		80.00
Neighborhood Spirit Property & Casualty Co.	CA	Truck Insurance Exchange		20.00
21^st Century Security Insurance Company	PA	Farmers Insurance Exchange		80.00
21^st Century Security Insurance Company	PA	Fire Insurance Exchange		10.00
21^st Century Security Insurance Company	PA	Truck Insurance Exchange		10.00
Pacific Way Insurance Agency, Inc.	WA	Foremost Affiliated Insurance Services, Inc.		100.00
Prematic Service Corporation	CA	Truck Underwriters Association		53.00
Prematic Service Corporation	CA	Farmers Group, Inc.		38.00
Prematic Service Corporation	CA	Fire Underwriters Association		9.00
Prematic Service Corporation	NV	Prematic Service Corporation (CA)		100.00
Security National Insurance Company	FL	Bristol West Holdings, Inc.		75.00
Security National Insurance Company	FL	Insurance Data Systems, G.P.		25.00
Sunrise Insurance Agency of Arizona, Inc.	AZ	Foremost Affiliated Insurance Services, Inc.		100.00
Sunrise Insurance Agency of Texas, Inc.	TX	Foremost Affiliated Insurance Services, Inc.		100.00
Sunrise Insurance Agency, Inc.	NV	Foremost Affiliated Insurance Services, Inc.		100.00
Texas Farmers Insurance Co.	TX	Farmers Insurance Exchange		86.30
Texas Farmers Insurance Co.	TX	Mid Century Ins. Co.		13.70
Truck Insurance Exchange	CA	Interinsurance Exchange
Truck Underwriters Association	CA	Farmers Group, Inc.		100.00
Veyond Pacific Technology, Inc.	HI	Veyond Pacific Technology Solutions, LLC		100.00
Veyond Pacific Technology Solutions, LLC	HI	Farmers Insurance Hawaii, Inc.		99.92
Veyond Pacific Technology Solutions, LLC	HI	American Pacific Insurance Company, Inc.		0.08

C-13


Company	Domiciled	Ownership	%
Veyond Technology Solutions, LLC	HI	Farmers Insurance Hawaii, Inc.		92.50
Veyond Technology Solutions, LLC	HI	American Pacific Insurance Company, Inc.		7.50
Veyond Technology, Inc.	HI	Veyond Technology Solutions, LLC		100.00
Western Star Underwriters, Inc.	TX	FCOA, Inc.		100.00

Zurich Financial Services conducts its primary insurance operations in the United States through two property/casualty groups, each operating INDEPENDENTLY with its own staff:

Zurich U.S. Insurance Group
Farmers Insurance Group

Item 27. Number of Contract Owners

At March 31, 2011, the Registrant had approximately 28,251 qualified and 17,187 non-qualified Scudder Destinations/ Farmers VA I Contract Owners.

Item 28. Indemnification

To the extent permitted by law of the State of Illinois and subject to all applicable requirements thereof, Article VI of the By-Laws of Zurich American Life Insurance Company (formerly Kemper Investors Life Insurance Company) (“ZALICO”) provides for the indemnification of any person against all expenses (including attorneys fees), judgments, fines, amounts paid in settlement and other costs actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in which he is a party or is threatened to be made a party by reason of his being or having been a director, officer, employee or agent of ZALICO, or serving or having served, at the request of ZALICO, 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 ZALICO, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that he did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of ZALICO, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 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.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, employees or agents of ZALICO pursuant to the foregoing provisions, or otherwise, ZALICO has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by ZALICO of expenses incurred or paid by a director, officer, employee of agent of ZALICO in the successful defense

C-14

of any action, suit or proceeding) is asserted by such director, officer, employee or agent of ZALICO in connection with variable annuity contracts, ZALICO 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 ZALICO is against public policy as expressed in that Act and will be governed by the final adjudication of such issue.

Item 29.(a) Principal Underwriter

Synergy Investment Group, LLC (“Synergy”) acts as principal underwriter for the Scudder Destinations^SM Annuity and the Farmers Variable Annuity I (each a “Contract” and together, the “Contracts”), that are supported by the ZALICO Variable Annuity Separate Account (formerly KILICO Variable Annuity Separate Account). Until April 1, 2010, Investors Brokerage Services, Inc. (“IBS”), acted as principal underwriter for the Contracts. IBS also acted as principal underwriter for certain other annuity contracts supported by the ZALICO Variable Annuity Separate Account, and for the Protective Acquired Variable Annuity Separate Account and ZALICO Variable Annuity Account C (formerly Kemper Investors Life Insurance Company Variable Annuity Account C). On January 18, 2011, IBS dissolved as a business entity and no longer operates as a broker-dealer.

Item 29.(b) Information Regarding Principal Underwriters

For Synergy Investment Group, LLC (Current principal underwriter for the Contracts):


Name and Principal		Position and Offices
Business Address		with Underwriter
_________		_________
Christopher J. Palladino¹		Chief Executive Officer
Tracy VanHanne¹		Chief Financial Officer
Jeffrey D. Jones¹		General Counsel


¹		The principal address is 8320 University Executive Park Drive, Suite 112, Charlotte, NC 28262.

Item 29.(c) Compensation From the Registrant. The following commissions and other compensation were received by the principal underwriter, directly or indirectly, from the Registrant during the Registrant’s last fiscal year.


(1)	(2)
Name of	Net Underwriting	(3)	(4)	(5)
Principal	Discounts and	Compensation on	Brokerage	Other
Underwriter	Commissions	Redemption	Commissions	Compensation


SYNERGY	$0	$0	$1.1 million	$8 million

IBS	$0	$0	$0.5 million	$2.7 million

* During 2010, ZALICO paid trail commissions of approximately $8 million to Synergy and approximately $2.7 million to IBS.

C-15

Item 30. Location of Accounts and Records

Accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder (including Rule 38a-1) are maintained by Zurich American Life Insurance Company (formerly Kemper Investors Life Insurance Company) at its home office at 1400 American Lane, Schaumburg, Illinois 60196, or at 3003 77^th Ave, SE, Mercer Island, Washington 98040, or at 105 E. 17^th Street, New York, NY 10003, or at Harborside Financial Center, 2500 Plaza 5, Suite 2501, Jersey City, NJ 07311, or at IBM Business Transformation Outsourcing Insurance Service Corporation at 2000 Wade Hampton Boulevard, Greenville, South Carolina 29615-1064, or at Protective Life Insurance Company at 1707 North Randall Road, Suite 310, Elgin, IL 60123-9409, or at Se2 Service Center at PO Box 758557, Topeka, KS 66675-8557, or at the home office of Synergy Investment Group, LLC located at 8320 University Executive Park Drive, Suite 112, Charlotte, North Carolina 28262.

Item 31. Management Services

Not Applicable.

Item 32. Undertakings and Representations

a. Registrant hereby undertakes to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen (16) months old for so long as payment under the variable annuity contracts may be accepted.

b. Registrant hereby undertakes to include either (1) as part of any application to purchase a contract offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a postcard or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information.

c. Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statement required to be made available under this Form promptly upon written or oral request.

Representation Regarding Fees and Charges Pursuant to Section 26 of the Investment Company Act of 1940

Zurich American Life Insurance Company (“ZALICO”) (formerly Kemper Investors Life Insurance Company) represents that the fees and charges deducted under the Contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by ZALICO.

Representation Regarding Contracts Issued to Participants in the Texas Optional Retirement Program

ZALICO, depositor and sponsor of Registrant, ZALICO Variable Annuity Separate Account (formerly KILICO Variable Annuity Separate Account), and Investors Brokerage Services, Inc. (“IBS”), the former principal underwriter of the Contracts issued by Registrant, have issued the Contracts to participants in the Texas Optional Retirement Program (the “Program”) in reliance upon, and in compliance with, Rule 6c-7 of the Investment Company Act of 1940, and have represented that they would:

C-16

	1.		Include appropriate disclosure regarding the restrictions on redemptions imposed by the Program in each registration statement, including the prospectus, used in connection with the Program;

	2.		Include appropriate disclosure regarding the restrictions on redemptions imposed by the Program in any sales literature used in connection with the offer of Contracts to Program participants;

	3.		Instruct salespeople who solicit Program participants to purchase Contracts specifically to bring the restrictions on redemption imposed by the Program to the attention of potential Program participants; and

	4.		Obtain from each Program participant who purchases a Contract in connection with the Program, prior to or at the time of such purchase, a signed statement acknowledging the restrictions on redemption imposed by the Program.

Representation Regarding Contracts Issued to Participants of Tax-Sheltered Annuity Programs

ZALICO, depositor and sponsor of Registrant, ZALICO Variable Annuity Separate Account (the “Separate Account”), and Investors Brokerage Services, Inc. (“IBS”), the former principal underwriter of Contracts issued by Registrant, have issued the Contracts to participants in IRC 403(b) Tax-Sheltered Annuity Programs in reliance upon, and in compliance with, the no-action letter dated November 28, 1988 to American Council of Life Insurance. In connection therewith, ZALICO, the Separate Account and IBS have represented that they would:

	1.		Include appropriate disclosure regarding the restrictions on redemptions imposed by IRC Section 403(b)(11) in each registration statement, including the prospectus, used in connection with IRC 403(b) Tax-Sheltered Annuity Programs;

	2.		Include appropriate disclosure regarding the restrictions on redemptions imposed by IRC Section 403(b)(11) in any sales literature used in connection with the offer of Contracts to 403(b) participants;

	3.		Instruct salespeople who solicit participants to purchase Contracts specifically to bring the restrictions on redemption imposed by 403(b)(11) to the attention of potential participants; and

	4.		Obtain from each participant who purchases an IRC Section 403(b) annuity contract, prior to or at the time of such purchase, a signed statement acknowledging the restrictions on redemption imposed by IRC Section 403(b) and the investment alternatives available under the employer’s IRC Section 403(b) arrangement, to which the participant may elect to transfer his or her contract value.

[Space Intentionally Left Blank]

C-17

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant hereby certifies that this Post-Effective Amendment No. 22 to the Registration Statement meets all the requirements for effectiveness under Rule 485(b) and has caused this Post-Effective Amendment No. 22 to the Registration Statement to be signed on its behalf, in the City of New York, and State of New York, on April 29, 2011.


		ZALICO VARIABLE ANNUITY SEPARATE
		ACCOUNT (formerly KILICO VARIABLE
		ANNUITY SEPARATE ACCOUNT)
		(Registrant)

Attest:	/s/ Ali E. Rifai	/s/ Richard Grilli
	Ali E. Rifai, Senior Vice	By: Richard W. Grilli, Senior Vice
	President, General Counsel and Corporate	President and Chief Operating Officer
	Secretary	(Signature)

		ZURICH AMERICAN LIFE INSURANCE
		COMPANY (formerly KEMPER
		INVESTORS LIFE INSURANCE COMPANY)
		(Depositor)

Attest:	/s/ Ali E. Rifai Ali E. Rifai, Senior Vice	/s/ Richard Grilli By: Richard W. Grilli, Senior Vice
	President, General Counsel and Corporate	President and Chief Operating Officer
	Secretary	(Signature)

As required by the Securities Act of 1933, this Post-Effective Amendment No. 22 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


Signature	Title	Date


David Dietz^*/	President and Chief Executive Officer (Principal Executive Officer)	April 29, 2011

/s/ Richard Grilli Richard W. Grilli	Senior Vice President and Chief Operating Officer	April 29, 2011

Simon Lodge^*/	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	April 29, 2011

Richard J. Hauser^*/	Director and Assistant Treasurer	April 29, 2011

C-18

EXHIBIT INDEX

The following exhibits are filed herewith:


				Sequentially
Exhibit				Numbered
Number			Title	Pages
	6.2		Zurich American Life Insurance Company Amended Articles of Incorporation and By-laws.

	8.1	(c)	Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company, Janus Aspen Series, Janus Capital Management LLC, and Janus Distributors LLC.

	8.1	(d)	Form of Amendment No. 8 to Fund Participation Agreement By and Between Zurich American Life Insurance Company, Janus Aspen Series, and Janus Capital Management LLC (formerly Janus Capital Corporation).

	8.3	(g)	Amendment to Participation Agreement Dated as of January 1, 1997, Between DWS Variable Series II, Deutsche Investment Management Americas Inc., DWS Investments Distributors, Inc. (formerly, DWS Scudder Distributors, Inc.), and Zurich American Life Insurance Company, dated April 11, 2011.

	8.3	(h)	Supplement to Participation Agreement Dated January 1, 1997, Among Zurich American Life Insurance Company, DWS Variable Series II, Deutsche Investment Management Americas Inc., and DWS Investments Distributors, Inc., dated April 29, 2011.

	8.4	(g)	Amendment to Participation Agreement Dated as of June 26, 1998, Between Zurich American Life Insurance Company and DWS Variable Series I (formerly, Scudder Variable Life Investment Fund and Scudder Variable Series I), dated April 11, 2011.

	8.5	(c)	Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and Allianz Global Investors Distributors LLC.

	8.5	(d)	Form of Novation of and Amendment to Participation Agreement, By and Among Allianz Global Investors Distributors LLC, PIMCO Investments LLC, PIMCO Variable Insurance Trust, and Zurich American Life Insurance Company.

	8.5	(e)	Form of Amendment to Participation Agreement Dated January 5, 1999, By and Among Zurich American Life Insurance Company, PIMCO Variable Insurance Trust, and Allianz Global Investors Distributors LLC (formerly PIMCO Funds Distributors, LLC).

	8.6	(b)	Shareholder Information Agreement, Franklin Templeton Variable Insurance Products Trust, Dated April 16, 2007, By and Among Kemper Investors Life Insurance Company and Franklin/Templeton Distributors, Inc.

	8.7	(f)	Amendment No. 2 to Fund Participation Agreement Dated April 27, 1999, Between Zurich American Life Insurance Company, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus Investment Portfolios, Dreyfus Variable Investment Fund, and Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund), dated April 8, 2011.

	8.8	(d)	Amendment No. 1 to Participation Agreement Dated May 1, 1999, Between Zurich American Life Insurance Company, The Alger Portfolios

C-20


				Sequentially
Exhibit				Numbered
Number			Title	Pages
			(formerly The Alger American Fund), and Fred Alger & Company Incorporated, dated April 1, 2011.

	8.9	(a)	Fund Participation Agreement, dated April 30, 2004, by and among Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc.

	8.9	(b)	Administrative Services Agreement, dated July 1, 2005, Between Kemper Investors Life Insurance Company and AIM Advisors, Inc.

	8.9	(d)	Amendment No. 1 to the Participation Agreement Dated April 30, 2004, Between Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc., dated May 28, 2008.

	8.9	(e)	Amendment No. 2 to the Participation Agreement Dated April 30, 2004, Between Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc., dated April 30, 2010.

	8.9	(f)	Form of Amendment No. 3 to Participation Agreement Dated April 30, 2004, Between Zurich American Life Insurance Company, AIM Variable Insurance Funds (Invesco Variable Insurance Funds), and Invesco Distributors, Inc.

8.11(d)			Amendment to Fund Participation Agreement Dated as of October 21, 2001, By and Among Kemper Investors Life Insurance Company, Scudder Investments VIT Funds (formerly Deutsche Asset Management VIT Funds), and Deutsche Asset Management, Inc., dated August 1, 2005.

8.11(e)			Amendment to Fund Participation Agreement Dated as of October 22, 2001, Between Zurich American Life Insurance Company, DWS Investments VIT Funds (formerly, Deutsche Asset Management VIT Funds and Scudder Investments VIT Funds), and Deutsche Investment Management Americas Inc. (formerly, Deutsche Asset Management, Inc.), dated April 11, 2011.

	9.		Opinion and Consent of Juanita M. Thomas, Esq.

	10.	(a)	Consent of independent registered public accounting firm.

	10.	(b)	Consent of Sutherland Asbill & Brennan LLP.

	15.	(a)	Powers of Attorney for Simon Lodge and David Dietz.

C-21


	Page

DEFINITIONS		1
SUMMARY		4
SUMMARY OF EXPENSES		7
EXAMPLE		12
REDEMPTION FEES		13
DISTRIBUTION COSTS		13
CONDENSED FINANCIAL INFORMATION		13
ZALICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE FUNDS		13
A. Zurich American Life Insurance Company		13
B. Risks of Managing General Account Assets		14
C. Financial Condition of the Company		14
D. The Guarantee Periods of the MVA Option		15
E. The Separate Account		16
F. The Funds		17
G. Selection of Funds		20
H. Change of Investments		22
FIXED ACCOUNT OPTION		22
THE CONTRACTS		23
A. General Information		23
B. The Accumulation Period		24
1. Application of Purchase Payments		24
2. Accumulation Unit Value		24
3. Guarantee Periods of the MVA Option		25
4. Establishment of Guaranteed Interest Rates		26
5. Contract Value		26
6. Transfers During the Accumulation Period		27
7. Policy and Procedures Regarding Disruptive Trading and Market Timing		29
8. Withdrawals During the Accumulation Period		32
9. Market Value Adjustment		34
10. Guaranteed Death Benefit		35
CONTRACT CHARGES AND EXPENSES		37
A. Charges Against The Separate Account		37
1. Mortality and Expense Risk Charge		37
2. Administration Charge		38
3. Records Maintenance Charge		38
4. Withdrawal Charge		38
5. Optional Guaranteed Retirement Income Benefit (“GRIB”) Rider Charge		39
6. Transfer Charge		40
7. Investment Management Fees and Other Expenses		40
8. State and Local Government Premium Taxes		40
9. Exceptions		40
THE ANNUITY PERIOD		41
A. Annuity Payments		41
B. Annuity Options		42
C. Transfers During the Annuity Period		43
D. Annuity Unit Value Under Variable Annuity		44
E. First Periodic Payment Under Variable Annuity		44


	Page

F. Subsequent Periodic Payments Under Variable Annuity		44
G. Fixed Annuity Payments		45
H. Death Benefit Proceeds		45
I. GRIB Rider		45
FEDERAL TAX CONSIDERATIONS		45
A. Taxation of Non-Qualified Plan Contracts		46
B. Taxation of Qualified Plan Contracts		47
1. Qualified Plan Types		48
2. Withdrawals		50
3. Direct Rollovers		50
C. Tax Status of the Contracts		51
FEDERAL INCOME TAX WITHHOLDING		52
A. Other Tax Issues		52
B. Our Taxes		53
C. Federal Estate Taxes		53
D. Generation-Skipping Transfer Tax		53
E. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010		53
F. Medicare Tax		54
G. Federal Defense of Marriage Act		54
H. Annuity Purchases by Residents of Puerto Rico		54
I. Annuity Purchases by Nonresident Aliens and Foreign Corporations		54
J. Foreign Tax Credits		54
K. Possible Tax Law Changes		54
SENDING FORMS AND WRITTEN REQUESTS IN GOOD ORDER		55
SIGNATURE GUARANTEES		55
DISTRIBUTION OF CONTRACTS		55
VOTING RIGHTS		57
REPORTS TO CONTRACT OWNERS AND INQUIRIES		57
DOLLAR COST AVERAGING		57
SYSTEMATIC WITHDRAWAL PLAN		58
EXPERTS		58
LEGAL PROCEEDINGS		59
FINANCIAL STATEMENTS		59
CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001		59
A. Guaranteed Retirement Income Benefit: General		59
B. Annuity Payments with GRIB		60
C. Commutable Annuitization Option		61
D. Effect of Death of Owner or Annuitant on GRIB		63
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS		64
APPENDIX A ILLUSTRATION OF THE “FLOOR” ON THE DOWNWARD MARKET VALUE ADJUSTMENT (MVA)		A-1
APPENDIX B ZURICH AMERICAN LIFE INSURANCE COMPANY DEFERRED FIXED AND VARIABLE ANNUITY IRA, ROTH IRA AND SIMPLE IRA DISCLOSURE STATEMENT		B-1
APPENDIX C CONDENSED FINANCIAL INFORMATION		C-1


	Page(s)
Report of Independent Auditors		1—2

Statutory Financial Statements

Statements of Admitted Assets, Liabilities and Capital and Surplus		3

Statements of Operations		4

Statements of Changes in Capital and Surplus		5

Statements of Cash Flows		6

Notes to Financial Statements		7—46

Supplemental Schedules

Supplemental Schedule of Assets and Liabilities		48—49

Supplemental Summary Investment Schedule		50

Supplemental Investment Risks Interrogatories		51—53


	2010				2009
	Carrying		Estimated		Carrying		Estimated
(in thousands of dollars)	Value		Fair Value		Value		Fair Value
Financial instruments recorded as assets
Bonds	$	436,763	$	462,645	$	420,860	$	429,234
Contract loans		65,909		65,909		54,404		54,404
Cash, cash equivalents and short-term investments		20,195		20,195		29,157		29,157
Other invested assets		—		—		17		17
Securities lending collateral		—		—		27,696		27,696
Separate account assets		12,590,999		12,590,999		12,703,614		12,703,614


Description	2010			2009			2008
Current income tax expense ( benefit ) — operations	$	(12,477	)	$	(6,684	)	$	(22,614	)
Current income tax expense ( benefit ) — capital gains		(1,227	)		(998	)		(560	)

Federal income taxes incurred	$	(13,704	)	$	(7,682	)	$	(23,174	)

		Rent paid, including allocations of rent from third-party administrators, was approximately $448,000, $546,000 and $542,000 for the years ended December 31, 2010, 2009 and 2008 respectively.

		The three year sublease term for Bellevue, WA, administrative office ended as of August 31, 2010. The new administrative office is located in Jersey City, NJ. The lease agreement for this office commenced on May 1, 2010, for a term of 12 months renewable with 60-day notice from end date. It was renewed for another 12 months period, starting on April 1, 2011, with automatic renewal for successive periods equal to the current term.

14.		Subsequent Events

		As of April 30, 2011, the date the financial statements were available to be issued, there have been no events occurring subsequent to the close of the Company’s books or accounts for the accompanying financial statements that would have a material effect on the financial condition of the Company.


Index	Page(s)

Report of Independent Registered Public Accounting Firm		1

Statement of Assets, Liabilities and Contract Owners’ Equity, December 31, 2010	2-14

Statement of Operations for the year ended December 31, 2010	15-27

Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2010	28-40

Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2009	41-53

Notes to Financial Statements	54-91




Barry S. Paul^*/	Director and Assistant Treasurer	April 29, 2011

Nicolas A. Burnet^*/	Director	April 29, 2011

/s/ Richard Grilli ^*/By: Richard W. Grilli	On April 29, 2011 as Attorney-in-Fact pursuant to powers of attorney filed herewith.